Banking & Finance Law Report

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Website Accessibility Regulations Delayed Until 2018 but Banks Should Not Table the Issue

Long awaited Guidelines from the federal Department of Justice (DOJ) for website accessibility under the Americans with Disabilities Act (ADA) are now expected sometime in 2018. But, as discussed below, that does not mean that financial institutions transacting business with the public through websites and mobile applications should ignore web-based accessibility entirely until 2018. Law firms and the DOJ are attempting to enforce the ADA on website owners in the absence of mandatory regulatory guidelines.

The ADA and public accommodation

By way of background, the ADA requires that “places of public accommodation” be accessible to the disabled. Most financial institutions operating some form of physical facility open to the public understand their obligations to make those physical facilities accessible. Public accommodations are generally businesses that are open to the public and fall into one of 12 categories listed in the ADA, including “service establishments” which includes banking and financial institutions. Disabled persons can sue under the ADA alleging that they were denied full and equal access to the goods and services at a “place of public accommodation.” The DOJ also can bring suit for alleged ADA violations. There is a set of very specific and largely objective criteria for accessibility …

Ohio Revised Code §1301.401 – A Powerful Tool for Lenders with a Defective Mortgage

For years, it was generally accepted that mortgage creditors and bankruptcy trustees could assert the status of a bona fide purchaser and treat a defectively notarized mortgage as if that mortgage did not exist.  On February 16, 2016, our Supreme Court provided clarity regarding the legal effects of R.C. §1301.401 and provided protection to lenders regardless of whether their mortgages were defective.

In Re Messer, 2016-Ohio-510 was a referral to the Ohio Supreme Court from the Bankruptcy Court for the Southern District of Ohio.  Mr. and Mrs. Messer (the “Messers”) owned real property in Ohio.  In order to finance the purchase of the property, the Messers executed and delivered a mortgage to Mortgage Electronic Registration Systems (“MERS”) as nominee for M/I Financial Corp.  The mortgage was later assigned to JP Morgan Chase Bank, N.A. (“Chase”).  Although the mortgage was correctly signed by the Messers, the notary failed to certify the mortgage acknowledgment, although the notary did notarize other documents at the time of the closing.  The Franklin County Recorder accepted and recorded the mortgage on December 4, 2007.

On September 19, 2013, about six years after the defective mortgage was recorded, the Messers filed a Chapter 13 bankruptcy petition. The …

Proposed Limitations On The Use Of Cognovit Notes

The Ohio General Assembly is currently considering a bill that would greatly restrict creditors’ ability to ask debtors to sign cognovit notes. A cognovit note allows a creditor, upon a debtor’s default, to enter judgment against the debtor without the usual notice or hearing.

Current Ohio law, specifically Ohio Revised Code Section 2323.13, generally enforces cognovit notes, but Ohio courts will not enter judgment on a cognovit note unless the note contains specific disclaimer language clearly and conspicuously visible, warning the debtor that signing the cognovit note surrenders the debtor’s rights to notice and a court trial upon default.1  Additionally, cognovit notes are banned entirely in consumer transactions.2

Sixth Circuit Re-Affirms There Is No Constitutional Right to Financial Privacy

In a decision issued May 21, 2015, the Sixth Circuit stayed its course in refusing to extend constitutional protection to encompass a right of privacy in financial records and, in doing so, retained its position as the most conservative of the federal circuits to have addressed this issue.

The case, Moore v. WesBanco Bank, Inc., Case No. 13-4477, 2015 U.S. App. LEXIS 8589, arose from allegations that a bank and an assistant county prosecutor violated plaintiff Moore’s Fourteenth Amendment right to substantive due process when the bank provided copies of two canceled checks drawn on his account to the prosecutor without insisting upon a subpoena or seeking his consent.  Both defendants denied that the bank provided Moore’s checks to the prosecutor.  The district court found no need to resolve the factual dispute because it concluded Moore had no constitutional claim based on prior Sixth Circuit precedent.  On appeal, the Sixth Circuit agreed and declined to revisit the issue of whether it should extend the right to informational privacy to financial records.…

“The Bandits’ Club” gets its due

Our colleagues at Antitrust Law Source posted an interesting update about probable charges alleging that traders at approximately a dozen global banks – including Deutsche Bank, JPMorgan Chase, Barclays, and USB – fixed the foreign exchange market, or “forex,” market. The U.S. Department of Justice may bring charges by the end of the year. Read the complete article on Antitrust Law Source.…

Ohio Supreme Court Resolves Certified Conflict Regarding Oral Forbearance Agreements

Last Spring, we discussed on this blog a trifecta of noteworthy lending cases pending before the Ohio Supreme Court. Today, the Court resolved one of them, and in doing so also resolved a certified conflict among Ohio’s appellate districts regarding whether Ohio’s Statute of Frauds bars a party from relying on an oral forbearance agreement to defeat a judgment that was entered pursuant to a written contract. The court’s unanimous opinion in FirstMerit Bank, N.A. v. Inks, Slip Opinion No. 2014-Ohio-789, is available here.

Daniel Inks, Deborah Inks, David Slyman, and Jacqueline Slyman guaranteed that Ashland Lakes, LLC would repay a $3.5 million loan from FirstMerit Bank. When the LLC defaulted, FirstMerit sued the guarantors, and the trial court awarded judgment to FirstMerit based on confessions of judgment entered by the defendants under warrants of attorney. The Slymans and Inkses then appealed to Ohio’s Ninth District Court of Appeals on the basis that the confessing lawyer did not produce the original warrants of attorney. After filing that (ultimately unsuccessful) appeal, the Slymans and Inkses also moved the trial court for relief from judgment, arguing that FirstMerit was not entitled to recover because it had entered into an oral forbearance …

Agreeing to Renegotiate a Loan Does Not Waive Lender’s Right to Foreclose

In its Oct. 30, 2013 decision in General Electric Capital Corporation v. Tartan Fields Gold Club, Ltd., et al., 2013-Ohio-4875, the Fifth District Court of Appeals made clear that a lender does not waive its right to enforce its rights upon the borrower’s default merely entering into negotiations to restructure a loan; the court further held that the lender’s enforcement of its default rights during negotiations is not an act of bad faith. The court also relied on longstanding Ohio precedent that without more, a lender does not have a fiduciary relationship with a borrower.

In 2007, Tartan Fields Golf Club, Ltd. borrowed $13.3 million from GECC and secured the loan with a mortgage on its Delaware County golf course development. When Tartan Fields approached GECC in early 2009 about renegotiating the loan, GECC required that Tartan Fields sign a “Pre-Negotiation Agreement” that provided, among other things, that Tartan acknowledged that GECC had no fiduciary, confidential or special relationship with GECC; the Pre-Negotiation Agreement also gave both parties the unilateral right to terminate negotiations with three business days’ notice to the other party in their sole discretion and contained an integration clause.…

10th District Court of Appeals Upholds Subordination and Flow Down Provisions in Commercial Construction Documents

On March 29, 2013, the Court of Appeals for the 10th Appellate District in Columbus issued a decision of significance for mortgage lenders that rely on contractual subordination and flow down provisions in construction contracts. 

In KeyBank Natl. Assn. v. Southwest Greens of Ohio, L.L.C., 10th Dist. No. 11AP-920, 2013-Ohio-1243, the 10th District Court of Appeals upheld the September 14, 2011 decision by Judge John Bessey of the Franklin County, Ohio Common Pleas Court that the plaintiff lenders (the "Lenders") had priority over the subcontractors/ mechanic’s lien claimants even though the lenders recorded their mortgage subsequent to the notice of commencement’s recording.  The decision is significant because during this period fraught with contested foreclosures and inter-creditor disputes over priorities in real estate, the 10th District has affirmed Ohio’s broad construction and consistent enforcement of flow down provisions in construction documents.

In the spring of 2008, defendant Columbus Campus, LLC ("Campus") contracted with a general contractor to construct a continuing care retirement community on 88 acres in Hilliard, Ohio.  On March 10, 2008, Campus filed a notice of commencement; on April 16, 2008, the Lenders executed a $90 million construction loan agreement with Campus secured by …

Signs of Trouble Before Payment Default

This article is Part Two in a seven-part series on how to structure sales and what to do when your customer fails to pay. You can find Part One of this series here: Structuring Sales to Ensure Payment. Please subscribe to this blog by entering your email in the box on the left, or check back weekly for additional articles in the series. 

With the recent economic slowdown in many sectors and the parade of corrupt corporate executives on the evening news, corporate managers are more sensitive than ever to signs of troubled business practices and how those practices affect outstanding receivables.  Many distressed businesses display early warning signs of impending trouble, including some or all of the following:

  • Lack of a sound business plan- The company may not have a plan or may have expanded past the vision of it original business plan.
  • Ineffective management style- The management of a small company that has experienced rapid growth may not be able to delegate authority effectively. 
  • Poor lender/vendor relationships- The company may not respond quickly or fully to its vendor’s request for financial information or may actively hide information from its vendors.
  • Change in market conditions- The market for the company’s product may
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