Source: http://www.stewart.com/en/stg/massachusetts/memo-fdic-redemption-rights.html
Timestamp: 2017-05-26 13:07:39
Document Index: 61190896

Matched Legal Cases: ['art 363', '§ 562', 'art 363', 'art 363', 'art 715', 'art 715', 'art 363', '§ 191']

FDIC Redemption Rights
FDIC Statement of Policy on Foreclosure Consent and Redemption Rights (found at: http://www.fdic.gov/regulations/laws/rules/5000-3100.html)
12 U.S.C. 1825(b), the codification of section 15(b) of the Federal Deposit Insurance Act (FDIA), was added by section 219 of FIRREA. Section 1825(b) dealt with the immunity from state taxation enjoyed by the FDIC under section 15 of the FDIA applied when the FDIC acted in its receivership capacity. The section also protected receivership property from both involuntary alienation as well as involuntary liens.
Since the passage of FIRREA, the Corporation has received many requests for consent to foreclosure, waivers of the right to consent, interpretation of the scope of section 1825(b)(2) and its applicability, and specific explication of the Corporation's policy. After analysis, the Corporation has determined that in the interests of promoting efficiency in the Corporation's operations, providing certainty as to title upon foreclosure, and minimizing the impact the statute has on the secondary mortgage market in general, with respect to voluntary liens, the Corporation would, pursuant to its statement of policy, grant the consent required pursuant to section 1825(b) and, as to any property to which section 1825(b)(2) applies, state it will not assert any rights to which it may have been entitled pursuant to 28 U.S.C. 2410(c). The Corporation also has determined that it will continue to require holders of involuntary liens to obtain the Corporation's consent prior to foreclosing pursuant to an involuntary lien, provided the interest of the FDIC in the liened property is of record.
The policy statement further confirms that property of the Corporation encompasses any interest in real and personal property held by the Corporation, including security and equity interests. This is consistent with the Corporation's Policy Statement on the Payment of State and Local Property Taxes, which holds that section 1825(b)(2) covers both the Corporation's fee and lien interests in property. The statement of policy also makes clear that section 1825(b)(2) applies to both tax and non-tax liens.
The policy statement does not authorize, and shall not be construed as authorizing the waiver of the prohibitions in 12 U.S.C. 1825(b)(2) against levy, attachment, garnishment, or sale of property of the Corporation, nor does it authorize or shall it be construed as authorizing the attachment of any involuntary lien upon the property of the Corporation.
Section 4.a.(ii)(A) of the policy statement provides that where the Corporation holds a lien interest as a result of a mortgage, deed of trust or other similar security instrument, consent is granted to the holder of a consensual security interest which is senior to the Corporation's interest. Similarly, consent is also granted where the Corporation holds a title interest.
Section 4.a.(ii)(B) of the policy statement is a specific case of the general policy set forth in section 4.a.(ii)(A). Subsection (B) does not expand the consent granted under subsection (A), but, in light of the large number of mortgages insured or held by the Federal Housing Administration, the Department of Veterans Affairs, the Farmers Home Administration and the Secretary of Housing and Urban Development, the policy specifically refers to these organizations in order to make clear that it applies to interests they hold.
The statement of policy is explicitly limited to the application of 12 U.S.C. 1825(b)(2). The consents granted under the statement of policy do not act to waive or relinquish any rights granted to the Corporation, in any capacity, pursuant to any other applicable law or
{{8-17-92 p.5360}}any agreement or contract. By way of example without limitation, if any local law requires notice to a property owner prior to foreclosure, or if a loan agreement provides notice shall be given, the consent granted under the policy statement will not act to excuse such requirement to give notice.
(i) Generally. The provisions of 12 U.S.C. 1825(b) apply to all property held by the Corporation acting as receiver or in its corporate capacity, including property of the financial institutions for which the Corporation has been appointed receiver. Property of the Corporation encompasses any interest in real and personal property held by the Corporation, including security interests as well as equity interests. Therefore, no property {{8-17-92 p.5361}}of the Corporation shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Corporation.
(iv) Limited Effect. The effect of consents to foreclosure under 12 U.S.C. 1825(b)(2) as described above, shall be limited solely to the application of 12 U.S.C. 1825(b)(2). Such consents shall not act to waive or relinquish the rights granted to the Corporation, in any capacity, pursuant to any other applicable law (including any rights {{8-17-92 p.5362}}under local foreclosure statutes), or with respect to (A) any note, indebtedness, claim or other obligation that has been secured by the property, or (B) the terms of any mortgage, guaranty, security agreement or other document relating to any obligation.
Consents to be granted under this policy are to be provided solely at the discretion of the Corporation. No person shall have any right to bring any action to direct or compel the granting of any consent under this policy, or to pursue any claim or cause of action based on the alleged failure of the Corporation or any person acting on its behalf to take any action whatsoever under this policy. {{8-17-92 p.5363}}
Name of Requesting Party: ____________________________________________ Address of Requesting Party: ____________________________________________ Telephone Number: ____________________________________________
Failed Institution Name: ____________________________________________ Failed Institution Information: (Reference Number) ____________________________________________
Legal Description of Property: ____________________________________________ (Use extra sheet if necessary) Legal Owner of Property: ____________________________________________
Lien Information Lienholder (Foreclosing Party): ____________________________________________ Face Amount Lien/Outstanding Amount
Recording Information (e.g., Folio and Liber or Instrument Number) Failed Institution Lien:
{{8-17-92 p.5364}} Date of Mortgage/Deed of Trust
Date of Sale: ____________________________________________ Place of Sale: ____________________________________________ Manner of Sale: ____________________________________________ Telephone Number of Contact Person: ____________________________________________ Appraised Value of Property: $ ____________________________________________ (If Available) as of ____________________________________________ Date Appraiser: ____________________________________________ Name
Assigned Account Officer: ____________________________________________ Date Response Mailed: ____________________________________________ Disposition: ____________________________________________ Approved
{{2-28-06 p.5364.01}}
By: ____________________________________________ Print Name: _____________________ Title or Capacity: ____________________________________________ [Add Appropriate Notarial Acknowledgement] By order of the Board of Directors, June 16, 1992.
[Source: 57 Fed. Reg. 29491, July 2, 1992] {{2-28-06 p.5365}}
This Advisory, issued jointly by the Office of Thrift Supervision (OTS), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) (collectively, the "Agencies"), alerts financial institutions, [1] boards of directors, audit committees, management, and external auditors to the safety and soundness implications of provisions that limit external auditors' liability in audit engagements.
A properly conducted audit provides an independent and objective view of the reliability of a financial institution's financial statements. The external auditor's objective in an audit is to form an opinion on the financial statements taken as a whole. When planning and performing the audit, the external auditor considers the financial institution's internal control over financial reporting. Generally, the external auditor communicates any identified deficiencies in internal control to management, which enables management to take appropriate corrective action. In addition, certain financial institutions are required to file audited financial statements and internal control audit/attestation reports with one or more {{2-28-06 p.5365.01}}of the Agencies. The Agencies encourage financial institutions not subject to mandatory audit requirements to voluntarily obtain audits of their financial statements. The Federal Financial Institutions Examination Council's (FFIEC) Interagency Policy Statement on External Auditing Programs of Banks and Savings Associations [2] notes, "[a]n institution's internal and external audit programs are critical to its safety and soundness." The Policy also states that an effective external auditing program "can improve the safety and soundness of an institution substantially and lessen the risk the institution poses to the insurance funds administered by the Federal Deposit Insurance Corporation (FDIC).
Typically, a written engagement letter is used to establish an understanding between the external auditor and the financial institution regarding the services to be performed in connection with the financial institution's audit. The engagement letter commonly describes the objective of the audit, the reports to be prepared, the responsibilities of management and the external auditor, and other significant arrangements (e.g., fees and billing). The Agencies encourage boards of directors, audit committees, and management to closely review all of the provisions in the audit engagement letter before agreeing to sign. As with all agreements that affect a financial institution's legal rights, legal counsel should carefully review audit engagement letters to help ensure that those charged with engaging the external auditor make a fully informed decision. While the Agencies have not observed provisions that limit an external auditor's liability in the majority of external audit engagement letters reviewed, they have observed a significant increase in the types and frequency of these provisions. These provisions take many forms, making it impractical to provide an all-inclusive list. This Advisory describes the types of objectionable limitation of liability provisions and provides examples. [3]
Financial institutions' boards of directors, audit committees, and management should also be aware that certain insurance policies (such as error and omission policies and director and officer liability policies) might not cover losses arising from claims that are precluded by limitation of liability provisions. Limitation of Liability Provisions
Many financial institutions are required to have their financial statements audited while others voluntarily choose to undergo such audits. For example, banks, savings associations, and credit unions with $500 million or more in total assets are required to have annual {{2-28-06 p.5365.02}}independent audits. [4] Certain savings associations (for example, those with a CAMELS rating of 3, 4, or 5) and savings and loan holding companies are also required by OTS regulations to have annual independent audits. [5] Furthermore, financial institutions that are public companies [6] must have annual independent audits. The Agencies rely on the results of Audits as part of their assessment of the safety and soundness of a financial institution.
By their very nature, limitation of liability provisions can remove or greatly weaken external auditors' objective and unbiased consideration of problems encountered in audit engagements and may diminish auditors' adherence to the standards of objectivity and impartiality required in the performance of Audits. The existence of such provisions in external audit engagement letters may lead to the use of less extensive or less thorough procedures than would otherwise be followed, thereby reducing the reliability of Audits. Accordingly, financial institutions should not enter into external audit arrangements that include unsafe and unsound limitation of liability provisions identified in this Advisory, regardless of (1) The size of the financial institution, (2) whether the financial institution is public or not, or (3) whether the external audit is required or voluntary. Auditor Independence
In contrast, for financial institutions subject to the audit requirements either in Part 363 of the FDIC's regulations or in § 562.4 of the OTS's regulations, the external auditor should be in compliance with the AICPA's Code of Professional Conduct and meet the independence requirements and interpretations of the SEC and its staff. [7] In this regard, in a December 13, 2004, Frequently Asked Question (FAQ) on the application of the SEC's auditor independence rules, the SEC staff reiterated its long-standing position that when an accountant and his or her client enter into an agreement which seeks to provide the accountant immunity from liability for his or her own negligent acts, the accountant is not independent. The FAQ also states that including in engagement letters a clause that would release, indemnify, or hold the auditor harmless from any liability and costs resulting from knowing misrepresentations by management would impair the auditor's independence. [8] The {{2-28-06 p.5365.03}}SEC's FAQ is consistent with Section 602.02.f.i. (Indemnification by Client) of the SEC's Codification of Financial Reporting Policies. (Section 602.02.f.i. and the FAQ are included in Appendix B.)
This Advisory applies to engagement letters executed on or after February 9, 2006. The inclusion of limitation of liability provisions in external Audit engagement letters and other agreements that are inconsistent with this Advisory will generally be considered an unsafe and unsound practice. The Agencies' examiners will consider the policies, processes, and personnel surrounding a financial institution's external auditing program in determining whether (1) the engagement letter covering external auditing activities raises any safety and soundness concerns, and (2) the external auditor maintains appropriate independence regarding relationships with the financial institution under relevant professional standards. The Agencies may take appropriate supervisory action if unsafe and unsound limitation of liability provisions are included in external Audit engagement letters or other agreements {{2-28-06 p.5365.04}}related to Audits that are executed (accepted or agreed to by the financial institution) on or after February 9, 2006. Appendix A
Presented below are some of the types of limitation of liability provisions (with an illustrative example of each type) that the Agencies observed in financial insitutions' external audit engagement letters. The inclusion in external Audit engagement letters or agreements related to Audits of any of the illustrative provisions (which do not represent an all-inclusive list) or any other language that would produce similar effects is considered an unsafe and unsound practice. 1. "Release From Liability for Auditor Negligence" Provision
Example: In no event shall [the audit firm] be liable to the Financial Institution, whether a claim in tort, contract or otherwise, for any consequential, indirect, lost profit, or similar damages relating to [the audit firm's] services provided under this engagement letter, except to the extent finally determined to have resulted from the willful misconduct or fraudulent behavior of [the audit firm] relating to such services. 2. "No Damages" Provision
Example: In no event will [the audit firm's] liability under the terms of this Agreement include responsibility for any claimed incidental or consequential damages. 3. "Limitation of Period To File Claim" Provision
Example: In the event the Financial Institution is dissatisfied with [the audit firm's] services, it is understood that [the audit firm's] liability, if any, arising from this engagement will be limited to any losses occurring during the periods covered by [the audit {{2-28-06 p.5365.05}}firm's] audit, and shall not include any losses occurring in later periods for which [the audit firm] is not engaged as auditors. 5. "No Assignment or Transfer" Provision
Example: The Financial Institution agrees that it will not, directly or indirectly, agree to assign or transfer ay claim against [the audit firm] arising out of this engagement to anyone. 6. "Knowing Misrepresentations by Management" Provision
Example: Because of the importance of oral and written management representations to an effective audit, the Financial Institution releases and indemnifies [the audit firm] and its personnel from any and all claims, liabilities, costs, and expenses attributable to any knowing misrepresentation by management. 7. "Indemnification for Management Negligence" Provision
Example: The Financial Institution shall indemnify, hold harmless and defend [the audit firm] and its authorized agents, partners and employees from and against any and all claims, damages, demands, actions, costs and charges arising out of, or by reason of, the Financial Institution's negligent acts or failure to act hereunder. 8. "Damages Not to Exceed Fees Paid" Provision
Note: The Agencies also observed a similar provision that limited damages to a predetermined amount not related to fees paid. {{2-28-06 p.5365.06}} Appendix B
Section 602.02.f.i—Indemnification by Client, 3 Fed. Sec. L. (CCH) ¶ 38,335, at 38,603--17 (2003)
When an accountant and his client, directly or through an affiliate, have entered into an agreement of indemnity which seeks to assure to the accountant immunity from liability for his own negligent acts, whether of omission or commission, one of the major stimuli to objective and unbiased consideration of the problems encountered in a particular engagement is removed or greatly weakened. Such condition must frequently induce a departure from the standards of objectivity and impartiality which the concept of independence implies. In such difficult matters, for example, as the determination of the scope of audit necessary, existence of such an agreement may easily lead to the use of less extensive or thorough procedures than would otherwise be followed. In other cases it may result in a failure to appraise with professional acumen the information disclosed by the examination. Consequently, the accountant cannot be recognized as independent for the purpose of certifying the financial statements of the corporation. (Emphasis added.) U.S. Securities and Exchange Commission; Office of the Chief Accountant: Application of the Commission's Rules on Auditor Independence Frequently Asked Questions; Other Matters—Question 4 (issued December 13, 2004)
Q: Has there been any change in the Commission's long standing view (Financial Reporting Policies—Section 600--602.02.f.i. "Indemnification by Client") that when an accountant enters into an indemnity agreement with the registrant, his or her independence would come into question?
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1 As used in this document, the term financial institutions includes banks, bank holding companies, savings associations, savings and loan holding companies, and credit unions. [Back to Text] 2 Published in the Federal Register on September 28, 1999 (64 FR 52319). The NCUA, a member of the FFIEC, has not adopted the policy statement. [Back to Text] 3 Examples of auditor limitation of liability provisions are illustrated in Appendix A. [Back to Text] 4 For banks and savings associations, see Section 36 of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831m) and Part 363 of the FDIC's regulations (12 CFR Part 363). For credit unions, see Section 202(a)(6) of the Federal Credit Union Act (12 U.S.C. 1782(a)(6)) and Part 715 of the NCUA's regulations (12 CFR Part 715). [Back to Text]
5 See OTS regulation at 12 CFR 562.4. [Back to Text]
6 Public companies are companies subject to the reporting requirements of the Securities Exchange Act of 1934. [Back to Text] 7 See FDIC Regulation 12 CFR Part 363, Appendix A—Guidelines and Interpretations, Guideline 14, Role of the Independent Public Accountant—Independence; and OTS Regulation 12 CFR 562.4(d)(3)(i), Qualifications for independent public accountants.[Back to Text]
8 In contrast to the SEC's position, AICPA Ethics Ruling 94 (ET § 191.188--189) currently concludes that indemnification for "knowing misrepresentations by management" does not impair independence. On September 15, 2005, the AICPA published for comment its proposed interpretation of its auditor independence standards. In that proposal the AICPA specifically identified limitation of liability provisions that impair auditor independence under the AICPA's standards. Most of the provisions cited in this Advisory were deemed to impair independence in the AICPA's proposed interpretation. At this writing, the AICPA has not issued a final interpretation.[Back to Text] Home