Compliance Blog

Many credit unions have recently become new owners of residetial properties as a result of foreclosures.  Many credit unions are going through this process for the first time. 

The FDIC recently released a financial institution letter that gives guidance to banks in this situation.  You can access it here.  In their words, the guidance:

• Emphasizes the need to properly maintain such properties, refered to as ORE (other real estate)
• Reinforces the importance of and details the expenses associated with maintaining and protecting ORE from further deterioration.
• Addresses the need to comply with requirements for obtaining initial and updated values for ORE.
• Summarizes the accounting and reporting standards for ORE in each phase of ownership: acquisition, holding period, and disposition.

The letter, and its attachment, provide good guidance in what must be a tough time for many financial institutions.  Such as...

• Maintenance. ORE should be maintained in a manner that complies with local property and fire codes. Other requirements, such as homeowner association covenants, may also require careful attention. Efforts to ensure an ORE property is maintained in a marketable condition not only improve an institution's ability to obtain the best price for the property, but also minimize liability and reputation risk.
• Real Estate Taxes. Taxes on ORE should be paid in a timely manner to avoid unnecessary penalties and interest.
• Insurance. A review of an institution's umbrella insurance policies should be performed to determine if adequate hazard and liability coverage for ORE exists. If not, management should consider obtaining policies on each parcel of ORE. If an institution decides to self-insure, this decision should be documented in the ORE file.
• Other Expenses. Management should implement reasonable procedures for managing any other miscellaneous expenses the institution may incur during the ORE holding period. These expenses could include, but are not limited to, sewer and water fees, utility charges, property management fees, and interest on prior liens.

If your credit union offers real estate lending, this is a good read.