The COVID-19 pandemic has caused an unprecedented change to what “business as usual” looks like across America. The banking industry is certainly no exception, and many common questions have arisen regarding what the coming months will look like in the industry. On March 27, 2020, Gislason & Hunter held a free webinar to offer insight on some of these questions. This article summarizes the questions asked and answers given in that webinar.
Question 1: What is the current state of the judicial system?
Answer: As of the date this article is written, Minnesota courts are still open and accepting filings, but you should expect delays in getting motions heard and obtaining orders and judgments. The courts have prioritized cases on the bases of “Super High,” “High,” “Medium,” and “Low.” No civil cases have “Super High” priority status. “High” priority cases include matters involving public safety, temporary restraining orders, and statutory deadlines, such as avoidance of farmer-lender mediation. “Medium” priority status is assigned to court trials, and “Low” priority status is assigned to various other matters, including foreclosures. Bankruptcy courts are open and address different matters on a case-by-case basis.
Question 2: Are farmer-lender mediations still being held?
Answer: Yes, with mediation sessions being conducted by telephone. However, some have expressed additional concerns over the effectiveness of telephonic sessions where creditors and debtors are not all physically located in the same room.
Question 3: Are electronic signatures and electronic loan documents enforceable?
Answer: Generally, yes. Like most states, Minnesota has enacted the Uniform Electronic Transactions Act (the “UETA”), which provides that electronic copies of documents, and electronic signatures, are enforceable so long as certain basic requirements are met. There are some important exceptions, however, including real estate documents, promissory notes (if they are to be transferred), and documents that need to be notarized. Minnesota law does allow for remote, electronic notarizations, but in order for a notary public to conduct such notarizations, the notary public must have a special appointment to do so and adhere to specific requirements. Documents that are properly signed electronically and saved in an electronic medium will also generally be admissible in a court proceeding.
Question 4: How should financial institutions document loan modifications, deferrals of payments, etc.?
Answer: Documentation requirements for these situations have not changed. A loan modification or deferral should be documented with a new note or a modification/extension agreement, and such documentation should be signed by all borrowers and guarantors. A new note should refer to the prior note and state that it is a renewal, and not in repayment of, the old note. A modification/extension agreement should state the terms the parties are changing and should reiterate that all other original terms remain effective. Security agreements and mortgages should also be reviewed to determine if they are affected by an extension or modification and if they need to be modified as well.
Question 5: Have the FDIC, the OCC, or other agencies given any guidance or directives as to what banks can and cannot do in dealing with customers and loans to borrowers?
Answer: Yes. On March 19, 2020, the Federal Reserve, FDIC, and OCC issued a “Joint Statement on CRA Consideration for Activities in Response to COVID-19,” which encourages fee waivers, payment deferral, and the like to affected individuals, small businesses, and small farms by indicating that such accommodations may be favorably considered for CRA credit. The FDIC has also released its “Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19),” which provides detailed guidance regarding working with borrowers affected by COVID-19, including guidance as to reporting and accounting. Finally, on March 22, 2020, the Federal Reserve, FDIC, NCUA, OCC, CFPB, and Conference of State Bank Supervisors issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus,” which provides further broad and detailed guidance regarding accounting and reporting for loan modifications
Question 6: How are existing SBA-guaranteed loans affected, has SBA said how financial institutions should handle SBA loans, and are there new SBA-related loan facilities available?
Answer: On March 10, 2020, the SBA issued an Information Notice to remind 7(a) Lenders, 504 program Certified Development Companies (CDCs), and Microloan Intermediaries of their unilateral authority to provide temporary relief in the form of deferred payments to existing borrowers under certain circumstances. Also, on March 20, 2020, Minnesota was designated as an Economic Injury Disaster Loan area, so such loans are available in Minnesota in connection with the COVID-19 pandemic. These loans can be up to $2 million at a 3.75% interest rate, can be used to pay fixed debts, payroll, accounts payable, and other bills, can have long-term repayment terms, and are applied for directly through the SBA.
Question 7: Can a financial institution stop advancing money on a line of credit?
Answer: It depends on what the governing loan documents provide with regard to conditions of advances and events of default. Some typical terms in loan documents allow a lender to refuse an advance in situations where the lender in good faith believes it is insecure, there is a material adverse change in the borrower’s financial condition, the borrower ceases doing business, or the lender believes the prospect of payment or performance of the loan is impaired.
Question 8: Are there any moratoriums on collecting loans?
Answer: Governor Walz has issued various executive orders regarding evictions and collections in response to COVID-19. In Minnesota, there can be no evictions from residential premises, landlords cannot terminate residential leases (except where a tenant is seriously endangering the safety of others), and officers cannot execute writs of recovery of residential premises. There are no moratoriums on foreclosures, although financial institutions are “requested” (but not required) to implement a moratorium where a foreclosure results from a substantial decrease in income or increase in medical expenses caused by COVID-19. Financial institutions are also “strongly urged” (but not required) not to impose late fees or other penalties.
Question 9: What is the status of Minnesota’s sheriff’s offices with regard to foreclosure sales?
Answer: For the most part, sheriff’s offices are conducting foreclosure sales, but sales may be delayed or difficult to schedule on a short-term basis. Regardless of sale logistics, statutory pre-sale service and publication requirements can still be completed to work towards a foreclosure sale. After completing those requirements, the foreclosing creditor can always postpone a scheduled sale if there are logistical issues with the sale as scheduled without having to replicate various pre-sale requirements.
New information on the COVID-19 pandemic continues to come out and evolve on a regular basis, and Gislason & Hunter continues to monitor and respond to changes in the legal landscape caused by the pandemic. If you have further questions on how current events affect your banking operations, please feel free to reach out to us, and stay tuned for follow-up webinars and publications addressing this evolving situation.
This information is general in nature and should not be construed as tax or legal advice.