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Home Foreclosures: 5.3.3 Renewing and Tolling the Statute of Limitations

Lenders may attempt to avoid statute of limitation problems by arguing that a limitation period that otherwise expired was renewed. Courts employ a variety of terms to characterize this type of legal claim. According to some courts, a lender may “waive,” rescind,” or “abandon” a prior acceleration. In more recen.t terminology, certain actions may “de-accelerate” or “decelerate” a loan that was previously accelerated.98 It is questionable whether a mortgage lender can unilaterally revoke acceleration at all.

Home Foreclosures: 5.5.1 Overview

Before a legally valid foreclosure sale can take place, there must be a valid mortgage between the parties, a default by the borrower, proper foreclosure procedure, and no cure (if permitted) or redemption by the borrower.176 This section and Chapter 9, infra, will outline various legal challenges which the homeowner may mount to the foreclosure—including challenging t

Collection Actions: 10.2.13.3 Department of Health and Human Services

The debt collection regulations of the Department of Health and Human Services (HHS) are similar to the joint regulations.294 They authorize administrative offset, credit bureau reports, installment payment agreements, tax intercepts, administrative wage garnishment, transfer to the Treasury Department for centralized collection, offset against federal employees’ salaries, compromise of debts, suspension and termination of collection activities, and referral to collection agencies.

Collection Actions: 10.2.13.5 Department of Veterans Affairs

The debt collection regulations of the Department of Veterans Affairs (VA)307 permit disclosure to a credit reporting agency that an individual owes an obligation to the United States.308 The VA regulations regarding administrative offset set forth additional standards for collection efforts.309 They explicitly state, however, that the Department’s failure to comply with the standards shall not be available as a defense to any debtor.

Collection Actions: 10.2.13.6 Department of Agriculture

The collection of loans owed to the Department of Agriculture is governed by rules reflecting the provisions of the Claims Collection Act.324 In early 2008, the Department overhauled these rules.325 The agency must give the debtor written notice thirty days before exercising administrative offset, explaining the proposed action and the method of obtaining review.326 The debtor may request, in writing, a review of the agency’s determination that the

Consumer Banking and Payments Law: 3.7.3 Wrongful Dishonor

A drawee bank has no acceptor’s liability on a check unless it has accepted the check by signing it.398 But the drawee bank does have an obligation to the drawer to pay any check that is properly payable.399 If the drawee bank refuses to pay a check that is properly payable and covered by funds in the customer’s account, the check is wrongfully dishonored.400

Consumer Banking and Payments Law: 3.7.4 Access to Cancelled Checks

A depositor who has drafted a check may need a copy of the paper check, such as for proof of payment, tax purposes, or litigation, or to verify whether a check was altered or the drawer’s signature was forged.427 This section covers the rules regarding access to paper checks, copies of paper checks and substitute checks under Check 21.428

Consumer Banking and Payments Law: 3.8.1 Introduction

The drawee bank can take on the obligation of the acceptor by signing the check. The more common way for a drawee to become obligated to pay a check is to make final payment on the check. This usually occurs by the drawee holding onto the check beyond the time for dishonoring (bouncing) the check.445 This section discusses the forward check collection process, including how and when the drawee bank is deemed to have made final payment on the check.

Consumer Banking and Payments Law: 3.8.2.1 Automated Check Collection

Check processing in this country is highly automated, and most checks are never examined by a human being. Rather, they are processed by machines that can read the MICR code at the bottom of the check. Only some checks are pulled for human inspection. These might include checks for which there are insufficient funds or checks that are somehow physically damaged. Most banks will also pull a sampling of random checks and large checks over an amount that varies from day to day.

Consumer Banking and Payments Law: 3.8.3.1 Issuance of Checks

The first movement forward of a check is its issuance.455 A check may also legitimately make its way into circulation if it is signed by the drawer, even if it is never issued.456 In either case, this first movement of the check starts the ball rolling on the forward check collection process.

Consumer Banking and Payments Law: 3.8.3.2 Transfer

Every movement of the check, except for its issuance (from drawer to payee) and its presentment (from the last party with the check, before the drawee bank, to the drawee bank) is a transfer.457 Checks travel many different paths in the banking system before being presented to the drawee bank for payment.

Consumer Banking and Payments Law: 3.8.3.3 Presentment

Eventually, the check will be “presented” to the drawee bank for payment or dishonor. This is a demand on the drawee to pay or dishonor the check by someone who is or on behalf of someone who is a person entitled to enforce the check.460 Presentment of a check can be made any time since it is a demand instrument, but delayed presentment of a check does have consequences.

Consumer Banking and Payments Law: 3.8.4.1 Timing and Method of Final Payment: The Midnight Deadline

Once the check is presented to the drawee bank (called the payor bank under Article 4),465 the drawee bank has to decide whether to pay or dishonor (bounce) the check. The drawee bank will have a limited time in which to make this decision. After this limited time, the drawee bank will be deemed to have made “final payment” on the check, which cannot be undone except in the rarest of circumstance.466 Once final payment has occurred, the drawee bank becomes liable on the check.

Consumer Banking and Payments Law: 3.8.4.2 The Effect of Final Payment

After final payment, it is too late to stop payment on a check.476 Funds represented by the check that was finally paid are not available for garnishment or setoff.477 A drawer’s obligation and underlying obligation are discharged at final payment.478 This is when the money comes out of the drawer’s account with the drawee bank.

Consumer Banking and Payments Law: 3.8.4.4 When Must Drawee Bank Determine If the Account Contains Sufficient Funds

A drawee bank is only required to consider an item for payment once between the time it is presented and the time for return of the item is reached.484 If the account does not have enough money to cover the check at the time the bank checks the balance, the bank can bounce the check, even if the account would have had enough money to pay the check a few hours later.485 However, if the drawee bank takes a later look at the balance to determine if there is enough money to cover the check, the bala

Consumer Banking and Payments Law: 3.8.4.6 An Example of Check Return After the Check Is Dishonored

Consider a check that is drawn by Joe from his account at Circle National Bank, made payable to Jane. Jane specially indorses the check to “ABC check cashing company.” ABC cashes the check for Jane and then deposits the check in its bank, Orange National Bank. Orange National then presents the check for payment to Circle National, which bounces the check. This would be diagrammed like this:

Consumer Banking and Payments Law: 3.8.5 Re-Presentment of Bounced Checks and Collection of Bounced Check Fees

Sometimes after a check is dishonored, a party to whom it is returned will present the check again for payment rather than treating the check as dishonored and exercising rights on a dishonored check. This is most likely to occur when a depository bank gets a check returned as unpaid, and then gets permission or instruction from its depositor to re-present the check in hopes that the check will be paid.