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Mortgage Lending: 14.2.4 When a Credit Union Fails

Credit union share accounts (akin to deposit accounts at banks) insured under the Federal Credit Union Act are subject to the supervision of the National Credit Union Administration (NCUA) Board.27 This insurance is similar to the deposit insurance provided by the Federal Deposit Insurance Corporation to depositors at banks.

Mortgage Lending: 14.3.2.1 Introduction

The administrative claims process is mandated by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), an extremely complex and difficult statute.34 Pursuant to this statute, all parties asserting claims against failed institutions must participate in a mandatory administrative claims review process.35 The claims process is governed by 12 U.S.C.

Mortgage Lending: 14.3.2.3 Deadline for Filing a Claim

If a timely claim is filed, the FDIC has 180 days to determine whether to allow or disallow it.44 This period may be extended by written agreement.45 There is an expedited claims process if the claimant alleges a threat of irreparable injury.46 The mechanics of filing a claim are discussed in more detail in

Mortgage Lending: 14.3.8.2 Determining Whether Loans Were Bank Assets at Time of Failure

Whether the bank owned or had a right to enforce a particular loan at the time of its failure, and whether it was transferred to a successor bank through the FDIC, can be surprisingly difficult to determine. This question typically arises in the context of challenges to the right of an assignee bank to foreclose on the note, but the analysis is also relevant to the question of whether a claim is subject to the exhaustion requirement.

Mortgage Lending: 14.3.8.1 Does the Exhaustion Requirement Apply to Loans the Bank Sold Before It Failed?

There are strong arguments that the administrative process does not apply to claims involving assets that were not owned by the bank at the time it failed, such as obligations that were transferred before the bank failed.239 If the failed bank did not “own” the particular asset in question at the time it failed, the exhaustion requirement set forth in section 1821(d)(13)(D)(i) does not apply, because the claim does not seek payment from, or a determination of rights with respect to, the assets of the failed bank.

Mortgage Lending: 14.3.11 Due Process Issues

Courts have struggled with due process problems that arise when the right to sue is denied in certain circumstances. One example is a claim that arises against the FDIC itself as receiver after the claims filing date has passed. Courts have recognized the due process concerns that this scenario raises, but have generally resolved them by requiring the FDIC to allow late filing of the claim.319 The exhaustion requirement still applies, but the failure to meet the claims bar date does not result in preclusion of the claim.

Mortgage Lending: 14.3.5.3 Affirmative Defenses That Could Also Have Been Asserted As Independent Claims

Some courts have added the proviso that exhaustion is excused only if the affirmative defense is raised by a defendant who, prior to being sued, was not a creditor of the federal agency and had no independent basis for filing a claim against it.154 Similarly, several courts have held that any affirmative defense that could have been framed as an independent claim is barred unless the claimant exhausted the administrative claims process.155 For example, one court held that failure to join nec

Mortgage Lending: 14.3.6.5 How to “Continue” a Case

A number of decisions hold that, once the administrative claims process is concluded, the litigant must take some affirmative action to continue the litigation.213 The safest course is to file a notice in the court within the sixty-day period for filing suit, indicating that the administrative claims procedure has been exhausted and that the litigant is exercising the option to resume the litigation.

Mortgage Lending: 14.3.9.5 Claims Regarding Whether Purchase and Assumption Agreement Required Assignee Bank to Assume an Obligation

The question whether a purchase and assumption agreement requires the assignee bank to assume an obligation has arisen in non-consumer cases involving office space or other premises that the failed bank had leased. Some purchase and assumption agreements include a clause by which the assignee bank automatically assumes some of the failed bank’s leases or other liabilities, described by category.

Mortgage Lending: 14.3.6.2 Must Plaintiff in Pre-Receivership Suit Exhaust Administrative Claims Process?

The fact that courts retain jurisdiction over pre-receivership suits does not necessarily eliminate the requirement to exhaust the administrative claims process. Courts generally hold that the litigant can still be required to exhaust the administrative claims process,188 but the case can resume in the court in which it was originally filed once the administrative claims process is concluded.

Mortgage Lending: 14.3.14 Mechanics of Suing on the Claim

If the FDIC disallows a claim or fails to rule on it within the allotted time, the claimant has the right to file suit on the claim.357 However, the statute providing for this right to sue grants jurisdiction only to two courts: the federal district court for the district where the failed bank’s principal place of business is located, and the United States District Court for the District of Columbia.358 The FDIC has argued in at least one case that this is merely a venue provision that can b

Mortgage Lending: 14.3.18 Prohibition of Injunctive Relief

The statute prohibits any court from taking any action “to restrain or affect the exercise of the powers or functions of the Corporation as conservator or receiver.”391 Courts have held that this prohibition also extends to declaratory relief,392 and prevents a court from imposing a constructive trust393 or granting equitable relief.394 A virtually identical provision applies to the Federal Ho

Mortgage Lending: 14.3.1 Introduction

The administrative claims process that is imposed under law by the FDIC when a bank fails poses a procedural hurdle for consumers who have claims against the bank. It does not affect the substance of a consumer’s claim, but because it is applied in a severe and rigid fashion, it can have the effect of extinguishing an otherwise valid claim. Congress created the administrative review process to ensure that the FDIC could expeditiously address the affairs of failed banks.33

Mortgage Lending: 14.6.2 Exceptions to D’Oench

While the D’Oench doctrine is broad, it is not limitless. It does not prevent a court from allowing extrinsic evidence to interpret ambiguous terms of a written agreement.470 Such a dispute involves the interpretation of terms that appear on the face of the obligation, not a secret or side agreement.

Mortgage Lending: 14.8 Federal Holder-in-Due-Course Doctrine

The third doctrine that can prevent borrowers from asserting claims is the federal holder-in-due-course or super-holder doctrine. As noted in § 14.5, supra, United States Supreme Court decisions may have abrogated this doctrine (as well as the D’Oench doctrine), and it is not widely invoked today.

Mortgage Lending: 14.12.3.1 Fraud and UDAP Claims

D’Oench and section 1823(e) are likely to bar a claim that a bank fraudulently induced a consumer to enter into a transaction.668 However, fraud in the factum claims are not barred.669 If the bank misrepresented a loan note as fixed rate when it was in fact variable, or as amortizing when it was not, or made other misrepresentations about the essential nature or terms of the loan, a fraud in the factum claim should be explored.