The United States Supreme Court recently issued an opinion that can assist Ohio’s financial institutions to hold debts non-dischargeable in bankruptcy proceedings. See how Bartenwerfer v. Buckley can help financial institutions recover fraudulent debts.

Gone are the days that mortgage loans stayed with their originating lender. Many, if not most, are now transferred, packaged, and resold several times. But when transferred properly, mortgage loans remain enforceable and resistant to serious challenge. Yet even a minute irregularity, however legal, can give a desperate borrower an opening to challenge and delay an otherwise normal foreclosure.

Payable-on-death account designations are useful tools for customers of Ohio’s financial institutions. Upon death, the funds in a customer’s account transfer to the designation’s beneficiary without court approval or the probate process (subject to liens). But what happens if the financial institution pays the estate by mistake instead of the beneficiary? Can the institution reclaim the money?

In a victory for Stultz & Stephan client Sutton Bank, the Ohio Supreme Court has unanimously ruled that cognovit promissory notes are subject to Ohio’s traditional rules of contractual interpretation. That decision clarifies that courts must read cognovit language like any other term in a promissory note—a strong holding for Ohio’s lenders.

First-year contracts class in law school is a whirlwind. Students learn about agreements whose subjects range from broiled versus stewing chickens to complex, multi-phase commercial developments—and everything in between. Nestled among those topics is, of course, how to best memorialize your future clients’ wishes in writing.

I clearly remember one class about just that—namely, how to prevent unauthorized changes to an agreement. We then students learned what we now implement: in contracts, use anti-waiver clauses and terms that forbid oral changes. But what happens, our professor asked, when the parties allegedly orally modify a contract that contains a clause the forbids oral changes?

The answer to that question is one of the biggest causes of lender liability for Ohio’s banks and credit unions.

Ideally, lending is a mutually beneficial endeavor. People want homes, stores need goods to sell, and farmers require land to farm. Lenders derive income from financing those deals. Each side needs what the other has, so why do so many disputes arise?

No self-respecting, examination-passing bank or credit union would ever think of lending millions without first underwriting the risk. Nor would such a lender forgo promissory notes or collateral. Yet despite fastidious care with loan documents, many lenders don’t use or pay little attention to loan commitments. But perhaps more than in any other area of banking, issues that surround offers to lend give rise to avoidable lender liability.

In the first of a three-part series on loan commitments, this post examines how commitment-based lender liability usually arises and how to avoid it.

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What should a bank or credit union do when a borrower tries to make a monthly payment on a loan in default? Does that answer change when a borrower has more than one loan? And can a lender keep a partial payment made on a loan in default without jeopardizing liquidation? Ohio’s banks and credit unions face these questions in almost every loan before they file a lawsuit.

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Should we, as lenders in Ohio, try to prevent foreclosure where possible? That depends on whom you ask, but the general consensus is, of course, yes. In fact, we’re often required to do so by bodies like Fannie Mae, the CFPB, and courts. But when negotiations fail, do they affect foreclosure lawsuits? Are lenders worse off for offering modifications? No, at least for careful lenders, according to a recent case that clarifies a 20-year-old rule from the Ohio Supreme Court.

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A new compliance requirement has arisen for Ohio’s banks and credit unions. Under a new Ohio law, lenders must start to send notices to their borrowers before collecting a debt in default if the borrower’s residential real property secures that debt through a junior lien. Unfortunately, that new law is ambiguous, which could impose significant liability on Ohio’s lenders. As a result, they should consult experienced legal counsel to develop compliant forms and policies.

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