Article written by:
Scott Runyan, CPA
Director, Credit Union Services
As a follow-up to the article written on March 30, 2020, regarding the Joint Statement released by the six government agencies including the NCUA, there are several ideas for our credit union clients to keep in mind as you work through payment modifications with your members. Credit unions will be agreeing to defer payments and granting the members deferrals so, in exchange, the members should be willing to acknowledge certain facts and waive certain rights. Here are things to consider in documenting your formal deferral agreements with your members:
- An acknowledgment that the parties executed the loan documents and any renewals, extensions, modifications or amendments; and a reaffirmation of the documents.
- An acknowledgment of the balance due, including unpaid principal and interest, late charges, other charges and any negative escrow amount.
- If applicable, an admission of any existing default, each of which constitutes an event of default under the loan documents and that the credit union is entitled to immediately pursue all remedies available to it, without defense, setoff or counterclaim.
- If applicable, an acknowledgment that the credit union provided a demand letter (notice of default) in accordance with the loan documents.
- An acknowledgment that the member has had the opportunity to consult with an attorney.
- An acknowledgment that the agreement is binding upon the parties and their respective successors, assigns, heirs and personal representatives.
The agreement should also include the terms of the agreement, including:
- The deferral period and whether the member is relieved from paying, or must pay reduced payments during the time period.
- If desired, a requirement that the credit union’s costs and expenses related to the preparation, negotiation and delivery of the agreement and all documents related, be added to the loan balance.
- If desired, requirements for the member to provide periodic financial updates during the deferral period.
- A release of liability for any causes of action the member may have against the credit union.
- Requiring the member to provide further documents and instruments and take all such further action as may be reasonably necessary or appropriate to confirm or carry out the provisions and intent of the agreement.
- Allowing the credit union to immediately terminate the agreement upon expiration of the deferral period or default by the member, whichever occurs first.
As in other loss mitigation agreements, the credit union should do the following:
- Explain the terms of the agreement to the member to ensure that the member understands all of its terms.
- Ensure that the agreement is signed by each member.
- Monitor the member’s fulfillment of any reduced payment requirements during the deferral period
- Keep track of the deferral expiration dates and communicate with the member as those dates approach to ensure that the member is aware of the next required payment date and will be ready to resume the regular payments.
The revised Interagency Statement on the NCUA’s website can be found by clicking here.