Banking and Finance Law Daily OCC decides where bank is ‘located,’ Utah Supreme Court says
Tuesday, October 9, 2018

OCC decides where bank is ‘located,’ Utah Supreme Court says

By Richard A. Roth, J.D.

The National Bank Act’s use of "located" is ambiguous, and that ambiguity allows the Office of the Comptroller of the Currency to settle on a reasonable interpretation of the word, according to the Utah Supreme Court. As a result, whether a national bank has the authority to act as a trustee to foreclose on property in Utah depends on the OCC’s regulation, not on Utah state law. The Court added that its earlier decision in the same case, that "located" was unambiguous and Utah law on trustees controlled the issue, was "clearly erroneous" (Bank of America v. Sundquist, Oct. 5, 2018, Pearce, J.).

The home in question is located in Utah. When the homeowner fell behind in her payments, the trustee under the deed of trust, ReconTrust Company, N.A., foreclosed and sold the property by auction to Fannie Mae.

However, the homeowner refused to move out. Fannie Mae secured an order evicting her, but the Utah Supreme Court reversed that order after deciding, on interlocutory appeal, that ReconTrust did not have the authority under Utah law to act as a trustee under a deed of trust (Federal National Mortgage Assn. v. Sundquist, see Banking and Finance Law Daily, July 24, 2013).

Laws and regulations. The genesis of the issue is the interaction between two laws: the NBA, which governs national banks like ReconTrust; and Utah law on the authority of trustees. Under Utah law, only certain persons, such as attorneys and title insurance companies, can serve as trustees under deeds of trust. However, the NBA says that a national bank may be authorized to act as a fiduciary if the law of the state where the bank is located allows companies that compete with the bank to do so (12 U.S.C. §92a).

ReconTrust claimed that, under the OCC’s regulation implementing the NBA, it was located in Texas and that Texas law allowed it to be a trustee under a deed of trust that applied to property in Utah.

The Utah Supreme Court rejected that argument. Under the common meaning of "located," ReconTrust was located in Utah when it was foreclosing on property in Utah, the Court said. That meant it had only the authority that Utah law granted competitors, such as state banks, and those competitors could not act as trustees under deeds of trust.

Fannie Mae then quitclaimed its interest in the property to Bank of America. When the trial court judge entered a final judgment in favor of the homeowner, the bank appealed.

Law of the case doesn’t apply. The Court first had to consider whether the law of the case doctrine prevented it from reconsidering its earlier decision. Relying on an exception to the doctrine, the Court decided there was no bar.

The law of the case doctrine generally means that once an issue in a case has been decided it will not be reopened. However, there are several exceptions. Among those is when a court becomes convinced that the prior decision was clearly wrong and would result in "a manifest injustice." Better briefing than was available in the interlocutory appeal, and that was focused specifically on the statutory interpretation issue, showed that the manifest injustice exception applied, the Court said.

Interpretation of "located." The Court then turned to an analysis under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). Under Chevron, courts are to defer to a regulatory agency’s reasonable interpretation of an ambiguous term in a statute that Congress has empowered the agency to implement. The OCC was empowered to implement the NBA and interpret the word "located," the Court said.

The Court then backed away from its earlier decision that the meaning of "located" in the NBA was unambiguous. While it was logical to conclude that a national bank was located in the state where it was selling foreclosed property, "there is nothing in the plain language [of the NBA] that mandates that result."

The Court affirmed its belief that mortgage foreclosures are a traditional subject of state law and that only a clear statement by Congress should change the balance between state and federal law. However, the NBA made that clear statement, the Court said. The NBA provision that allows national banks to exercise the powers that state law gives their competitors "expresses a federal intent to clomp into an area of traditional state concern."

The OCC’s regulation interpreting "located" was reasonable, the Court then said. According to the OCC, a bank acts as a fiduciary in the state in which it:

  • accepts the appointment;
  • executes the documents that create the fiduciary relationship; and
  • makes discretionary decisions about the trust assets (12 CFR §9.7(d)).

Contrary to the homeowner’s argument, there was no reason the regulation needed to focus on trust deeds, the Court said. It could deal with fiduciary powers more broadly. If the regulation gave an advantage to national banks over state banks, that was within the OCC’s authority.

The regulation applied to trustees under deeds of trust, not just under fiduciary trusts, the Court continued. After all, the NBA referred to acting as a trustee or in "any other fiduciary capacity."

The result. Because of the 2013 decision on the effect of the OCC’s regulation, the trial court judge had never considered where ReconTrust carried out the three acts the regulation described. The Supreme Court reversed the decision that quieted title in the homeowner and instructed the judge to consider those factors and decide where, under the regulation, ReconTrust was located.

The case is No. 20170014.

Attorneys: Daniel S. Volchok (Wilmer Cutler Pickering Hale and Dorr LLP) for Bank of America, N.A. Tyler Ayers (Tyler Ayers, Attorney at Law) for Loraine Sundquist.

Companies: Bank of America, N.A.; ReconTrust Company, N.A.

MainStory: TopStory BankingOperations Preemption StateBankingLaws UtahNews

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More
Banking and Finance Law Daily

Banking and Finance Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on banking and finance legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.

Free Trial Learn More