12 CFR 34.83 – Disposition of OREO
(a) Disposition. A national bank or Federal savings association may dispose of OREO in the following ways:
Terms Used In 12 CFR 34.83
- Contract: A legal written agreement that becomes binding when signed.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Deed: The legal instrument used to transfer title in real property from one person to another.
- Lease: A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent). Source: OCC
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- National Bank: A bank that is subject to the supervision of the Comptroller of the Currency. The Office of the Comptroller of the Currency is a bureau of the U.S. Treasury Department. A national bank can be recognized because it must have "national" or "national association" in its name. Source: OCC
- Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
(1) With respect to OREO in general:
(i) By entering into a transaction that is a sale under generally accepted accounting principles;
(ii) By entering into a transaction that involves a loan guaranteed or insured by the United States government or by an agency of the United States government or a loan eligible for purchase by a Federally-sponsored instrumentality that purchases loans; or
(iii) By selling the property pursuant to a land contract or a contract for deed;
(2) With respect to DPC real estate, by retaining the property for its own use as bank premises or by transferring it to a subsidiary or affiliate for use in the business of the subsidiary or affiliate;
(3) With respect to a lease:
(i) By obtaining an assignment or a coterminous sublease. If a national bank or Federal savings association enters into a sublease that is not coterminous, the period during which the master lease must be divested will be suspended for the duration of the sublease, and will begin running again upon termination of the sublease. A national bank or Federal savings association holding a lease as OREO may enter into an extension of the lease that would exceed the holding period referred to in § 34.82 if the extension meets the following criteria:
(A) The extension is necessary in order to sublease the master lease;
(B) The national bank or Federal savings association, prior to entering into the extension, has a firm commitment from a prospective subtenant to sublease the property; and
(C) The term of the extension is reasonable and does not materially exceed the term of the sublease;
(ii) Should the OCC determine that a national bank or Federal savings association has entered into a lease, extension of a lease, or a sublease for the purpose of real estate speculation, the OCC will take appropriate measures to address the violation, which may include requiring the bank or savings association to take immediate steps to divest the lease or sublease; and
(4) With respect to a transaction that does not qualify as a disposition under paragraphs (a)(1) through (3) of this section, by receiving or accumulating from the purchaser an amount in a down payment, principal and interest payments, and private mortgage insurance totalling at least 10 percent of the sales price, as measured in accordance with generally accepted accounting principles; or
(5) By any other method approved by the OCC.
(b) Additional method for Federal savings associations. A Federal savings association also may transfer OREO to a service corporation. A service corporation may hold real property transferred to it:
(1) As OREO, subject to the requirements otherwise applicable to the Federal savings association under this subpart E; or
(2) As an investment in real estate under § 5.59.
(c) Disposition efforts and documentation. A national bank or Federal savings association shall make diligent and ongoing efforts to dispose of each parcel of OREO, and shall maintain documentation adequate to reflect those efforts.