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Ken Ehrlich Weighs In on Bank-Owned Real Estate in Banker & Tradesman

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Kenneth F. Ehrlich, co-chair of Nutter’s Banking and Financial Services practice group, commented on real estate owned by banks in light of proposed rule changes at the state and federal level—which could mean that credit unions may be able to own and develop real estate as an investment—in Banker & Tradesman. In the article, “State, Federal Changes May Allow CUs To Become Investors 50 Percent Occupancy Requirements Opens Field To Development Possibilities,” Ken notes that banks don’t have the power to invest in commercial real estate except in very limited circumstances.

According to Ken, any real estate owned by a bank must be, in general, bank premises or OREO (real estate seized by a bank in a foreclosure proceeding). He points out that with respect to a bank’s authority to invest in bank premises, banks can buy property they don’t fully occupy as long as there is a good faith expectation the bank will occupy that real estate over a reasonably short period of time and that unused space may be rented out so value is realized. Ken adds that non-member banks, which are regulated by the FDIC and not the Federal Reserve, that do not have a bank holding company, can invest in and develop real estate under authority in FDIC regulations, however those rules include numerous firewalls and other restrictions and FDIC approval must be obtained. “If the Federal Reserve is the primary regulator or if there’s a holding company, the Fed has an absolute policy against banks owning real estate for speculative, investment purposes,” he said.

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