Question & Answer

Question: Given that Regulation B's signature requirements allow a lender to require the signature of a spouse to secure property pledged to support the commercial loan, could the bank require some kind of a general subordination from the spouse in marital assets if the bank bases its decision on assets that the husband and wife jointly own? The purpose would be to prevent the transfer of assets to the non-borrowing spouse, leaving the bank with inadequate support in the event of default.

Answer: We don't encourage banks to obtain broad permission from non-applicant spouses.

Regulation B is quite strict about signatures. The risk in this idea is that, if the spouse agrees - or even offers - to provide such a document, the spouse may later tell a different story. In fact, when the loan is in default, non-applicant spouses can become creative writers. The best approach is to be secured. In other words, take the house and take it properly.

If your lenders really insist on something, you should follow several steps. First, point out to the borrower what the options are. Make sure the borrower knows that there are choices - secured loan, offering other property, bringing in a co-signer other than the spouse. If the borrower offers the spouse - and often there really is no other choice as a practical matter - make sure that the borrower's choice is clearly documented in the file. You might want to obtain a signed document from both spouses that the guarantee approach is at their request in lieu of offering specific security. That should help protect you if they later claim that the signature was illegally required. But be careful!

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 12 & 13, 10/97