This year the Minnesota legislature made some significant changes to laws which affect banking and lending. The following is a brief summary of some noteworthy changes adopted by the legislature during its most recent session:
1. Minnesota Public Benefit Corporation Act
Effective January 1, 2015, new corporations can elect Public Benefit Corporation status upon initial incorporation and existing corporations will have the option to convert to Public Benefit Corporation status. Public Benefit Corporations, often referred to as B-corps, are a hybrid type of entity that fits somewhere between nonprofit and for-profit business entities. Minnesota’s B-corp legislation allows for two types of Public Benefit Corporations to be formed: General Benefit Corporations (“GBCs”) and Specific Benefit Corporations (“SBCs”). GBCs work toward a general positive impact while SBCs work toward a specific, self-defined cause. Directors and officers of both GBCs and SBCs have a fiduciary duty to not only maximize shareholder gain, but also to make decisions based on what will benefit the public in a way that aligns with their mission. What public benefit a Public Benefit Corporation has chosen to pursue could have a drastic effect on the entity’s future profitability and, for this reason, lenders considering loans to borrowing entities of this type will be wise to consider and understand the public benefit chosen when making lending decisions.
2. Minnesota Revised Uniform Limited Liability Company Act
Effective August 15, 2015, all newly formed limited liability companies (“LLCs”) will be governed by the Minnesota Revised Uniform Limited Liability Company Act (the “Revised Act”). Additionally, from the initial effective date until January 1, 2018, LLCs that were formed in compliance with the prior law may elect to be governed by the Revised Act. One of the larger changes made by the Revised Act is that LLCs no longer must exclusively be managed by Managers. Under the Revised Act, they may also be managed by Members, or the Board of Governors. This distinction will be particularly important for lenders to keep in mind when determining who has the authority to enter into agreements on behalf of the LLC. As the Revised Act provides greater flexibility in LLC management options, lenders must be sure to pay extra close attention to the type of management chosen, and documented in an LLC’s governing documents, in order to determine the appropriate party to execute documents on behalf of the LLC.
3. Minnesota Foreclosure Mediation
A bill was introduced this past legislative session which sought to impose new mediation requirements into the foreclosure process and afford foreclosure mediators certain powers and authority. This bill received strong pushback from multiple sources, including the Independent Community Bankers of Minnesota legislative committee, of which Nicholas Jellum of this office is a member, and ultimately did not pass. However, it is very likely that this bill will be introduced in the next legislative session. As such, lenders who routinely conduct residential mortgage foreclosures would be wise to keep this area of proposed legislation on their radars.
4. Extension of Small Servicer Exemption under Minn. Stat. § 582.043
Minn. Stat. § 582.043 was originally enacted following the 2013 legislative session and requires lenders to follow certain loss mitigation procedures and prohibited various “dual tracking” pre-foreclosure actions. Three different classes of small servicers were exempted from these provisions, one of which depended on the number of foreclosure sales conducted by a servicer within a 12 month lookback period. Servicers who conducted 125 or fewer foreclosure sales in that time period were exempt, but that exemption was originally set to expire on August 1, 2014. The Minnesota legislature removed this sunset provision from Minn. Stat. § 582.043 this past legislative session. As a result, those servicers who have serviced 125 or fewer foreclosure sales within a 12-month lookback period are indefinitely exempt from those requirements.
5. Conciliation Court Claim Limit Increased
Effective August 1, 2014, the general monetary limit for filing a civil action in conciliation court increases from $10,000 to $15,000. The cap for consumer credit transactions remains at $4,000.