As the recession continues and the commercial real estatemarketplace sours, more credit unions will unfortunately have toforeclose on commercial real estate properties secured by defaultedmember business loans.

When banks foreclose on such properties, they frequently do soin the name of a 100% wholly owned, separate for-profitcorporation. The advantage of doing so is that it provides a levelof legal shielding to the parent company. In the event that laterlegal issues arise, the plaintiffs are restricted to suing the realestate holding company and not the parent financial institution.Often these properties are held for one to three years until sold.There is no intent by the bank to permanently retain theproperties-rather, the goal is an orderly sale to minimize theamount of loan loss.

Unfortunately, credit unions are legally prohibited from usingthis same tool. Neither the CUSO enabling regulations, nor anyother credit union regulation, allow for an ancillary corporationto temporarily hold foreclosed commercial real estate. Instead, thecredit union itself must become the owner and landlord.

Perhaps CUNA and the various state regulatory entities shouldrevisit this issue in the midst of all the current MBLforeclosures.

Jerry Goldstein

Financial Consultant

St. Louis