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4000 - Advisory Opinions

Self-Help Liquidation of Collateral by Second Claimants in Insured Depository Institution Receiverships


December 15, 1989

John L. Douglas, General Counsel

This is in reference to your recent inquiry regarding the rights of certain creditors of failed insured depository institutions. Specifically, you have requested my opinion with regard to the ability of secured creditors of an insured depository institution to proceed with "self-help" liquidation after the appointment of the Federal Deposit Insurance Corporation (FDIC) or the Resolution Trust Corporation (RTC) as receiver of such institution. In particular you have requested my views as to the "exclusivity" of the claims process under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

As you are aware, neither the FDIC nor the RTC issues binding advisory opinions as to positions they would adopt in hypothetical situations that arise in future receiverships of insured institutions. The FDIC's and the RTC's actions in their capacity as receiver of a failed insured institution are determined on a case by case basis, in accordance with applicable laws and in light of the specific factual situation. I am willing, however, to provide my views as to what a court would hold in response to a challenge by the FDIC or the RTC as receiver of such an institution to a bona fide, perfected secured creditor's actions to liquidate properly pledged collateral absent the need for the FDIC or the RTC to be a party to the liquidation process.

In my opinion FIRREA does not contain an "automatic stay provision" similar to the Bankruptcy Code. Assuming an arms length, bona fide transaction, not involving an affiliate or insider, which would pass muster under appropriate fraudulent conveyance law or other applicable and which involved a legally perfected security interest enforceable under other applicable law, it is my opinion that such a secured creditor of an insured depository institution for which a receiver had been appointed could liquidate the creditor's properly pledged collateral by commercially reasonable "self-help" methods, provided that no involvement of the receiver was required and that there was a default other than through an ipso facto provision in the contract. The appointment of a receiver is not a default enforceable against the FDIC or the RTC under any contract except as specifically provided for in FIRREA. If some action is required by the receiver or liquidation would require judicial action, then the claims process in FIRREA would have to be followed. Moreover, the receiver may have rights outside of the provisions of FIRREA which may allow the receiver to seek a temporary restraining order or other injunctive relief in a particular situation.

It is my opinion that the claims process in FIRREA is exclusive. If a "secured creditor" liquidated its collateral; failed to file a proof of claim within the prescribed time; and was later challenged by the receiver and lost, the creditor would have to pay the receiver the proceeds of the liquidation; would be liable for any damages resulting from the improper liquidation; and would have no claim against the receivership due to having allowed the period to file a claim to lapse. Accordingly, any "secured creditor", even one who is comfortable with its secured position, should file a "protective" proof of claim with the receiver to not only preserve its rights in the event of a deficiency, but also to avoid any risk of losing its claim altogether. In situations where the creditor's contract or claim is assumed by another institution in a resolution transaction, the new institution would be responsible to the extent set forth in the agreements governing the transaction and if there were a full assumption of the liability, no proof of claim would be needed.

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