Alert July 08, 2008

FDIC Reiterates Standards for Other Real Estate

In FIL-62-2008, the FDIC highlights existing standards and requirements for institutions coming into possession of Other Real Estate (generally, foreclosed real estate and, other real estate owned or controlled by a banking institution, but not including bank premises).  The intention of the guidance is to remind banking institutions and their management of policy requirements for acquiring, holding and disposing of Other Real Estate.  For Other Real Estate acquired through foreclosure or deed in lieu of foreclosure, applicable state law requirements for initial and ongoing valuations must be met.  Held property should be maintained, insured and have taxes paid upon it to maximize recovery value.

The FDIC states that appropriate accounting standards should be employed for Other Real Estate at acquisition, during the holding period and in the disposition phase.  The standards for the recorded valuation of the property will differ during the acquisition and holding periods.  During the disposition phase, property value and adjustments will vary based on whether the Other Real Estate is sold shortly after received in foreclosure or the property is retained for any longer period.