Accounting for Other Real Estate

PURPOSE: This rule requires banks and trust companies to account for other real estate in a manner that conforms to generally accepted accounting principles and sets forth when such real estate must be appraised. (1) For the purposes of this rule, other real estate shall include real property which is purchased by the bank under judicial or nonjudicial foreclosure where the real property was security for debts previously contracted, which is purchased by the bank to protect its interest in debts previously contracted, which is acquired by the bank in partial or complete satisfaction of debts previously contracted, or which is owned by the bank and which has been, but is no longer, used or intended to be used as bank premises. (2) Other real estate should be booked or accounted for at the lower of—a) the book value of the real estate (or the loan to which it is attributable, plus allowable expenses and less any previous direct write-down unearned interest) or b) the fair market value of the real property at the date of the transfer to that category. Where the other real estate is attributable to debts previously contracted, any excess of the bank’s investment in the loan over the fair market value of the real property must be charged against the reserve for loan losses. Additional charge-offs after foreclosure should be charged to other operating expenses. Examiners may classify any portion of the other real estate carried on the bank’s books. (3) At the time real property is transferred to the other real estate category, if the recorded value of the real estate exceeds four hundred thousand dollars ($400,000), the bank shall obtain a current appraisal prepared by an independent qualified appraiser to substantiate the fair market value of the real property, provided that if such property has a recorded value of four hundred thousand dollars ($400,000) or less, an evaluation shall be performed and placed in file. (A) For purposes of this section, the evaluation must— 1. Be in writing; 2. Be dated; 3. Describe the real estate, its condition, and both current and projected use; 4. List the sources of information; 5. Describe analysis and supporting information; 6. Give an estimate of market value based, as appropriate, on cost and income, and any limiting conditions; and 7. Provide the name, address, and signature of preparer, who must have real estate training or experience, knowledge of the market, and have been independent of the loan decision. (B) For the purposes of this section, the bank will be considered to be in compliance if— 1. The bank has obtained an appraisal or evaluation, as appropriate, within six (6) months prior to acquisition; or 2. Within thirty (30) days after foreclosure, the bank has documented an agreement with an individual or company to perform the appraisal or evaluation, as appropriate; however, the appraisal or evaluation, as appropriate, shall be completed and in the bank’s files within ninety (90) days of foreclosure. AUTHORITY: section 361.105, RSMo 2016, and sections 362.105 and 362.165, RSMo Supp. 2023.* This rule originally filed as 4 CSR 140-2.070. Original rule filed Dec. 10, 1981, effective April 1, 1982. Amended: Filed May 17, 1988, effective Aug. 26, 1988. Amended: Filed Jan. 12, 1993, effective June 7, 1993. Amended: Filed Dec. 29, 2000, effective Aug. 30, 2001. Amended: Filed Feb. 15, 2002, effective Aug. 30, 2002. Moved to 20 CSR 1140-2.070, effective Aug. 28, 2006. Amended: Filed Oct. 11, 2023, effective May 30, 2024. *Original authority: 361.105, RSMo 1967 amended 1993, 1994, 1995, 2011; 362.105, RSMo 1939, amended 1949, 1963, 1965, 1967, 1977, 1983, 1986, 1990, 1991, 1992, 1995, 2000, 2001, 2003, 2010, 2011, 2017; and 362.165, RSMo 1939, amended 1967, 1983, 1995, 2021.