4000 - Advisory Opinions
Insurance Coverage of Lock Box Deposit Account Maintained by Real Estate Agent
July 21, 1986
Patti C. Fox, Attorney
In your letter of May 20th, you requested information regarding deposit insurance coverage on a lock box deposit account maintained by a real estate management agent ("X Corporation"). The managing agent collects monthly rental or condominium assessment payments from tenants on behalf of its client property owners, who, typically, are partnerships, corporations, or condominium associations. From your description the monthly payments are mailed directly to a lock box account entitled "Managing Agent Receipt Clearing Account." The bank prepares a computer tape and written statement listing each check by payor and property owner on the day of receipt. The computer tape and statement are then delivered to X Corporation. After reconciling its internal records with the bank's written statement and the deposit ticket, X Corporation calls the bank to authorize the deposit of the funds to the clearing account.
As we discussed in our subsequent telephone conversations, it appears that the lock box initially functions as a safekeeping or collection box until X Corporation performs the reconciliation and authorizes the actual deposit of funds. It is important to note that the FDIC only insures deposits, so that no funds are insured until the bank has credited the clearing account with a deposit of the incoming funds. The owner of undeposited funds in the lock box would have access to those items upon proof of ownership in the event of the bank's failure.
As you have correctly stated, sections 330.1(b)(1) and (2) of FDIC regulations establish the recordkeeping requirements necessary to obtain deposit insurance coverage. Section 330.1(b)(1) states that deposit account records are conclusive as to the existence of any relationship upon which funds are deposited or a claim for insurance coverage if made. Customarily, the account title or an appropriate notation on the deposit account signature cards establishes the existence of an agency, custodial, or fiduciary relationship between the accountholder and the beneficial owner(s) of the funds. An account styled as "X Corporation Managing Agent Receipt Clearing Account" does not establish the existence of a custodial or agency relationship between the depositor and any principal(s) of the deposited funds. It is suggested that the words "custodial account," "as agent for," or "escrow account" appear in the account name or be noted on the deposit account signature cards to establish the agency or custodial nature of the account.
Section 330.1(b)(2) provides that the details of the relationship and the interests of the beneficial owners must be ascertainable from the records of the bank or the depositor maintained in good faith and in the regular course of business. We agree that section 330.1(b)(2) could be satisfied by business records reflecting the contractual agreement between the bank and X Corporation, and the management agreements between X Corporation and the property owners.
Each beneficial owner of the funds would be insured to $100,000 subject to the following regulations. The deposit accounts of a corporation or partnership engaged in independent activity are insured to $100,000 in the aggregate. 12 C.F.R. § 330.5. Similarly, the deposit accounts of an unincorporated association engaged in independent activity are insured to $100,000 in the aggregate. 12 C.F.R. § 330.6. Independent activity is any activity other than that directed solely at increasing deposit insurance coverage. 12 C.F.R. § 330.7. The interests of property owners who are corporations, partnerships, or unincorporated associations engaged in independent activity are insured separately from any deposit accounts held by individuals participating in the corporation, partnership, or unincorporated association. Should a property owner maintain in its business capacity additional deposit accounts in the same bank servicing the clearing account, those funds would be aggregated with its beneficial interest in the clearing account and insured to $100,000.
In addition, it should be noted that if X Corporation owns any portion of the rental or condominium assessment payments (service fees, for example) which remain in the clearing account, those amounts would be aggregated with its other corporate accounts and insured to $100,000.