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4000 - Advisory Opinions


Insurance Coverage of Real Estate Escrow Accounts

FDIC-88-48

July 21, 1988

Claude A. Rollin, Attorney

This is in response to your letter of June 10, 1988, requesting reconsideration of the opinion expressed to you, in a letter dated June 3, 1988, concerning the FDIC insurance coverage that would be afforded to certain real estate escrow accounts. For the reasons stated below, I adhere to the opinion expressed in my letter of June 3, 1988, which was that the FDIC would treat the funds in the escrow accounts as being owned by the developer for the purpose of determining the amount of insurance coverage on the escrow accounts. Therefore, assuming that the developer is incorporated, the interests of the developer in the escrow accounts would be aggregated with any other corporate accounts maintained by the developer and the total would be insured up to $100,000, pursuant to 12 C.F.R. § 330.5.

My earlier opinion letter was based, in part, on a review of the "typical escrow agreement" which you forwarded with your letter of May 24, 1988. That agreement clearly indicated that your bank was acting as an agent for the developer, rather than for the individual purchasers of the developer's property. In fact, the purchasers were not even parties to the escrow agreement. In your letter of June 10, 1988, you argue that the unknown purchasers are made parties to the escrow agreement by virtue of F.S. 718.202. While I agree that F. S. 718.202 does require developers to establish escrow accounts for the benefit of the unknown purchasers, I cannot agree that the unknown purchasers are made parties to the escrow agreement by virtue of that statutory provision. F.S. 718.202 simply does not include any such language and the only parties to the agreement itself are the developer and the bank.

Moreover, I cannot agree with your argument that, under F.S. 718.202, the funds on deposit in an escrow account belong to the purchasers until those funds are actually transferred by the escrow agent to the developer or the developer's account. F.S. 718.202 does not speak to the ownership of the funds while they are in an escrow account. It simply provides that the deposits must be held in escrow until one of the specifically enumerated events occurs which requires release of the funds. Under F.S. 718.202, once the purchaser has paid the deposit, he/she is not entitled to a return of those funds unless the developer fails to perform his obligations under the contract or fails to comply with the provisions of the statute. Therefore, it seems clear that, under F.S. 718.202, the escrowed funds will pass to the developer so long as the developer satisfies his/her obligations under the contract.

In addition, although you have not provided us with a copy of the sales contract which the developer typically uses, you indicated in your letter of May 4, 1988 that the purchaser does not have a right to rescind the contract during the escrow period. Therefore, we assume that the contract used by the developer is similar to other contracts we have seen which provide, in essence, that the buyer relinquishes ownership of the deposit when it is paid to the seller.

For the foregoing reasons, it is my opinion that the FDIC would treat the funds in the escrow accounts as being owned by the developer, for purposes of deposit insurance, and the interests of the developer in the escrow accounts would be aggregated with any other corporate accounts maintained by the developer and the total would be insured up to $100,000.

Please be advised that the opinions expressed herein represent the current thinking of the FDIC Legal Division staff but they are not, in any way, binding on the FDIC or its Board of Directors.


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