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4000 - Advisory Opinions


Insurance Coverage of Property Management Accounts Held by Real Estate Agent

FDIC-88-81

December 20, 1988

Claude A. Rollin, Attorney

This is in response to your letter of November 30, 1988, forwarding a copy of a letter dated October 20, 1988, inquiring about the rules governing deposit insurance. I apologize for the fact that we did not respond to your original letter, which must have been either misplaced or lost.

In your original letter, you indicate that *** Real Estate, Inc. has contracts with approximately 60 real property owners (individuals, partnerships, corporations) which require *** to collect rents and pay invoices on behalf of the property owners. In performance of its duties, *** maintains three property management accounts with an FDIC-insured bank, which contain the commingled funds of the various property owners but do not contain any of *** (corporate) operating funds.

You indicate that the three property management accounts are styled as follows: (1) *** Real Estate, Inc. Property Management Escrow Account; (2) *** Real Estate, Inc. Disbursement Fund; and (3) *** Real Estate, Inc. You ask us to confirm your opinion that the three accounts would be separately insured from *** (corporate) operating accounts and that the interest of each of the approximately 60 property owners in the three accounts would be separately insured up to $100,000.

Section 330.2(b) of the FDIC rules and regulations provides that funds owned by a principal and deposited in the name of the agent at an FDIC-insured bank, shall be insured as the individually-owned funds of the principal. 12 C.F.R. § 330.2(b). When an agent holds funds owned by more than one principal in a single deposit account, the ownership interest of each principal in the commingled deposit account would be recognized and insured as the individually-owned funds of the principal. 12 C.F.R. § 330.101. Therefore, the ownership interest of each principal in the commingled account would be added to any other funds held in an individual capacity by that person at the same bank and the total would be insured up to $100,000. These fundamental principals of insurance coverage apply, however, only when certain recordkeeping requirements are satisfied.

One recordkeeping requirement is that the bank's deposit account records must indicate the fiduciary nature of the deposit account (i.e. that the agent is holding the funds in a custodial or agency capacity for numerous principals). Another requirement is that records of either the bank or the depositor, maintained in good faith and in the regular course of business, must indicate the name and ascertainable ownership interest of each principal in the commingled deposit account. 12 C.F.R. § 330.1(b).

The first property management account, which is styled as "*** Real Estate, Inc. Property Management Escrow Account," satisfies the first recordkeeping requirement. The use of the word "escrow" indicates the fiduciary nature of the deposit account. Therefore, provided that either the bank or *** maintains records (in good faith and in the regular course of business) which show the name and ownership interest of each property owner in the account, the account would be insured in the amount of up to $100,000 per property owner. The other two property management accounts are styled as "*** Real Estate, Inc. Disbursement Fund" and "*** Real Estate, Inc." These account titles do not provide an indication of the fiduciary nature of the accounts. Therefore, unless the account titles are changed to indicate that the funds are being held in a representative capacity, the accounts would be added to any other corporate accounts maintained by *** and the total would be insured up to $100,000 in the aggregate. 12 C.F.R. § 330.5.

In your letter, you also indicate that *** maintains two deposit accounts into which real estate earnest money received from numerous buyers/lessees is deposited. You indicate that the accounts are escrow accounts and that the funds are held in the accounts pursuant to various contracts and leases, until they are disbursed in accordance with the directives of the various parties. If *** operates as the agent for either the purchasers or sellers of real property under the various sales contracts, then the ownership interest of each purchaser or seller in the accounts would be separately insured as the individually-owned accounts of the purchasers or sellers. Likewise, if *** operates as the agent for either the lessors or lessees under the various leases, then the ownership interest of each lessor or lessee in the accounts would be separately insured as the individually owned-accounts of the lessors or lessees.

In order to obtain such insurance coverage, however, the FDIC's recordkeeping requirements for fiduciary accounts (outlined above) must be satisfied. You have noted that the real estate earnest money accounts are styled as (1) *** Real Estate, Inc. Deposit Account" and (2) *** Real Estate, Inc. Purchase Offer Deposit Escrow Account." The first account title does not disclose the fiduciary nature of the deposit account and thus would be treated as a corporate account and would be added to any other corporate accounts maintained by *** at the same bank and the total would be insured up to $100,000. The second account title contains the word "escrow" which, as noted above, provides some indication of the fiduciary nature of the account. Therefore, as long as either the bank or *** maintains records (in good faith and in the regular course of business) which indicate the names and ownership interests of the various purchasers, sellers, lessors or lessees, this account would be insured up to $100,000 for each person or entity with an ownership interest.


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