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4000 - Advisory Opinions


Deposits of Real Estate Trust Account ("RETA") Program Established by State Statute May, Like IOLTA Deposits, Be Held in NOW Accounts

FDIC-91-86

November 18, 1991

Jules Bernard, Counsel

In your letter of November 4, 1991, you describe the North Dakota Real Estate Trust Account (RETA) program. You write:

The North Dakota Real Estate Trust Account program was established by statute passed by the North Dakota Legislature effective July 1, 1991. It requires real estate brokers to establish interest bearing trust accounts for client and customer funds in real estate transactions. Under the statute, the recipient of these funds1 is the Real Estate Trust Account Committee. The Committee is required to use the funds for charitable purposes . . . (Section 43-032.4-02, North Dakota Century Code). The same section requires that no funds may be disbursed for any purpose other than purposes permitted under Section 501(c)(3) of the Internal Revenue Code. . . . Application has been made to the Internal Revenue Service for recognition of the Real Estate Trust Account Committee as a 501(c)(3) entity.

You also enclose an opinion issued by the Attorney General of North Dakota in which the Attorney General declares:

Based upon by examination of N.D.C.C. § 43--23.4--02, it is my opinion that the real estate trust account committee holds the beneficial interest in the interest income earned on real estate interest-bearing accounts under the broker trust account program because it has the exclusive right to the interest on the funds maintained in the program.

Letter from Nicholas Spaeth, Esq., Attorney General, North Dakota, to Mr. Dennis Schulz, Secretary-Treasurer, North Dakota Real Estate Comm'n, October 25, 1991.

You ask whether funds held in insured nonmember banks pursuant to the RETA program ("RETA deposits") may lawfully be placed in NOW accounts.2

In my view, the North Dakota RETA program is similar in its relevant features to the Interest On Lawyer Trust Accounts ("IOLTA") programs that a number of States have established. These are programs established under State law pursuant to which lawyers who hold customer funds on deposit must place the funds in interest-bearing accounts. The interest on the funds is to be paid to an entity (generally the State Bar Association) that is exempt from tax pursuant to section 501(c)(3) of the Internal Revenue Code; the interest so paid is to be used for certain charitable purposes specified by State law.

The FDIC staff has said on several occasions that funds held in interest-bearing accounts pursuant to IOLTA programs ("IOLTA deposits") may be held in NOW accounts in insured nonmember banks. (Copies of letters enclosed.) As I understand the FDIC staff's present view of the matter, an IOLTA deposit may be held in a NOW account if, under State law as formally interpreted by the State Attorney General, the interest on the IOLTA deposit must be paid to an entity that qualifies as a nonprofit organization under section 501(c)(3) of the Internal Revenue Code. In this respect the FDIC staff espouses the same general view as that expressed by the Federal Reserve Board staff in the Staff Opinion of November 5, 1984, 1 Fed. Res. Reg. Serv. 2--341.12, (which I believe to be the same letter as the one you cite in your inquiry).

The rationale regarding IOLTA deposits seems to me to be equally applicable to RETA deposits. Accordingly, in my judgment, the present position of the FDIC legal staff is that RETA deposits may likewise be placed in NOW accounts.

I must caution you that the views I express in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. See, e.g., 12 C.F.R. § 329.102 (interpreting id. § 329.1(b)(3)). The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.

If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.

1I take it that, by "these funds," you mean to refer to the interest paid by the institution, and not to the principal amounts. Go back to Text

2"NOW accounts" are interest-bearing accounts that are exempt from the withdrawal restrictions that ordinarily apply to interest-bearing accounts. See 12 U.S.C. § 329.1(b)(3). Go back to Text


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