4000 - Advisory Opinions
Insurance Coverage Afforded Tenant Security Deposits
January 31, 1992
Claude A. Rollin, Counsel
You state that your firm represents [Company], an owner and landlord of several residential and commercial buildings. [Company] commingles the security deposits it receives from its tenants and deposits them in an account at an FDIC-insured depository institution. The account title indicates that [Company] holds the funds in a representative capacity (e.g., "[Company] Tenants' Security Escrow Account"). [Company] or the depository institution maintains records, in the ordinary course of business, which establish each tenant's allocable ownership interest in the commingled security deposits, as well as any accrued interest.
Pursuant to section 330.6(a) of the FDIC's deposit insurance regulations, funds owned by a principal or principals and deposited into one or more deposit accounts in the name of an agent, custodian or nominee (other than an insured depository institution) are insured as if deposited in the name of the principal(s). 12 C.F.R. § 330.6(a) (1991). Since [Company] is acting as custodian for the tenants, each tenant's security deposit, together with interest, would be separately insured for up to $100,000 provided that certain recordkeeping requirements are met.
These requirements are set forth in the FDIC's deposit insurance regulations at 12 C.F.R. §§ 330.4(b)(1) and (2). First, the deposit account records of the depository institution must disclose that the funds are held by the depositor in a representative capacity. (The term "deposit account records" is defined in § 330.1(d).) The account title shown above ("[Company] Tenants' Security Escrow Account'') satisfies this requirement. Second, the records of either the depositor or the depository institution, maintained in good faith and in the regular course of business, must disclose the ascertainable ownership interest of each tenant in the account. Your letter indicates that this requirement is met by either [Company] or the depository institution.
When these requirements are satisfied, the ownership interest of each tenant in the custodial account would be added to any other individual deposit accounts owned by him or her in the same depository institution and insured up to $100,000 in the aggregate.
I trust that this information has been responsive to your inquiry. Should you have any further questions, I can be reached at (202) 898-3985.