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4000 - Advisory Opinions

Extent of Insurance Coverage of Escrow Funds Consisting of Earned Monies Paid by Prospective Purchasers of Real Property


July 24, 1985

Patti C. Fox, Attorney

I am responding to your letter of June 18, 1985 requesting deposit insurance coverage information on behalf of a customer. You have asked about the extent of coverage on an escrow account in the name of *** Realty Company, Inc. ***. The funds consist of earnest money paid into the account by prospective purchasers of real property.

The amount of insurance coverage depends upon the terms of the contract or instrument under which *** has acquired the funds. If *** operates as agent for either the purchasers or sellers under the contract, the interest of each purchaser or seller would be separately insured as an individual account. Pursuant to section 330.2(b) of the FDIC's regulations, the interest of each purchaser or seller in the escrow fund would then be aggregated with other individual accounts held by the same person in the institution and insured to $100,000.

If *** operates instead as trustee on behalf of either the purchasers or sellers, the interest of each purchaser or seller is separately insured to $100,000 apart from any individual accounts held by such purchaser or seller. See 12 C.F.R. § 330.10. If, under the terms of the contract, *** operates as the owner or principal, with only a contractual obligation to pay its creditors, and not as trustee or agent, the account is aggregated with *** other corporate accounts and insured only to $100,000. 12 C.F.R. § 330.5.

Assuming that the contract establishes that *** is acting as agent or trustee of the earnest money for the parties, the recordkeeping requirements of section 330.1(b) are applicable. As described in your letter, the maintenance by *** of business records disclosing the agency or trustee relationship and the interests of other parties in the account would be sufficient under the recordkeeping rules. If a trust relationship exists between the parties to the contract, the records of the bank must disclose the name of the settlor, the trustee and there must be a signature card executed by the trustee. 12 C.F.R. § 330.1(b)(3).

I would suggest that your customer examine the contracts under which the earnest money is obtained in order to determine whether *** is an agent, trustee, or owner of the funds. If I can be of further assistance, please let me know.

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