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4000 - Advisory Opinions

Deposit Insurance Coverage for Three Escrow Accounts Owned by Realty Company


March 29, 1988

Gerald J. Gervino, Senior Attorney

In our recent telephone conversation, you requested a written explanation of the deposit insurance coverage for three escrow accounts owned by a realty company ("X Corp") which contain 1. residential real estate earnest money, 2. rental security deposits, and 3. rental collection income.

The amount of insurance coverage for Account 1 depends upon the terms of the contract under which X Corp has acquired the funds. If X Corp operates as agent for either the purchasers or sellers under contract, the interest of each purchaser or seller would be separately insured as an individual account under FDIC regulations. Pursuant to Section 330.2(b) of the FDIC Rules and Regulations, the interest of each purchaser or seller would be aggregated with any other individual accounts held by the same person in your bank and insured to $100,000. 12 C.F.R. § 330.2(b). However, if X Corp operates as the owner or principal of Account 1 with only a contractual obligation to pay its creditors, and not as agent for the purchasers or sellers, then the account will be aggregated with X Corp's other corporate accounts and insured to $100,000 12 C.F.R. § 330.5.

Because Account 2 consists of rental security deposits, it is likely that a state statute on tenants' rights vests ownership of the funds in the tenants. In that case, each tenant would be separately insured to $100,000. If a tenant also owned an individual account in your bank as well, his interest in both accounts would be aggregated and insured to $100,000. 12 C.F.R. § 330.2(b). If there is no applicable state law, the contract would determine whether the landlord or tenant owned the security deposit. The insurance coverage rules previously described would apply, and the actual owner of the funds would be insured to $100,000 together with any interest in other accounts held by that person in the same right and capacity.

Insurance coverage for the third account is based on the contract between X Corp and the landlords. Typically, each landlord would be insured to $100,000 for his interest in the account; when rent is collected on multiple properties for the same landlord, his interest would be aggregated and insured to $100,000 including any interest in other accounts held by the landlord in the same right and capacity. Any portion of Account 3 owed to X Corp as servicing fees under the contract would be insured together with X Corp's corporate accounts to $100,000. Section 330.1(b)(1) of FDIC rules and regulations provides that the deposit account records of the bank are conclusive as to the existence of any relationship pursuant to which funds in the bank are deposited. If the account records disclose an agency, trustee, or other custodial relationship, the details of the relationship and the beneficial interest of the owner(s) of the funds must be ascertainable from the records of the bank or the depositor, maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2). The agency or custodial ownership of each escrow account must be clearly indicated in the bank's records.

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