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Federal Deposit
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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


Insurance Coverage for Developer Funds Held by a Township or Municipality

FDIC-90-50

September 13, 1990

Mark A. Mellon, Senior Attorney

This is in response to your letter of July 25, 1990 to our Office of Consumer Affairs pertaining to federal deposit insurance. Based on your letter and our telephone conversation, it is my understanding that your township receives funds from the developers of real property which are then deposited into a master account with an FDIC-insured depository institution. The funds are held in escrow to defray the township's fees for the inspection of tracts of land within the township which are to be developed. Until such time as the fees are incurred, the money deposited in the escrow account remains the property of the developers. You wish to ascertain whether the funds of each developer on deposit in this master account are separately insured and, if a developer has funds in the master accounts of more than one township which are on deposit in the same depository institution, whether the developer's funds in each township master account are separately insured.

It is apparent from your description of the master account that the real owners of the deposited funds are the developers even though your township is the nominal accountholder. For deposit insurance to "pass through" to the developers, however, it is necessary that the deposit account records of the insured depository institution where the funds are held expressly disclose, by way of specific references, the custodial relationship pursuant to which the funds in the account are deposited and on which a claim for deposit insurance is based. 12 C.F.R. § 330.4(b)(1). If this requirement is satisfied, the details of the developers'

interests in the deposited funds may be ascertained from either the deposit account records of the insured institution or from the records of the depositor. 12 C.F.R. § 330.4(b)(2).

If the recordkeeping requirements are met, the funds on deposit in the master account will then be separately insured on an agency basis to the developers as principals in whatever right and capacity that those funds are held in. 12 C.F.R. § 330.6(a). It is my assumption that most of these developers are incorporated firms. Their funds would therefore be separately insured as corporate funds to $100,000. 12 C.F.R. § 330.9(a). As with any category of insured deposit, however, corporate funds are aggregated with any other funds on deposit in the same institution which are held by the corporation in the same right and capacity. 12 C.F.R. § 330.3(a). As a result, aggregation would occur if a developer has placed funds with townships which have then deposited the funds to be held in escrow in the same depository institution.

I hope that this letter is responsive to your inquiry. Please contact me if you have any questions about this or any other matter.


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