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4000 - Advisory Opinions

Deposit Insurance Afforded Accounts Held by a Condominium Association


November 5, 1991

Martha L. Coulter, Counsel

I am responding to your October 21, 1991, letter to Roger Hood concerning the deposit insurance applicable to accounts held by the condominium association for which you are Treasurer. In your letter, you indicate that the association collects monthly maintenance payments from homeowners and deposits the funds into three accounts which together total approximately $120,000. You state that the accounts are used for operating expenses, security deposits, and large-project reserves, respectively.

Under the FDIC's deposit insurance regulations, all deposits held by the same entity in the same "right and capacity" (for example, single ownership or joint ownership) at the same depository institution are added together and insured for up to $100,000 in the aggregate. Deposits of an unincorporated association, such as a condominium association, are insured separately from the accounts of the persons or entities comprising the association.

In the situation you describe, it appears that the funds in at least two of your condominium association accounts--the operating account and the reserve account--are funds owned by the association and deposited on its own behalf. As such, these funds would be added together for the purpose of determining insurance coverage and insured for a maximum of $100,000. If the funds in the third account are also association funds deposited on its own behalf, those funds would also be included in the aggregation.

However, if the funds in the security-deposit account are actually being held by the condominium association in a fiduciary capacity on behalf of someone else, such as the tenant who made the security-deposit payment to the association, then those funds are eligible for separate coverage from the association's own funds. In this case, the security-deposit funds are insured as if they were deposited in the name of the principal, rather than the association, provided certain recordkeeping requirements are met.

First, the deposit account records of the insured depository institution in which the funds are held must disclose that the funds are held in a fiduciary capacity. Indicating a custodial, agency, or other fiduciary relationship in the title of the account can satisfy this requirement (for example, "XYZ Homeowners Association, Custodian). If no such relationship is disclosed, the funds will be deemed to be owned by the named depositor (which, here, apparently is your condominium association). In addition, the specific interest of the principal(s) in the account must be ascertainable either from the deposit account records of the insured institution or from records maintained in the ordinary course of business by or for the named fiduciary depositor.

If your security-deposit account qualifies for "pass-through" coverage as described above, the amount of funds in the account attributable to each principal would be aggregated with other funds owned in the same right and capacity by the principal in other accounts in the same institution and insured in the aggregate for that principal up to a maximum of $100,000.

I trust this information is responsive to your request. Should you have other questions, please do not hesitate to contact us.

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