FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Deposit Held by Receiver for Landlord Consisting of Rental Payments from Tenants Fails to Qualify for Pass-Through Insurance
November 17, 1992
J. William Via, Jr., Counsel
You have inquired about insurance coverage for a deposit held by a receiver for a landlord, and designated as an "operations account". The deposit consists of rent payments made by tenants; the receiver contends that insurance should be provided for it on a pro rata basis for the benefit of each tenant inasmuch as the purpose of the account is to provide funds to maintain the rental premises and pay charges against the property, such as taxes and insurance.
As a threshold requirement for pro rata, or pass-through, deposit insurance, the FDIC's rules provide that the deposit account records of the insured depository institution must expressly disclose the existence of the fiduciary relationship pursuant to which a claim for such insurance is based. See 12 CFR § 330.4(b)(1). An account designated as an "operations account'', whether held in the landlord's name or by the landlord's receiver, does not suffice to disclose the possibility of a claim for pro rata insurance (whereas a designation that the account is held by a landlord or receiver as an "agent" or "custodian" would). We need not focus on the failure to meet this requirement, however, since the deposit in question fails to qualify for pro rata insurance on a more fundamental ground. See 12 CFR § 330.4(b)(2).
In general, when a tenant makes a rental payment to a landlord in fulfillment of a lease obligation, ownership (and risk of loss) of the funds passes to the landlord by operation of law (a consequence that we assume follows under the leases in question here). The fact that, for his or her part under the lease, the landlord is obligated to do certain things, such as maintain the premises, means that the tenant has a potential cause of action against the landlord for a breach of that obligation, but this contingency (or even a money judgment) does not give rise to an ownership interest by the tenant in any of the rental payments or in any other of the landlord's funds.
Accordingly, the deposit that you describe would not be insured by the FDIC as owned by the tenants, but would be treated as owned by the landlord's receiver.
If you wish to discuss this matter, please telephone me at (202) 898-3733.