Bulletin: NY000042

Date:
March 24, 1994
To:
All New York State Counsel, Underwriters, Managers and Agents
RE:
The Impact of Sec. 1317 of the New York Abandoned Property Law on Escrow Deposits

Dear Associates:

Pursuant to a new section 1317 of the Abandoned Property Law (Chapter 57 of the Laws of 1993), escrow deposits collected by title companies, their agents or representatives as an inducement to issue a title policy, which become 3 or more years old (measured from the date of deposit) as of December 31 of any year must be turned over to the State Comptroller as abandoned property unless there has been written communication from the depositor or other person claiming the deposit (within the 3 year period).

The statute requires that an Escrow Agent (which, for purposes of this memo can be either a title company, title agent or representative) notify the depositor at his last known address, in writing, by first class or certified mail, that the deposit will be sent to the State Comptroller unless the Escrow Agent receives written communication from the depositor claiming the deposit prior to its delivery to the State Comptroller. This notice is to be sent to the depositor in the year prior to the year in which the deposit is required to be delivered to the State Comptroller.

If an escrow deposit becomes abandoned as of December 31 within the definition of Section 1317, it must be turned over to the State Comptroller within the first 10 days of March in each year.

The statute further requires the Escrow Agent to retain records of the names and addresses of the depositors and lienholders and any other records needed to establish the identity of the party entitled to these escrow deposits.

In the event that an escrow deposit is turned over to the State Comptroller as abandoned property under this statute, it does not affect or impair the rights of the depositor or the obligations of the Escrow agent under the escrow deposit agreement. It is conceivable, therefore, that an Escrow Agent, having turned over funds pursuant to the statute could be required to pay off a judgment or lien from its own funds, and then seek reimbursement from the State Controller.

As a result of the enactment of Section 1317, the following guidelines should be implemented:

1. An annual review should be made by each Escrow Agent of all escrow deposits it is holding to determine whether any escrow will become 3 or more years old as of December 31 of the year under review.

2. Where an escrow will become 3 or more years old as of December 31, and the lien or judgment for which it was taken has expired or been satisfied of record, it should be returned to the depositor;

3. Where an escrow will be 3 or more years old as of December 31 and the lien or judgment has not expired or been satisfied, a letter must be sent no later than October 1, by first class or certified mail, to the depositor at his last known address advising that the escrow fund will be delivered to the State Comptroller in accordance with Sec. 1317 of the Abandoned Property Law unless notice is sent to the Company in writing that the depositor is claiming the funds. A sample letter is attached and marked Exhibit A.

4. Where written notification claiming the deposit is received, the Escrow Agent should not turn over the funds to the State Comptroller but should continue to hold the funds for another 3 year period or until the lien or item for which the escrow was taken has been disposed of (but not beyond the additional 3 year period).

5. Where no written response is received, the Escrow Agent must turn over the escrow deposit to the State Comptroller within the first 10 days of March in the year following the year under review (e.g., if an escrow becomes 3 or more years old as of December 31, 1994, it must be turned over to the State between March 1, and March 10, 1995.

Fortunately, because Stewart Title is a relative newcomer to this jurisdiction, there should not be very many escrows that would be considered abandoned property under Section 1317 at this time.

Escrows Taken For Liens Held by the City of New York:

As a further complication to the escrow deposit situation described above, the City of New York and a number of title insurers agreed to a settlement of a lawsuit relating to escrow deposits taken to insure over municipal liens. (Please note that agents were not parties to the City lawsuit and are not bound by the settlement unless the escrow funds collected by an agent had been deposited with the title insurer.) This Company was not a party to the action, but is considering an adoption of a form of the agreement reached between the City and the title insurers.

If such an agreement is reached, the person making the annual review described in Item 1 above would have to split those escrows that become 3 or more years old as of December 31 of the year under review into 3 groups:

1. those escrows taken solely for non-municipal type liens (Non-Municipal Escrows, e.g. state tax warrants, private judgments, federal tax liens, etc.);

2. those escrows taken solely for municipal type liens (Municipal Escrows, e.g., parking violations, N.Y.C. General Corporation Tax, N.Y. City judgment, etc.);

3. those escrows which apply to both Municipal and Non-Municipal type liens.

The Non-Municipal escrows should be handled as outlined in Items 1 through 5 above. For Municipal Escrows, the only change from the above-mentioned procedure would be that the letter sent to the depositor in Item 3 would be slightly different (a copy of a specimen letter is attached and marked Exhibit B), and if no response is received from the depositor, the municipal liens would be turned over to the City of New York, not to the State Comptroller, prior to December 31, of the year in which the escrow becomes 3 or more years old. For those escrows which were taken for both Municipal and Non-Municipal liens, an allocation would have to be made between the two categories. In the event that no response to the letter is received form the depositor, the portion allocable to the municipal liens would be sent to the City and the remainder to the State.

The enactment of Sec. 1317 and the City lawsuit are indications that state and local governmental agencies are looking at the industry as a vehicle for collecting their judgments. For the present and immediate future, the escrow deposit procedure should continue. However, escrows should not be encouraged and the period for performance under escrow deposit agreements must be for a limited duration, not to exceed 120 days in most cases, and in no event should any escrow be held for more than 2 years. (Should there be an important reason why an escrow should be held beyond the 2 year period, approval must be obtained from Company Underwriting Counsel prior to closing of title.)

Any escrow agreement taken in connection with New York City municipal liens must clearly indicate that if the depositor does not perform within the time period specified in the deposit agreement, the Company will pay (not merely continue holding) the funds to the City of New York to satisfy the lien or encumbrance. The Company escrow agreement will be revised to include such a provision. In the interim, closing representatives should make such a notation in Company escrow agreements.

If you have any questions on this matter, please contact the Underwriting Counsel.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

EXHIBIT A

October 1, 19**

Re: Escrow Deposit Agreement dated: Title No.: Premises:

Dear :

Under the terms of our Escrow Deposit Agreement dated ____________________, a copy of which is attached, the Depositor agreed to produce satisfactory proof of payment by a performance date of __________________.

We request that you contact this office and immediately advise as to your progress in disposing of the items mentioned in the Escrow Agreement.

Please be aware that in accordance with the New York Abandoned Property Law any unclaimed security deposit held by a title insurer, title agent or representative, which becomes 3 or more years old measured from the date of deposit, is deemed abandoned and must be turned over to the Comptroller of the State of New York.

If you are claiming the escrow funds and do not want them deemed abandoned and turned over to the State Comptroller, please sign a copy of this letter in the space provided below and return it to the undersigned by November 1, 19____.

If this office does not hear from you, we will dispose of the funds either in accordance with the terms of the escrow agreement or turn them over to the State Comptroller as abandoned property.

Thank you for your courtesy and cooperation.

Very truly yours,

______________________________ Depositor

EXHIBIT B

October 1, 19**

Re: Escrow Deposit Agreement dated: Title No.: Premises:

Dear :

Under the terms of an Escrow Deposit Agreement dated ____________________, a copy of which is attached, the Depositor agreed to produce satisfactory proof of payment or satisfaction of the items referred to in the agreement by a performance date of ____________________. One or all of the items to be paid or disposed of under the agreement was a judgment, lien or other obligation owed to the City of New York or its agencies. (City Liens)

We request that you contact this office and immediately advise as to your progress in disposing of the items mentioned in the Escrow Agreement.

Please be aware that in accordance with the New York Abandoned Property Law, any unclaimed security deposit held by a title insurer, title agent or representative, which becomes 3 or more years old measured from the date of deposit, is deemed abandoned and must be turned over to the Comptroller of the State of New York.

If you are claiming the escrow funds and do not want them deemed abandoned and turned over to the State Comptroller, please sign a copy of this letter in the space provided below and return it to the undersigned by November 1, 19____.

If this office does not hear from you, we will dispose of the funds either in accordance with the terms of the escrow agreement, pursuant to agreement reached with the City of New York with respect to City Liens or turn them over to the State Comptroller as abandoned property.

Thanks for your courtesy and cooperation.

Very truly yours,

_______________________________ Depositor

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None