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4000 - Advisory Opinions
Deposits of Real Estate Trust Account ("RETA") Program
Established by State Statute May, Like IOLTA Deposits, Be Held in NOW
Accounts
FDIC-91-86
November 18, 1991
Jules Bernard, Counsel
In your letter of November 4, 1991, you describe the North Dakota
Real Estate Trust Account (RETA) program. You write:
The North Dakota Real Estate Trust Account program was
established by statute passed by the North Dakota Legislature effective
July 1, 1991. It requires real estate brokers to establish interest
bearing trust accounts for client and customer funds in real estate
transactions. Under the statute, the recipient of these
funds 1
is the Real Estate Trust Account Committee. The Committee is required
to use the funds for charitable purposes . . . (Section 43-032.4-02,
North Dakota Century Code). The same section requires that no funds may
be disbursed for any purpose other than purposes permitted under
Section 501(c)(3) of the Internal Revenue Code. . . . Application has
been made to the Internal
{{2-28-92 p.4597}}Revenue Service for recognition of the
Real Estate Trust Account Committee as a 501(c)(3) entity.
You also enclose an opinion issued by the Attorney General of North
Dakota in which the Attorney General declares:
Based upon by examination of N.D.C.C. § 43--23.4--02, it is
my opinion that the real estate trust account committee holds the
beneficial interest in the interest income earned on real estate
interest-bearing accounts under the broker trust account program
because it has the exclusive right to the interest on the funds
maintained in the program.
Letter from Nicholas Spaeth, Esq., Attorney General,
North Dakota, to Mr. Dennis Schulz, Secretary-Treasurer, North Dakota
Real Estate Comm'n, October 25, 1991.
You ask whether funds held in insured nonmember banks pursuant to
the RETA program ("RETA deposits") may lawfully be placed in NOW
accounts. 2
In my view, the North Dakota RETA program is similar in its relevant
features to the Interest On Lawyer Trust Accounts ("IOLTA")
programs that a number of States have established. These are programs
established under State law pursuant to which lawyers who hold customer
funds on deposit must place the funds in interest-bearing accounts. The
interest on the funds is to be paid to an entity (generally the State
Bar Association) that is exempt from tax pursuant to section 501(c)(3)
of the Internal Revenue Code; the interest so paid is to be used for
certain charitable purposes specified by State law.
The FDIC staff has said on several occasions that funds held in
interest-bearing accounts pursuant to IOLTA programs ("IOLTA
deposits") may be held in NOW accounts in insured nonmember banks.
(Copies of letters enclosed.) As I understand the FDIC staff's present
view of the matter, an IOLTA deposit may be held in a NOW account if,
under State law as formally interpreted by the State Attorney General,
the interest on the IOLTA deposit must be paid to an entity that
qualifies as a nonprofit organization under section 501(c)(3) of the
Internal Revenue Code. In this respect the FDIC staff espouses the same
general view as that expressed by the Federal Reserve Board staff in
the Staff Opinion of November 5, 1984, 1 Fed. Res. Reg. Serv.
2--341.12, (which I believe to be the same letter as the one you
cite in your inquiry).
The rationale regarding IOLTA deposits seems to me to be equally
applicable to RETA deposits. Accordingly, in my judgment, the present
position of the FDIC legal staff is that RETA deposits may likewise be
placed in NOW accounts.
I must caution you that the views I express in this letter are those
of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal
interpretations of its rules, but only pursuant to rule-making
proceedings. See, e.g., 12 C.F.R. § 329.102 (interpreting
id. § 329.1(b)(3)). The FDIC does not issue formal
interpretations in the form of individual letters or rulings on
particular cases.
If you have any further questions about this matter, or if I can
help you in any other way, please call me at (202)
898-3731.
1I take it that, by "these funds," you mean to refer to
the interest paid by the institution, and not to the principal
amounts. Go Back to Text
2"NOW accounts" are interest-bearing accounts that are
exempt from the withdrawal restrictions that ordinarily apply to
interest-bearing accounts. See 12 U.S.C. § 329.1(b)(3). Go Back to Text
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