By Madison L. Mackenzie, Associate Legal Counsel I
Do you have “dormant” funds sitting in your trust or escrow account? Maybe a tenant failed to provide a forwarding address for you to return his or her tenant security deposit or maybe you received an earnest money deposit from a buyer who was never heard from again. If those funds are still sitting in your trust account after time has passed, it could pose a problem.
All businesses operating in North Carolina are subject to the State’s Unclaimed Property laws, codified in Chapter 116B, Article 4 of the North Carolina General Statutes.
These laws require all businesses to review their accounting records annually and determine whether they are in possession of any dormant unclaimed property. If they are, the business is required to file a report with the Unclaimed Property Division of the N.C. Department of State Treasurer and remit the unclaimed property. Failure to file this report and properly remit unclaimed property can result in interest charges, a $1,000 civil penalty for each day of delinquency, and a penalty equal to 25% of the value of the unreported property.
Any real estate firm with a trust account holding money on behalf of others is a potential holder of unclaimed property and is therefore subject to these laws. The N.C. Department of State Treasurer has outlined four steps to identify unclaimed property and properly report it.
1. Identify Property that Should be Reported
Property is unclaimed if the apparent owner has not communicated with the holder of the funds or indicated an interest in the property within a period of time known as the “dormancy period.” The dormancy period varies depending on the type of property being held. In most cases, the dormancy period for funds in an agent’s trust account is five years. However, disputed funds are not unclaimed property and should never be remitted to the State Treasurer.
For most holders, November 1st is the due date to report all unclaimed property that has reached its dormancy holding period as of the prior June 30th. The State Treasurer provides conversion tables on its website to assist with determining when reporting is due.
2. Attempt to Locate the Owners
Prior to reporting unclaimed property that has reached its dormancy holding period, the agent must make an attempt to contact the apparent owner in writing when the property being held exceeds $50. The State Treasurer refers to this written notice as a “due diligence letter,” not to be confused with the due diligence associated with real estate transactions. This notice to the apparent owner must be mailed not more than 120 days or less than 60 days from the reporting due date.
If the agent is unsuccessful in identifying the apparent owner of the funds, the agent should contact the State Treasurer for further assistance. The property will still need to be reported and remitted, even if the apparent owner is unknown.
3. Prepare your Report
The report(s) required will depend on the type of unclaimed property being reported. Most likely, the agent will be reporting unclaimed “cash”; and therefore, will need to complete the Unclaimed Property Verification Report (ASD-159) and Form ASD-21.
The agent should be prepared to provide names, last known addresses, social security or tax identification numbers, dates of birth, driver license numbers, and email addresses of the apparent owners, if known by the agent. Any other information that may be available to help in identifying the owner should be reported with each property.
4. Submit your Report and Remit Funds Due
If the agent is reporting less than 50 property owner records, the report can be filed electronically or in paper form. If more than 50 properties, the report must be filed electronically. Remitting unclaimed funds can be done by check or ACH or Wire Transfer.
For reports filed after July 16, 2012, the records accompanying the report must be retained for 5 years from the date the report is filed. (Note: record retention for reports filed before July 16, 2012 remains at 10 years.)
No report is required if there is no unclaimed property identified in the agent’s financial review. Additionally, filing extensions may be granted for good cause.
For further information, The North Carolina Holder Reporting Guide produced by the N.C. Department of State Treasurer can be found at https://www.nctreasurer.com/upp/Resources/NC_Holder_Reporting_Guide.pdf.
What you can do to Prevent Unclaimed Property? Keeping proper and current trust accounting records will keep you from later discovering a trove of unclaimed property. Ensure that accounts are reconciled timely and resolve all exceptions, review uncashed checks in ledger accounts, and review unusual journal entries.
The real estate firm is relieved of liability once they have remitted dormant unclaimed property to the State. If the apparent owner later wishes to claim the property, they must direct that claim to the State. Also, the real estate firm avoids fines and penalties by properly and timely reporting unclaimed property.
Unclaimed property laws also apply to accounts other than trust or escrow accounts. To learn more about your responsibilities as a real estate agent or firm when it comes to unclaimed property, contact the North Carolina Unclaimed Property compliance staff at unclaimed.property@nctreasurer.com or by calling 919-814-4200.
To stay up-to-date on new laws and legislation that affect your responsibilities as an unclaimed property holder, sign up for Holder Reporting e-Updates provided by the N.C. Department of State Treasurer at https://2ec804.campgn5.com/UP-Business-Holders.