Unclaimed Property Act

The Unclaimed Property Act: Does It Apply to You? 

 by Steve Bochenek, IAR Legal Counsel

It has been traditional in the state of Illinois for a real estate brokerage company representing one of the parties in a residential real estate transaction to hold earnest money from the transaction in escrow. The Real Estate License Act of 2000 and the rules promulgated thereunder contain a number of provisions concerning the proper handling of such accounts. Perhaps one of the more nettlesome issues surrounding the handling of those funds is what to do with the funds if the transaction never occurs and the parties cannot agree on how the funds held in escrow should be distributed.

Under the Real Estate License Act of 2000, if the parties disagree on the distribution of the escrowed funds, then the licensee acting as escrow agent must continue to hold those funds. One option is for the licensee/escrow agent to file an interpleader action, deposit the escrowed funds with the court, and allow the court to determine who should receive the escrowed monies. However, as the years go by and the parties move away, most licensee/ escrow agents find themselves with some escrowed funds that they continue to hold, they cannot find the parties, and are unsure of how to dispose of those funds. In addition, the bookkeeping for these old funds can be problematic.

The Uniform Disposition of Unclaimed Property Act (the “Act”) (765 ILCS 1025/1 et seq.) can be very helpful in disposing of old, unclaimed escrowed funds. Section 2a of the Act provides that all business associations are required to report to the State Treasurer all property, and any earnings on that property, which have remained unclaimed for five years. The term “business association” is defined in Section 1 of the Act in such a way as to include most businesses and certainly all real estate brokerage companies. In addition, Section 7 of the Act also provides that monies held in a fiduciary capacity are presumed to be abandoned if held for five years by the fiduciary. Based on these sections, it becomes clear that the Act not only provides a mechanism for disposing of unclaimed earnest monies but requires unclaimed earnest monies to be turned over to the State Treasurer if these funds remain unclaimed for five years.

In order to comply with the Act as it regards escrow accounts, you ought to check your escrow accounts annually. If that examination indicates earnest monies that have been held for more than five years, then these ought to be reported to the State Treasurer. Information concerning how to report unclaimed funds is available from the Web site of the State Treasurer, www.state.il.us/treas, or you can contact the Office of the State Treasurer to obtain the necessary forms. Prior to submitting the report to the State Treasurer, the escrow agent will need to give notice to the parties who might be entitled to the monies at their last known address. The escrow agent will then transfer the unclaimed funds to the State Treasurer along with the filing of the report. Following the statutory procedures under the Act will not violate the responsibilities of the licensee under the Real Estate License Act of 2000.

The Act also applies to real estate brokerage entities in ways which are not as obvious as unclaimed earnest money. Section 2a of the Act, which makes the Act applicable to business associations (including real estate brokerage companies) also talks about the types of unclaimed property to which the Act applies. Section 2a indicates that the Act applies to items such as unclaimed wages, unpaid commissions, checks written off, amounts due to customers or deposits or payments for the purchase of services. Thus, for example, wages owed by a brokerage company to a former employee or commissions owed to a former salesperson would be considered as unclaimed property after five years. The company would need to provide notice of the unclaimed property to the last known address of the employee or salesperson, file a report with the State Treasurer, and remit the amount of the unclaimed property to the State Treasurer. This same procedure would also apply to the other types of property not exempted from coverage by the Act.

Section 2a also contains one major exemption from the types of property covered by the Act. Property owed by one business association to another business association in the normal and ordinary course of business activities is exempt from the coverage of the Act. This exemption will probably cover most of the property that a brokerage entity might otherwise need to report as “unclaimed.”

Business associations are required to file annual reports with the State Treasurer concerning unclaimed property. Failure to do so can result in fines, administrative charges, fees and interest being assessed. In addition, the State Treasurer is authorized to conduct audits of business associations to determine compliance with the Act.

Additional information concerning the Act and its requirements can be obtained through the State Treasurer’s Web site at www.state.il.us/treas.

Adapted from the DR Exclusive, June 2003