Thursday, September 30, 2010

States Make Creative Attempts to Return Unclaimed Property

We've been spending a lot of time here recently documenting efforts by states to use unclaimed property as revenue.  It's only fair to spend some time talking about the creative methods some states using to try return unclaimed property to its rightful owners.  In some states, efforts to reunite unclaimed property owners with their funds begin and end with the maintenance of an unclaimed property database, and an annual publication of owner's of unclaimed property buried in one or two issues of a county newspaper.  In other states, however, the unclaimed property offices go above and beyond the publication requirements imposed by the Uniform Unclaimed Property Act.

In Oklahoma, for example, the state unclaimed property department paid out nearly $400,000 in unclaimed property to more than 500 people through a booth at the State Fair.  Thus, in addition to being able to see the "Dairy Showmanship" competition, the "Okie Karaoke" competition, and a performance of Disney on Ice (TM), some lucky Sooners were able to come away with cash.

In Kentucky, perhaps inspired by the recently passed Talk Like A Pirate Day, the State Treasurer is hosting "Treasure Finder's Day" at the Fleming County Library on October 6th.

So, whether its at the State Fair or the local library, some states are making an effort to repay unclaimed property.  If anyone is aware of other unique methods being used, drop us a line here.

Wednesday, September 29, 2010

Using Unclaimed Property to Balance the Budget

The Detroit News has a very interesting editorial which is quite critical of Michigan's proposal to shorten unclaimed property dormancy periods to balance the budget.  As we've discussed, states holding unclaimed property generally only keep a small amount in trust to pay owner claims, and use the rest as general revenue.  Accordingly, states faced with budget deficits - such as Michigan - are tempted to tighten unclaimed property laws in order to increase the amount of money brought in. 

As the editorial points out, however, this is really only a temporary measure.  Unclaimed property brought in earlier is unclaimed property not brought in later.  According to the Michigan House Fiscal Agency, although the shortening of dormancy to 3 years (from 5) will increase the amount of money brought in over the next two years, it will decrease that amount for the following three years.  Moreover, this money does not belong to the state, but is rather money that it is holding in custody for the rightful owner, and is subject to claim by that owner at any time. 

Thus, while unclaimed property can be used in a pinch to cover state budget gaps, it is not a long term solution.

Tuesday, September 28, 2010

Auctioning Unclaimed Property in Missouri

State unclaimed property laws generally apply to most "intangible" items held or issued by banks and financial institutions.  This includes dormant checking and savings accounts, uncashed cashier's checks, and unclaimed CDs (this kind, not these).  But what happens to abandoned safe deposit  boxes?  State unclaimed property laws apply to those as well.  Section 3 of the 1995 Uniform Unclaimed Property Act, which has been enacted in several states, provides that:  "Tangible property held in a safe deposit box or other safekeeping depository in this State in the ordinary course of the holder’s business . . . are presumed abandoned if the property remains unclaimed by the owner for more than five years after expiration of the lease or rental period on the box or other depository."

Thus, thousands of birth certificates, deeds, collectibles, and other items are escheated to the states every year.  The states, in turn, do not maintain an end-of-Raiders-of-the-Lost-Ark-style warehouse to keep all of these items.  Generally, the items with some value are auctioned off to the public, and those with no commercial value are destroyed.  For example, last week the State of Missouri held an unclaimed property auction, which raised more than $100,000 for owners.  Among the items that sold were an autographed Pete Rose baseball, a metal toothpick, a November 1985 issue Sports Illustrated (presumably this one), and a fanny pack (which sold for $1).

Monday, September 27, 2010

NJ Unclaimed Property Changes -- The Saga Continues

New Jersey's attempts to apply the state unclaimed property laws to stored value cards (gift cards) and similar instruments has not gone smoothly.  The process (and governing requirements) seem to change on a weekly basis, and continue to evolve. 

The Treasury Department recently released another announcement providing guidance on implementation of the stored value card law.  First, the Treausry has decided to exempt "prepaid phone cards" from the requirements of the unclaimed property act.  As we mentioned earlier, a bill was already pending before the legislature to institute such an exemption.  Most notably, the Treasurer has decided to eliminate the requirement that stored value card issuers collect name and address information from the purchaser.  Instead, the Treasury has determined that obtaining the zip code of the purchaser is sufficient.  The announcement also provides that, effective November 1, 2010, the following guidelines will be in place:
  • Prepaid phone cards redeemable in minutes will be exempt from the Act, but cards issued by telephone companies redeemable in cash or for prepaid services will not be exempt;
  • Holders that obtain name and address information for stored value card purchasers in the normal course of business will be required to continue to obtain that information;
  • Holders that require a stored value card recipient to "register" the card will be required to obtain name and address information during the registration process, and will be required to retain that information;
  • For holders who do not obtain such information, they will be required to obtain the zip code of the purchaser;
Separately, a new bill has been introduced in the New Jersey State Assembly that would effectively undo all of the recent changes to the state Unclaimed Property Act.  Assembly Bill 3250 would remove all references in the Act to "stored value cards," increase the dormancy period for traveler's checks back to 15 years, and increase the money order dormancy period back to 7 years.  The bill is currently pending before the Assembly Appropriations Committee.  Of course, unless and until the bill passes, the current unclaimed property laws will remain in effect.

Friday, September 24, 2010

Did You Know?

It's time again for Did You Know?  On Fridays here at Escheatable, we provide you with interesting information regarding the unclaimed property laws to amaze your friends and frighten your enemies.  Today's entry is from Michigan:

Getting Unclaimed Property From Them Was Like Pulling Teeth

According to the Michigan Holder Reporting Guide, the state Unclaimed Property Division will not accept dentures "unless they contain gold fillings."  Diamond grills appear not to be included.

Thursday, September 23, 2010

UPPO Comments on Proposed Michigan Legislation

As we've covered, Michigan is attempting to close part of its budget gap by radically changing the state unclaimed property act.  Under the proposed legislation, most dormancy periods would shorten to 3 years, and the state would require reporting and remittance to take place for 3 different periods over the next 3 years. 

Yesterday, the Unclaimed Property Professionals Organization issued letters  to the Chairmen of the Appropriation Committee setting forth several well thought-out concerns regarding the legislation (aside from the shortening of the dormancy periods).  For those who might be unfamiliar with UPPO, it is a not-for-profit advocacy association that provides education, networking, and advocacy for the holders of unclaimed property (disclosure:  I am a member of UPPO). 

While the UPPO's concerns are worth reviewing in full, the feature of the new law that sticks out the most is its use of several different reporting periods.  Presumably because funds are needed on a rolling basis to balance the state budget, the Michigan legislation has three different reporting periods.  First, the "usual" November 1, 2010 deadline will remain in place.  Next, there will be a second report due July 1, 2011 for property deemed unclaimed for the 9 month period of July 1, 2010 to March 30, 2011.  Thereafter, reports will be due July 1 for property deemed abandoned as of the preceding March 30.  These reporting and cutoff dates are not used by any other state.

What is striking about these different dates is that there would seem to be no rational reason for them except, as noted, to keep unclaimed funds coming into state coffers on a regular basis.  While it has always been understood that unclaimed funds in the possession of the state would be used for other purposes, this is perhaps the most explicit example of the unclaimed property laws being overtly used to generate state revenue.


Wednesday, September 22, 2010

A Look at the Other Side: Unclaimed Property "Finders"

We spend a lot of time here at Escheatable talking about the rights, obligations, and practices of unclaimed property holders.  Today, we look at the other side - unclaimed property finder firms.  Generally, these firms will locate unclaimed property (from state unclaimed property databases, court records, and/or using information provided by a holder), find and contact the apparent owner, and offer to handle the reclaim process -- usually in exchange for a significant percentage of the claimed funds. 

These finder firms are subject to widely differing regulation from state to state.  In some states, such as Oregon, finders must be licensed by the state.  In other states, there is no licensing process, but the state unclaimed property act limits the fees that can be charged.  In North Carolina, for example, the Attorney General's office recently announced that it took action against a finder firm for charging finder's fees in excess of the twenty percent permitted by law.

A recent case from New Jersey involving a finder firm demonstrates that finder contracts will be thoroughly scrutinized by the courts.  Haven Savings Bank v. Zanolini involved two separate contracts (the Anderson Contract and the Zanolini Contract) pursuant to which a finder firm -- Global Discoveries, Ltd. -- agreed to assist with the reclaim of surplus funds generated by a sheriff's sale.  In both cases, Global contracted for a 35% share of the claimed property, the maximum amount permitted by law (see N.J.S.A. 46:30B-106).  After the lower court refused to enforce either contract as written, the Appellate Division allowed Global to collect its 35% contingency fee with respect to the Anderson Contract, but not pursuant to the Zanolini Contract.  In so doing, the court made clear that although it would allow the 35% fee, it would insist that such a finder contract comply with all legal requirements. 

Pursuant to N.J.S.A. 46:30B-106, a finder may charge a fee of 35% if (a) the property is not yet dormant; (b) there is a signed agreement between the finder and the owner; (c) the agreement sets forth the "nature and value" of the property; and (d) the agreement sets forth the value of the "owner's share" after the property is recovered.  Both the Anderson and Zanolini Contracts met the first three requirements, but the Zanolini Contract did not set forth the value of the "owner's share."  The fact that the "owner's share" of the property could have been determined from the contract and a calculator was of no moment to the Appellate Division.  Instead, the Appellate Division determined that Global's failure to include that information in the agreement itself  "leads inexorably to the conclusion that the Zanolini contract is simply not valid under the plain terms of the statute."   

Accordingly, although some state unclaimed property laws allow finders to charge substantial fees, the Haven case is a reminder that the courts will insist upon total compliance with the letter of the law.

Tuesday, September 21, 2010

NJ Publishes Gift Card Reporting Guidelines

Pursuant to new legislation enacted earlier this summer (see prior coverage here and here), holders will have to begin reporting stored value cards, such as gift cards, to the State of New Jersey as unclaimed property.  In order to facilitate holders' first-time reporting of this property, the New Jersey Department of Treasury has recently published guidelines for the reporting of stored value cards.

Under New Jersey law, unclaimed property reports are due on or before November 1.  The guidelines issued by the Treasury Department suggest (but do not require) that holders file two separate reports:  one for stored-value cards, and one for all other property.  Among other provisions, the guidelines also provide that:
  • Holders should not report gift cards in the aggregate (regardless of dollar amount).
  • "Pay cards" - stored value cards issued in place of wages - have a 1 year dormancy period.
  • there is a 5 year reach back period for stored value cards - all items with issue dates of July 1, 2003 are subject to the Act.  There is no reach-back period for pay cards - all items are subject to the Act.
  • Property type MS12 should be used for most stored value cards, property type MS01 for pay cards.
  • Ifthere is no owner address information, the holder should list the zip code of where the card was sold.

Monday, September 20, 2010

New Jersey: More Pending Stored Value Card Activity

As we reported earlier, New Jersey enacted extensive new legislation regarding stored value cards.  Under the new law, gift card issuers are required to report and remit balances for cards belonging to New Jersey residents that have been inactive for more than 2 years.  In addition, the new law also requires gift card issuers to obtain the name and address of the card purchaser or owner (though that requirement is currently suspended until at least October 1).

Early last week, a new bill was introduced that would exempt cards "redeemable for long-distance telephone service," "wireless telephone service," and similar cards.  The bill is currently pending before state Assembly.

Friday, September 17, 2010

Did You Know? Friday

It's time again for Did You Know?  On Fridays here at Escheatable, we provide you with interesting information regarding the unclaimed property laws to amaze your friends and frighten your enemies.  Today from Oregon:

They broke the mold.  No, seriously.  They were legally required to break the thing.

Under Oregon law, if a customer does not claim or use a mold after 3 years, "the molder shall render the mold unusable as a mold . . . ."

Source:  Or. Rev. Stat. 98.485.

As always, if you have a suggestion for a Did You Know? entry, or any other unclaimed property information you would like to see, drop us a line here.

Enjoy the weekend! 

Thursday, September 16, 2010

Finding the Owners of Unclaimed Property -- Here's a Hint: Look to the Left of Nevada

We've run a few articles demonstrating that the owners of unclaimed property are often not unknown individuals with no heirs or companies long out of business.  Oftentimes, the owners of unclaimed property can be found in some pretty public places: at the Oscars,  patrolling the sidelines for the New England Patriots, or at the top of the American League East.

But this one takes the cake.  As reported by Fox 40 News in Sacramento, California the State of California is holding funds in the unclaimed property trust fund for -- wait for it -- the State of California.  On the one hand, this is pretty good news for the state.  After all, California is currently facing a $19 billion (yes, with a "b") budget deficit.  It does, however, raise some issues.  First, and most obvious, California's efforts to reunite holders with their money (which have already been the subject of one federal court injunction) can't be particularly effective if the State can't inform itself of its own funds.  Second, the property being reported is money that individuals and companies have tried to pay the State, and the State has failed or refused to accept the money (e.g., by failing to cash a check), so there is a larger bookkeeping issue somewhere.  Finally, precisely why is anyone having difficultly locating the owner?  Try looking here.

Wednesday, September 15, 2010

California Preemption Decison with Unclaimed Property Implications

A recent opinion of the California Court of Appeal relating to the preemption of a California consumer protection statute has implications for state unclaimed property laws.  In Tanen v. Southwest Airlines, the court ruled that state-law claims relating to the redemption of Southwest "travel certificates" were preempted by the federal Airline Deregulation Act ("ADA").  Although the Tanen case did not specifically deal with the California Unclaimed Property Act, the court's preemption rationale is likewise applicable to the unclaimed property laws of those states who seek to take possession of unused airline tickets.  A brief summary of Tanen is as follows:

According to the complaint, Tanen purchased a $100 travel certificate from Southwest in February of 2005.  Southwest's travel certificates are redeemable toward the purchase of an airline ticket, food and drinks on flights, and Southwest vacation packages.  The travel certificate order form indicated that "[a]ll gift certificates expire one year from the date of issue and will not be extended unless prohibited by law."  Tanen's travel certificate expired in February of 2006, and he brought suit against Southwest in May of 2006.  Tanen alleged, among other things, that the one year expiration date violated Section 1749.5 of the California Civil Code, which generally prohibits the imposition of expiration dates on gift certificates and related items.

In opposition to the suit, Southwest argued that Tanen's claims were preempted by the Airline Deregulation Act, which preempts state laws relating to the "price[s], route[s] or service[s] of an air carrier."  The lower court ruled that because the travel certificates could be redeemed for tickets, the were "at the heart of what the ADA sought to preempt," and dismissed the complaint.  On appeal, the Second District Court of Appeal affirmed.  The court concluded that Section 1749.5 related to airline "services," and was thus preempted, because enforcement of the prohibition against expiration dates would have the effect of requiring airlines "to offer travel certificates that are redeemable at any time, rather than permit them to offer travel certificates with varying expiration dates."  The court also noted that its decision was consistent with other cases in which courts concluded that state consumer protection laws could not prevent airlines from offering nonrefundable tickets.  Accordingly, the court affirmed the dismissal of the complaint, and awarded Southwest appeal costs.

Though the Tanen case did not address California's unclaimed property laws, the court's logic is no less applicable to state attempts to bring unused airline tickets within the scope of their unclaimed property laws.  Although unused airline tickets are expressly exempt in some states (such as Alaska), there are numerous states whose unclaimed property acts expressly apply to such items (e.g., Mississippi, Oklahoma, Utah, Colorado, and Oregon).  Much the same as enforcement of the California consumer protection law was preempted because its enforcement would have the effect of requiring airlines to offer a product that they did not (non-expiring gift certificates), the application of state unclaimed property laws would likewise require airlines to offer airline tickets that are valid in perpetuity.  As a practical matter, I don't know if any airline actually escheats unused airline tickets, or whether the states with such laws seek to enforce the requirement.  If so, it will be interesting to see if airlines seek to use the Tanen decision to avoid escheating these items in the future.

Tuesday, September 14, 2010

The Screen Actors Guild & Unclaimed Royalties (a Sequel)

Hollywood loves sequels.

The Associated Press is reporting today that the Screen Actors Guild has settled a lawsuit with Ken Osmond (better known as Eddie Haskell from Leave it to Beaver) regarding foreign royalties relating to videos and cable reruns.  These moneys were collected by foreign "royalty societies" but never paid to, or claimed by, the owners/performers due the royalties.  Instead, these moneys were allegedly held by the Screen Actors Guild.

According to the The Hollywood Reporter, part of the problem was that "some shows, especially older programs, make it difficult to determine the payments based on compensation. The typical payments will be less than $50, with a minimum requirement of $10 to trigger the cutting of a check."  In other words, this was the typical high volume, low dollar amount property that generally winds up in the hands of the state as unclaimed property.  According to the SAG's General Counsel the royalties represented "money that would otherwise have gone unclaimed and been lost to [the actors] forever . . . ."  Certainly that is disputable as a matter of unclaimed property law, but it's good that the performers will get the money to which they are entitled.

Notably, this is not the Screen Actors Guild's first time at the unclaimed property rodeo.  One of the most well-known cases in unclaimed property law is Screen Actors Guild v. Cory, a 1979 California case that is one of seminal judicial opinions on "private escheat."  Generally, the prohibition against private escheat is an unclaimed property law doctrine that a holder cannot enforce contractual terms which have the effect of transferring ownership of unclaimed property from the owner to the holder.  While this is a judicially recognized doctrine in some states, in others it is codified in the law.  For example, under Delaware law "[a]ny provision in a certificate of incorporation, by law, trust agreement, contract or any other writing . . . relating to property . . . which provides that upon the owner's failure to act or make a claim regarding property . . . that such property reverts to or becomes the property of the holder, in contravention of this chapter, shall be void and unenforceable."

In Screen Actors Guild v. Cory, the SAG claimed that certain undistributed royalties were not escheatable to California because of a SAG membership bylaw "if after six years a member does not claim his residual funds, they are automatically assigned to plaintiff for the use of its membership."  The California court determined that the bylaw was contrary to public policy, reasoning that it was "void as a private escheat law obviously designed to frustrate operation of the UPL."  While the Court's opinion is worth reviewing, its logic is succintly summarized in its last sentence:"In short, a private escheat law cannot circumvent the effect of a public one." 

Let's hope that there is not a third installment of this story.

Monday, September 13, 2010

Interesting Two Part Series on Canadian Unclaimed Property

Over this past weekend, the Edmonton Journal ran an interesting two-part series on Canadian unclaimed property. Though the articles were similar to countless articles run in local papers throughout the U.S., they underscored two issues that have been discussed recently on this blog.  First, that many owners of unclaimed funds are not deceased, lost, or untraceable in any way, they simply have not claimed their funds.  Second, many of the entities having unclaimed funds can certainly use the extra money. 

The first article gives an overview of the Canadian unclaimed property law landscape and mentions, as have others, that there are often unclaimed funds belonging to well-known (and easily found) owners.  Not only are there the countless small-dollar (or, in this case, small Loonie) items that owners don't claim, but there are also those, like the Canadian university discussed in the story, that refuse to claim property because of a good faith belief that the funds are not owed.  In many industries where there are a high volume of transactions between parties, such as the securities industry, calculation differences or balancing discrepancies are commonplace, and a frequent cause of unclaimed property.  When counterparties A and B cannot agree which of A or B are owed funds (especially when the amount at issue is small) the result is often that the broker holding the credit will escheat the funds as unclaimed property.  Though there is an objectively "correct" answer as to whether the funds are due to A or B, the funds instead wind up with neither A nor B; rather, the money winds up with the State.

The second article told the story of Rochelle Treister, who has been responsible for tens of thousands of dollars being sent to charities.  Is she a donor?  Not exactly.  Is she a fundraiser?  Kind of.  But she did not obtain this money by cold-calling donors or sending out unsolicited mailings.  Rather, Ms. Treister searched unclaimed property lists and similar databases for money being held in the name of various charities.  She made sure that charities received thousands of dollars by just ensuring they obtained funds that were already theirs.  That idea works in the United States as well.  For example, a search of the New York Office of Unclaimed Funds database discloses that the American Cancer Society, American Heart Association, and Komen Race for the Cure all have items being held by the OUF.  Ms. Treister's idea is simple, but powerful.  Perhaps there will soon be a way for it to be adopted on a wide-scale basis.

Friday, September 10, 2010

Did You Know? Friday

It's time again for Did You Know?  On Fridays here at Escheatable, we provide you with interesting information regarding the unclaimed property laws to amaze your friends and frighten your enemies.  Today from Ohio:

Forget the thousands in vendor payments, we want the 24 cent Inverted Jenny

Though business to business items are exempt, domestic and foreign coins, coin collections, stamps, and stamp collections are all subject to the Ohio Unclaimed Property Act.

Source:  Ohio Admin Code 1301:10-1(6).

As always, if you have a suggestion for a Did You Know? entry, or any other unclaimed property information you would like to see, drop us a line here.

Enjoy the weekend!

Thursday, September 9, 2010

The State as Custodian, Except When it Isn't

Those who deal with unclaimed property on a regular basis are familiar with the theory that state unclaimed property laws are "custodial" in nature.  The state acquires possession of, but not title to, property that is reported under the law.  In non-legalese, that means the state gets to hold the property, but not necessarily to keep it.  As one state puts it, "[t]he purpose of the [unclaimed property] act is to provide a central repository in each state where citizens can seek any lost property that belongs to them."  Though the view of the state as mere custodian is taken for Gospel, it is far from always the case.  In fact, there are many types of property where the state is not acting as custodian for the "rightful owner" because that owner is either unknown or does not exist.  For example:

Owner-Unknown Property -- We start with the granddaddy of them all.  Under Texas v. New Jersey, unclaimed funds for which the holder does not have owner name or address information gets reported and remitted to the holder's state of incorporation.  By definition, this property is not likely ever to be claimed by its rightful owner, because neither the state nor the holder know who that is.  This is not a minor issue; in many states -- I'm looking at you, Delaware -- the amount of owner-unknown property received annually dwarfs the amounts held for known owners.

Estimated Property -- In connection with an audit of a holder's compliance under the 1995 Uniform Unclaimed Property act, and more recently, under Delaware law, the auditor is expressly permitted to estimate a holder's unclaimed property liability for years where the holder has failed to maintain the required records.  This estimated property is not really "property", but rather an estimation of the holder's liability.  Of course, such estimated amounts paid to the state will never be subject to reclaim by the rightful owner. 

Aggregate Reporting -- This last method, though meant to streamline reporting for holders, is perhaps the least in keeping with the "purpose" of unclaimed property laws.  Most states allow holders to report items under a certain dollar amount (generally $50) in the "aggregate" -- i.e., in one lump sum without owner name or address information.  Because owner name and address is not provided in the report, of course, it cannot be published in a public notice or on the state's website to be found by its rightful owner.  While some states merely give holders the option of reporting in the aggregate, some states take the position that items under the threshold "must" be reported in the aggregate.  To their credit, some states, such as Wyoming, request that holders having name and address detail refrain from aggregate reporting, even though it is permitted by the Uniform Act.  While it is more of an administrative burden to report and remit every name and address, doing so is more in keeping with the stated purpose of the unclaimed property laws.

Of course, as we have explored this week, reuniting owners with their property is not the only motive.  Indeed, in a short statement from the Uniform Law Commissioners (the authors of the various Uniform Unclaimed Property Acts) regarding "Why States Should Adopt the 1995 Uniform Unclaimed Property Act" the very first reason given is "REVENUE."  Accordingly, while a significant purpose of modern unclaimed property laws is to preserve property for its rightful owner, modern escheat laws have developed such that it is not the only purpose.

Wednesday, September 8, 2010

The Inner Workings of Unclaimed Property as State Revenue - A Follow Up on Michigan

As we briefly mentioned earlier, Michigan is attempting to increase state revenue by, among other things, making changes to its unclaimed property laws.  By way of background, Michigan is one of several states whose constitution requires a balanced budget.  And, of course, the current economic environment is decreasing the amount of state revenue collected through taxes and discretionary fees, while at the same time increasing the demand for many state services.  According to recent reports, it appears that the Michigan lawmakers have reached a deal in principle on the Governor's budget, and that significant changes to Michigan's unclaimed property act will likely become law.

Neither changes to unclaimed property laws in general, nor the shortening of dormancy periods in particular, are particularly novel or extreme concepts.  An analysis of the Governor's budget proposals prepared by the Michigan House Fiscal Agency, however, provides a rare insight into how unclaimed property is held and accounted for by the state.  In all, the HFA concluded that shortening the dormancy period for all property types to 3 years (down from 5 years for most property types, and up to 15 years for traveler's checks) would provide the state with some $229 million in new revenue over the next two years.  In fact, the report states that shortening the dormancy period for traveler's checks to 3 years will alone account for more than $60 million in additional revenue.  While the desire to increase revenue is a logical motive for changing unclaimed property laws, it is often an unstated one.  States have at times focused on raising revenue through unclaimed property at their peril, as evidenced by a federal court's decision last year to invalidate Kentucky's attempt to shorten its dormancy period for traveler's checks.  Thus, even if these changes pass the legislature, that may not be the end of the story.

The HFA analysis is also notable for its discussion of the "reserve factor;" that is, the percentage of annual unclaimed property collections that is actually set aside for the payment of claims.  According to the analysis, the normal reserve factor used by the Michigan Department of Treasury is 60% to 65%, and the reserve factor for the new property brought in by the law changes would be 40%.  In other words, about 60 cents of every dollar brought in as unclaimed property would be immediately used as general revenue (though, as the report recognizes, the state is legally obligated to honor all valid claims).  While this percentage seems like more than enough to honor valid claims, it is nonetheless striking that more than half of the money turned over by holders is placed immediately into state revenue.

Tuesday, September 7, 2010

Deadlines Looming for One-Time Amnesty Programs

Noncompliance with state unclaimed property laws exposes a company to several different types of risks:  financial risks of reclassifying assets or liabilities, legal risks for running afoul of state administrators, and reputational risks from clients and customers.  Notwithstanding those risks, many holders fail to remedy historical noncompliance because of the possibility of interest and penalties being assessed, and the substantial risk of an audit.  Instead, many holders simply hope that they will not get audited. 

In at least two states, there are current amnesty programs being offered to allow holders to remedy historical noncompliance without the threat of interest, penalties, or a disruptive audit.  Both programs, however, expire on October 31.


Indiana currently has an amnesty program in effect that allows holders to avoid interest and penalties by filing a catch-up report for property due to the state over the past ten (10) reporting years.  The details of the Indiana amnesty program can be found here.


Pennsylvania is offering an amnesty program until October 31 for companies that (a) missed the April 15th reporting deadline, (b) have never filed, or (c) have gaps in their reporting history.  Holders with significant unclaimed property owed to Pennsylvania can review the amnesty program information here.

Many other states have voluntary compliance arrangements (VCAs) or voluntary disclosure agreements (VDAs) which allow holders to come up to date with their reporting obligations without the threat of interest and penalties. These programs run the gamut from very informal processes with flexible reporting periods and timelines, to very regimented audit-like procedures.  In any event, holders with significant unclaimed property liabilities are well advised to look into amnesty programs.

Friday, September 3, 2010

Did You Know? Friday

On Fridays here at Escheatable, we plan to introduce unclaimed property veterans and newcomers alike to some of the more *ahem* "unique" and interesting provisions of state unclaimed property laws.  As always, if anyone has topic suggestions or items you want to see discussed here at Escheatable, just drop us a line at admin at escheatable dot com.  Today's entry is from the State of Georgia:

Shake the tree, pick up the pecans, wind up in the pokey.

Under Georgia law, during the period from October 1 to December 31, it is a misdemeanor for anyone to shake pecan trees on private property (other than the owner) or to pick up pecans from those trees that have fallen onto roads, highways, streets, or public walkaways. 

Ga. Code Ann. Sec. 44-12-241.
Enjoy the Labor Day weekend!

Thursday, September 2, 2010

New York & New Jersey Money Order Changes

New York and New Jersey have both shortened their dormancy periods for money orders and other similar written instruments. 

New Jersey Assembly Bill 3002 (discussed here with respect to gift cards) shortens the dormancy period for money orders from 7 years to 3 years, and the dormancy period for traveler's checks from 15 years to 3 years.  The legislation also provides that dormancy fees may not be assessed on these items for a year after issuance, and limits the fees thereafter to $2 per month.

Likewise, on August 11, 2010, Governor Paterson signed New York's budget bill - A9710 - which shortened the dormancy period for non-bank money orders from 7 years to 5 years, and the dormancy period for certain miscellaneous credits from 5 years to 3 years.

Traveler's checks, money orders and similar written instruments have long been a distinct property type in most states' unclaimed property laws, generally having a longer dormancy period than other general intangible property.  Moreover, these items are unique in that the jurisdictional priority rules governing which state takes custody of these items is determined by federal statute.

It remains to be seen whether this trend will continue, or whether there will be any response to the shortening of these dormancy periods.  Last summer, for example, American Express successfully sued to prevent Kentucky from shortening the dormancy period for traveler's checks.

Wednesday, September 1, 2010

Due Diligence - A Story of Bureaucracy and Bronx Bombers

Today we're talking about unclaimed property "due diligence."  Most state unclaimed property laws require a holder to send written notice to the apparent owner of unclaimed property before it is reported and remitted to the state.  More often than not, these notices receive no response, and the property goes on to be remitted to (and then held by) the applicable state agency.  Is that because the owners of these items have truly disappeared?  As we discussed earlier in this blog, state unclaimed property laws derived from the ancient common law doctrine of bona vacantia ("ownerless goods"), which allowed the Crown to take custody of personal property belonging to, among others, persons who died without heirs.  As holders across the country finish sending their notices today, let's take a look at the recipients.  Have they truly disappeared?  Do they just not want their money?  Are they really impossible to find? 

In many (if not most) cases, the owner of an unclaimed item is not out of business and has not disappeared.  To give just a glimpse of how imperfect the unclaimed property system can be, a recent search of unclaimed property held by the California Controller's Unclaimed Property Division discloses that they are holding property for . . . (wait for it) the California Controller's Unclaimed Property Division.  Similarly, according to one recent article, a number of city and county agencies are on Illinois' unclaimed property list, notwithstanding the fact that most of these agencies are operating under extreme budget restraints.  On the other side of the economic ledger, the New York Yankees, perhaps because of their recent move (across the street), have about a dozen items waiting for them at the New York Office of Unclaimed Funds.  Suffice it to say, however, both the Cook County Clerk's Office and the New York Yankees continue to operate their businesses.  Why, then, does this money go unclaimed?  While there has not been a scientific study, some answers might be:

Disbelief -- Quite simply, most believe that there is no such thing as free money, and that things that sound too good to be true often are.  Of course, unclaimed property is not "free money" but often arises so long after the original transaction that it seems like it must be.  Most are rightfully skeptical upon getting a letter from a company (with which they had only passing familiarity in the first place) promising to send long forgotten funds. Accordingly, many holders simply discard due diligence letters or think that the mailing is a scam.  In light of today's ever present threats of identity theft, the idea of sending personal information in response to a form letter seems dubious.

Disagreement -- Especially among businesses, unclaimed property often arises from differences in calculations concerning who owes what to whom.  "Trade differences" among securities dealers, "goods received, not invoiced" among manufacturers, and "settlement errors" among financial institutions are among the "cost of doing business" errors or discrepancies that arise in most businesses and give rise to credit balances.  In such instances, the apparent owner of unclaimed property makes no effort to reclaim funds because his or her books do not show the money as owed.

Bureaucracy -- The most significant reason money goes unclaimed, however, is probably good, old-fashioned bureaucracy and procrastination.  Maybe a due diligence letter gets received today by corporate accounting.  Corporate accounting sees that customer XYZ says it is holding credits as a result of overpayment.  Someone in corporate accounting makes a mental note to find out who the customer relations rep is for XYZ.  Days go by, meetings are held, deadlines and daily emergencies come and go.  Finally, a few weeks later, the letter gets sent to XYZ's customer rep.  The customer rep is busy; he doesn't have time right now to go through all of XYZ's thousands of transactions to find out where this credit balance comes from.  He has a sticky issue with ABC Co to attend to, and is trying to close the deal with 123 Corp.  He gives the letter to someone from the sales staff to follow up.  Sales is swamped, they send the letter over to accounts receivable.  AR looks at the letter, sees the reference to unclaimed property laws, and sends the letter to legal.  Once lawyers are involved, forget it.  =)  And so on.

Ironically, many of the same companies who are dutifully sending out due diligence letters, will be receiving (and ignoring) those same letters sent to them.