By Steven Walker, ATG Law Clerk

Most attorneys are familiar with the problem of the ouststanding uncashed check from a real estate closing or other representation. Many times a client, former client or party to a closing will never cash a check for funds due to them, and the liability will be carried forward on the books from month to month and tracked. These uncashed checks complicate the process of reconciling the account, and sometimes attorneys even lose track of them altogether and are unable to reconcile the account or determine the account balance.

Outstanding uncashed checks written from closing accounts for real estate transactions can create a considerable liability for the account holder, as those funds are considered unclaimed property under the Uniform Disposition of Unclaimed Property Act (‘UDUPA’). Joshua A. Joyce & Hugh F. Drake, Found Treasure: A Primer on Unclaimed Property in Illinois, 91 Ill. B.J. 409, 414 (2003). The UDUPA requires attorneys holding unclaimed funds in certain contexts to file annual reports and deliver the funds to the Illinois Treasurer. Noncompliance with the act can lead to punitive fees, even criminal charges, against the attorney. Id. Therefore, you must know what funds require reporting, the deadlines for various facets of the reporting process, and the reporting process itself to reduce or eliminate your liability.

Funds Held by Business Associations:         

The Uniform Disposition of Unclaimed Property Act (‘UDUPA’) requires business associations to turn over monies and certain other properties to the state treasurer’s office after a statutory time period, the presumption being that after the statutory period the property is abandoned. Business associations are defined as any, “corporation, joint stock company, business trust, partnership, or any association, limited liability company, or other business entity consisting of one or more persons, whether or not for profit.” 765 ILCS 1025/1. Therefore, the statute encompasses both law firms and title companies. The UDUPA requires business associations report and deliver all property left unclaimed by, or owed to, its true owner, and any earnings on that property, after five (5) years. 765 ILCS 1025/2a. This property includes, but is not limited to:

1. Deposits or payment for repair or purchase of goods or service;
2. Credit checks or memos, or customer overpayments;
3. Stocks, bonds, or any other type of securities or debt instruments, and interest and dividends therefrom;
4. Unidentified remittances, unrefunded overcharges;
5. Unpaid claims, unpaid accounts payable or unpaid commissions; and
6. Credit balances -- accounts receivable, checks written off, employee bond buying and profit-sharing.

Business associations can, however, deduct, “the economic loss suffered by it in connection with…intangible personal property arising from transactions involving the sale of tangible personal property at retail.” Id. Further, there are also two exceptions for business associations regarding the reporting requirement. First, any unclaimed wages, payroll, or salary must be reported after remaining unclaimed for one (1) year. Second, property one business association owes another during the ordinary course of business is exempt from reporting under the act.

Funds Held in a Fiduciary Capacity:

Additionally, the Unclaimed Property Act requires similar reporting requirements for property held in a fiduciary capacity. Intangible personal property or income held in a fiduciary capacity is presumed abandoned five (5) years after the property has become payable or distributable, unless the owner claims it. 765 ILCS 1025/7.  The five (5) year statutory time period is also suspended when, within five (5) years, the owner has:

1. Increased or decreased the principal;
2. Accepted payment of principal or income;
3. Corresponded in writing concerning the property; or
4. Otherwise indicated an interest as evidenced by a memorandum on file with the fiduciary.

Essentially, a property owner must provide an indication that they are still aware the property is being held. Additionally, a fiduciary can deduct costs incurred, “in connection with the administration of suspense, abeyant, and similar accounts arising out of its fiduciary…activities but not to exceed 8% of the property remitted.” Id.

Reporting Deadlines:

Reporting and delivery of unclaimed property must coincide with Section 11’s reporting requirements, and Section13’s delivery requirements. Business associations are required to file annual reports before May 1, although the association may file a request with the Director of Financial Institutions to extend the deadline. 765 ILCS 1025/11(d). Before filing a report, the property holder, “must attempt to contact the owner at his last known address to prevent the presumption of abandonment.” Joshua A. Joyce & Hugh F. Drake, Found Treasure: A Primer on Unclaimed Property in Illinois, 91 Ill. B.J. 409, 410 (2003); 765 ILCS 1025/11 (e). If the property holder has not communicated with the property owner within 120 days before the May 1 deadline, the property holder must mail the owner, by first class mail, at least 60 days before the deadline (January 1 – March 2). 765 ILCS 1025/11 (e).  Additionally, if an individual has reason to believe that property may be reportable in the future, the property can be reported and delivered as required before it is officially considered abandoned by statute. 765 ILCS 1025/11 (g).

Reporting Process:

Reports must specify the property abandoned, include the name, social security number, or federal tax identification number, and, if known, the last known address and zip code of the property owner when property has a value over five (5) dollars. 765 ILCS 1025/11 (a)-(b) (1). The report must also include the date when the property became payable, demandable, or returnable, and the date of the last transaction with the property owner regarding the property. 765 ILCS 1025/11 (b) (3). The State Treasurer may also proscribe rules for reporting additional information when deemed necessary. 765 ILCS 1025/11 (b) (4). Additionally, if the individual holding the property is a successor, or if the property holder(s) changed their name, the report also requires all prior known names and addresses of those who held the property. 765 ILCS 1025/11 (c).

Reported property must be delivered to the State Treasurer’s office on the same date that the report is filed (no later than May 1). 765 ILCS 1025/13. Costs incurred communicating with the owner(s) by mail can be deducted from the property specified in the report.

Penalties for Noncompliance:

Noncompliance with the act can result in, “[s]ubstantial administrative charges, fees,” as well as interest accrual, “and anyone who fails to report or perform other required duties,” can be held, “guilty of a business offense.” Joshua A. Joyce & Hugh F. Drake, Found Treasure: A Primer on Unclaimed Property in Illinois, 91 Ill. B.J. 409, 414 (2003). Further, “[e]ach day a report is withheld or the duties are not performed constitutes a separate offense.” Id. Wilful refusals to pay or to deliver property can also result in class B misdemeanor charges.

However, the Unclaimed Property Division of the Treasurer’s Office provides unclaimed property holders with prior compliance issues an opportunity to rectify these issues under the Voluntary Disclosure Agreement (‘VDA’). Under VDA, “[i]n exchange for voluntary compliance through an executed VDA the Treasurer's Office will agree to forgo the right to assess penalties and interest outlined in the Act.” Return Assets: Useful Links, Illinois State Treasurer’s Office (last visited Jun. 4, 2014), https://icash.illinois.gov/return_assets_useful_links.asp. Property holders are eligible under the act if they:

1. [Are not] under examination by the Treasurer's Office or an agent of the Treasurer's Office.
2. Conduct a self-audit and remit findings within six months of the execution of the agreement.
3. [Are] able to provide supporting documentation for any estimation techniques used.
4. [Are] able to accept the agreement without modification.

Property holders who meet the aforementioned criteria are then required to complete a VDA agreement form, which will be reviewed by the Treasurer’s Office, and, if approved, will require, “[a] completed report filed on form UPD601 is due within six months from the date the Unclaimed Property Director signs the agreement.” Id. Therefore, unclaimed property holders with prior compliance issues are advised to act immediately and file under the VDA to reduce or eliminate their pre-existing and existing obligations.

Conclusion:

Because considerable financial and legal liabilities can arise as a result of noncompliance with the UDUPA, practitioners are urged to perform annual filings of unclaimed property and to regularly reconcile their closing accounts. Regular reconciliation can prevent costly and time consuming backlogs when preparing reports, and can reduce the potential of funds being held after reporting deadlines or going unreported entirely. Further, as the UDUPA permits reporting funds that the holder has reason to believe will be unclaimed and reportable in the future, annual reporting as part of regular reconciliation provides practitioners considerable leeway to ensure they maintain regular compliance with the act.