Safe Deposit Boxes: Optional vs. Mandatory

OPTIONAL VS. MANDATORY

by Hunter Windle

The Arkansas Auditor of State recently sent banks a “Directive for Holders of Safe Deposit Boxes”, dated June 17, 2021, in order to re-

mind banks of existing law. While the directive did

not technically misstate law, it initially confused and concerned many bankers because it seemed to suggest that banks had obligations concerning safe deposit boxes that extended beyond the scope of existing law. Subsequent conversations with the state resolved some of these concerns but, in light of the directive, it seems a good time for a more banker-friendly reminder of existing law regarding unpaid and unclaimed safe deposit boxes.

There are two main sections of the Arkansas Code that involve safe deposit boxes. The first section, A.C.A. § 18-27-102, describes, among other things, the auction process banks and other box holders may take to recover rental fees and costs for unpaid safe deposit boxes. The second section, the Unclaimed Property Act, A.C.A. § 18-28-201, et seq., describes the process banks and other box holders must take to remit the contents of unclaimed safe deposit boxes to the state.

Under § 18-27-102, banks may sell the contents of unpaid safe deposit boxes at public auction. Despite language in the directive directing banks to sell box contents, the auction process is entirely optional under existing law. If a box is unpaid for at least six months, a bank may open the box after providing at least thirty days’ notice by certified, return receipt mail to the lessee’s last known address. The box must be opened in the presence of two bank employees, one of whom should be an officer or manager, and a notary public. The bank must then inventory the box and place the contents in a sealed container to be stored subject to its lien for the unpaid rental fees, costs of opening the box, and any damages connected therewith. If the amount owed is not paid within two years, the bank may then

sell any part or all of the contents at public auction, which must be administered and noticed by the same means real property is sold under a mortgage or deed of trust. After the auction, unauctioned contents and excess proceeds should be remitted to the state under the procedures described in § 18-28-201, et seq.

Under § 18-28-201, et seq., banks must remit unclaimed safe deposit box contents to the state. Safe deposit boxes and their contents are presumed abandoned if they remain unclaimed by the owner for more than five years after the expiration of the lease or rental agreement. § 18-28-203. Unclaimed safe deposit box contents should be listed in the bank’s unclaimed property report which must be received by the auditor prior to November 1st of each year. § 18-28207(d). The contents must then be remitted to the auditor between March 1st and April 30th of the following year that the report was filed. § 18-28-208(a).

... Banks may sell the contents of unpaid safe deposit boxes at public auction. Despite language in the directive directing banks to sell box contents, the auction process is entirely optional under existing law. If a box is unpaid for at least six months, a bank may open the box after providing at least thirty days’ notice by certified, return receipt mail to the lessee’s last known address.

These two sections of code are related – unclaimed safe deposit boxes are almost always unpaid safe deposit boxes – but it is clear that one code section is optional and the other is mandatory.

There are many reasons why a bank might decide not to exercise its right to sell the contents of unpaid safe deposit boxes. The public auction process requires time and effort, raises potential legal and compliance concerns, and – by publicly selling the personal property of former customers – might even create reputational risk. There is also little financial incentive. Unpaid boxes either will be paid by the owners or their heirs, without the necessity of a public auction, or they will become unclaimed boxes. Unclaimed safe deposit box contents are remitted to the auditor subject to the bank’s lien for unpaid rental fees and costs of opening the box, less the cost of any sale. § 18-28-210(g). Unlike banks, the auditor is required to auction the contents of unclaimed safe deposit boxes within three years of receipt unless the auditor considers the probable costs of the auction to exceed the proceeds of the auction. § 18-28-212 (a)(1).

For the same reasons, some banks might decide to err on the side of caution when complying with the directive’s instruction that banks dispose of valueless contents of unclaimed safe deposit boxes, and omit those items on their unclaimed property reports. The auditor has the right to decline to receive property that it considers to have value less than the cost of notice and sale. § 18-28-217(a). Banks, however, might create potential legal and compliance risk if they make the same determination. It might be prudent to continue to defer to the state to make the determination of value, only disposing of property once it has been returned by the auditor.