According to a 2015 California Legislative Analyst’s Office (“LAO”) report, unclaimed property is the fifth largest revenue source for the State of California. This report also acknowledges the “tension” between State interests and an individual owner’s property rights.
The term “Tension” does not fully capture the scope of the restrictions States have placed on the civil liberties and property rights of individuals, once their property “escheats” to (becomes controlled by) the State.
The national reunification rate is approximately 34%. “Reunification” is when funds are returned by State administrators to the legitimate property owners. The LAO report suggests a 50 to 60% reunification rate is achievable. This finding is consistent with independent research conducted by Choice Plus, LLC and reported to the Uniform Law Commission. The net result is that annually, approximately 1 billion dollars are artificially retained by States in the name of “consumer protection.”
Unclaimed Property Administrations and Dormancy Period Manipulation
Unclaimed property is property which was initially held by financial institutions, insurance companies, utility companies, employers, courts, etc. on behalf of a property “Owner.” Such institutions and companies are referred to as “Holders.” When an Owner has property in the hands of a Holder and has not interacted with the property or the Holder for a period of time, referred to as the “Dormancy Period,” the property becomes “Dormant.” When the dormancy period expires, the law requires the Holder to report and turn the property over to the appropriate State unclaimed property Administrator.
Original holders turn about $6 billion over to States annually. An accumulation of approximately $60 billion remains unclaimed.
Holders and Administrators are “Custodians” of property. A Custodian is defined as a person or entity that holds property in safekeeping for another. In the case of dormant and unclaimed property, the custodian may use the property while it remains unclaimed or dormant. Original Holders act as the first Custodian. When the dormancy period has been reached, and property is turned over to the State Administrator, the Administrator then becomes the custodian. Custodians have a duty to protect the interests of the property owners.
In the past some Holders used accounting techniques, legal arguments, and other methods to manipulate dormant account information so that the Holder could keep control of and use the property indefinitely, or at least for as long as possible. Self-interest guided these actions and caused some Holders to abandon their custodial duty to protect the interests of the property owners. The modern unclaimed property system has resolved many of these issues through litigation, consumer protection legislation, and enforcement efforts.
Unfortunately, the fundamental moral hazard with unclaimed property has not gone away. Custodians have a tendency to manipulate business practices, laws, and policies in ways that benefit the custodian instead of the property owner. These manipulative practices deprive persons of property they have a legal right to.
States are allowed to consume unclaimed property as soon as it is received to fund public programs and fill budget gaps. States self-interest motivates legislators and administrators to manipulate laws and policies in the name of “consumer protection” to inhibit and prohibit people with a legal interest in the property from being able to exercise their right to gain possession of it.
Examples of Manipulation of Unclaimed Property Rights:
The following examples demonstrate State manipulation and violation of individual property rights once property becomes unclaimed in the hand of the State.
Denying People Access to Delinquent Support Payments
Choice Plus, LLC funded a four year long litigation against a State agency who refused to pay two women unclaimed property that was held in the name of their ex-spouses, who owed them delinquent support payments. One woman’s husband had shot her 8 times before the divorce was final. The appeals court ruled that the State agency had to pay. That State agency is considering changing the law to prohibit these types of claims. A similar situation occurred in California. California was successful in changing the law to prohibit creditor claims. Many States prohibit people just like this from recovering unclaimed property they have a legal right to.
Refusal to Recognize New Property Owners
A property owner who wishes to transfer their property to someone else may do so freely before and during the dormancy period. Yet, many States will not allow the new owner to recover the property once the State administrator has become the custodian.
Financial Restrictions that Deny Access to Resources
Most States severely restrict property owners from gaining access to professional claim specialists by prohibiting owners from paying the professional what the professional needs in order to be able to deliver results. Most States refuse to pay the fee the owner has assigned to the professional. These contract and economic restrictions result in owners being deprived of their property.
Restricting Public Access to Unclaimed Property Account Information
Most States restrict public access to necessary unclaimed property account information so that persons who have an interest in unclaimed property cannot conveniently locate property, confirm the property is theirs, or determine if it is financially feasible to pursue recovery of the property.
Suppose your deceased grandparent has unclaimed property but the State won’t disclose how much the property is worth. You call the State and ask what you need to provide them to find out how much money there is, and what you need to give the State to get the money. The State says you need to provide an order from the court showing that you have an interest in your grandparents’ estate before they will tell you how much money they are holding. You call an attorney and ask how much it will cost to get the order. You find out it may cost thousands of dollars. All of this, just to find out how much money the State is holding. This discourages heirs from pursuing the unclaimed property.
Restricting Professional Claim Specialists Access to Unclaimed Property Account Information
Most States prohibit professional claim specialists from gaining access to comprehensive, unclaimed account information ,which stops them from locating owners for whom state will never search for or find. It also prevents them from discovering fraudulent claims that states did not catch.
In Aronson v. US Department of Housing and Urban Development 869 F. 2d 646, the United States Court of Appeals First Circuit ruled that “ the need to “assur[e] the disbursement of these funds” [clarification by author – funds refer to unclaimed mortgage insurance premium refunds] strongly favored public disclosure” to give private entrepreneurs the chance to locate and help reunite owners with their property.
Link to case information: http://openjurist.org/869/f2d/646/aronson-v-us-department-of-housing-and-urban-development
Minimal Fraud Protection
In most States, once a state pays unclaimed property to a claimant, the account and payment information is not searchable on state unclaimed property search sites. A person who has an interest in the property can no longer find information about it to determine if someone fraudulently claimed their property.
Suppose a fraudulent last will and testament was used to get the unclaimed property. Perhaps your relative was in a rest home and the operator of the rest home used undue influence to induce your relative to make a will leaving everything to them.
Maybe one of your siblings lied to the court to get an order stating that they are the only heir.
Without sufficient access to unclaimed property claim information, many of these fraudulent acts will never be discovered.
The Bottom Line
When a holder, including the government, holds and uses property that belongs to someone else, there is a tendency to rig the game in favor of the holder’s interests. States are consumers of unclaimed property. They also have the power to manipulate how much property is reunified, or not, through legislation and policy making.
When legislators and administrators use the veil of “consumer protection” to justify stripping property rights and by limiting the information and resources people who have an interest in unclaimed property have access to, ask yourself: “Is the State or the property owner the consumer that is being protected?” If new and existing laws do not result in the reunification of 50 to 60% of the unclaimed property held by the State administrator, it is reasonable to conclude that the State is not doing everything they can to look out for the interests of the people they claim to be protecting.
Advocates for Unclaimed Property Owners Rights
Choice Plus, LLC locates and provides professional services to persons with a legal interest in unclaimed property in Florida and California to document their entitlement and enforce their rights. As professionals who interact with State administrators and unclaimed property law on a daily basis, Choice Plus, LLC is in a unique position to shed light on issues that impact the rights of those who have an interest in unclaimed property and to present those issues to the public, courts, and legislators for thoughtful consideration.
If you have questions or thoughts regarding the topics we present, please feel free to add your comments to our blog.
If you need help recovering unclaimed property, please contact us.