In order to avoid unexpected account closures, the applicable control agreement must explicitly state the circumstances under which the account bank can close the collateral account and must notify all parties of any imminent closure. The fund and the lender should also agree, in the facilitated documents, that in the event of a collateral account closure, the Fund will open a new collateral account within a specified time frame and will execute a new control agreement granting the lender similar or identical rights to the new collateral account. In the event that the collateral account is unexpectedly closed, the lender could open a replacement collateral account itself; However, the lender should be aware that administrative documents or separate agreements between the fund and its investors may deter investors from depositing capital into an account that is not held in the fund. Therefore, in the event of a failure of the facility`s documents, the lender should ensure that the corresponding authority is recorded in the facility documents, so that it can open accounts on behalf of the Fund. Control agreements for mortgaged title accounts exist in all shapes and sizes, and it is necessary to have a fundamental understanding of what you should pay attention to when reviewing these agreements, so that you may be able to take a look at what you should pay attention to. These agreements are generally between the owner/pledgor (“Pledgor”) of the Securities Account, the securities intermediary (i.e.dem broker or bank in which the securities account is held, the “broker”) and the lender (“Lender”). There are a large number of business risks arising from some of the existing sector control agreements, and as title accounts are increasingly part of collateral for commercial loans, we felt that this was a dignified issue for bank loan managers and employees. Be sure to check next week, as Mr. Cohen continues to dive into the mortgaged title account control agreements. Looking for more educational resources? Visit the First Corporate Solutions resource library to download documents on business transactions, UCC submissions, pledge fees and more. As part of the ucC, which applies in New York State (the “NY UCC”), in order to perfect a security interest for a collateral account that is a deposit account, the lender (as a secure party) must set up and retain control of the account.1 Ny UCC provides the following methods that a lender can use to establish control: (1) the lender is the bank that manages the deposit account (the bank) (2) the lender, funds and Account Bank enter into a written agreement under which the account bank agrees to comply with the lender`s instructions regarding the funds in the account without the Fund`s agreement; (3) The lender is the bank`s account customer with respect to deposit account 4. The name of the account is the name of the lender or indicates that the lender has an interest in the security of the account, or (5) another person controls the account in the name of the lender or, if the person already has control of the account, recognizes that he has control on behalf of the lender. NY UCC No.
9-104 (a) (1) – (5). The code provides that “control” of a securities account is the preferred method for developing a securities interest in a securities account.