Document Account Control Agreement

Why do lenders use deposit account control agreements? Often, customers do not account for their deposits with their lenders and some lenders do not offer deposit accounts. Lenders are putting in place deposit account control agreements as an additional layer of protection against defaults and to help them repay their loans. Debtor (Customer) — As one of three parties to DACA, the debtor provides the security and receives the deposits to the deposit account. First of all, working with a trusted bank is paramount. The right banking partner is willing to work with the parties to ensure that the terms of the contract are in line with the situation. Once the specific terms of a DACA have been established, a banking partner must comply with all the points set out in the agreement. It`s important to have a partner who understands and follows all the nuances of a particular DACA, especially since DAACs are designed for specific transactions. The lender should receive a DACA from each third-party custodian when the borrower has a checking account. A custodian bank that signs a DACA agrees to follow the lender`s instructions regarding the money deposited by the borrower without further action or consent from the borrower. Such an agreement gives the lender “control” over the deposit account required for perfection under the UCC. Active Deposit Account Control Agreement — A control agreement that directs the bank to receive disposition instructions from the secured party (not the debtor). Deposit Account Control Agreement (DACA) – A tripartite agreement between a customer (debtor), a secured party (lender) and a bank that allows the lender to perfect a security right in the customer`s funds by taking control of the deposit account (UCC § 9-104). In addition, the right banking partner is crucial for urgent transactions.

A strong banking partner can act quickly to implement DACA between all parties. The bank service level agreements (SLAs) required to secure CASSs can range from days to weeks. Working with a bank that understands time sensitivity and strives to operate within your constraints is essential to ensure the smooth running of transactions. These arrangements are made when a borrower obtains a loan from a third party and help lenders maintain a certain degree of control and minimize their risk during a transaction. Understanding the intricacies of a Deposit Account Control Agreement (DACA) is important for both the lender and borrower. First instruction – An instruction to the bank issued by the lender to stop following the debtor`s disposition instructions. The initial instruction often includes a disposition order from the secured party that allows the secured party to control the flow of money from the deposit account. Article 9 of the Uniform Commercial Code (CDU) defines a deposit account as a claim, time, savings, savings account or similar account held with a bank. Unlike most types of collateral, depositing a UCC-1 funding statement does not perfect a privilege on a deposit account. A lender can only perfect a lien on a deposit account by taking “control” of the account.

Entering into a deposit account control agreement allows lenders to refine their interest on a debtor`s deposit accounts (UCC § 9-104) and to define who can initiate disposition instructions (transfer) to the bank with respect to the controlled deposit account (controlled deposit accounts). UCC § 9-104 – The “Uniform Commercial Code” section, which deals with “Deposit Account Control”. This section allows you to perfect the collateral on deposit accounts as an original guarantee. Alternatively, the lender may release the loan funds to the borrower, but as a condition of the loan, require that all hotel income go through the controlled DACA account. The lender monitors the income, and if the borrower is unable to start paying off the mortgage, the lender can redirect some or all of the income to mortgage payments. The debtor shall provide the secured party with an agreement on the control of the deposit account, duly concluded on behalf of each financial institution holding a deposit account of the debtor, as defined in that guarantee agreement. There are two main forms of DAAC, each of which is sufficient for the purposes of control and perfection under the UCC. A “frozen” control agreement provides that the borrower does not have access to funds from the deposit account(s) and that the lender has full control over the funds. The most common “elastic” control agreement provides that the borrower can access the deposit accounts until the lender sends an exclusive control notice to the custodian bank. As a general rule, such notification can only be made by the lender if the borrower is in default with the underlying loan. Once this notice is given, the custodian bank will no longer be required to follow the borrower`s instructions with respect to the current account(s) and will comply with the lender`s instructions.

Typically, an elastic DACA as an exposure contains some form of exclusive control notification. Regions has an experienced and centralized deposit account control team that can provide a number of benefits to lenders and clients, as well as their law firms. A lender may establish “control” in one of the following ways: (i) the borrower maintains his or her deposit account directly with the lender; (2) the lender becomes the beneficial owner of the borrower`s custodian accounts with the borrower`s custodian banks; or (3) the lender and borrower enter into an agreement with the borrower`s custodian bank to control the deposit account (called DACA). These agreements apply in any event in addition to the creation of security by which the borrower grants a security right in its deposit accounts. Deposit Account Control Agreements: While this unusual term may not ring a bell, it`s useful to know, especially for those who work in commercial real estate or alternative investments. A private equity firm (lender) lends $30 million to a commercial real estate developer (borrower) who will use the funds to develop a new luxury hotel on vacant land. The lender sets up a DACA at the borrower`s commercial bank and then finances the loan. The borrower has the total loan of $30 million, but DACA gives the lender some degree of control over how and when the funds are distributed. Under the terms of DACA, the borrower may or may not have direct access to the funds in the account. In “uncalled” or “jumper” DAACs, borrowers can access funds; in “accessible” or “blocked” CAECs, borrowers are not allowed to do so. However, it is important to note that a lender may change these terms – either by “invocation” or “irrevocation” – at its sole discretion as often as it wishes. It is possible to include multiple accounts in a DACA, but they must all have called the same status or not.

A Deposit Account Control Agreement (DACA), also known as a Control Agreement, is a tripartite agreement between a depositing customer (the debtor), the lender of a depositing customer (the secured party) and a bank. Secured party (lender) — A part of a DACA that lends funds and receives an advanced security right in the debtor`s deposit account upon conclusion of the agreement. The parties wish to have this involvement of third parties so that they know that the agreement is respected on the agreed terms. First of all, there are two types of deposit account control agreements: assets and liabilities. In a DACA, a borrower grants a lender security on their specific account with a bank. This allows a lender to have overall control over the distribution of funds for its loan and provides some protection to the lender in the event of the borrower defaulting. The lender has the ability to control the flow of money from the account to the borrower, freeze it if necessary and give its own instructions. Deposit account control agreements are tripartite agreements between a lender, a borrower and a bank. .