If The Courts Can’t Regulate Banks, Why Do We Have To Worry About Attorney Escrow Account Rules?
For the same reason that I have to worry about DFS cybersecurity rules. Banks can’t do business with vendors who do not have appropriate cybersecurity protections. Likewise, lawyers can’t deposit escrow money in banks that don’t sign a contract agreeing to be bound by the “bounced check rule.” I knew at least one bank that was not on the list and was aggressively seeking escrow accounts. The current list is available here: http://www.nylawfund.org/APPLST 140.pdf. If you are not on the list, make sure you sign a contract and send it to the Lawyer’s Fund for Client Protection (LFCP).
Even banks that sign the contract sometimes misunderstand, and thus violate the rules. If an attorney bounces a check on a special, trust, or escrow account, due to insufficient or uncollected funds, the bank MUST send a bounced check report to the LFCP. Unless the bank withdraws the report, 10 business days later the LFCP sends the report to the attorney grievance committee, and that means disciplinary action, usually at least suspension, if not disbarment. The bank may withdraw the report ONLY if the bank made a mistake in filing it in the first place. Not the lawyer’s mistake. Only the bank’s mistake. Sob stories from the lawyer, “just give me a bank check and I’ll send it out,” or “I wrote the check by mistake,” are not reasons to withdraw the report.
Today’s Takeaway? Know the rules about what a bank must do and follow them without exception. Bouncing a check on an escrow account is a bad thing and always indicates a serious problem. There have been over $100 million of escrow account thefts since the LFCP was created in 1982 and banks are expected to participate in the reporting process to reduce losses.