Holders have a statutory obligation under states’ unclaimed property laws to perform a final outreach to owners of unclaimed property before reporting the property to the state, known as a due diligence mailing. This mailing is the final attempt by the holder to reach the owner, thereby putting the owner on notice that if the owner fails to respond to the holder regarding his or her property within a certain period, the holder will be required by the state to escheat the property to the state.
Due diligence requirements, including the timing of the notice, the dollar amount above which notice is required, the method of delivery and even the content of the letter varies among the states. Performing due diligence is not only an important part of a holder’s compliance obligations, but it also aligns with the goal of the unclaimed property laws, which is to reunite the owner with his or her property, and reunification also assists holders with customer retention and satisfaction.
Important considerations when preparing for due diligence include:
1. Due diligence is statutorily required by the states and plays a key role in maintaining compliance with state unclaimed property laws.
2. The timing for when notice must be provided to the owner for amounts required for due diligence varies by state. Some states require a first-class mailing, 60 to 120 days before filing the report (unless the holder has an address that is known to be inaccurate), for property valued at $50 or more. The 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), a model law that has been adopted, in part, by several states, extends that outside date to 60 to 180 days prior to the report. Another state with a significant variation is California, which requires the notice to be mailed 6 to 12 months before filing the report.
3. The manner in which the notice is sent also varies by state, and may vary by property type as well, and includes first class mail, certified mail (sometimes both), email, and even advertising, or publication in a newspaper. RUUPA requires both first class mail and email, if the owner has consented to electronic communication from the holder. Some of the RUUPA states, however, such as Colorado and Indiana, permit notice to be sent via first class mail or other states such as New Jersey, require certified mail for all property, while others, like Ohio, require first class mail for property valued at $50 up to $1,000, and certified mail for property valued at $1,000 or more. Illinois has a first-class mail requirement (in addition to email if applicable) and requires certified mail for securities over $1,000. Further, states like New York and New Mexico, also require advertising, in addition to mailing requirements, for certain property types.
4. Consider that the content of the letter, including font and headers, also varies by state. Some states, such as California, have specific heading, font requirements and language that is to be included in the due diligence notice. RUUPA has specific language required to be included in the notice, and all of the states with RUUPA laws have adopted these content requirements.
5. RUUPA, along with the RUUPA states, requires a 30-day period for the owner to respond to be included in the due diligence letter. Even where it is not required, best practice is to include the response date, to prompt owner contact in a timely manner.
6. Some states permit holders to offset, or deduct, a portion of the expenses associated with the due diligence mailings. In Illinois, for example, holders can deduct the cost of envelopes, postage, and stationery.
7. Due diligence requirements are triggered once property has remained in a dormant status for some time. Holders can and should reach out early and often to owners, as this early outreach is not constrained by the due diligence requirements – holders can use any method available at any time to reach out in a more informal manner, increasing the chance of responses and reducing the due diligence population.
8. It is recommended that holders document all methods of contact with the owner, including mail that is returned undeliverable, and retain due diligence responses for the duration of the states’ record retention periods.
9. Most states require an affidavit, or other confirmation from the holder, that the holder has complied with the due diligence requirements. Holders who report and deliver unclaimed property in good faith are typically indemnified against future claims arising with respect to that property. If due diligence is not performed, however, this indemnification protection may be jeopardized.
10. Some states have and may enforce penalties for the failure to comply with the due diligence requirements. Virginia’s unclaimed property law, for example, provides for a civil penalty of up to $50 per account.
11. Holders should document their due diligence and reporting practices within their unclaimed property policies and procedures and update these regularly. Monitoring legislation related to unclaimed property is critical to stay abreast of changing requirements and enables holders to update processes, procedures, systems, and documentation in a timely manner.
12. Holders may want to consider outsourcing the due diligence process to an experienced third-party vendor or consultant. Unclaimed property experts assist holders by tracking the complex and ever-changing laws, preparing and sending the due diligence, tracking responses, and can even perform the reporting on your behalf. They also have resources to assist with owner outreach and databases that can search for better addresses, further increasing the positive results of holder outreach processes.
If your organization is experiencing challenges managing due diligence, or other unclaimed property requirements, contact MarketSphere to learn how you can improve efficiency, effectiveness, and reduce the risk of non-compliance with their managed services which are unique to the needs of your organization.
*Content contained in this article is considered accurate as of the publish date.
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