What Is A Blocked Account Control Agreement

Why do lenders use account management agreements? Clients often do not host their deposits with their lenders and some lenders do not offer deposit accounts. Lenders enter into deposit account control agreements such as an additional level of default protection and loan repayment assistance. For a lender lending an asset-based loan, controlling a borrower`s collection accounts may be essential to ensure repayment of loans to the borrower. Ideally, a borrower should keep their accounts with the lender that provides the asset-based loan to give the lender control over the income received. However, if the lender is not a bank or branch on all sites where a borrower receives income, a third-party bank must be used. This raises the issue of control of these accounts, as the asset-based lender cannot guarantee that the guarantee funds are intended to repay its loan to the third-party bank. Active Deposit Account Control Agreement – A control agreement that orders the bank to accept the instructions of the secured party (not the debtor). In order to determine the control of a borrower`s income deposited with a third-party bank, a cumbersome account contract (a BAA) can be used to compel the third-party bank to forward and pay that income to the lender. An BAA will be between the lender, the borrower and the third-party bank that provides the borrower`s collection account (s). While a blocked account remains in the borrower`s name, its rights to access and transfer funds into the account are “blocked” by the BAA`s terms and can only be exercised by the lender, which is the sole authority to provide instructions regarding the account. Other rights of the account holder that can be “blocked” by a BAA include currency transfer rights, the right to transfer ownership of the account and the right to close the account. Depending on the terms of the BAA`s terms and conditions, the lender may exercise these rights from the beginning and for the duration of the loan or after a triggering event. Similarly, the BAA`s terms may provide that once an account is “blocked,” the lender must instruct the third-party bank to perform certain acts, or that the third-party bank is required to perform certain acts when the account is “blocked” without any further instruction from the lender.

Advanced Security Interests – During the execution of the DACA, the insured party will be granted an advanced security interest that granted it, under the Single Code of Commerce, exclusive rights to control the debtor`s deposit account.

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