Nationwide, every day of every year, safe deposit box rental payments become delinquent. At what point should the financial institution intervene?

Specific state and federal regulations and nationally accepted procedures, letters, affidavits, and notices are necessary when you notify a renter or take legal action when his box rent is overdue.
First, the financial institution must mail an annual box-rental-due notice. The second step would be a friendly 10-day rent-due reminder, then a 30-day past-due notice and finally, a properly worded, legal demand-for-payment letter must be mailed with the required federal (SCRA) regulatory notice included.

If none of these efforts bring forth a payment or response, the financial institution has no other recourse. The box should be drilled, and its contents (if any) inventoried and impounded. Most delinquent boxes are often found to be empty.

To avoid potential liability, strict procedures dictate the handling of confiscated box contents. To illustrate the pitfalls of following flawed or careless procedures, let’s examine a past-due box situation that occurred at a small financial institution:

After taking appropriate actions to notify a renter that his box rental payment was long overdue, and when no response was forthcoming, the box was drilled. The contents were inventoried, listed in detail, and the institution took possession of the items. So far, so good – right? Wrong! The items were placed in a manila envelope and stored in an unlocked file cabinet. This is where the problems began.

One day, 18 months later, the renter showed up to claim his property. He watched the safe deposit attendant walk across the lobby, open an unlocked file cabinet and remove a large envelope. The observant (perhaps dishonest) box renter examined the envelope’s contents, frowned, and slammed the envelope on the attendant’s desk.

“This is not my stuff!” he bellowed. He asserted that a valuable coin collection was missing. Worthless coins had been substituted for his collection, and the financial institution’s inventory list was bogus.

The unhappy and irate renter retained legal counsel and filed a lawsuit. After lengthy legal maneuvering by both sides, the lawsuit went to trial.

During the trial, the emotional renter claimed the missing coins represented his total life savings. The financial institution testified that the box was indeed drilled, and the renter was properly notified his box rental payment was long overdue. His box contents had been inventoried and listed. Then the institution had to admit that these items had been placed in a manila envelope and left in an unsecured file cabinet for 18 months.

The jury, moved by the renter’s pitiful testimony and disgusted by the institution’s lackadaisical attitude toward the safekeeping of his property, found in favor of the plaintiff to the tune of $107,000.

The financial institution attorney’s subsequent appeal was unsuccessful and cost the institution an additional $80,000 in legal fees. Because the institution did not have a satisfactory defense during either trial, this expensive second attempt was predictably futile.

Had the bank adhered to the following five critical steps, it could have avoided the entire litigation process.

Step 1. State Regulations

Follow your state and federal (SCRA) delinquent box rent and unclaimed property regulations closely. These requirements differ from state to state, but most state laws dictate the required time periods, the type of notice given and the required procedures to be followed when drilling a past-due box.

Step 2. Sending Notices

After mailing your annual rent-due invoices, if the rent is not paid, send only one friendly reminder and one past-due second notice. If there is no response to these notices, it is a waste of time and postage to continue sending notices each month. Wait until it’s time to send your final delinquent notice, and make sure it’s worded properly. Unless your state law requires a written disclosure that the box will be drilled and contents impounded, never mention this in your final letter. Tell the renter that you will be taking legal action against him, and you may turn him over to a credit-reporting agency if he doesn’t respond within a specified number of days. Most drilled past-due boxes are empty, and obviously, your renter knows this and will ignore your demand letter and throw it away. Hopefully, this harsh language will get his attention.

Step 3. Drilling Box

After the required notification period expires, the box can be drilled, and the contents inventoried. This must be done under dual control on a properly worded box content inventory affidavit. Nothing listed on this affidavit should appraise the box contents. (i.e., never list items as gold, silver, diamonds, etc. They should be listed as yellow or white metal or jewelry with blue, red or clear stones). A notary should also be present to notarize the inventory affidavit, which creates a proper legal document.

Step 4. Safekeeping Contents

After the box contents are inventoried, they should be placed in a tamper-resistant envelope and locked in a safekeeping area under dual control. A copy of the signed inventory affidavit should be secured in a sealed, clear pouch on the back of this envelope. The box renter’s name, address, due date, box number, drill date and all other essential information must be visible for recordkeeping and retention purposes.

Step 5. Report Unclaimed Property

If your renter never claims the drilled box contents, most states have a specific unclaimed property reporting period, usually three to seven years. When this retention period expires, these abandoned box contents must be reported and/or delivered to the state, and these authorities will usually auction the unclaimed items.

In Conclusion

After reviewing these five important steps, how did your past-due box drilling procedures stack up? Do you have copies of your state and federal (SCRA) safe deposit past due and unclaimed property regulations? Do you have a properly worded renter notification letter and box content inventory affidavit? Do you secure all drilled boxes in tamper-resistant envelopes and provide dual control safekeeping protection?

If you have difficulties with any issues and need assistance or additional information, contact David P. McGuinn at sdspec@aol.com, (713) 937‑9929, or www.sdspec.com. McGuinn, President and founder of Safe Deposit Specialists in Houston, is a former bank Senior Vice President and Cashier and is often referred to nationwide as the safe deposit guru. In all 50 states, he has trained over 350,000 safe deposit personnel since 1969. He has created numerous CD or USB formatted procedures and regulatory/compliance manuals, employee training DVDs, brochures, custom renter notification letters, and many other safe deposit products, including state-specific drilling procedures, inventory affidavits and tamper-resistant envelopes for drilled past due boxes. For over 50 years, McGuinn’s seminars, manuals, forms and other resources have been considered the accepted standard for the financial industry.