Posted on 06/27/2005 5:14:15 AM PDT by calcowgirl
SACRAMENTO – A little-known legal process with a name only a lawyer could love has become a booming business for the state of California, yielding annual revenue that doubled in one year to more than $800 million in each of the last two fiscal years.
When the owners of stocks and bonds have had no contact for three years with the banks and corporations holding their valuables, the property is regarded as unclaimed and "escheats" to the state.
Search for missing money
The state controller's Web site, www.sco.ca.gov, prominently displays a search function that allows residents to enter their names to see whether the state is holding any of their unclaimed property.
A similar national search for unclaimed property can be made through a Web site, www.missingmoney.com, maintained by the National Association of Unclaimed Property Administrators.
The legal principle, which is said to have originated in feudal England when the property of someone who died without a legal heir reverted to the local lord, has produced a windfall for the state.
The state is in possession of more than $4 billion worth of unclaimed property. The various kinds of financial instruments have been converted into cash deposited in the general fund that pays for most state programs.
Legally, the state is holding the property until it's claimed by the owners. But much of the property is never claimed, and the program has become a significant source of revenue for California.
In fiscal 2003, the state received unclaimed property worth $879 million and paid owners who claimed their property $177 million, according to the office of state Controller Steve Westly.
The state takes the assets and gets a big net gain, because many residents of California forget about accounts, move without a forwarding address, die or otherwise lose contact with the property holders.
Money is left in bank accounts, safe deposit boxes, mutual funds, cashier's checks, money orders, certificates of deposit, insurance policies, estates, mineral interests, royalty payments, trust funds and escrow accounts.
"The unclaimed property law was enacted to prevent holders of unclaimed property from using your money and taking it into their business income," the state controller's Web site explains.
"The law gives the state an opportunity to return your money and provides California citizens with a single source, the state controller's office, to check for unclaimed property that may be reported by holders from around the nation."
The state's growing unclaimed-property program faces a number of problems: Questions about whether property owners are being adequately notified, lawsuits contending the state sold unclaimed stock for a fraction of its value, and a firm hired to collect property in other states filed 4,000 erroneous reports.
To aid notification, the state controller's Web site allows residents to check whether the state is holding unclaimed property.
For example, Arnold Schwarzenegger, who accepts no salary as governor, may be able to claim $248.49 in "salaries/wages" from a transaction in Santa Monica, according to the Web site.
The site also has an online auction of items found in unclaimed safety deposit boxes, mainly jewelry and coins. The auction is conducted by Lone Star, not by eBay, which Westly helped found.
The site is important because California does not aggressively try to find the owners of unclaimed property. Some states hire Internet-based person locators that scan databases for a fee.
When California takes unclaimed property, it sends a notice to the owner only if a Social Security number check of state income tax records shows a more current address than the one listed by the property holder. The state publishes an annual newspaper notice in each county informing residents that the state may have their unclaimed property. But a requirement that the ads list names and property was dropped a decade ago.
Proper notice is an issue in a lawsuit, Taylor v. Westly, contending that Intel stock improperly taken from a man living in England and sold by the state for $200,000 was later worth $3.9 million.
A federal appeals court ruled in March that the state has no immunity and can be sued in federal court on the issue, a decision that William Palmer, the attorney for Chris Taylor, said is an important development.
The ruling was lauded by an attorney who filed an unsuccessful lawsuit several years ago on behalf of owners of Blue Chip Stamp stock, later acquired by Warren Buffett's Berkshire Hathaway, that the state sold for a low price.
"It's quite a dramatic turnaround," said Jeff Tochterman, who represented the Blue Chip stock owners. "I think it's potentially a huge story."
The chief legal counsel for Westly said the federal appeals court ruling only means that the plaintiffs will have to try to prove facts in the lower court that they have been unable to prove in the past.
"I think the claims are completely without merit," said Rick Chivaro, the controller's legal counsel. He also noted that owners can benefit if the value of their stock drops after it is sold by the state.
Rather than rely on the state attorney general for defense in the lawsuit, Westly has hired attorney Robin Johansen, whose firm has worked for Democratic legislators on constitutional issues.
While being accused of lax notification of property owners, the state pushes businesses to turn over unclaimed property promptly. The penalty is 12 percent of the value of the property for each year of delay.
In addition, California has hired Affiliated Computer Services of Dallas to locate the unclaimed property of California residents held by out-of-state firms.
The company, commonly called ACS, provides the same service for other states. California pays the company 11 percent of the value of the property it locates.
State policy on applying the late penalty to property holders has shifted over the years. An agreement to waive the penalty can in some cases help the state avoid lawsuits that might cost more than the value of the property.
When former Controller Kathleen Connell limited penalty waivers a decade ago, there was a conflict with another property recovery firm hired by the state, a unit of State Street Bank later acquired by ACS.
State Street refused to give the state property from nine firms, saying they were promised a penalty waiver, said Nathan Barankin, a spokesman for state Attorney General Bill Lockyer.
In a settlement, State Street paid the state $12.6 million in 2001, Barankin said. Legislation enacted two years later allows the state to waive the penalty for "reasonable cause," conforming California with other states.
An auditor in the controller's office, Antonio Negrete, contends that ACS has filed reports on recovered property that do not contain the date of last contact with the owners, preventing the state from applying a penalty.
The controller's legal counsel, Chivaro, strongly denied that the state has accepted ACS reports without a date of last contact. Chivaro said ACS discovered errors on 4,000 reports and corrections are being prepared.
An ACS spokesman, Joe Barrett, said a programming error was caught after 4,000 reports of recovered property were run, possibly affecting penalties on 1,500 of them. He said errors will be corrected with the controller's office.
"ACS will reimburse all of California's time and expense," Barrett said via e-mail. "In short, there will be no significant consequences because the programming error was caught quickly."
To encourage the reporting of unclaimed property, legislation waived the late penalty for two years, 2001 and 2002, yielding $196 million in revenue for the state, the controller's office said.
The legislation in 2003 that allows penalty waivers for reasonable cause also sped up collection of unclaimed property from insurance companies that switched ownership from policyholders to public stockholders.
The bill, AB 378 by former Assemblyman Darrell Steinberg, D-Sacramento, shortened the time in which unclaimed wages and salaries are turned over to the state from three years to one year after the last contact with the owner.
After passage of the bill, the state's unclaimed property revenue doubled. The state received $458 million in fiscal 2001 and paid $191 million in claims, then received $432 million and paid out $167 million the next year.
In fiscal 2003, revenue from unclaimed property soared to $879 million and will total $823 million this year, before dropping to $473 million in the fiscal year beginning on July 1.
Fascinating. They will go to amazing lengths to get more of your money to spend.
Here in Florida it's 5 years.
But also they have another sneaky way to fleece your savings accounts.
If you do not put money in or take money out for 12 months, the state asesses a fee of $5. Interest posted to your account does not count as activity.
I have a couple of savings accounts (seldom used) and I finally just set up an automatic transfer of $25 per month to each from my checking just to keep the greedy so and so's from stealing my money.
He couldn't even wait for the body to assume room temperature!!!
There is enough graft and corruption in this article to drive me to drink. (something caused it)
The state publishes an annual newspaper notice in each county informing residents that the state may have their unclaimed property. But a requirement that the ads list names and property was dropped a decade ago.
If the ads don't list the names and property, what do they list?
I have never seen one.
It's just a generic ad in the newspaper that says the state may have some of your property and you need to check with them.
Here in Texas they publish a list by city and person's name
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