# O

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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

###### Interpretive Letter #966

#### May 12, 2003 June 2003

**12 USC 29A**

**12 USC 24(7)**

> Re: Request by **\[ \]**

Dear **\[ \]**:

This letter responds to your request on behalf of **\[ \]**
("***Sub***"), a wholly-owned subsidiary **\[ \]** ("Bank").
**\[*Sub*\]** provides relocation-related services for corporate
customers' relocating employees. As part of these services,
**\[*Sub*\]** wishes to acquire, for a short period of time, title to
the relocating employees' residential real estate. The Bank believes
that **\[*Sub*\]** needs to acquire title in order to provide a package
of relocation services that is competitive in the marketplace. For the
reasons discussed below, and subject to the conditions below, we believe
that **\[*Sub*\]** may permissibly acquire an interest in the
residential real estate of relocating employees.

#### I. BACKGROUND

#####  A. \[Sub\]'s Current Activities

**\[*Sub*\]**'s primary current activity is that of a finder -- bringing
together unaffiliated companies that provide relocation-related
services, *i.e.*, movers, realtors, insurers, with its corporate
customers and their relocating employees. **\[ *Sub* \]** also makes
advances to the relocating employees based on valuations of their homes
provided by third party appraisals. Repayment of these loans is made
through the sale proceeds of the homes and is guaranteed by the
corporate customers.[^1] The Bank charges corporate customers an overall
fee for the package of relocation services, and the costs of services
provided by third parties -- such as movers and realtors -- are the
responsibility of the corporate customers.

The transfer of the residential real estate from the relocating employee
to the ultimate purchaser occurs through a "deed-in-blank" process.[^2]
Once **\[*Sub*\]** and the relocating employee agree upon a sales price
-- based upon the third-party appraisals -- the relocating employee
signs a limited power of attorney and a deed-in-blank (which are held by
**\[*Sub*\]**), receives the advance from **\[*Sub*\]**, and moves away.
On behalf of its corporate customer, **\[*Sub*\]** finds an unrelated
third-party as realtor to list and market the property. Upon receipt of
an acceptable offer, typically not less than 95% of the appraised value,
**\[*Sub*\]** completes the sale on behalf of the departed employee per
the power of attorney and the deed is transferred. The sales proceeds
are used to repay the advance, with the relocating employee receiving
any excess funds. If the actual sales price is less than the agreed upon
sales price, the corporate customer reimburses **\[*Sub*\]** for the
difference.

The Bank represents that approximately 70 percent of the real estate
transfers involve **\[*Sub*\]**'s holding the deed-in-blank for less
than two weeks. In the remaining transfers, **\[*Sub*\]** holds the
deed-in-blank for some longer period of time. The Bank further
represents that, during this period of time, **\[*Sub*\]** does not
manage the real estate. Rather, on behalf of the corporate customer,
**\[*Sub*\]** finds an unrelated, third-party real estate management
company to manage the real estate.

#####  B. \[Sub\]'s Proposal

For competitive reasons, **\[*Sub*\]** wants to start using a "two deed"
process for real estate transfers. Under the two deed process, rather
than sign a blank deed, the relocating employee would deed title to the
real estate to **\[*Sub*\]**. **\[*Sub*\]** would hold title to the real
estate until a purchaser could be located, and then would deed title to
the purchaser. All other aspects of the two deed process are identical
to the deed-in-blank process.

The Bank represents that **\[*Sub*\]**'s competition in the employee
relocation industry has adopted the two deed real estate transfer
process. The switch to the two deed transfer process was driven by the
reliance of IRS Employment Tax offices on a 1997 Tax Court decision to
deny favorable federal tax treatment to relocation home purchase
transactions using the deed-in-blank process.[^3] In May 2001, the
Employee Relocation Counsel -- an association of employee relocation
companies and professionals -- recommended that its members adopt the
two deed real estate transfer process.[^4] The Bank represents that
**\[*Sub*\]**'s competitors have adopted the two deed process and that
**\[*Sub*\]**, in order to remain competitive in the relocation services
market, must make use of the two deed process.

#### II. Discussion

**\[*Sub*\]**'s current activities -- acting as a finder and making
loans -- are part of the business of banking and were approved in an
earlier letter.[^5] The Bank now indicates that **\[*Sub*\]** needs to
take title to the residential real estate, as part of the two deed
transfer process, in order to provide a competitive package of
relocation services. The only issue in permitting **\[*Sub*\]** to
acquire title to the residential real estate is based upon the
restrictions of 12 U.S.C. § 29. We believe that **\[*Sub*\]** may
permissibly acquire an interest in the residential real estate of
relocating employees, sufficient to permit **\[*Sub*\]** to use the two
deed transfer process, subject to the following conditions and
restrictions:

(1) **\[*Sub*\]** must use an unrelated third-party as nominee to
    acquire and hold legal title.

(2) **\[*Sub*\]** must not make use of or enjoy the benefit of the
    property.

(3) **\[*Sub*\]** must contract with an unrelated third party to manage
    the property.

(4) **\[*Sub*\]** may not hold any property for longer than ninety days
    and must establish internal policies and procedures for the
    immediate disposition of properties when that time limit is reached.

Arguably, Section 29 is not implicated by the severely circumscribed
interest **\[*Sub*\]** would acquire.[^6] However, for purposes of the
following analysis only, we will assume that **\[*Sub*\]**'s interest is
subject to the restrictions of Section 29.

Numerous OCC precedent and case law have confirmed that national banks
may provide a variety of ancillary non-banking products and services to
promote consumer use or demand for banking products.[^7] Indeed, the OCC
has found that the acquisition of an interest in real estate may be
incidental to a primary permissible transaction. In Interpretive Letter
No. 770, the OCC confirmed that a national bank could acquire a
leasehold interest in the real estate underlying a fuel facility,
incidental to the acquisition of the facility for the purposes of
leasing, if such leasehold interest is necessary to provide security for
the lender's ability to repossess the facility and continue to use or
sell the property in the event of default by the lessee. This position
was predicated on the real property interests being, in fact, incidental
to the primary transaction -- the personal property lease.[^8]

Here, several factors indicate that **\[*Sub*\]**'s acquisition of an
interest in the residential real estate is incidental to the relocation
services. First, the ability to acquire such interest is necessary to
**\[*Sub*\]**'s ability to compete successfully with other relocation
services providers. If **\[*Sub*\]** cannot perform the services in a
manner that provides its corporate customers with favorable tax
treatment, the Bank represents that **\[*Sub*\]** would be unable to
compete in the relocation services marketplace.

Second, **\[*Sub*\]** need not advance any additional funds to acquire
the interest in the residential real estate. **\[*Sub*\]** would
continue to make an advance to the relocating employee, with that
advance secured by the real estate and guaranteed by the employer.
Therefore, there is no additional cost to **\[*Sub*\]** to acquire the
interest under the two deed transfer process. Third, **\[*Sub*\]** will
derive no additional revenue as a result of its acquisition of such an
interest. **\[*Sub*\]** would continue to charge corporate customers an
overall fee for the provision of services, but would not charge an
additional fee for acquiring the interest in the residential real
estate.

Fourth, once the residential real estate is sold to the ultimate
purchaser, there would be no additional benefit or detriment to
**\[*Sub*\]**. Sales proceeds would still be used first to repay the
advance from **\[*Sub*\]**, with the corporate customer guaranteeing any
shortfall. Any excess sales proceeds remaining would still flow to the
relocating employee, and the costs of services provided by third parties
-- such as movers and realtors -- would remain the responsibility of the
corporate customers. Therefore, there is no additional financial upside
or downside to **\[*Sub*\]**'s acquisition of such an interest.[^9]

Fifth, as a result of the conditions and restrictions listed above,
**\[*Sub*\]**'s interest in the residential real estate would be
severely circumscribed. **\[*Sub*\]** must engage a nominee to hold
legal title. **\[*Sub*\]** lacks the major elements of beneficial
ownership: **\[*Sub*\]** must not make use of or enjoy the property, and
it must not manage the property. **\[*Sub*\]** may only hold the indicia
of ownership in the property for a short period of time and must have
policies and procedures in place to dispose of the property when that
time limit is reached. Indeed, **\[*Sub*\]**'s circumscribed interests
would not be inconsistent with any of the purposes underlying the
restrictions of Section 29.[^10] The Bank's funds, through
**\[*Sub*\]**, would not be removed from the channels of commerce
because the Bank would not advance any additional funds to acquire the
indicia of ownership. There is no speculation in the value of the real
estate because any sales proceeds remaining after the equity advance is
repaid flow to the relocating employee. Finally, no significant amount
of real estate will be accumulated and held by the Bank as the Bank
would be required to dispose of each property within a short time
period.

Therefore, for the reasons stated above and subject to the conditions
and restrictions listed above, we believe that **\[*Sub*\]** may
permissibly acquire an interest in the residential real estate of
relocating employees incidental to the provision of its package of
relocation services. If you have any questions, please contact Steven
Key, Senior Attorney, at (202) 874-5300.

Sincerely,

-signed-

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: Prior to entering into an agreement with a potential corporate
    customer, **\[*Sub*\]** conducts a full evaluation (including credit
    risk rating) of the financial condition and prospects of the
    potential customer. **\[*Sub*\]** only contracts with those
    potential customers for which the evaluation leads **\[*Sub*\]** to
    believe it will be able to rely upon any future guarantees made by
    the potential customer.

[^2]: In this process, the relocating employee signs a deed but the
    buyer's signature remains open. When the property is sold and the
    transaction closes, the name of the eventual purchaser is inserted
    on the deed. Title to the property remains vested in the relocating
    employee's name until the physical closing of the property with the
    eventual purchaser, at which time the purchaser becomes the
    title-holder. This process does not require **\[*Sub*\]** to take
    title to the property.

[^3]: *See Amdahl Corp. v. Commissioner*, 108 T.C. 507 (1997). Prior to
    the *Amdahl* decision, the Internal Revenue Service ("IRS") afforded
    favorable federal tax treatment to relocation home purchase
    transactions using the deed-in-blank process. Since the decision,
    several IRS Employment Tax offices have denied favorable tax
    treatment to deed-in-blank transactions, instead holding that all
    home relocation purchase expenses incurred by a corporation on
    behalf if its employee are taxable as income to the employee and
    subject to employment taxes. The two deed transfer process continues
    to receive favorable federal tax treatment.

[^4]: *See*
    <http://www.relo-center.com/PDF_Files/ERC_TwoDeed_WhitePaper.pdf>
    (report of the Employee Relocation Council).

[^5]: Letter from Donelle H. Ward, Director for Analysis (December 20,
    1990) (unpublished).

[^6]: *See* Corporate Decision No. 2001-30 (October 10, 2001)
    (acquisition of an interest in real estate that does not encompass
    the full right to possess, use, and convey the property does not
    implicate Section 29).

[^7]: For example, in Interpretive Letter No. 880 the OCC approved, as
    incidental to a package of permissible real estate investment
    advisory services, a national bank's taking part in the negotiation
    of Internal Revenue Code Section 1031 exchange transactions
    involving real estate. The letter found that such negotiation
    services were necessary for the bank to compete successfully with
    types of firms that offered a full range of real estate investment
    advisory services. The letter also found that the negotiating
    services constituted an extremely small part of the overall advisory
    services. Interpretive Letter No. 880, *reprinted in* \[1999-2000
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-373 (Dec. 16,
    1999). This proposition is also supported by case law. *See Clement
    Nat'l Bank v. Vermont*, 231 U.S. 120 (1913) (to promote use and
    demand of its banking service, national bank may compute, report,
    and pay tax levied on interest earned by bank customers on their
    deposits); *Miller v. King*, 223 U.S. 505 (1912) (to encourage use
    of bank's deposit services, national bank may institute lawsuit on
    behalf of customer to collect funds); *Corbett v. Devon Bank*, 299
    N.E.2d 521 (Ill. App. 1973) (as means of promoting its banking
    business, national bank may sell state motor vehicle licenses).

[^8]: Interpretive Letter No. 770, *reprinted in* \[1997-1998 Transfer
    Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-134 (Feb. 10, 1997). *See
    also* 61 Fed. Reg. 66554, 66556 (Dec. 18, 1996) (reaffirming in the
    preamble that real estate leasing may be an incidental component of
    personal property leasing and that OCC would make this determination
    on a case-by-case basis).

[^9]: In each case where **\[*Sub*\]** acquires an interest in a
    relocating employee's residential real estate, the contract between
    **\[*Sub*\]** and the corporate customer would require the corporate
    customer to maintain, at its own expense, a homeowner's insurance
    policy on the residential real estate. The contract between
    **\[*Sub*\]** and the corporate customer would further provide that
    the corporate customer will indemnify **\[*Sub*\]** for any
    liability that may arise out of **\[*Sub*\]**'s taking an interest
    in the property.

[^10]: For example, the Supreme Court in *Union National Bank v.
    Matthews*, 98 U.S. 621, 626 (1878), stated that the three purposes
    underlying Section 29 were "to keep the capital of the banks flowing
    in the daily channels of commerce; to deter them from embarking in
    hazardous real estate speculations; and to prevent the accumulation
    of large masses of such property in their hands, to be held, as it
    were, in mortmain."