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What are Deposit Account Control Agreements (DACAs) — and Why are They Important?

What are Deposit Account Control Agreements (DACAs) — and Why are They Important?

  • Deposit account control agreements (DACAs) minimize funding risks, but what exactly are they?
  • These tri-party agreements give lenders more control, providing protection from borrower default.
  • Here’s a closer look at how DACAs work and why they might benefit you.

Deposit account control agreements: While this uncommon term may not ring a bell, it’s useful to know – especially for those working in commercial real estate or alternative investments.

These agreements are established when a borrower secures a loan from a third party, and helps lenders keep a degree of control and minimize their risk in a transaction. Understanding the finer points of a deposit account control agreement (DACA) is important for both the lender and the borrower.

Here, we’ll detail the definition of DACAs, the situations in which they’re useful and the roles all parties play. We’ll also cover why the right banking partner is essential in establishing a strong DACA.

Deposit Account Control Agreements (DACA), Defined

Deposit account control agreements are tri-party agreements among a lender, a borrower and a bank. These are often referred to in other, sometimes more familiar terms, such as ‘”lockbox agreements,” “control agreements,” “account control agreements” or “ACAs.” (They are not, however, “escrow agreements.”)

In a DACA, a borrower grants a lender a security interest in their specific account with a bank. This enables a lender to have overarching control over the distribution of funds for their loan, and provides some protection for the lender, in case of borrower default. The lender has the ability to control the flow of funds from the account to the borrower, freeze them if necessary, and to give their own instructions. (more…)

Posted on March 21, 2022
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Posted on February 4, 2022

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