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. Generally speaking, a blocked account refers to an account that does not allow unlimited or random withdrawal or other access, but has certain restrictions or limitations on when, how much and who the capital can be withdrawn. Accounts can thus be blocked for several reasons that may be imposed by a bank`s own rules or by external legal decisions, such as in the case of the division of marital property in the event of a divorce or private bankruptcy. When an account is completely blocked, it is called “frozen.” Account closures are usually the result of a court decision and can, in some cases, be carried out by the bank itself. This usually occurs when the account holder has unpaid debts to creditors or the government, or when suspicious activity is detected through the account. A blocked account can be an account subject to foreign exchange control in a country that limits the amount of its currency, which can be transferred to other countries or exchanged for other currencies. For example, a bank may limit police withdrawals of money to $2,000 per week for its basic clients, or a judge may decide that no party to the divorce spends more than $500 a week on bank accounts for personal expenses. 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.