WSR 01-08-055

PERMANENT RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed April 2, 2001, 2:27 p.m. ]

Date of Adoption: April 2, 2001.

Purpose: To amend the regulations to reflect changes made to the statute in 1999 as a result of passage and enactment of HB 1092.

Citation of Existing Rules Affected by this Order: Amending WAC 208-680A-040, 208-680B-010, 208-680B-020, 208-680B-030, 208-680B-050, 208-680B-070, 208-680B-090, 208-680C-020, 208-680C-040, 208-680C-045, 208-680C-050, 208-680D-010, 208-680D-030, 208-680D-040, 208-680D-050, 208-680D-060, 208-680D-080, 208-680F-010, 208-680F-020, 208-680F-040, 208-680F-060, and 208-680F-070.

Statutory Authority for Adoption: RCW 18.44.410.

Adopted under notice filed as WSR 00-19-051 on October 4 [September 15], 2000.

Changes Other than Editing from Proposed to Adopted Version: References to the old RCW section numbers are corrected to reflect the new section numbers resulting from the codification of the 1999 changes to the statute.

The term "agent to the transaction" was changed to "third party to the transaction" to be consistent with usage throughout the rule, WAC 208-680A-040.

Specific cites to areas of the law were added to the section prohibiting the use of deceptive names, WAC 208-680C-050.

Limits the director's power to retain or instruct the licensee to retain a CPA or other person to review the trust account of a licensee when a new designated escrow officer is appointed to cases where the director finds that there is reason to believe a licensee is not in compliance with the requirements for trust accounting.

Retaining of copies of paid checks, electronic or otherwise, allowed as long as the copies display the endorsement on the check, which typically requires a copy of both sides of the check.

Provides for two methods of passing through the costs of third party services associated with the closing; either passing through the exact cost of the third party service, or performing the service as the escrow agent. In both cases, the cost for the service must bear a reasonable relationship to the value of the service provided.

Removes the provisions dealing with split escrows pending further work on this provision.

Limits the director's authority to seize original documents to those cases where the director finds that there is a danger that the original documents may be destroyed, altered, or removed to deny the director access, or where original documents are required to prepare a criminal referral.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 10, Amended 24, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

April 2, 2001

John L. Bley

Director

OTS-4228.3


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680A-040   Definitions.   The terms and definitions used in chapter 18.44 RCW have the same meanings given therein when used in these rules.

"Third party to the transaction" means those persons providing professional services necessary for the closing of the escrow. "Third party to the transaction" includes, but is not limited to: Real estate brokers, lenders, mortgage brokers, attorneys engaged to review the escrow, tax facilitators or underlying lien holders.

"Applicant" means any person applying for an escrow officer license or any person or group of persons applying for an escrow agent license. The term "applicant" includes the officers and controlling persons of the applicant, as well as any escrow officer seeking to become an escrow agent's designated escrow officer or designated branch escrow officer.

"Cash deposit" means funds deposited, in lieu of an errors and omissions policy, in an account in a recognized Washington state depository which account is maintained separate and apart from the escrow agent's own funds. The funds shall be deposited in such a manner to permit only the director to withdraw from the principal amount. The escrow agent may withdraw any interest accumulated to the account.

"Closing" means the transfer of title of real or personal property or execution of a real estate contract whichever event occurs first.

"Completed escrow" means a transaction in which the escrow agent has fully discharged its duties to the principal((s)) parties to the transaction. This includes obtaining all necessary documents, obtaining required signatures, completing reconveyance or title elimination, and disbursing funds to the principal((s)) parties to the transaction, the agents to the transaction, and to third parties to the transaction as agreed by the principal((s)) parties in the escrow instructions or on the settlement form (such as HUD1 or HUD1A).

"Conversion" means an unauthorized assumption and exercise of the right of ownership over moneys, property, or things of value belonging to another, to the alteration of the condition of, or the exclusion of the owner's rights to such moneys, property, or things of value. It includes any unauthorized act which deprives an owner of his/her property permanently or for an indefinite time, including but not limited to theft, embezzlement, forgery, swindling, and unauthorized control.

"Escrow instructions" are the instructions, signed by the principal parties to the transaction that identify the duties and responsibilities of the escrow agent in carrying out the escrow, that identify the thing or things of value held by the escrow agent and the specified condition or set of conditions under which the thing or things of value are to be transferred.

"Investigation" means an examination undertaken for the purpose of detection of violations of chapter 18.44 RCW, and these rules or securing information lawfully required under chapter 18.44 RCW, and these rules. The director or his or her designee may make private or public investigations.

"Officers" of the escrow agent shall include the president, secretary, treasurer, vice-president, and any other persons with control over management decisions of the escrow agent.

"Overdue instrument" means a negotiable instrument that is overdue as defined in RCW 62A.3-304.

"Permanent record" means any record required to be kept under RCW 18.44.400 for a period of six years from the completion of the escrow transaction.

"Principal parties" means the buyers and sellers in a purchase transaction, and the borrower in a refinance transaction.

"Reconveyance" means an instrument used to transfer title from an individual holding such title in trust to the equitable owner of real estate, when title is held as collateral security for a debt.

"Securities" means any stock, treasury bill, bond, debenture or collateral-trust certificate tendered in lieu of an errors and omissions policy. It does not mean or include any insurance or endowment policy, annuity contract or letter of credit.

"Split escrow" means a transaction in which two or more escrow agents act to effect and close an escrow transaction.

"Transfer of title" occurs at the time the seller executes a deed or bill of sale and such is delivered to the purchaser or recorded.

"Trust" means a fiduciary relationship whereby a thing of value is delivered to an escrow agent with the intention that such thing of value be administered by the escrow agent for the benefit of the principal parties to the transaction.

"Trust account" or "trust bank account" means a bank account holding funds of any party to the transaction.

"Unclaimed funds" ((are those funds for which the rightful owner is unknown, or the location of payee is unknown, or stale-dated checks which have not been cashed)) means any funds that are abandoned under the Uniform Unclaimed Property Act, chapter 63.29 RCW.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680A-040, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680A-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128A-040, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128A-040, filed 9/9/88; 79-07-009 (Order RE 126), 308-128A-040, filed 6/7/79; Order RE 122, 308-128A-040, filed 9/21/77.]

OTS-4229.2


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-010   Credit and character report.   Any person making application for an escrow officer license after passing an examination, or making application to be a designated escrow officer, shall, as an integral part of the application, supply the director with satisfactory proof of applicant's character and credit rating. Such proof shall be obtained and provided by a recognized credit-reporting agency in a form approved by the department.

Any person making application for an escrow agent ((certificate of registration)) license shall, as an integral part of the application, supply the director with satisfactory proof of character and credit rating for the natural person making the application, principal officers, designated escrow officer, controlling persons and partners. Such proof shall be obtained and provided by a recognized credit-reporting agency in a form approved by the department.

[96-05-018, recodified as 208-680B-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-010, filed 9/9/88; Order RE 122, 308-128B-010, filed 9/21/77.]


NEW SECTION
WAC 208-680B-015   License not transferable--Notice of change in principal officer or controlling person.   (1) An escrow agent license may not be transferred.

(2) An escrow officer's license may not be transferred.

(3) Whenever a licensed escrow agent contemplates a transfer involving all or substantially all of its assets, the licensee shall provide written notice to the director at least thirty days prior to the effective date of the transfer. This notice must include a copy of the signed agreement between the parties, which provides in part:

(a) A stipulation that the transferee is responsible for obtaining a license prior to completion of the transfer;

(b) A stipulation that the transferee shall obtain and submit to the director evidence of financial responsibility in the form of the required bond or bonds and errors and omission insurance in compliance with RCW 18.44.201 prior to completion of the transfer;

(c) A stipulation indicating which of the parties shall:

(i) Make all payments due to principal parties on or before the effective date of the transfer;

(ii) Maintain and preserve the accounting and other records as required by RCW 18.44.400 and WAC 208-680D-020 and 208-680D-030;

(iii) Provide notice of the transfer to all principal parties who have pending escrows, or who have deposited funds with the escrow agent, or who have executed some other form of written agreement with the escrow agent; and

(d) A stipulation that the transferee is either restricted from using or authorized to use, the escrow agent's business name, unless waived by the director.

(4) At least thirty days prior to a change in a principal officer or controlling person of a licensed escrow agent, the licensee shall provide the director with all information required of a principal officer or controlling person when an application is made for a license. The director shall make a determination prior to completion of the change, whether the proposed new principal officer or controlling person meets the requirements for licensing.

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AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-020   Fingerprint identification.   (1) Any person making application for an escrow officer license after passing an examination, or to be a designated escrow officer ((who has been convicted of a felony or misdemeanor within ten years of application)), shall, as an integral part of the application, submit fingerprint identification on a form provided by the department.

(2) Any person making application for an escrow agent ((certificate of registration who has been convicted of a felony or misdemeanor within ten years of application,)) license shall, as an integral part of the application, submit fingerprint identification of the natural person making the application, principal officers, designated escrow officer and ((partners for those persons who have been convicted of a felony or misdemeanor within ten years of application)) controlling persons on a form provided by the department.

(3) The director or his/her designee may, at his/her discretion, request additional background information to ascertain an applicant's honesty, truthfulness, and good reputation including but not limited to: Residential address and telephone number, qualifications, employment history, a personal credit report, and other information that the director or his/her designee may deem appropriate under RCW 18.44.031(2). The department may require of any applicant, principal officer, designated escrow officer, controlling persons, and partners, such information as is deemed necessary to satisfy the director or his/her designee that the requirements set forth in RCW 18.44.031(2) have been met. The director may require that such information be reported in writing and signed by the reporting individuals.

(4) In the event that an escrow agent experiences a change in any principal officer(s) or controlling person(s), the escrow agent shall submit fingerprints and such other information as the director may request under subsection (3) of this section to the department thirty days prior to the effective date of the change in principal officer(s) or controlling person(s).

[96-05-018, recodified as 208-680B-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-020, filed 9/9/88; Order RE 122, 308-128B-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-030   ((Notice required of intention to take)) Escrow officer examination.   (1) Any person desiring to take an examination for an escrow officer license must file a completed application together with the correct fee, and supporting documents with the department. Dishonored checks will be considered as an incomplete application. The applicant will be assigned to the first available examination subsequent to determination of eligibility. The cutoff date for submission of a completed application for any specific examination is available upon request. An applicant shall forfeit all examination fees for any examination or examinations for which the applicant has applied and does not take for any reason, other than through the fault or mistake of the department.

(2) The escrow officer examination shall test the applicant's knowledge of the following:

(a) An appropriate knowledge of the English language;

(b) An understanding of the obligations between principal and agent;

(c) An understanding of the meaning and nature of encumbrances upon real property, including an understanding of the general purposes and legal effects of deeds, mortgages, deeds of trust, contracts of sale, exchanges, rental and option agreements, leases, earnest money agreements, personal property transfers, encumbrances, and other escrow documents;

(d) An understanding of arithmetic and the principles and practices of trust accounting; and

(e) An understanding of the Escrow Agent Registration Act and other applicable law such as the Real Estate Settlement Procedures Act, 12 U.S.C. Sec. 2601 and regulation X, 24 C.F.R. Part 3500.

(3) For purposes of this section, "an appropriate knowledge of the English language" is defined as a demonstrated ability to read and understand the general purposes and legal effects of deeds, mortgages, deeds of trust, contracts of sale, exchanges, rental and option agreements, leases, earnest money agreements, personal property transfers, encumbrances, and other escrow documents as they are customarily drafted in the state of Washington.

(4) The escrow officer examination shall be in a form and a location prescribed by the director, with the advice of the escrow commission, and shall be given at least annually.

[96-05-018, recodified as 208-680B-030, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-030, filed 9/9/88; Order RE 122, 308-128B-030, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-050   Successful applicants must apply for license.   Any person who has passed the examination for escrow officer must apply to become licensed within one year from the date of such examination in order to be eligible for such license. If an escrow officer license has not been issued within two years of successful completion of the examination, then the applicant must retake and successfully complete the examination. Failure to comply with this provision will necessitate the taking and passing of another examination.

[96-05-018, recodified as 208-680B-050, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-050, filed 9/9/88; Order RE 122, 308-128B-050, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-070   Misuse of escrow officer license prohibited.   An escrow officer shall not permit the use of his or her license, whether for compensation or not, to enable any person to in fact establish and carry on an escrow agency wherein the escrow officer does not have full management and supervisory responsibilities as required by RCW ((18.44.200)) 18.44.071 and these regulations. Failure to adequately supervise any individual conducting escrow or assisting in escrow shall be a violation of this section and may constitute grounds for revocation of the escrow officer's license.

[96-05-018, recodified as 208-680B-070, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128B-070, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-090   Dishonored checks and insufficient payment of fees.   Payment of any fee required under chapter 18.44 RCW by a check ((which)) that is dishonored, or is an insufficient payment, shall be considered a nonpayment and the license action for which the dishonored check, or insufficient payment, was tendered shall not be completed by the department.

[96-05-018, recodified as 208-680B-090, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-090, filed 9/9/88.]


NEW SECTION
WAC 208-680B-100   Number of locations directly supervised by escrow officers simultaneously.   No designated escrow officer or designated branch escrow officer shall simultaneously supervise more than one location without the prior written consent of the department.

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NEW SECTION
WAC 208-680B-110   Escrow officers may only be designated to one company.   A designated escrow officer or designated branch escrow officer may perform escrow services for only one escrow agent at a time without the prior written consent of the director or his/her designee. A designated escrow officer or designated branch escrow officer may only supervise those escrow agent(s), and the employees of escrow agent(s), for which the officer has been designated by the director or his/her designee.

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NEW SECTION
WAC 208-680B-120   Escrow agent's prohibition of designated escrow officer.   An escrow agent may not prohibit the designated escrow officer from accessing the escrow agent's trust account books and records unless it notifies the department of such prohibition within twenty-four hours of the prohibition. Such notification must include the reason for the prohibition, a current address and telephone number for the prohibited designated escrow officer, a request for a replacement designated escrow officer, and a notice that no escrow business will be conducted without a designated escrow officer unless prior written consent has been given by the director.

[]

OTS-4230.2


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-020   Office identification.   Any main or branch office of the escrow agent shall be identified by displaying the name, visible to the public, of the escrow agent as licensed at the address appearing on the office license. Any fixed physical location where an escrow agent holds itself out to the public as able to perform escrow services as defined in RCW 18.44.011(4) shall constitute an office.

[96-05-018, recodified as 208-680C-020, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128C-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-040   Change of office location.   The escrow agent shall notify the department of any change of location or mailing address of the agent's office or branch office prior to engaging in business at the new location or address. Notification shall be made by filing a change of address application with the department at least ten business days prior to the change in business location or address, accompanied by all licenses issued to the former address or location, and all applicable fees.

[96-05-018, recodified as 208-680C-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128C-040, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128C-040, filed 9/9/88; Order RE 122, 308-128C-040, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680C-045   Closure of office.   (1) Effect of closure. When the main office of an escrow agent closes, all branch offices must close. When a branch office closes and the main office remains licensed, the responsibility for records maintenance and trust accounting reverts to the main office.

(2) Notification. When either the main office or a branch office of an escrow agent closes, all responsible persons are jointly and severally obliged to notify the department within ((thirty days)) twenty-four hours of closure.

(a) "Responsible person" means: The designated escrow officer; the owner of the firm; a controlling person as defined in RCW ((18.44.010(9))) 18.44.011(12); and the officers, owners and partners of the entity. The department may allow a person other than a responsible person as defined in this subsection to assume these duties.

(b) ((The official)) Additional notifications ((to the department)) shall include:

(i) Delivery of all original escrow licenses for offices being closed to the department within five working days of office closure. All licenses returned must be dated and signed. If a branch office is closing, the branch office license must be returned to the department. If the main office is closing, all licenses issued to the main and all branch offices must be returned.

(ii) Within thirty days of office closure, an itemized accounting of funds held in trust at the time of closure, including the names of the principal(((s))) parties to the transaction, the escrow number, the amount of funds held and the purpose of the funds. If the trust bank account balance is zero, the escrow agent must provide a reconciliation of the trial balance supporting the zero balance.

(iii) Within twenty-four hours of office closure, the name, residence address and telephone number of the person responsible for the records.

(iv) Within thirty days of office closure, the street address where the records are located.

(c) All responsible persons are jointly and severally obliged to notify the department within thirty days of any change in the person responsible for the records or the place the records are maintained.

(3) Maintenance of records after closure. When an escrow office closes, the records must be maintained in the state of Washington for at least six years. The records shall be available upon demand of the department during business hours and maintained in a manner to be readily retrievable.

(4) Trust account. If the trust bank account contains client funds at the time of closure, the person responsible for the records shall provide the department with quarterly reconciliations of the trust bank account to the trial balance, in compliance with WAC 208-680E-011(9), until the trust bank account balance is zero. The responsible person shall submit the reconciliations for the periods ending March, June, September and December. These reconciliations are due within thirty days of the end of the preceding period.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680C-045, filed 10/16/96, effective 11/16/96.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-050   Deceptive names prohibited.   At the discretion of the director or the director's designated representative, an escrow agent may not be issued a ((certificate)) license nor advertise in any manner using names or trade styles which are similar to currently issued ((certificates)) licenses or imply that the agent is a nonprofit organization, research organization, public bureau or public group, or are otherwise deceptive((, or which uses or makes reference to the existence of financial responsibility)) or in violation of RCW 30.04.020, 31.12.025, 32.04.020(2), 33.08.010, or any other statute that limits the use of names. A bona fide franchisee may be issued a ((certificate)) license using the name of the franchisor with the firm name of the franchisee.

[96-05-018, recodified as 208-680C-050, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128C-050, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128C-050, filed 9/9/88; Order RE 122, 308-128C-050, filed 9/21/77.]

OTS-4231.3


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-010   Designated escrow officer responsibilities.   The designated escrow officer shall be responsible for the custody, safety, and correctness of entries of all required escrow records. The escrow officer retains this responsibility even though another person or persons may be assigned by the escrow officer the duties of preparation, custody, recording or disbursing.

The designated branch escrow officer shall bear ((responsibilities)) responsibility for the custody, safety and correctness of entries of all transactions at the branch office. The designated escrow officer shall bear responsibility for all actions of the designated branch escrow officer.

Prior to issuing a new ((certificate)) license reflecting a change of the designated escrow officer or branch designated escrow officer of a registered escrow agent, evidence must be submitted that the responsibility for preexisting escrows is transferred to the incoming designated escrow officer or incoming licensed branch ((designated)) escrow officer. Such evidence shall be a statement signed by both the outgoing designated escrow officer and the incoming designated escrow officer, listing all outstanding trust liabilities and certifying that funds in hand in the trust account maintained by the agent are adequate to meet all such trust liabilities. ((At the discretion of the)) In the case of a change in designated branch escrow officer, the outgoing and incoming ((branch)) designated branch escrow officers ((may)) must sign the statement.

When the director or his/her designee makes a determination that there is reason to believe that the licensee's trust accounting records may not be in compliance with the requirements of WAC 208-680E-011, the director or his/her designee may retain or instruct the licensee to retain a certified public accountant or other person acceptable to the director, to reconcile the trust account and report whether it has been maintained in compliance with WAC 208-680E-011 and report on the adequacy of the licensee's internal routine and controls prior to the acceptance of a new designated escrow officer or designated branch escrow officer.

[96-05-018, recodified as 208-680D-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-010, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128D-010, filed 9/9/88; Order RE 122, 308-128D-010, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-020   Required records.   Escrow agents shall be required to keep the following transaction records as a minimum; and all records except the reconciled bank statements, shall identify the transaction to which they pertain by escrow number or other clearly identifying information:

(1) Trust account records.

(a) ((Duplicate receipt book recording all receipts;

(b) Prenumbered checks;

(c) Trust account receipt and disbursement records;

(d) Duplicate bank deposit slips, either validated by the bank or bearing the signature of the designated escrow officer and the date of actual deposit;

(e))) Copies of all duplicate deposit slips validated by the bank or bearing the signature of the designated escrow officer and the date of actual deposit, wires, separate receipts, or other evidence of the deposit of funds into the trust account;

(b) Copies of all checks, wires, or other evidence of any disbursement from the trust account;

(c) Copies of all bank statements for the trust account, including all paid checks or copies of paid checks, electronic or otherwise, provided that such copies are made in such a manner that the endorsement on the paid check is visible and readable;

(d) Client's ledger containing an individual ledger sheet for each transaction: Provided however, That for computerized record systems, an individual ledger sheet need not be maintained in the transaction files until the closing of the transaction if the computer records demonstrate on a daily basis the status of the transaction funds;

(e) If a manual trust accounting system is employed to administer the trust account, copies of all written receipts and prenumbered checks.

(2) Other records.

(a) A transaction file shall be maintained to contain all agreements, contracts, documents, leases, escrow instructions, closing statements and correspondence for each transaction;

(b) Reconciled bank statements and cancelled checks for all bank accounts of the escrow agent, including but not limited to the pooled escrow trust accounts, individual escrow trust accounts, and general business operating accounts of the agent;

(c) All checks and receipts produced by any computerized accounting or record system must be sequentially numbered. The escrow agent shall retain the original of any voided or incomplete sequentially numbered check or receipt which was not issued.

[96-05-018, recodified as 208-680D-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-23-049 (Order PM 790), 308-128D-020, filed 11/14/88; 88-19-016 (Order PM 763), 308-128D-020, filed 9/9/88; Order RE 122, 308-128D-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680D-030   Accuracy and accessibility of records.   (1) Accuracy. All records shall be accurate, posted and kept ((up to date)) current to the date of the most recent transaction.

(2) Location. The escrow agent must maintain all records available for inspection by the department for a minimum of six years at an address where the escrow agent is licensed to maintain an escrow office. Records of transactions may be stored at a remote location within the state of Washington after the escrow has been completed for at least one year. Records stored at a remote location shall be available upon demand of the department during business hours and maintained in a manner to be readily retrievable.

(3) Permanent storage. After completion of the escrow transaction records may be stored on permanent storage media, such as optical disk or microfilm, provided the retrieval process does not permit modification of the documents. "Retrieval process" means the on-site ability to view and print the document in its original form including signatures or other writing placed upon the original document. The escrow agent must have in its records a statement signed by the supplier of the permanent storage system that the system does not permit the user to modify a document after it has been permanently stored.

(4) Restrictions on storage. Transactions and accounting records may not be stored at a remote location or on permanent storage media as described in subsection (2) or (3) of this section if there are funds relating to the transaction, such as reconveyance ((on)) or holdbacks, remaining in the trust bank account.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680D-030, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680D-030, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-030, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128D-030, filed 9/9/88; Order RE 122, 308-128D-030, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-040   Agreements and closings.   The escrow agent shall be responsible for the effecting and closing of escrow agreements between the principal parties. The agent shall as a minimum:

(1) Prepare or accept an instrument of escrow instructions among ((each)) the principal parties and the escrow agent ((based upon a written agreement)). The escrow instructions shall be signed by the principal((s)) parties. Escrow instructions shall contain any and all agreements between the principals and the escrow agent or incorporate other written agreements by reference. The escrow instructions shall not be modified except by written agreement signed by the principals and accepted by the escrow agent. ((The agent shall))

(2) Disclose in writing to the principal parties ((to the transaction)) when ((a profit, or the potential for a profit on)) fees ((and)) for services provided may be realized by the escrow agent. ((Justifiable costs for fees and services related to the transaction may include, but not be limited to courier fees, credit reports, postage, fax services, and copying of documents. A copy of the disclosure shall be maintained)) The disclosure must specifically identify the fees using the same terminology as that provided on the closing statement (for example HUD1 or HUD1A), and reflect the dollar amount associated with each item identified as a fee payable to the escrow agent. For purposes of this section, fees payable to the escrow agent shall mean any item payable directly to the escrow agent whether realized by the escrow agent as profit, potential for profit, or the offset of justifiable costs.

(3) Ensure that all fees and/or justifiable costs are for bona fide services performed by the escrow agent or contractually ordered by the escrow agent to be performed by a third party to the transaction and bear a reasonable relationship in value to the services performed. No justifiable costs known at the time of closing for services performed by a third party to the transaction may exceed the actual cost of the third-party service. When the cost of a third-party service cannot be known with certainty at the time of closing, an escrow agent may:

(a) Provide an estimate of the justifiable cost of the third-party service on the preliminary closing statement, disclose the actual justifiable cost of the third-party service on the final disclosure statement, and refund any amounts collected in excess of the actual justifiable cost of the third-party service to the principal parties to the transaction; or

(b) Assume responsibility for performing the service and charge the principal parties to the transaction a one-time fee for performing the service. The one-time fee must be reasonably related to the value of the service provided. The escrow agent may contract with a third party to perform the service. The escrow agent must disclose to the principal parties to the transaction in the preliminary and final settlement statement that the fee is being paid to the escrow agent. The escrow agent may transfer such fees earned into the general account in compliance with WAC 208-680E-011 (12)(a).

(4) Comply with the instructions for completing the closing statement. All funds disbursed on the closing statement should be bona fide and supported with adequate documents.

(5) Maintain copies of the escrow instructions and closing statement (for example, HUD 1 or HUD 1A) in the transaction file.

(((2))) (6) Require an addendum to the purchase agreement for any and all material changes in the terms of the transaction, including but not limited to, changes in the financing of the transaction.

(((3))) (7) Provide the services and perform all acts pursuant to the escrow instructions.

(((4))) (8) Provide a complete detailed closing statement (for example HUD1 or HUD1A) as it applies to each principal at the time the transaction is closed. The escrow agent shall retain a copy of all closing statements in the transaction file, even ((though)) if funds are not handled by the agent((, in the transaction file)). The closing statements (for example HUD1 or HUD1A) shall show:

(a) The date of closing.

(b) The total purchase price.

(c) An itemization of all adjustments, monies or things of value received or paid in compliance with requirements of the Real Estate Settlement Procedures Act, 12 U.S.C. Section 2601, and Regulation X, 24 C.F.R. Section 3500 and all applicable rules and regulations. Such itemization must include the name of the person or company to whom each individual amount is paid, or from whom each individual amount is received.

(d) ((To whom each item is debited and/or credited.

(e) Date each adjustment was made.

(f))) A detail of debits and credits identified to each principal party.

(e) Names of payees, makers and assignees of all notes paid, made or assumed.

(((g))) (9) Pay the net proceeds of sale directly to the seller unless otherwise provided in writing by the seller or a court of competent jurisdiction.

(((h))) (10) Obtain original signatures of the principals on either the preliminary or final closing statement and maintain a copy of the signed closing statement in the transaction file.

(((5) The escrow agent shall)) (11) Provide a copy of the final closing statement to each principal party and to each real estate broker involved with the transaction.

[96-05-018, recodified as 208-680D-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-040, filed 1/31/94, effective 3/3/94; 88-23-049 (Order PM 790), 308-128D-040, filed 11/14/88; Order RE 122, 308-128D-040, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-050   Expeditious performance.   An escrow agent shall perform all acts required of the escrow agent ((by agreement)) as expeditiously as possible and within ((the)) any time period ((of the agreement)) identified in the escrow instructions. Intentional or negligent delay in such performance shall be considered in violation of RCW ((18.44.260(2))) 18.44.430 (1)(i).

[96-05-018, recodified as 208-680D-050, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128D-050, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680D-060   Disbursement of funds.   The escrow agent shall disburse funds as set forth in the escrow instructions. Disbursement of any money or other items in violation of the trust or before the happening of the conditions of the escrow agreement or escrow instructions is a violation of RCW ((18.44.260(5))) 18.44.430 (1)(e). ((If)) Funds and other items or documents must be paid and/or disbursed immediately upon closing of the transaction or as specifically agreed to in writing by all of the principal parties: Provided, That funds are disbursed in compliance with RCW 18.44.400(3).

Upon written notice from any principal party that the ownership of the funds is in dispute or is unclear based on the written agreement of the parties, the escrow agent must hold such funds until receiving written notice from all principal parties that the dispute has been resolved. In lieu of holding such funds the escrow agent may interplead the funds into a court of competent jurisdiction pursuant to chapter 4.08 RCW. Upon notification of a bona fide dispute between the principal parties, the director may, at his/her discretion, order the escrow agent to interplead the funds into a court of competent jurisdiction.

((Funds and other items or documents must be paid and/or disbursed immediately upon closing of the transaction or as specifically agreed to in writing by the principals: Provided, That disbursement of funds may be withheld to allow for checks to clear.)) At no time may an escrow agent disburse or delay the disbursement of funds without the written consent of all principal parties.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680D-060, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680D-060, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-23-049 (Order PM 790), 308-128D-060, filed 11/14/88; Order RE 122, 308-128D-060, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-080   Licensed escrow ((licensees')) officers' responsibilities.   (1) It is the responsibility of every ((licensee)) licensed escrow officer to be knowledgeable of and keep current with chapter 18.44 RCW and the rules implementing chapter 18.44 RCW.

(2) It is the responsibility of every ((licensee)) licensed escrow officer to keep the department informed of his or her current home address.

(3) It is the ((licensee's)) licensed escrow officer's responsibility to ensure accessibility of their offices and records to representatives of the department.

[96-05-018, recodified as 208-680D-080, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128D-080, filed 9/9/88.]


NEW SECTION
WAC 208-680D-090   Escrow instructions, agreements, disclosures -- Prohibitions.   It is a violation of this section and RCW 18.44.301, for an escrow agent to:

(1) Employ any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person;

(2) Engage in any unfair or deceptive practice toward any person;

(3) Obtain property by fraud or misrepresentation;

(4) Knowingly make, publish, or disseminate any false, deceptive, or misleading information;

(5) Knowingly receive or take possession for personal use of any property of any escrow business, other than in payment authorized by this chapter;

(6) Omit to make a full and true entry in the books and accounts of the business with intent to defraud.

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OTS-4233.2


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-010   Bond.   Each ((certificated)) licensed escrow agent shall obtain and keep in effect a bond in an aggregate minimum amount of $200,000 providing fidelity coverage on all corporate officers, escrow officers, partners, and employees engaged in escrow transactions. Such bond shall be structured to provide coverage for the total amount of all claims up to an aggregate minimum of $200,000. A deductible of up to $10,000 on the required fidelity bond is allowed, as long as an additional surety bond of $10,000 is maintained by the escrow agent. In the event that a fidelity bond with no deductible is obtained by the escrow agent, no surety bond is required.

[96-05-018, recodified as 208-680F-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-010, filed 9/9/88; Order RE 122, 308-128F-010, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-020   Errors and omissions policy.   Each ((certificated)) licensed escrow agent shall obtain and keep in effect an errors and omissions policy providing coverage in the minimum aggregate amount of $50,000 or, alternatively, cash deposit or securities in the principal amount of $50,000. Securities used as an alternative to an errors and omissions policy shall be effectively delivered to the director. For the purpose of fulfilling the requirements of chapter 18.44 RCW and these rules, the escrow agent shall execute an irrevocable assignment and any supporting documentation as required by the director. Securities which are stocks or other interest in the registered escrow agency are not acceptable securities for the purposes of fulfilling the requirements of chapter 18.44 RCW and these rules.

[96-05-018, recodified as 208-680F-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128F-020, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128F-020, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-020, filed 6/7/79. Statutory Authority: RCW 18.44.360. 78-08-027 (Order RE 124, Resolution No. RE 124), 308-128F-020, filed 7/14/78; Order RE 122, 308-128F-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680F-040   Return of cash deposit or securities.   (1) The cash deposit or securities shall be returned to the escrow agent upon the date of expiration, cancellation, or revocation of the escrow agent's ((certificate of registration)) license: Provided, That the director may hold the cash deposit or securities for a longer period in order to satisfy any actions commenced under WAC 208-680F-050 prior to the expiration, cancellation, or revocation of the escrow agent's ((certificate of registration)) license.

(2) The cash deposit or securities shall be returned to an applicant within thirty days of the director's denial of an initial application for an escrow agent's ((certificate of registration)) license.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680F-040, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680F-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-040, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-040, filed 6/7/79.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-060   Cash deposit, securities -- Full force and effect.   All escrow agents who assign, transfer, or set over a cash deposit or securities in lieu of an errors and omissions policy shall at all times keep in full force and effect as a condition precedent to the escrow agent's authority to transact escrow business, such deposit or securities in the principal amount of $50,000. Failure to maintain the deposit or securities at the minimum level shall be sufficient grounds for the suspension or revocation of the escrow agent's ((certificate of registration)) license.

[96-05-018, recodified as 208-680F-060, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 79-07-009 (Order RE 126), 308-128F-060, filed 6/7/79.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-070   Cancellation of errors and omissions policy, new policy required.   In the event of cancellation or expiration of an errors and omissions policy or fidelity bond, the escrow agent shall file with the director satisfactory evidence of a new policy or bond. Failure to file a new policy or bond shall be sufficient grounds for the suspension or revocation of the escrow agent's ((certificate of registration)) license. During the time the escrow agent does not have an errors and omissions policy or fidelity bond coverage in effect, the escrow agent may not transact business pursuant to RCW ((18.44.050)) 18.44.201.

[96-05-018, recodified as 208-680F-070, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-070, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-070, filed 6/7/79.]

OTS-4234.2

Chapter 208-680G WAC

EXAMINATIONS, INVESTIGATIONS, ENFORCEMENT, SANCTIONS, AND COSTS


NEW SECTION
WAC 208-680G-010   Examinations.   (1) For the purposes of determining compliance with chapter 18.44 RCW and chapter 208-680 WAC, the director or designee, through their staff, may examine, wherever located, the records used in the business of every licensee and of every person who is engaged in the business described in RCW 18.44.021.

(2) The director or designee may make necessary inquiry of the business or personal affairs, or both, of each such person for the purposes of determining such compliance. In conducting examinations, the director or designee, through their staff, may request, require, or conduct the following:

(a) Access, during reasonable business hours, to the offices and places of business, books, accounts, papers, files, records, including electronic records, computers, safes, and vaults of all such persons. Access must be given to both the trust account records and general business account records;

(b) Interview any person subject to RCW 18.44.020, or any employee or independent contractor of any person subject to RCW 18.44.020;

(c) Interview any principal party or agent to the transaction;

(d) The filing of statements in writing by any person, under oath or otherwise, as to all facts and circumstances concerning the matters under examination;

(e) Copy, or request to be copied, any items described in subsection (1) of this section;

(f) Analysis and review of any items described in subsection (1) of this section;

(g) Assistance, as necessary, from any employee or person subject to RCW 18.44.020;

(h) Meetings and exit reviews with owners, management, officers, or employees of any person subject to RCW 18.44.020;

(i) Preparation and delivery, as deemed necessary, of a report of examination requiring a response from the recipient.

(3) The frequency of examinations shall be made at the discretion of the director or designated person.

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NEW SECTION
WAC 208-680G-020   Investigations.   (1) The director or designated person may make at any time, public or private investigations within or outside of this state to determine whether any person has violated or is about to violate chapter 18.44 RCW, or any rule, regulation, or order under chapter 18.44 RCW, or to aid in the enforcement of chapter 18.44 RCW. For that purpose, the director or designee, through their staff, may conduct inquiries, interviews, and examinations of any person deemed relevant to the investigation.

(2) The director or designated person may investigate, as deemed relevant by the director, the escrow business or other business or personal financial records of any person subject to investigation under subsection (1) of this section. In conducting investigations, the director or designated person, may request, require, instruct, direct, order, subpoena, or conduct the following:

(a) Access during reasonable business hours, to any location where any escrow business records are located, including offices, places of business, personal residences, storage facilities, computers, safes, and vaults, for the purposes of obtaining, reviewing, or copying books, accounts, papers, files, or records, including electronic records, or records stored in any format;

(b) Administration of oaths or affirmations;

(c) Subpoena witnesses and compel their attendance at a time and place determined by the director or designated person, or subpoena the production of any evidence or matter which is relevant to the investigation, including the taking of such evidence, or existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge or relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence;

(d) Interview or interrogate, publicly or privately, under administration of oath or otherwise, any person subject to RCW 18.44.020, or any employee or independent contractor of any person subject to RCW 18.44.020;

(e) Interview or interrogate, publicly or privately, under administration of oath or otherwise, any principal party, agent to the transaction, or any person whose testimony is deemed relevant;

(f) The filing of statements, affidavits, or declarations in writing by any person, under administration of oath, notary or otherwise, as to all facts and circumstances concerning the matters under investigation;

(g) Copy, or request to be copied, any items described in (a) of this subsection, or when the director or his/her designee makes a determination that there is a danger that original records may be destroyed, altered, or removed to deny the director access, or that original documents are necessary for the preparation of a criminal referral, the director may take originals of any items described in (a) of this subsection, regardless of the source of such items. Originals and copies taken by the director may be held, returned, or forwarded to other regulatory or law enforcement officials as determined necessary by the director;

(h) Analysis and review of any items described in (a) of this subsection;

(i) Assistance, as necessary, from any employee or person subject to RCW 18.44.021;

(j) Meetings and exit reviews with owners, management, officers, or employees of any person subject to RCW 18.44.021;

(k) Meetings and sharing of information with other regulatory or law enforcement agencies;

(l) Preparation and delivery, as deemed necessary, of a report of investigation requiring a response from the recipient.

(3) For purposes of this section and RCW 18.44.420(1), "public" means open to the public as determined by the director.

(4) For purposes of this section and RCW 18.44.420(1), "private" means closed to the public or any person, including attorneys for witnesses, as determined by the director.

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NEW SECTION
WAC 208-680G-030   Enforcement.   The director, or designated person, may conduct the following types of enforcement activity:

(1) Enter orders, including temporary orders to cease and desist, compelling any person to cease and desist from the unlawful practice, and to take such affirmative action as in the judgment of the director will carry out the purposes of this chapter;

(2) Enter charges for violations of chapter 18.44 RCW and chapter 208-680 WAC;

(3) Bring an action, with or without prior administrative proceedings, in the superior court to enjoin the acts or practices and to enforce compliance with chapter 18.44 RCW, or any rule, regulation, or order of the director;

(4) Appoint a receiver or conservator to take over, operate, or liquidate any escrow office;

(5) Hold hearings; or

(6) Make referrals to other regulatory or law enforcement agencies.

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NEW SECTION
WAC 208-680G-040   Sanctions.   The director may impose the following sanctions:

(1) Denial, suspension, or revocation of license for any violation of RCW 18.44.260;

(2) Remove or prohibit from participation in the conduct of the affairs of any licensed escrow agent, any officer, controlling person, director, employee, or licensed escrow officer for any violation of RCW 18.44.260;

(3) Assess a fine of up to one hundred dollars per day for each day's violation of chapter 18.44 RCW, or these rules.

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NEW SECTION
WAC 208-680G-050   Examination and investigation fees and expense--Authority to retain specialists.   (1) The director may retain attorneys, appraisers, independent certified public accountants, or other professionals and specialists as examiners, auditors, or investigators, the cost of which shall be borne by the person who is the subject of the examination, audit, or investigation.

(2) The expense of required travel and services related to an examination or investigation outside this state shall be borne by the person examined or investigated. Such expense includes, but is not limited to, travel, lodging, and per diem expense.

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Washington State Code Reviser's Office