FINAL BILL REPORT

SHB 1369

                                  C 178 L 88

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Winsley and Lux)

Regulating escrow.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance

SYNOPSIS AS ENACTED

BACKGROUND:

When real property is purchased the buyer and seller usually engage the services of an escrow agent. The escrow agent performs services in accordance with an escrow agreement. The escrow agreement is a written contract creating an account to hold money for the purchase until certain conditions specified in the contract have been met. The escrow agent holds funds, such as loan funds obtained for the purchase, and pays the funds to the proper party when the contract terms are fulfilled.

Many mortgage lenders pay loan proceeds to the borrower by means of a check drawn on a financial institution located outside the state of Washington. When this check is placed in escrow, the funds are not available for disbursement by the escrow agent until the check has cleared and funds are deposited locally. The escrow agent is then placed in a dilemma of deciding whether to wait until the check clears, which delays closing of the sale, or whether to pay funds out of another account. If the escrow agent pays funds from any account other than the appropriate account, the agent risks a loss either because the loan check fails to clear or a problem arises with the payor bank.

Escrow agents are required to have either a fidelity bond or errors and omissions insurance. However, the Director of the Department of Licensing may determine that such coverage is not reasonably available and may waive these coverage requirements for a fixed period of time not to exceed 90 days after the next regular session of the Legislature that follows the date of the director's determination.

The federal Real Estate Settlement Procedures Act prohibits the payment of referral fees for real estate settlement services involving federally related mortgage loans.

SUMMARY:

Escrow agents are prohibited from disbursing money from an escrow account without first receiving deposits directly relating to the account in amounts at least equal to the disbursements. These deposits must be of a specified type. Disbursements made in violation of this requirement constitute violations of the Consumer Protection Act.

The Director of the Department of Licensing may waive the insurance and bond requirements for escrow agents for a fixed period of time but there is no restriction on the director as to when or for how long the period will be.

"Real property lender" is defined as any entity that lends money secured by real property located in Washington.

No "real property lender," escrow agent, or employee of a lender or agent may pay a fee for referral of escrow business. This restriction does not prohibit the payment of any fee permitted under the federal Real Estate Settlement Procedures Act. Violation of this provision constitutes a violation of the Consumer Protection Act.

VOTES ON FINAL PASSAGE:

      House 97   0

      Senate    46     0 (Senate amended)

      House 94   0 (House concurred)

EFFECTIVE:June 9, 1988