HOUSE BILL REPORT
HB 1369
BYRepresentatives Winsley and Lux
Regulating escrow.
House Committe on Financial Institutions & Insurance
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass.
Signed by Representatives Lux, Chair; Zellinsky, Vice Chair; Anderson, Betrozoff, Chandler, Crane, Day, Dorn, Ferguson, P. King, Nutley, Silver and Winsley.
House Staff:John Conniff (786-7119)
AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE
JANUARY 26, 1988
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 ninety days after a regular session of the Legislature.
The federal Real Estate Settlement Procedures Act prohibits the payment of referral fees for real estate settlement services involving federally related mortgage loans.
SUMMARY:
SUBSTITUTE BILL: 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 constitutes a violation 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 without limitation.
"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 shall 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.
SUBSTITUTE BILL COMPARED TO ORIGINAL: Provisions that prohibit lenders from advancing loan proceeds by means of a check drawn upon an out-of-state bank; that prohibit the charging of interest on a loan until the loan check has cleared a local bank; and that prohibit lenders from conditioning the grant of a loan upon the use of particular escrow services are deleted. Provisions are added that prohibit the payment of referral fees for escrow business; that removes the time limitation for waiver of insurance or bond for escrow agents; and that makes violation of the act subject to Consumer Protection Act remedies.
Fiscal Note: Not Requested.
House Committee ‑ Testified For: (in part) James Deal, Seattle-King County Bar Association; Dean Morgan, Washington State Escrow Association; Larry Shannon, Washington Mortgage Bankers Association; and Bob Mitchell, Department of Licensing.
House Committee - Testified Against: (in part)James Deal, Seattle-King County Bar Association.
House Committee - Testimony For: Escrow agents should be prohibited from paying funds from an escrow account until the funds for the payment are received. The time limitation imposed by the Director for waiving insurance or bonding requirements is cumbersome and should be repealed. Lenders acting as escrow agents should be prohibited from paying fees for the referral of business.
House Committee - Testimony Against: The prohibition on the payment of funds from an escrow account is weak and may be ineffective. Stronger legislation is necessary.