SENATE BILL REPORT

SHB 1369

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

Senate Hearing Date(s):February 25, 1988

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; West, Vice Chairman; Johnson, Kreidler, McCaslin, Moore, Rasmussen, Sellar, Smitherman.

Senate Staff:Benson Porter (786-7470)

                  February 25, 1988

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 25, 1988

BACKGROUND:

Services of an escrow agent are obtained typically by the buyer and seller for the holding of funds during the purchase of real property.  These services are specified in an escrow agreement which provides for the creation of an account to hold money for the purchase until certain conditions specified in the agreement are met.

An escrow agent is placed in a difficult position when the loan proceeds deposited into this account are from a check drawn on a financial institution located outside the state of Washington.  Since the funds are unavailable for disbursement by the escrow agent until the check has cleared and funds are deposited locally, the escrow agent must decide whether to wait for the check to clear before disbursing the funds or to disburse funds from another unrelated source, possibly the escrow agent's own funds.  It has been suggested that all escrow agents should be restricted from paying out any funds from the escrow account until sufficient funds relating to a specific escrow account have been collected.

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:

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 a violation of the Consumer Protection Act.

The Director of the Department of Licensing may waive the fidelity bond and errors and omission coverage 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.

SUMMARY OF PROPOSED SENATE AMENDMENT:

Any depository check, including any cashier's check, certified check, or teller's check, which is governed by the provisions of the federal Expedited Funds Availability Act is a permissible form of deposit made to an escrow account.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Dean Morgan, Escrow Association of Washington (for)