SENATE BILL REPORT

SB 5848

BYSenators Tanner, Deccio, Moore, Newhouse, McDonald, Smitherman and Warnke

Establishing procedures for administration of real estate transaction trust funds.

Senate Committee on Commerce & Labor

Senate Hearing Date(s):March 2, 1987; March 5, 1987

Majority Report:  That Substitute Senate Bill No. 5848 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Warnke, Chairman; Smitherman, Vice Chairman; Anderson, Cantu, Sellar, Tanner, Vognild, West.

Senate Staff:Dave Cheal (786-7576)

                  March 9, 1987

AS REPORTED BY COMMITTEE ON COMMERCE & LABOR, MARCH 5, 1987

BACKGROUND:

Realtors receive funds from clients which they are required by law to hold in trust for the purposes of various real estate transactions.  The most common of these are deposits from a buyer pending closing of a real estate transfer, most commonly referred to as "earnest money" deposits.  These are often relatively small amounts and held for a short period of time ranging from 30 to 60 days.

If these funds were to be placed in an interest bearing account, a small amount of interest would be generated prior to transfer of the principal to escrow or to the seller.  Often it would not be practical to pay this amount of interest to the realtor's client because the cost of segregating the funds, calculating the interest, and making payment would exceed the amount of interest generated.  However, if these individually small interest earnings were pooled and aggregated statewide, a significant amount of money could be generated and directed towards some designated public purpose.

SUMMARY:

Real estate brokers are required to place trust fund money in a pooled interest bearing account.  Exceptions are:  (1) separate property management trust accounts including damage or security deposit accounts, (2) individual interest bearing trust accounts established pursuant to regulations adopted by the Department of Licensing, or (3) any other separate trust accounts established pursuant to law.

Brokers must notify clients who deposit amounts greater than $10,000 that they have the right to have a separate fund opened in their name.  Otherwise, notifying the client is optional.

Depository institutions are to:  (1) notify the Director of the Department of Licensing of each broker that opens a trust account, (2) remit interest or dividends quarterly less reasonable service charges, to the Real Estate Foundation of Washington, and (3) transmit statements with each remittance to the Real Estate Foundation of Washington showing the name and account number of the broker.

A seven member Brokers Trust Account Board is created consisting of three appointments by the Governor, three by the Washington Association of Realtors, and one by the Real Estate Commission.  Terms are staggered.

The members of the Trust Account Board may form a nonprofit corporation called the Real Estate Foundation of Washington, under the provisions of the Nonprofit Corporations Act.  The Board, through the Foundation, assists development and financing of low income housing, and support real estate related research and education.  Directors serve without compensation but may be reimbursed for travel and other expenses.

The Foundation's funds are not to be deemed public funds and the Foundation is not to be deemed a state agency, but shall conduct its meetings subject to the requirements of the Open Public Meetings Act.

EFFECT OF PROPOSED SUBSTITUTE:

Appointment power is removed from the Washington Association of Realtors and the Governor is given six appointments, with submission of nominations from realtors, nonprofit housing groups and housing authorities.

All funds are to be spent on charitable tax exempt activities.  A definition of low income housing is provided.

Fiscal Note:      requested

Senate Committee - Testified: Ed Murphy, Washington Association of Realtors