SENATE BILL REPORT

SB 6617

BYSenator Talmadge

Revising provisions on escrow.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 4, 1988

Senate Staff:Benson Porter (786-7470)

AS OF FEBRUARY 3, 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 at the discouragement of the buyer and seller 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 all funds have been collected.  Also, provisions preventing a lender from requiring a specific escrow agent as a precondition to a loan have been suggested.

SUMMARY:

Escrow agents may not pay out funds from an escrow account until all funds have been deposited into it.

Lenders are prohibited from requiring a borrower to use the escrow services of a specific escrow agent as a condition to granting a loan.

A law suit may be filed in the appropriate court for an order to enjoin the person from engaging in such activity.  The attorney general and the prosecuting attorneys are given responsibility for enforcing these provisions.  Any person violating these provisions is subject to a civil penalty of $5,000 for each violation.

The Director of Licensing is given authorization to adopt rules necessary to implement this act.

The term "escrow agent" is defined.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Effective Date:July 1, 1988