WSR 00-19-051

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed September 15, 2000, 1:02 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 00-10-102.

Title of Rule: Chapter 208-680 WAC, Escrow Agent Registration Act.

Purpose: To bring the WAC in conformance with the amendments made to chapter 18.44 RCW due to the enactment of HB 1092.

Statutory Authority for Adoption: RCW 18.44.410.

Statute Being Implemented: Chapter 208-680 WAC.

Summary: The amendment to chapter 208-680 WAC includes:

Establishing guidelines on reporting change of principals or controlling persons (WAC 208-680B-015).
Requiring fingerprinting for all applicants (WAC 208-680B-020).
Requiring that the escrow officer supervises one location/works for only one escrow agent (WAC 208-680B-100 and 208-680B-110).
Requiring escrow agent notify Department of Financial Institutions (DFI) within 24 hours of refusing DEO [designated escrow officer] access to trust account records (WAC 208-680B-120).
Amending record-keeping requirements to meet current industry practices of not keeping duplicate receipt books (WAC 208-680D-020).
Requiring closing statement to contain all pertinent fees (WAC 208-680D-040).
Establishing practices that are prohibited in the industry (WAC 208-680D-090).
Establishing procedures to implement when performing split escrows (WAC 208-680D-100).
Establishing time limit for DEO to review and sign monthly reconcilement, and for performing adjustments (WAC 208-680E-011(9)).
Allowing a single check to be drawn on the trust account for the payment of escrow and service fees due the agent on more than one escrow transaction (WAC 208-680E-011(12)).
Allowing escrow agent to have a deductible of up to $10,000 on fidelity bond, as long as a surety bond of equivalent amount is obtained (WAC 208-680F-010).
Clarifying DFI's authority for performing examination, investigation, enforcement, and sanctions (chapter 208-680G WAC).

Reasons Supporting Proposal: To bring the WAC in conformance with the amendments made to chapter 18.44 RCW due to the enactment of HB 1092. The amendment is needed to update the statute to current escrow practices and clarify the DFI's statutory authority to perform examinations, investigations, and enforcement.

Name of Agency Personnel Responsible for Drafting: W. Kwadwo Boateng/Mark Thomson, GA Building, Room #300, 902-8785/8787; Implementation and Enforcement: Mark Thomson, GA Building, Room #300, 902-8787.

Name of Proponent: Department of Financial Institutions.

Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: See Small Business Economic Impact Statement below.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: To bring the WAC in conformance with the amendments made to chapter 18.44 RCW due to the enactment of HB 1092. The amendment is needed to update the statute to current escrow practices and clarify the DFI's statutory authority to perform examinations, investigations, and enforcement.

Proposal Changes the Following Existing Rules: The amendment to chapter 208-680 WAC includes:
Establishing guidelines on reporting change of principals or controlling persons (WAC 208-680B-015).
Requiring fingerprinting for all applicants (WAC 208-680B-020).
Requiring that the escrow officer supervises one location/works for only one escrow agent (WAC 208-680B-100 and 208-680B-110).
Requiring escrow agent notify DFI within 24 hours of refusing DEO access to trust account records (WAC 208-680B-120).
Amending record-keeping requirements to meet current industry practices of not keeping duplicate receipt books (WAC 208-680D-020).
Requiring closing statement to contain all pertinent fees (WAC 208-680D-040).
Establishing practices that are prohibited in the industry (WAC 208-680D-090).
Establishing procedures to implement when performing split escrows (WAC 208-680D-100).
Establishing time limit for DEO to review and sign monthly reconcilement, and for performing adjustments (WAC 208-680E-011(9)).
Allowing a single check to be drawn on the trust account for the payment of escrow and service fees due the agent on more than one escrow transaction (WAC 208-680E-011(12)).
Allowing escrow agent to have a deductible of up to $10,000 on fidelity bond, as long as a surety bond of equivalent amount is obtained (WAC 208-680F-010).
Clarifying DFI's authority for performing examination, investigation, enforcement, and sanctions (chapter 208-680G WAC).

A small business economic impact statement has been prepared under chapter 19.85 RCW.

Small Business Economic Impact Statement

SUBJECT: Rules proposed by the Division of Consumer Services and Administration of the Washington State Department of Financial Institutions to amend chapter 208-680 WAC. These amendments are necessary because of amendments to the Escrow Agent Registration Act (act), chapter 18.44 RCW, passed during the 1998 legislative session. These changes are intended to ensure consistency between the WAC and the RCW, and to clarify the authority of the department under the RCW.

BY: Mark Thomson, Director of Consumer Services and Administration.

DATE: June 28, 2000.

The division has prepared this small business economic impact statement (SBEIS) in compliance with chapter 19.85 RCW, the Regulatory Fairness Act (RFA). The Preproposal Statement of Inquiry (form CR-101) prepared in connection with the proposed rules was filed at WSR 00-10-102. As used in this SBEIS, the term "Escrow Agent" means any person engaged in the business of performing for compensation escrow transactions which is defined under RCW 18.44.011(4) as: ...any transaction, except the acts of a qualified intermediary in facilitating an exchange under section 1031 of the internal revenue code, wherein any person or persons, for the purpose of effecting and closing the sale, purchase, exchange, transfer, encumbrance, or lease of real or personal property to another person or persons, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition or conditions, when it is then to be delivered by such third person, in compliance with instructions under which he or she is to act, to a grantee, grantor, promisee, promisor, obligee, obligor, lessee, lessor, bailee, bailor, or any agent or employee thereof.


BACKGROUND FOR PROPOSED RULE: The department was assigned responsibility for administration of the Escrow Agent Registration Act (act) by the legislature in 1995. After working with the statute for several years, and after extensive discussions with the escrow industry, the title insurance industry, and other representatives of consumers and the public, the department proposed extensive revisions to the Escrow Agent Registration Act in 1997. These revisions provided greater clarity concerning the licensing requirements of the act and exemptions from licensing, expanded the bonding requirements for escrow agents, clarified and expanded the department's enforcement authority, and made several other changes.

Over the past year, the division has worked together with the Escrow Commission, representatives of the Escrow Association of Washington, and individual members of the industry to develop the proposed rules implementing the statutory changes made in 1997. RCW 18.44.410 provides the authority for making the proposed rules.


DESCRIPTION OF PROPOSED RULE: The proposed rule amends chapter 208-680 WAC. The existing chapter 208-680 WAC is composed of six subchapters, A, B, C, D, E, and F. The proposed rule making amends each subchapter, and adds a new subchapter, G, governing the department's examination and enforcement authority.

More specifically, here is a summary of the changes made to the WAC:

Chapter 208-680A WAC, Escrow -- Organization and administration. This chapter of the WAC consists primarily of definitions. The proposed amendments to this chapter revise several of the existing definitions and add several new definitions to incorporate and clarify the 1997 amendments to the act.

Chapter 208-680B WAC, Escrow -- Licensing and examination. This chapter of the WAC consists of rules governing the department's license application process, the examination administered by the department to all escrow officer license applicants, and limitations imposed upon licensees. The proposed amendments to this chapter include but are not limited to:


Establishes guidelines for reporting on changes in licensee's principals or controlling persons (WAC 208-680B-015).
Ensures that fingerprints to allow for a background check are required of all applicants, and not just those who have been convicted of a felony or misdemeanor (WAC 208-680B-020).
Defines the term "an appropriate knowledge of the English language" as the demonstrated ability to read and understand escrow documents as they are commonly drafted in the state of Washington (WAC 208-680B-030).
Limits the designated escrow officer (DEO) and branch DEO to supervising only one physical location without prior written consent from the director (new section WAC 208-680B-100).
Limits the DEO and branch DEO to employment by a single escrow agent without prior written consent from the director (new section WAC 208-680B-110).
Requires the escrow agent to notify DFI within 24 hours of refusing the DEO access to trust account records (new section WAC 208-680B-120).

Chapter 208-680C WAC, Escrow -- Escrow agent office. This chapter of the WAC consists of rules governing the offices of licensed escrow agents, the closing of an escrow agent's office, and prohibiting the use of deceptive names. The proposed amendments to this chapter include but are not limited to:


Defining an escrow agent's office as any fixed physical location where an escrow agent holds itself out to the public as able to perform escrow services (WAC 208-680C-020).
Requiring a licensed escrow agent to notify the department ten days prior to a change in office location (WAC 208-680C-040).
Establishing timelines for notification of the department during stages of closing an escrow agent's office (WAC 208-680C-045).

Chapter 208-680D WAC, Escrow -- Records and responsibilities. This chapter of the WAC consists of rules governing an escrow agent's responsibilities in conducting escrow services and maintaining records of escrow transactions. The proposed amendments to this chapter include but are not limited to:


Authorizing the department to retain or instruct the licensee to retain a CPA to perform an audit of the trust account prior to accepting a new DEO or branch DEO (WAC 208-680D-010).
Clarifying the record-keeping requirements to meet current industry practices (WAC 208-680D-020).
Requiring the escrow agent to disclose in the escrow instructions all fees for services provided by the escrow agent and other requirements governing completion of the escrow instruction, the closing statement and maintenance of these records (WAC 208-680D-040).
Requiring timely disbursement of funds, requiring the escrow agent to hold funds when notified by a principal of a dispute until such dispute is resolved, and authorizing the escrow agent to interplead funds to a court of appropriate jurisdiction (WAC 208-680D-060).
Establishes prohibited practices that represent violations of the act and this section. These practices include defrauding or misleading borrowers, engaging in unfair or deceptive practices, obtaining property by fraud or misrepresentation, and other unfair or deceptive practices (new section WAC 208-680D-090).
Establishes procedures governing split escrows (new section WAC 208-680D-100).

Chapter 208-680E WAC, Escrow -- Trust account procedures. This chapter of the WAC consists of rules governing the escrow agent's responsibilities in administering a trust account. The proposed amendments to this chapter include but are not limited to:


Establishing the time limit for the DEO to review and sign monthly reconcilement, and for performing adjustments (WAC 208-680E-011(9)).
Allowing a single check to be drawn on the trust account for the payment of escrow and service fees due the agent on more than one escrow transaction (WAC 208-680E-011(12)).
Requiring sequential numbering of checks and retention of voucher copy (WAC 208-680E-011(15)).
Requiring the review and reporting of unclaimed funds (WAC 208-680E-011(17)).

Chapter 208-680F WAC, Escrow -- Financial responsibility. This chapter of the WAC consists of rules governing an escrow agent's financial responsibility in conducting escrow services. The proposed amendments to this chapter include but are not limited to:


Allows the escrow agent to have a deductible of up to $10,000 on fidelity bond, as long as a $10,000 surety bond is obtained (WAC 208-680F-010).

Chapter 208-680G WAC, Escrow -- Examinations, investigations, enforcement and sanctions. This chapter of the WAC consists of rules governing the department's authority to conduct examinations, investigations, enforcement actions and to impose sanctions upon licensees and others. The proposed amendments to this chapter include but are not limited to:


A description of the department's authority to conduct examinations of the records of a licensee or any person conducting the business of an escrow agent as defined in the act, including accessing records and interviewing individuals (new section WAC 208-680G-010).
A description of the department's authority to conduct investigations of the business practices of a licensee or other person conducting the business of an escrow agent as defined in the statute, including accessing records and interviewing individuals (new section WAC 208-680G-020).
A listing of the types of enforcement actions the department may undertake against licensees and other persons conducting the business of an escrow agent (new section WAC 208-680G-030).
A listing of the sanctions the department may impose upon licensees and other persons conducting the business of an escrow agent (new section WAC 208-680G-040).
Authority to pass on the incremental travel costs from examinations or investigations of licensees located outside the state of Washington to the licensee, and to pass on certain other costs associated with examinations or investigations (new section WAC 208-680G-050).

REQUIRED ELEMENTS OF SBEIS: The elements of the SBEIS required by the RFA are set forth below.


ELEMENT 1. A brief description of the reporting, recordkeeping, and other compliance requirements of the proposed rule and the kinds of professional services that a small business is likely to need in order to comply with the requirements.


RESPONSE: In general, the proposed rule does not impose additional reporting, recordkeeping, and other compliance requirements. Additional professional costs are not required for the escrow agent to meet the proposed rule.


ELEMENT 2. An analysis of the costs of compliance for identified industries, including costs of equipment, supplies, labor and increased administrative costs.


RESPONSE: An informal survey of the members of the Escrow Commission indicates that cost of compliance is negligible. The escrow agent may expend some time training staff to update their knowledge on the rule. However, this cost is negligible since the professional escrow officer is required to maintain current knowledge in their field and should have been devoting resources for that purpose.


ELEMENT 3. Whether compliance with the proposed rule will cause business to lose sales or revenue.


RESPONSE: The proposed amendments will have no direct impact upon fees charged by escrow agents, and therefore should have no impact upon sales or revenue.


ELEMENT 4. A comparison of the compliance costs for the small business segment and large business segment of the affected industry (ies).


RESPONSE: The RFA provides that the compliance costs for small businesses affected by the proposed rule should be compared with such costs for the largest 10% of businesses affected by the rule, based on one or more of the following factors:

1. Cost per employee.

2. Cost per hour of labor to comply.

3. Cost per one hundred dollars of sales.

"Small business" is defined in the RFA as a business with fifty or fewer employees.

Escrow agents run typically small independent operations. The small, as well the relatively larger size, escrow agent will need to equally educate their staff. The costs associated with gaining more knowledge about the rule may be dependent on the number of staff in an escrow company. Therefore costs will be proportional, the smaller the company the proportionally less the costs involved in training employees to be knowledgeable of the rule.


ELEMENT 5. Steps taken by the agency to reduce the costs of the proposed rule on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.


RESPONSE: The RFA requires agencies to consider specific steps to mitigate the impact of the rule on small business, including:

1. Establishing different compliance or reporting requirements or timetables for small business.

2. Clarifying, consolidating or simplifying the compliance and reporting requirements for small business.

3. Establishing performance rather than design standards.

4. Exempting small business from any or all of the requirements.

5. Reducing or modifying fine schedules for not being in compliance.

Mitigating steps should be taken if they are legal and feasible in meeting the stated objective of the act.

Throughout the rule-making process the division worked with the Escrow Commission and individual escrow agents. Serious consideration was given to the impact of the proposed amendments by all concerned. Escrow agents were encouraged to participate in the process and the industry representatives that participated in the process support the resulting amendments.


REQUIRED ELEMENTS OF SBEIS:


ELEMENT 6. A description of how the agency will involve small business in the development of the proposed rule.


RESPONSE: The division has held meetings over the last year with members of the Escrow Commission, with representatives of the Escrow Association of Washington, and with other independent escrow agents to discuss the proposed rule making. Moreover, all licensed escrow agents will be provided with a copy of the proposed rule. The public will have an opportunity to comment on the proposed rule making before the Escrow Commission at its July meeting. In addition, escrow agents are encouraged to contact the division to comment on the rule making and will have an additional opportunity to comment on the rule at the department's hearing subsequent to filing of the notice or proposed rule making.


ELEMENT 7. A list of the industry (ies) affected by the proposed rule.


RESPONSE: The industry affected by the proposed rule is Escrow Agents, Standard Industrial Classification 6531.

A copy of the statement may be obtained by writing to Mark Thomson, Assistant Director of Consumer Services and Administration, P.O. Box 41200, Olympia, WA 98504-1200, phone 902-8787, fax 704-6925.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. WSDA [DFI] is not a listed agency in section 201.

Hearing Location: Washington Interactive Television (WIT), Lacey, Seattle, Spokane, Vancouver, Yakima, on November 2, 2000, at 10-12 noon.

Assistance for Persons with Disabilities: Contact Mark Thomson by October 30, 2000, TDD (360) 664-8126.

Submit Written Comments to: Mark Thomson, Assistant Director of Consumer Services and Administration, P.O. Box 41200, Olympia, WA 98504-1200, fax (360) 704-6925, by October 30, 2000.

Date of Intended Adoption: November 21, 2000.

September 15, 2000

Mark Thomson

Assistant Director

OTS-4228.2


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680A-040
Definitions.

The terms and definitions used in chapter 18.44 RCW have the same meanings given therein when used in these rules.

"Agent(s) to the transaction" means those persons providing professional services necessary for the closing of the escrow. "Agents to the transaction" includes, but is not limited to: Real estate brokers, lenders, mortgage brokers, attorneys engaged to review the escrow, tax facilitators or underlying lien holders.

"Applicant" means any person, or group of persons, applying for an escrow officer license or escrow agent license. The term includes the officers and controlling persons of the applicant, as well as any escrow officer seeking to become an escrow agent's designated escrow officer or designated branch escrow officer.

"Cash deposit" means funds deposited, in lieu of an errors and omissions policy, in an account in a recognized Washington state depository which account is maintained separate and apart from the escrow agent's own funds. The funds shall be deposited in such a manner to permit only the director to withdraw from the principal amount. The escrow agent may withdraw any interest accumulated to the account.

"Closing" means the transfer of title of real or personal property or execution of a real estate contract whichever event occurs first.

"Completed escrow" means a transaction in which the escrow agent has fully discharged its duties to the principals to the transaction. This includes obtaining all necessary documents, obtaining required signatures, completing reconveyance or title elimination, and disbursing funds to the principal((s)) parties to the transaction, the agents to the transaction, and to third parties as agreed by the principals in the escrow instructions or on the settlement form (such as HUD1 or HUD1A).

"Conversion" means an unauthorized assumption and exercise of the right of ownership over moneys, property, or things of value belonging to another, to the alteration of the condition of, or the exclusion of the owner's rights to such moneys, property, or things of value. It includes any unauthorized act which deprives an owner of his/her property permanently or for an indefinite time, including but not limited to theft, embezzlement, forgery, swindling, and unauthorized control.

"Escrow instructions" are the instructions, signed by the principal parties to the transaction that identify the duties and responsibilities of the escrow agent in carrying out the escrow, that identify the thing or things of value held by the escrow agent and the specified condition or set of conditions under which the thing or things of value are to be transferred.

"Investigation" means an examination undertaken for the purpose of detection of violations of chapter 18.44 RCW, and these rules or securing information lawfully required under chapter 18.44 RCW, and these rules. The director or his or her designee may make private or public investigations.

"Officers" of the escrow agent shall include the president, secretary, treasurer, vice-president, and any other persons with control over management decisions of the escrow agent.

"Overdue instrument" means a negotiable instrument that is overdue as defined in RCW 62A.3-304.

"Permanent record" means any record required to be kept under RCW 18.44.400 for a period of six years from the completion of the escrow transaction.

"Principal parties" means the buyers and sellers in a purchase transaction, and the borrower in a refinance transaction.

"Reconveyance" means an instrument used to transfer title from an individual holding such title in trust to the equitable owner of real estate, when title is held as collateral security for a debt.

"Securities" means any stock, treasury bill, bond, debenture or collateral-trust certificate tendered in lieu of an errors and omissions policy. It does not mean or include any insurance or endowment policy, annuity contract or letter of credit.

"Split escrow" means a transaction in which two or more escrow agents act to effect and close an escrow transaction.

"Transfer of title" occurs at the time the seller executes a deed or bill of sale and such is delivered to the purchaser or recorded.

"Trust" means a fiduciary relationship whereby a thing of value is delivered to an escrow agent with the intention that such thing of value be administered by the escrow agent for the benefit of the principal parties to the transaction.

"Trust account" or "trust bank account" means a bank account holding funds of any party to the transaction.

"Unclaimed funds" ((are those funds for which the rightful owner is unknown, or the location of payee is unknown, or stale-dated checks which have not been cashed)) means any funds that are abandoned under the Uniform Unclaimed Property Act, chapter 63.29 RCW.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680A-040, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680A-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128A-040, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128A-040, filed 9/9/88; 79-07-009 (Order RE 126), 308-128A-040, filed 6/7/79; Order RE 122, 308-128A-040, filed 9/21/77.]

OTS-4229.1


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-010
Credit and character report.

Any person making application for an escrow officer license after passing an examination, or making application to be a designated escrow officer, shall, as an integral part of the application, supply the director with satisfactory proof of applicant's character and credit rating. Such proof shall be obtained and provided by a recognized credit-reporting agency in a form approved by the department.

Any person making application for an escrow agent ((certificate of registration)) license shall, as an integral part of the application, supply the director with satisfactory proof of character and credit rating for the natural person making the application, principal officers, designated escrow officer, controlling persons and partners. Such proof shall be obtained and provided by a recognized credit-reporting agency in a form approved by the department.

[96-05-018, recodified as 208-680B-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-010, filed 9/9/88; Order RE 122, 308-128B-010, filed 9/21/77.]


NEW SECTION
WAC 208-680B-015
License not transferable--Notice of change in principal officer or controlling person.

(1) An escrow agent license may not be transferred.

(2) An escrow officer's license may not be transferred.

(3) Whenever a licensed escrow agent contemplates a transfer involving all or substantially all of its assets, the licensee shall provide written notice to the director at least thirty days prior to the effective date of the transfer. This notice must include a copy of the signed agreement between the parties, which provides in part:

(a) A stipulation that the transferee is responsible for obtaining a license prior to completion of the transfer;

(b) A stipulation that the transferee shall obtain and submit to the director evidence of financial responsibility in the form of the required bond or bonds and errors and omission insurance in compliance with RCW 18.44.201 prior to completion of the transfer;

(c) A stipulation indicating which of the parties shall:

(i) Make all payments due to principal parties on or before the effective date of the transfer;

(ii) Maintain and preserve the accounting and other records as required by RCW 18.44.400 and WAC 208-680D-020 and 208-680D-030;

(iii) Provide notice of the transfer to all principal parties who have pending escrows, or who have deposited funds with the escrow agent, or who have executed some other form of written agreement with the escrow agent; and

(d) A stipulation that the transferee is either restricted from using or authorized to use, the escrow agent's business name, unless waived by the director.

(4) At least thirty days prior to a change in a principal officer or controlling person of a licensed escrow agent, the licensee shall provide the director with all information required of a principal officer or controlling person when an application is made for a license. The director shall make a determination prior to completion of the change, whether the proposed new principal officer or controlling person meets the requirements for licensing.

[]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-020
Fingerprint identification.

(1) Any person making application for an escrow officer license after passing an examination, or to be a designated escrow officer ((who has been convicted of a felony or misdemeanor within ten years of application)), shall, as an integral part of the application, submit fingerprint identification on a form provided by the department.

(2) Any person making application for an escrow agent ((certificate of registration who has been convicted of a felony or misdemeanor within ten years of application,)) license shall, as an integral part of the application, submit fingerprint identification of the natural person making the application, principal officers, designated escrow officer and ((partners for those persons who have been convicted of a felony or misdemeanor within ten years of application)) controlling persons on a form provided by the department.

(3) The director or his/her designee may, at his/her discretion, request additional background information to ascertain an applicant's honesty, truthfulness, and good reputation including but not limited to: Residential address and telephone number, qualifications, employment history, a personal credit report, and other information that the director or his/her designee may deem appropriate as per RCW 18.44.290(2). The department may inquire of any applicant, principal officer, designated escrow officer, controlling persons, and partners, such information as is deemed necessary to satisfy the director or his/her designee that the requirements set forth in RCW 18.44.290(2) have been met. The director may require that such information be reported in writing and signed by the reporting individuals.

(4) In the event that an escrow agent experiences a change in any principal officer(s) or controlling person(s), the escrow agent shall submit fingerprints and such other information as the director may request under subsection (3) of this section to the department thirty days prior to the effective date of the change in principal officer(s) or controlling person(s).

[96-05-018, recodified as 208-680B-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-020, filed 9/9/88; Order RE 122, 308-128B-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-030
((Notice required of intention to take)) Escrow officer examination.

(1) Any person desiring to take an examination for an escrow officer license must file a completed application together with the correct fee, and supporting documents with the department. Dishonored checks will be considered as an incomplete application. The applicant will be assigned to the first available examination subsequent to determination of eligibility. The cutoff date for submission of a completed application for any specific examination is available upon request. An applicant shall forfeit all examination fees for any examination or examinations for which the applicant has applied and does not take for any reason, other than through the fault or mistake of the department.

(2) The escrow officer examination shall test the applicant's knowledge of the following:

(a) An appropriate knowledge of the English language;

(b) An understanding of the obligations between principal and agent;

(c) An understanding of the meaning and nature of encumbrances upon real property, including an understanding of the general purposes and legal effects of deeds, mortgages, deeds of trust, contracts of sale, exchanges, rental and optional agreements, leases, earnest money agreements, personal property transfers, encumbrances, and other escrow documents;

(d) An understanding of arithmetic and the principles and practices of trust accounting; and

(e) An understanding of the Escrow Agent Registration Act and other applicable law such as the Real Estate Settlement Procedures Act, 12 U.S.C. Sec. 2601 and regulation X, 24 C.F.R. Part 3500.

(3) For purposes of this section, "an appropriate knowledge of the English language" is defined as a demonstrated ability to read and understand the general purposes and legal effects of deeds, mortgages, deeds of trust, contracts of sale, exchanges, rental and operational agreements, leases, earnest money agreements, personal property transfers, encumbrances, and other escrow documents as they are customarily drafted in the state of Washington.

(4) The escrow officer examination shall be in a form and a location prescribed by the director, with the advice of the escrow commission, and shall be given at least annually.

[96-05-018, recodified as 208-680B-030, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-030, filed 9/9/88; Order RE 122, 308-128B-030, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-050
Successful applicants must apply for license.

Any person who has passed the examination for escrow officer must apply to become licensed within one year from the date of such examination in order to be eligible for such license. If an escrow officer license has not been issued within two years of successful completion of the examination, then the applicant must retake and successfully complete the examination. Failure to comply with this provision will necessitate the taking and passing of another examination.

[96-05-018, recodified as 208-680B-050, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-050, filed 9/9/88; Order RE 122, 308-128B-050, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-070
Misuse of escrow officer license prohibited.

An escrow officer shall not permit the use of his or her license, whether for compensation or not, to enable any person to in fact establish and carry on an escrow agency wherein the escrow officer does not have full management and supervisory responsibilities as required by RCW 18.44.200 and these regulations. Failure to adequately supervise any individual conducting escrow or assisting in escrow shall be a violation of this section and may constitute grounds for revocation of the escrow officer's license.

[96-05-018, recodified as 208-680B-070, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128B-070, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680B-090
Dishonored checks and insufficient payment of fees.

Payment of any fee required under chapter 18.44 RCW by a check ((which)) that is dishonored, or is an insufficient payment, shall be considered a nonpayment and the license action for which the dishonored check, or insufficient payment, was tendered shall not be completed by the department.

[96-05-018, recodified as 208-680B-090, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128B-090, filed 9/9/88.]


NEW SECTION
WAC 208-680B-100
Number of locations directly supervised by escrow officers simultaneously.

No designated escrow officer or designated branch escrow officer shall simultaneously supervise more than one location without the prior written consent of the department.

[]


NEW SECTION
WAC 208-680B-110
Escrow officers may only be designated to one company.

A designated escrow officer or designated branch escrow officer may perform escrow services for only one escrow agent at a time without the prior written consent of the director or his/her designee. A designated escrow officer or designated branch escrow officer may only supervise those escrow agent(s), and the employees of escrow agent(s), for which the officer has been designated by the director or his/her designee.

[]


NEW SECTION
WAC 208-680B-120
Escrow agent's prohibition of designated escrow officer.

An escrow agent may not prohibit the designated escrow officer from accessing the escrow agent's trust account books and records unless it notifies the department of such prohibition within twenty-four hours of the prohibition. Such notification must include the reason for the prohibition, a current address and telephone number for the prohibited designated escrow officer, a request for a replacement designated escrow officer, and a notice that no escrow business will be conducted without a designated escrow officer unless prior written consent has been given by the director.

[]

OTS-4230.1


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-020
Office identification.

Any main or branch office of the escrow agent shall be identified by displaying the name, visible to the public, of the escrow agent as licensed at the address appearing on the office license. Any fixed physical location where an escrow agent holds themselves out to the public as able to perform escrow services as defined in RCW 18.44.011(4) shall constitute an office.

[96-05-018, recodified as 208-680C-020, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128C-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-040
Change of office location.

The escrow agent shall notify the department of any change of location or mailing address of the agent's office or branch office prior to engaging in business at the new location or address. Notification shall be made by filing a change of address application with the department at least ten business days prior to the change in business location or address, accompanied by all licenses issued to the former address or location, and all applicable fees.

[96-05-018, recodified as 208-680C-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128C-040, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128C-040, filed 9/9/88; Order RE 122, 308-128C-040, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680C-045
Closure of office.

(1) Effect of closure. When the main office of an escrow agent closes, all branch offices must close. When a branch office closes and the main office remains licensed, the responsibility for records maintenance and trust accounting reverts to the main office.

(2) Notification. When either the main office or a branch office of an escrow agent closes, all responsible persons are jointly and severally obliged to notify the department within ((thirty days)) twenty-four hours of closure.

(a) "Responsible person" means: The designated escrow officer; the owner of the firm; a controlling person as defined in RCW 18.44.010(9); and the officers, owners and partners of the entity. The department may allow a person other than a responsible person as defined in this subsection to assume these duties.

(b) ((The official)) Additional notifications ((to the department)) shall include:

(i) Delivery of all original escrow licenses for offices being closed to the department within five working days of office closure. All licenses returned must be dated and signed. If a branch office is closing, the branch office license must be returned to the department. If the main office is closing, all licenses issued to the main and all branch offices must be returned.

(ii) Within thirty days of office closure, an itemized accounting of funds held in trust at the time of closure, including the principal(s) to the transaction, the escrow number, the amount of funds held and the purpose of the funds. If the trust bank account balance is zero, the escrow agent must provide a reconciliation of the trial balance supporting the zero balance.

(iii) Within twenty-four hours of office closure, the name, residence address and telephone number of the person responsible for the records.

(iv) Within thirty days of office closure, the street address where the records are located.

(c) All responsible persons are jointly and severally obliged to notify the department within thirty days of any change in the person responsible for the records or the place the records are maintained.

(3) Maintenance of records after closure. When an escrow office closes, the records must be maintained in the state of Washington for at least six years. The records shall be available upon demand of the department during business hours and maintained in a manner to be readily retrievable.

(4) Trust account. If the trust bank account contains client funds at the time of closure, the person responsible for the records shall provide the department with quarterly reconciliations of the trust bank account to the trial balance until the trust bank account balance is zero. The responsible person shall submit the reconciliations for the periods ending March, June, September and December. These reconciliations are due within thirty days of the end of the preceding period.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680C-045, filed 10/16/96, effective 11/16/96.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680C-050
Deceptive names prohibited.

At the discretion of the director or the director's designated representative, an escrow agent may not be issued a ((certificate)) license nor advertise in any manner using names or trade styles which are similar to currently issued ((certificates)) licenses or imply that the agent is a nonprofit organization, research organization, public bureau or public group, or are otherwise deceptive((, or which uses or makes reference to the existence of financial responsibility)). A bona fide franchisee may be issued a ((certificate)) license using the name of the franchisor with the firm name of the franchisee.

[96-05-018, recodified as 208-680C-050, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128C-050, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128C-050, filed 9/9/88; Order RE 122, 308-128C-050, filed 9/21/77.]

OTS-4231.2


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-010
Designated escrow officer responsibilities.

The designated escrow officer shall be responsible for the custody, safety, and correctness of entries of all required escrow records. The escrow officer retains this responsibility even though another person or persons may be assigned by the escrow officer the duties of preparation, custody, recording or disbursing.

The designated branch escrow officer shall bear ((responsibilities)) responsibility for the custody, safety and correctness of entries of all transactions at the branch office. The designated escrow officer shall bear responsibility for all actions of the designated branch escrow officer.

Prior to issuing a new ((certificate)) license reflecting a change of the designated escrow officer or branch designated escrow officer of a registered escrow agent, evidence must be submitted that the responsibility for preexisting escrows is transferred to the incoming designated escrow officer or incoming licensed branch ((designated)) escrow officer. Such evidence shall be a statement signed by both the outgoing designated escrow officer and the incoming designated escrow officer, listing all outstanding trust liabilities and certifying that funds in hand in the trust account maintained by the agent are adequate to meet all such trust liabilities. ((At the discretion of the)) In the case of a change in designated branch escrow officer, the outgoing and incoming ((branch)) designated branch escrow officers ((may)) must sign the statement.

The director or his/her designee may retain or instruct the licensee to retain a certified public accountant acceptable to the director, to perform an audit and report of the integrity of the trust account(s) prior to the acceptance of a new designated escrow officer or designated branch escrow officer.

[96-05-018, recodified as 208-680D-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-010, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128D-010, filed 9/9/88; Order RE 122, 308-128D-010, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-020
Required records.

Escrow agents shall be required to keep the following transaction records as a minimum; and all records except the reconciled bank statements, shall identify the transaction to which they pertain by escrow number or other clearly identifying information:

(1) Trust account records.

(a) ((Duplicate receipt book recording all receipts;

(b) Prenumbered checks;

(c) Trust account receipt and disbursement records;

(d) Duplicate bank deposit slips, either validated by the bank or bearing the signature of the designated escrow officer and the date of actual deposit;

(e))) Copies of all duplicate deposit slips validated by the bank or bearing the signature of the designated escrow officer and the date of actual deposit, wires, separate receipts, or other evidence of the deposit of funds into the trust account;

(b) Copies of all checks, wires, or other evidence of any disbursement from the trust account;

(c) Copies of all bank statements for the trust account, including all paid checks;

(d) Client's ledger containing an individual ledger sheet for each transaction: Provided however, That for computerized record systems, an individual ledger sheet need not be maintained in the transaction files until the closing of the transaction if the computer records demonstrate on a daily basis the status of the transaction funds;

(e) If a manual trust accounting system is employed to administer the trust account, copies of all written receipts and prenumbered checks.

(2) Other records.

(a) A transaction file shall be maintained to contain all agreements, contracts, documents, leases, escrow instructions, closing statements and correspondence for each transaction;

(b) Reconciled bank statements and cancelled checks for all bank accounts of the escrow agent, including but not limited to the pooled escrow trust accounts, individual escrow trust accounts, and general business operating accounts of the agent;

(c) All checks and receipts produced by any computerized accounting or record system must be sequentially numbered. The escrow agent shall retain the original of any voided or incomplete sequentially numbered check or receipt which was not issued.

[96-05-018, recodified as 208-680D-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-23-049 (Order PM 790), 308-128D-020, filed 11/14/88; 88-19-016 (Order PM 763), 308-128D-020, filed 9/9/88; Order RE 122, 308-128D-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680D-030
Accuracy and accessibility of records.

(1) Accuracy. All records shall be accurate, posted and kept ((up to date)) current to the date of the most recent transaction.

(2) Location. The escrow agent must maintain all records available for inspection by the department for a minimum of six years at an address where the escrow agent is licensed to maintain an escrow office. Records of transactions may be stored at a remote location within the state of Washington after the escrow has been completed for at least one year. Records stored at a remote location shall be available upon demand of the department during business hours and maintained in a manner to be readily retrievable.

(3) Permanent storage. After completion of the escrow transaction records may be stored on permanent storage media, such as optical disk or microfilm, provided the retrieval process does not permit modification of the documents. "Retrieval process" means the on-site ability to view and print the document in its original form including signatures or other writing placed upon the original document. The escrow agent must have in its records a statement signed by the supplier of the permanent storage system that the system does not permit the user to modify a document after it has been permanently stored.

(4) Restrictions on storage. Transactions and accounting records may not be stored at a remote location or on permanent storage media as described in subsection (2) or (3) of this section if there are funds relating to the transaction, such as reconveyance ((on)) or holdbacks, remaining in the trust bank account.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680D-030, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680D-030, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-030, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128D-030, filed 9/9/88; Order RE 122, 308-128D-030, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-040
Agreements and closings.

The escrow agent shall be responsible for the effecting and closing of escrow agreements between the principal parties. The agent shall as a minimum:

(1) Prepare or accept an instrument of escrow instructions among ((each)) the principal parties and the escrow agent ((based upon a written agreement)). The escrow instructions shall be signed by the principal((s)) parties. Escrow instructions shall contain any and all agreements between the principals and the escrow agent or incorporate other written agreements by reference. The escrow instructions shall not be modified except by written agreement signed by the principals and accepted by the escrow agent. ((The agent shall))

(2) Disclose in writing to the principal parties ((to the transaction)) when ((a profit, or the potential for a profit on)) fees ((and)) for services provided may be realized by the escrow agent. ((Justifiable costs for fees and services related to the transaction may include, but not be limited to courier fees, credit reports, postage, fax services, and copying of documents. A copy of the disclosure)) The disclosure must specifically identify the fees using the same terminology as that provided on the closing statement (for example HUD1 or HUD1A), and reflect the dollar amount associated with each item identified as a fee payable to the escrow agent. For purposes of this section, fees payable to the escrow agent shall mean any item payable directly to the escrow agent whether realized by the escrow agent as profit, potential for profit, or the offset of justifiable costs.

(3) All fees and/or justifiable costs must be for bona fide services performed by the escrow agent and bear a reasonable relationship in value to the services performed. No justifiable costs for services performed by a third party may exceed the actual cost of the third-party service.

(4) Comply with the instructions for completing the closing statement. All funds disbursed on the closing statement should be bona fide and supported with adequate documents.

(5) Copies of the escrow instructions and closing statement in compliance with requirements of the Real Estate Settlement Procedures Act, 12 U.S.C. Section 2601, and Regulation X, 24 C.F.R. Section 3500 and all applicable rules and regulations shall be maintained in the transaction file.

(((2))) (6) Require an addendum to the purchase agreement for any and all material changes in the terms of the transaction, including but not limited to, changes in the financing of the transaction.

(((3))) (7) Provide the services and perform all acts pursuant to the escrow instructions.

(((4))) (8) Provide a complete detailed closing statement (for example HUD1 or HUD1A) as it applies to each principal at the time the transaction is closed. The escrow agent shall retain a copy of all closing statements in compliance with requirements of the Real Estate Settlement Procedures Act, 12 U.S.C. Section 2601, and Regulation X, 24 C.F.R. Section 3500 and all applicable rules and regulations in the transaction file, even ((though)) if funds are not handled by the agent((, in the transaction file)). The closing statements (for example HUD1 or HUD1A) shall show:

(a) The date of closing.

(b) The total purchase price.

(c) An itemization of all adjustments, monies or things of value received or paid in compliance with requirements of the Real Estate Settlement Procedures Act, 12 U.S.C. Section 2601, and Regulation X, 24 C.F.R. Section 3500 and all applicable rules and regulations. Such itemization must include the name of the person or company to whom each individual amount is paid, or from whom each individual amount is received.

(d) ((To whom each item is debited and/or credited.

(e) Date each adjustment was made.

(f))) A detail of debits and credits identified to each principal party.

(e) Names of payees, makers and assignees of all notes paid, made or assumed.

(((g))) (9) Pay the net proceeds of sale directly to the seller unless otherwise provided in writing by the seller or a court of competent jurisdiction.

(((h))) (10) Obtain original signatures of the principals on either the preliminary or final closing statement and maintain a copy of the signed closing statement in the transaction file.

(((5))) (11) The escrow agent shall provide a copy of the final closing statement to each principal party and to each real estate broker involved with the transaction.

[96-05-018, recodified as 208-680D-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128D-040, filed 1/31/94, effective 3/3/94; 88-23-049 (Order PM 790), 308-128D-040, filed 11/14/88; Order RE 122, 308-128D-040, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-050
Expeditious performance.

An escrow agent shall perform all acts required of the escrow agent ((by agreement)) as expeditiously as possible and within ((the)) any time period ((of the agreement)) identified in the escrow instructions. Intentional or negligent delay in such performance shall be considered in violation of RCW 18.44.260(((2))) (1)(i).

[96-05-018, recodified as 208-680D-050, filed 2/12/96, effective 4/1/96; Order RE 122, 308-128D-050, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680D-060
Disbursement of funds.

The escrow agent shall disburse funds as set forth in the escrow instructions. Disbursement of any money or other items in violation of the trust or before the happening of the conditions of the escrow agreement or escrow instructions is a violation of RCW 18.44.260(((5))) (1)(e). ((If)) Funds and other items or documents must be paid and/or disbursed immediately upon closing of the transaction or as specifically agreed to in writing by all of the principal parties: Provided, That disbursement of funds may be withheld to allow for checks to clear.

Upon written notice from any principal party that the ownership of the funds is in dispute or is unclear based on the written agreement of the parties, the escrow agent must hold such funds until receiving written notice from all principal parties that the dispute has been resolved. In lieu of holding such funds the escrow agent may interplead the funds into a court of competent jurisdiction pursuant to chapter 4.08 RCW. Upon notification of a bona fide dispute between the principals, the director may, at his/her discretion, order the escrow agent to interplead the funds into a court of competent jurisdiction.

((Funds and other items or documents must be paid and/or disbursed immediately upon closing of the transaction or as specifically agreed to in writing by the principals: Provided, That disbursement of funds may be withheld to allow for checks to clear.)) At no time may an escrow agent disburse or delay the disbursement of funds without the written consent of all principal parties.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680D-060, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680D-060, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-23-049 (Order PM 790), 308-128D-060, filed 11/14/88; Order RE 122, 308-128D-060, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680D-080
Licensed escrow ((licensees')) officers' responsibilities.

(1) It is the responsibility of every ((licensee)) licensed escrow officer to be knowledgeable of and keep current with chapter 18.44 RCW and the rules implementing chapter 18.44 RCW.

(2) It is the responsibility of every ((licensee)) licensed escrow officer to keep the department informed of his or her current home address.

(3) It is the ((licensee's)) licensed escrow officer's responsibility to ensure accessibility of their offices and records to representatives of the department.

[96-05-018, recodified as 208-680D-080, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128D-080, filed 9/9/88.]


NEW SECTION
WAC 208-680D-090
Escrow instructions, agreements, disclosures -- Prohibitions.

It is a violation of this section and chapter 18.44 RCW, for an escrow agent to employ any escrow instructions, agreements, or disclosures that:

(1) Employ any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person;

(2) Engage in any unfair or deceptive practice toward any person;

(3) Obtain property by fraud or misrepresentation;

(4) Knowingly make, publish, or disseminate any false, deceptive, or misleading information;

(5) Knowingly receive or take possession for personal use of any property of any escrow business, other than in payment authorized by this chapter;

(6) Omit to make a full and true entry in the books and accounts of the business with intent to defraud.

[]


NEW SECTION
WAC 208-680D-100
Performance of split escrows.

When performing or participating in a split escrow transaction, the participating escrow agents shall prepare a written split escrow agreement defining their separate and joint responsibilities in performing the escrow transaction. The authorized representatives of all participating escrow agents shall sign the split escrow agreement. The split escrow agreement shall include, but need not be limited to, the following:

(1) Preparation, sharing, and reconciliation of any conflict in the escrow instructions governing the escrow transaction prior to closing;

(2) Preparation and reconciliation of the closing statements required to close the escrow transaction: Each agent should prepare a closing statement for the principal parties in their part of the escrow transaction; the statements must be reconciled between the closing agents for proratable items and for the amount of funds to be disbursed upon recording and funding; each participating escrow agent shall document their agreement with the reconciled closing statement in writing prior to recording and closing;

(3) Deposit and disbursement of funds: Agreement concerning which escrow agent shall receive which funds, and which escrow agent shall make which disbursements as identified on the reconciled closing statement. In the event of a subescrow, an agreement that all trust accounts must be balanced prior to disbursement;

(4) Recording of instruments: Agreement concerning which escrow agent will prepare the deed of trust or other evidence of title, the excise tax affidavit, excise tax check, and lender or other documents to the title company with instructions for recording. Release of documents for recording is the responsibility of each escrow agent separately as identified in the split escrow agreement. A certified copy of the deed along with copies of other required documents for loan funding must be delivered to the buyer's agent prior to closing, along with the seller's agent's closing order to the title company, including an indemnity for liens and encumbrances to be paid from the seller's funds;

(5) Joint acceptance of the purchase and sale agreement for the transaction, including all addendums, and agreement to acknowledge and supply any subsequent addendums to the purchase and sale agreement to all participating escrow agents;

(6) Each escrow agent's fiduciary responsibility to their party to the transaction and any limitation in liability for the actions of the other escrow agents participating in the transaction;

(7) Delivery of documents required for completion of the escrow transaction. Each escrow agent's responsibility for preparation and delivery of documents, including any required disclosures and any conveyances;

(8) Acknowledgment of lender's escrow instructions by the seller's agent to the extent of condition of title and vesting of the buyer's interest in the property.

The split escrow agreement will be maintained as a permanent record of all participating escrow agents.

Each escrow agent participating in the split escrow transaction shall provide a copy of the split escrow agreement to the principal parties to the split escrow prior to closing of the escrow transaction. All principal parties to the transaction and all lenders providing funds for the transaction must agree in writing to the terms of the split escrow agreement.

[]

OTS-4232.2


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680E-011
Administration of funds held in trust.

The designated escrow officer or ((branch)) designated branch escrow officer on behalf of the escrow agent shall be responsible for all funds received from any principal or any party to an escrow transaction or escrow collection account and shall hold the funds in trust for the purposes of the transaction or agreement and shall not utilize such funds for the benefit of the agent or any person not entitled to such benefit. The escrow agent shall establish a trust bank account(s) in a recognized Washington state depository. The escrow agent is responsible for depositing, holding, disbursing, and accounting for funds in trust as provided herein.

(1) The trust bank account(s) shall be designated as a trust account in the name of the escrow agent as ((certified)) licensed. Trust bank accounts shall be noninterest bearing demand deposit accounts except as follows:

(a) Interest-bearing trust bank accounts or dividend earning investment accounts containing funds pertaining to an individual escrow transaction or escrow collection account may be established by the agent if directed by written agreement signed by the principals to the transaction and specifying the manner of distribution of accumulated interest to the parties to the transaction.

(b) Interest-bearing trust bank accounts or dividend-earning investment accounts containing only funds held on behalf of an owner, vendor, lessor, etc., involving escrow collections may be established by the agent when directed by written agreement or directive signed by the principals: Provided, That all interest or earnings shall accrue to the principals as directed in the agreement.

(c) Interest-bearing trust bank accounts containing funds pertaining to transactions in which a limited practice officer has prepared documents under authorization set forth in APR 12(h).

(2) The agent shall establish and maintain a system of records and procedures as provided in this section. Any alternative records or procedures proposed for use by the escrow agent shall be approved in advance by the department.

(3) The agent is responsible for the disbursement of all funds received and held in trust, whether disbursed by personal signature, signature plate, or signature of another person authorized to act on the agent's behalf. The designated escrow officer must have signatory authority on all trust bank accounts. At the discretion of the designated escrow officer, ((branch)) designated branch escrow officers may be delegated signature authority for trust bank accounts at their branch, however, the designated escrow officer and the escrow agent shall bear ultimate responsibility for all disbursements drawn on all trust bank accounts of the escrow agent.

(4) All funds received for any reason pertaining to an escrow transaction or collection account shall be deposited in the escrow agents trust bank account(s) not later than the first banking day following receipt thereof except funds owned exclusively by the agent.

(5) All funds received shall be identified by the day received and by the amount, source, and purpose on either a cash receipts journal or duplicate receipt which shall be retained as a permanent record.

(6) All deposits to the trust bank account(s) shall be documented by a duplicate bank deposit slip((,)) validated by bank imprint, or an attached ((deposit)) teller's receipt which ((shall)) bears the signature of the authorized representative of the escrow agent indicating that the funds were actually deposited into the proper trust bank account. Receipt of funds by wire transfer are to be posted in the same manner as other receipts and there shall be a traceable identifying name or number supplied by the financial institution or transferring entity. The agent must also make arrangements for a follow-up "hard copy" receipt for the deposit.

(7) An individual client's ledger sheet shall be established and maintained for each escrow transaction for which funds are received in trust and to which all receipts and disbursements shall be posted.

(a) Credit entries must show the date of deposit or wire transfer, amount, and name of remitter.

(b) Debit entries must show the date of check, check number, amount of check, and name of payee.

(8) The reconciled trust bank account(s) must equal at all times the outstanding trust liability to clients. The outstanding trust liability to clients must equal at all times the trial balance of all escrows with undisbursed balances.

(9) The agent shall be responsible for preparation of a monthly trial balance of the client's ledger, reconciling the ledger with both the trust account bank statement and the trust account receipts and disbursement records. The reconciliation ((will)) shall be reviewed and signed by the designated escrow officer or branch designated escrow officer within five business days of completion of the reconcilement. Research and correction of any adjustments noted in the reconciliation shall be documented as beginning within ten days of completion of the reconcilement. Such reconciliations are to be retained as permanent records.

(10) All disbursement of trust funds shall be made by check, drawn on the trust bank account, and identified on the check as pertaining to a specific escrow transaction or collection account except as provided in (a) through (e) of this subsection. All checks must be sequentially numbered. The number of each check, amount, date, payee, and the specific client's ledger sheet debited must be shown in the cash register or cash disbursement journal and all data must agree exactly with the check as written.

(a) No disbursement from the trust account shall be made based upon wire transfer receipt until the deposit has been verified.

(b) The escrow agent must make arrangements with the financial institution in which the trust bank account is located to provide a follow-up "hard copy" debit memo when funds are disbursed via wire transfer.

(c) The escrow agent shall retain in the transaction file a copy of instructions signed by the owner of funds to be wire-transferred which identifies the receiving entity and account number.

(d) Transfers between closing escrows may be made by ledger entries alone provided a transfer form is used containing the date of the transfer, the amount of the funds being transferred, the identity of the escrow accounts being debited and credited, and the signature of the person authorized to sign checks on the escrow bank account. Intra-bank debit memo transfer forms may be used only where the escrow accounts involved in the transfer are closed through the same bank account. The authorization for the transfer must be placed in each escrow file involved.

(e) Transfers between collection escrows of a recurring nature must be authorized by standing instructions on file from the appropriate parties.

(11) Voided checks written on the trust bank account shall be permanently defaced and shall be retained.

(12)(a) A separate check shall be drawn on the trust bank account payable to the escrow agent for escrow and service fees for which the escrow agent is authorized payment ((therefor)) as provided in the escrow instructions. All such fees relating to the transaction may be withdrawn by a single check provided such check is supported by an itemization of the charges on the closing or settlement statement. Each check shall bear the escrow or transaction number.

A single check may be drawn upon the trust bank account payable to the escrow agent for escrow and service fees for which the escrow agent is authorized payment in the escrow instructions for more than one escrow transaction. Each such check must be supported by a schedule that itemizes all escrow and service fees for each separate escrow transaction, and a copy of the check and the supporting schedule must be maintained in the transaction file for each separate escrow transaction. The itemized escrow and service fees must exactly equal those itemized upon the final closing statement signed by the principal parties to the transaction.

(b) Collection account fees may be withdrawn by a single check provided such check is supported by a schedule of fees identified to each individual account. Such fees shall be withdrawn at least once monthly or as provided in the collection contract agreement if the fees are payable for a greater term than monthly.

(13) No deposits to the trust bank accounts shall be made of funds that do not pertain to an escrow transaction or not received in connection with an escrow collection account, or that belong to the agent, including fees to "open" the bank account or to keep the account from being closed.

(14) No disbursement from the trust bank account shall be made:

(a) For items not pertaining to a specific escrow transaction or escrow collection account;

(b) In advance of the closing of an escrow transaction, or before the happening of a condition set forth in the escrow instructions, to any person or for any reason without a written release from all principal((s of)) parties to the escrow transaction or collection account, except that if the earnest money agreement terminates according to its own terms prior to closing, disbursement of earnest money ((funds shall be made as provided by the earnest money agreement without a written release unless the funds are handled as provided in WAC 208-680D-060)) may be made in compliance with RCW 64.04.005;

(c) Pertaining to a specific escrow transaction or collection account in excess of the actual amount held in the trust bank account in connection with such account;

(d) In payment of a fee owed to any employee of an agent or in payment of any business expense of the agent. Payment of fees to employees of an agent or of any business expense of the agent shall be paid from the regular business bank account of the agent;

(e) For bank charges of any nature. ((Arrangements must be made with the bank to have any such)) All charges applicable to the trust bank account(s) must be charged to the regular business bank account, or ((to provide)) provided in a separate statement of bank charges so that they may be paid from the agent's regular business bank account: Provided, That bank charges may be paid from the interest on accounts allowed under subsection (1)(c) of this section;

(f) For preauthorization of payments by the financial institution for recurring expenses such as mortgage payments on behalf of the owner if the account contains tenant security deposits or funds belonging to more than one client;

(g) Of funds received as a damage or security deposit involving a lease or rental contract, to the property owner or to any person(s) without the written authority of the lessee. Such funds are to be held until the end of the tenancy when they are to be disbursed to the person(s) entitled to the funds as provided by the terms of the rental or lease agreement and consistent with the provisions of RCW 59.18.270, Residential Landlord-Tenant Act, or other appropriate statute.

(h) ((If the financial institution's automated system does not have the ability to charge fees to another account, or does not provide a separate statement for the service fees as required by (e) of this subsection, and)) In the event that the escrow agent's trust account is debited for ((service fees)) bank charges, the escrow agent shall deposit, within one banking day after receipt of notice from that bank that the trust account has been debited, funds from the general business or other nontrust account to cover the service fee charged.

(15) The provisions of this section are applicable to manual or computerized accounting systems. For clarity, the following is addressed for computer systems:

(a) The system must provide for a capability to back-up all data files;

(b) Receipt and check registers will be printed at least once monthly and retained as a permanent record. Reconciliation and trial balance will be accomplished at least once monthly, printed and retained as a permanent record;

(c) The escrow agent will maintain a printed, dated source document file to support any changes to existing accounting records;

(d) If the program has the ability to write checks, the check number must be ((preprinted)) printed on the check ((or)) and the retained voucher copy ((by the supplier (printer))). All checks must be sequentially numbered. Copies of all voided or written but not issued checks must be maintained. The program may assign suffixes or subaccount codes before or after the check number for identification purposes;

(e) The check number must appear in the magnetic coding which also identifies the account number for readability by the financial institution's computer;

(f) All checks written must be included within the computer accounting system.

(16) In the event that a check disbursed from the trust account becomes overdue, the escrow agent shall issue a stop payment on the check and shall make a good faith effort to locate the payee on the check.

(17) Unclaimed funds are governed by the Uniform Unclaimed Property Act of 1983, chapter 63.29 RCW. If the agent has funds ((classified as unclaimed)) that are presumed abandoned under that act, the designated escrow officer or branch designated escrow officer shall contact the department of revenue for disposition instructions. The agent shall maintain a record of the correspondence relating to unclaimed funds ((for a period of five years)) as a permanent record or as dictated by chapter 63.29 RCW, whichever is longer.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680E-011, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680E-011, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128E-011, filed 1/31/94, effective 3/3/94; 89-07-077 (Order PM 825), 308-128E-011, filed 3/21/89, effective 6/1/89.]

OTS-4233.1


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-010
Bond.

Each ((certificated)) licensed escrow agent shall obtain and keep in effect a bond in an aggregate minimum amount of $200,000 providing fidelity coverage on all corporate officers, escrow officers, partners, and employees engaged in escrow transactions. Such bond shall be structured to provide coverage for the total amount of all claims up to an aggregate minimum of $200,000. A deductible of up to $10,000 on the required fidelity bond is allowed, as long as an additional surety bond of $10,000 is maintained by the escrow agent. In the event that a fidelity bond with no deductible is obtained by the escrow agent, no surety bond is required.

[96-05-018, recodified as 208-680F-010, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-010, filed 9/9/88; Order RE 122, 308-128F-010, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-020
Errors and omissions policy.

Each ((certificated)) licensed escrow agent shall obtain and keep in effect an errors and omissions policy providing coverage in the minimum aggregate amount of $50,000 or, alternatively, cash deposit or securities in the principal amount of $50,000. Securities used as an alternative to an errors and omissions policy shall be effectively delivered to the director. For the purpose of fulfilling the requirements of chapter 18.44 RCW and these rules, the escrow agent shall execute an irrevocable assignment and any supporting documentation as required by the director. Securities which are stocks or other interest in the registered escrow agency are not acceptable securities for the purposes of fulfilling the requirements of chapter 18.44 RCW and these rules.

[96-05-018, recodified as 208-680F-020, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 94-04-050, 308-128F-020, filed 1/31/94, effective 3/3/94; 88-19-016 (Order PM 763), 308-128F-020, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-020, filed 6/7/79. Statutory Authority: RCW 18.44.360. 78-08-027 (Order RE 124, Resolution No. RE 124), 308-128F-020, filed 7/14/78; Order RE 122, 308-128F-020, filed 9/21/77.]


AMENDATORY SECTION(Amending WSR 96-21-082, filed 10/16/96, effective 11/16/96)

WAC 208-680F-040
Return of cash deposit or securities.

(1) The cash deposit or securities shall be returned to the escrow agent upon the date of expiration, cancellation, or revocation of the escrow agent's ((certificate of registration)) license: Provided, That the director may hold the cash deposit or securities for a longer period in order to satisfy any actions commenced under WAC 208-680F-050 prior to the expiration, cancellation, or revocation of the escrow agent's ((certificate of registration)) license.

(2) The cash deposit or securities shall be returned to an applicant within thirty days of the director's denial of an initial application for an escrow agent's ((certificate of registration)) license.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 18.44.320. 96-21-082, 208-680F-040, filed 10/16/96, effective 11/16/96. 96-05-018, recodified as 208-680F-040, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-040, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-040, filed 6/7/79.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-060
Cash deposit, securities -- Full force and effect.

All escrow agents who assign, transfer, or set over a cash deposit or securities in lieu of an errors and omissions policy shall at all times keep in full force and effect as a condition precedent to the escrow agent's authority to transact escrow business, such deposit or securities in the principal amount of $50,000. Failure to maintain the deposit or securities at the minimum level shall be sufficient grounds for the suspension or revocation of the escrow agent's ((certificate of registration)) license.

[96-05-018, recodified as 208-680F-060, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 79-07-009 (Order RE 126), 308-128F-060, filed 6/7/79.]


AMENDATORY SECTION(Amending WSR 96-05-018, filed 2/12/96, effective 4/1/96)

WAC 208-680F-070
Cancellation of errors and omissions policy, new policy required.

In the event of cancellation or expiration of an errors and omissions policy or fidelity bond, the escrow agent shall file with the director satisfactory evidence of a new policy or bond. Failure to file a new policy or bond shall be sufficient grounds for the suspension or revocation of the escrow agent's ((certificate of registration)) license. During the time the escrow agent does not have an errors and omissions policy or fidelity bond coverage in effect, the escrow agent may not transact business pursuant to RCW 18.44.050.

[96-05-018, recodified as 208-680F-070, filed 2/12/96, effective 4/1/96. Statutory Authority: RCW 18.44.320. 88-19-016 (Order PM 763), 308-128F-070, filed 9/9/88; 79-07-009 (Order RE 126), 308-128F-070, filed 6/7/79.]

OTS-4234.1

Chapter 208-680G WAC

EXAMINATIONS, INVESTIGATIONS, ENFORCEMENT, SANCTIONS, AND COSTS


NEW SECTION
WAC 208-680G-010
Examinations.

(1) For the purposes of determining compliance with chapter 18.44 RCW and chapter 208-680 WAC, the director or designee, through their staff, may examine, wherever located, the records used in the business of every licensee and of every person who is engaged in the business described in RCW 18.44.020.

(2) The director or designee may make necessary inquiry of the business or personal affairs, or both, of each such person for the purposes of determining such compliance. In conducting examinations, the director or designee, through their staff, may request, require, or conduct the following:

(a) Access, during reasonable business hours, to the offices and places of business, books, accounts, papers, files, records, including electronic records, computers, safes, and vaults of all such persons. Access must be given to both the trust account records and general business account records;

(b) Interview any person subject to RCW 18.44.020, or any employee or independent contractor of any person subject to RCW 18.44.020;

(c) Interview any principal party or agent to the transaction;

(d) The filing of statements in writing by any person, under oath or otherwise, as to all facts and circumstances concerning the matters under examination;

(e) Copy, or request to be copied, any items described in subsection (1) of this section;

(f) Analysis and review of any items described in subsection (1) of this section;

(g) Assistance, as necessary, from any employee or person subject to RCW 18.44.020;

(h) Meetings and exit reviews with owners, management, officers, or employees of any person subject to RCW 18.44.020;

(i) Preparation and delivery, as deemed necessary, of a report of examination requiring a response from the recipient.

(3) The frequency of examinations shall be made at the discretion of the director or designated person.

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NEW SECTION
WAC 208-680G-020
Investigations.

(1) The director or designated person may make at any time, public or private investigations within or outside of this state to determine whether any person has violated or is about to violate chapter 18.44 RCW, or any rule, regulation, or order under chapter 18.44 RCW, or to aid in the enforcement of chapter 18.44 RCW. For that purpose, the director or designee, through their staff, may conduct inquiries, interviews, and examinations of any person deemed relevant to the investigation.

(2) The director or designated person may investigate, as deemed relevant by the director, the escrow business or other business or personal financial records of any person subject to investigation under subsection (1) of this section. In conducting investigations, the director or designated person, may request, require, instruct, direct, order, subpoena, or conduct the following:

(a) Access during reasonable business hours, to any location where any escrow business records are located, including offices, places of business, personal residences, storage facilities, computers, safes, and vaults, for the purposes of obtaining, reviewing, or copying books, accounts, papers, files, or records, including electronic records, or records stored in any format;

(b) Administration of oaths or affirmations;

(c) Subpoena witnesses and compel their attendance at a time and place determined by the director or designated person, or subpoena the production of any evidence or matter which is relevant to the investigation, including the taking of such evidence, or existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge or relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence;

(d) Interview or interrogate, publicly or privately, under administration of oath or otherwise, any person subject to RCW 18.44.020, or any employee or independent contractor of any person subject to RCW 18.44.020;

(e) Interview or interrogate, publicly or privately, under administration of oath or otherwise, any principal party, agent to the transaction, or any person whose testimony is deemed relevant;

(f) The filing of statements, affidavits, or declarations in writing by any person, under administration of oath, notary or otherwise, as to all facts and circumstances concerning the matters under investigation;

(g) Copy, or request to be copied, any items described in (a) of this subsection, or take originals of any items described in (a) of this subsection, regardless of the source of such items. Originals and copies taken by the director may be held, returned, or forwarded to other regulatory or law enforcement officials as determined necessary by the director;

(h) Analysis and review of any items described in (a) of this subsection;

(i) Assistance, as necessary, from any employee or person subject to RCW 18.44.020;

(j) Meetings and exit reviews with owners, management, officers, or employees of any person subject to RCW 18.44.020;

(k) Meetings and sharing of information with other regulatory or law enforcement agencies;

(l) Preparation and delivery, as deemed necessary, of a report of investigation requiring a response from the recipient.

(3) For purposes of this section and RCW 18.44.280(1), "public" means open to the public as determined by the director.

(4) For purposes of this section and RCW 18.44.280(1), "private" means closed to the public or any person, including attorneys for witnesses, as determined by the director.

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NEW SECTION
WAC 208-680G-030
Enforcement.

The director, or designated person, may conduct the following types of enforcement activity:

(1) Enter orders, including temporary orders to cease and desist, compelling any person to cease and desist from the unlawful practice, and to take such affirmative action as in the judgment of the director will carry out the purposes of this chapter;

(2) Enter charges for violations of chapter 18.44 RCW and chapter 208-680 WAC;

(3) Bring an action, with or without prior administrative proceedings, in the superior court to enjoin the acts or practices and to enforce compliance with chapter 18.44 RCW, or any rule, regulation, or order of the director;

(4) Appoint a receiver or conservator to take over, operate, or liquidate any escrow office;

(5) Hold hearings; or

(6) Make referrals to other regulatory or law enforcement agencies.

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NEW SECTION
WAC 208-680G-040
Sanctions.

The director may impose the following sanctions:

(1) Denial, suspension, or revocation of license for any violation of RCW 18.44.260;

(2) Remove or prohibit from participation in the conduct of the affairs of any licensed escrow agent, any officer, controlling person, director, employee, or licensed escrow officer for any violation of RCW 18.44.260;

(3) Assess a fine of up to one hundred dollars per day for each day's violation of chapter 18.44 RCW, or these rules.

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NEW SECTION
WAC 208-680G-050
Examination and investigation fees and expense--Authority to retain specialists.

(1) The expense of required travel and services related to an examination or investigation outside this state shall be borne by the person examined or investigated. Such expense includes, but is not limited to, travel, lodging, and per diem expense.

(2) The director may retain attorneys, appraisers, independent certified public accountants, or other professionals and specialists as examiners, auditors, or investigators, the cost of which shall be borne by the person who is the subject of the examination, audit, or investigation.

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Washington State Code Reviser's Office