OFFICE OF THE
[Insurance Commissioner Matter No. 2016-05—Filed October 2, 2019, 9:37 a.m.]
Preproposal statement of inquiry was filed as WSR 16-07-083.
Title of Rule and Other Identifying Information: Title insurance agent escrow practices and accounts.
Hearing Location(s): On November 15, 2019, at 9:00 a.m., at the Office of the Insurance Commissioner (OIC), 5000 Capitol Boulevard S.E., Tumwater, WA 98501.
Date of Intended Adoption: November 27, 2019.
Submit Written Comments to: Tabba Alam, P.O. Box 40260, Olympia, WA 98504-0260, email email@example.com, fax 360-586-3109.
Assistance for Persons with Disabilities: Melanie Watness, phone 360-725-7013, fax 360-586-2023, TTY 360-586-0241.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Independent escrow agents are currently licensed by the department of financial institutions (DFI) and are subject to extensive rules and regulations by DFI, from which title insurance companies are exempt. The commissioner seeks to adopt similar rules regulating the escrow practices of title insurance agents.
Reasons Supporting Proposal: Title insurance agents and independent escrow agents, who perform the same duties as escrow agents, should be subject to the same regulatory oversight by state agencies.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Mike Kreidler, insurance commissioner, governmental.
Name of Agency Personnel Responsible for Drafting: Tabba Alam, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7170; Implementation: Jeff Baughman, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7156; and Enforcement: Melanie Anderson, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7000.
A school district fiscal impact statement is not required under RCW 28A.305.135
A cost-benefit analysis is required under RCW 34.05.328
. A preliminary cost-benefit analysis may be obtained by contacting Tabba Alam, P.O. Box 40260, Olympia, WA, 98504-0260, phone 360-725-7170, email firstname.lastname@example.org
The proposed rule does impose more-than-minor costs on businesses. Following is a summary of the agency's analysis showing how costs were calculated. Based on its cost-benefit analysis, OIC determined that there were not more-than-minor costs associated with adopting these rules.
A copy of the statement may be obtained by contacting Tabba Alam, P.O. Box 45378, Olympia, WA 98504, phone 360-725-7170, email email@example.com.
October 2, 2019
For purposes of WAC 284-29-300 through 284-29-340:
(1) "Closing" means the process of completing a real estate transaction in accordance with the written escrow instructions of the principle parties during which: Deeds, deeds of trust, mortgages, leases, and other required documents are either executed or delivered, or both; an accounting between the parties is made; the funds are disbursed; and the appropriate documents are recorded.
(2) "Escrow" has the meaning set forth in RCW 18.44.011
(3) "Escrow agent" has the meaning set forth in RCW 18.44.011
(4) "Escrow instructions" are the instructions, signed by the principal parties to the transaction, that identify the duties and responsibilities of the title insurance agent in carrying out the escrow, that identify the thing or things of value held by the title insurance agent, and the specified condition or set of conditions under which the thing or things of value are to be transferred.
(5) "Escrow trust account" means an account to hold funds in trust for third parties.
(6) "Federally insured financial institution" means a financial institution that has its deposits insured by an instrumentality of the federal government, including the Federal Deposit Insurance Corporation (FDIC), Federal Savings and Loan Insurance Corporation (FSLIC) and National Credit Union Administration (NCUA).
(7) "Positive pay" or "reverse positive pay" means any system by which the authenticity of a check is determined before payment is made by the financial institution against which the check is drawn.
(8) "Trial balance" means a list of all open individual escrow ledger record balances at the end of the reconciliation period.
(9) "Three-way reconciliation" means a method for discovering shortages (intentional or otherwise), charges that must be reimbursed or any type of errors or omissions that must be corrected in relation to an escrow trust account.
(10) "Unclaimed fund" means any fund that is abandoned under the Uniform Unclaimed Property Act, chapter 63.29
WAC 284-29-310Title insurance agent employment restrictions.
A title insurance agent must not, without the written consent of the commissioner, employ any person that has been convicted of, or plead no contest to either:
(1) A felony involving dishonesty or a breach of trust within the last ten years; or
(2) A gross misdemeanor involving theft, fraud, forgery, embezzlement or the mishandling of funds, within the last year.
WAC 284-29-320Title insurance agent escrow records.
Under RCW 48.29.190
title insurance agents are required to keep adequate records of all transactions handled by the title insurance agent. These records must be in an organized form and must include and conform with the following requirements:
(1) An individual ledger for each escrow trust account for which funds are received. All of the transactions in the individual ledger must be accurate, posted, and kept current to the date of the most recent activity.
(2) All receipts and disbursements must be posted in the individual ledger, including:
(a) Credit entries that show the date of the deposit, amount, and name of the remitter;
(b) Debit entries that show the date of payment, amount of payment, name of the payee, wire transfer reference number, electronic payment reference number, or check number; and
(c) A monthly trial balance of each individual ledger.
(3) All documents pertinent to all individual trust account transaction activity must be retained, including:
(a) Original or imaged copies of checks clearing the bank (both front and back of the check);
(b) Bank debit memos when funds are disbursed via wire transfer and a copy of the instructions signed by the owner of the funds to be wire transferred identifying the receiving entity and account number;
(c) ACH confirmation or a copy of the confirmation screen. This retained documentation must, at a minimum, include payee, payment date, escrow account number debited, and the confirmation number assigned to the ACH transaction;
(d) Voided items and documents supporting all adjustments. All voided transactions must be posted or reflected in the individual client ledger and the receipts and disbursements ledger; and
(e) Bank statements.
(4) Transaction files containing all escrow instructions, closing statements, correspondence for each transaction, agreements, contracts, leases, and any other pertinent supporting documents necessary to validate the transaction.
(5) A computerized accounting system must:
(a) Provide a capability to back-up all data files; and
(b) At least monthly the receipt and check registers, bank reconciliation, client trial balance and transaction activity must be printed out or imaged and retained as a permanent record.
(6) At least quarterly, do the following:
(a) Conduct a review of all open client escrows and ensure that all outstanding payments are made for the purpose of resolving client escrow accounts and identifying unclaimed funds; and
(b) Contact the department of revenue for disposition instructions under chapter 63.29
RCW in the event that the title agent finds unclaimed funds. All correspondence related to unclaimed funds must be retained for five years.
WAC 284-29-330Controls for escrow trust accounts.
(1) All escrow trust account funds received by a title insurance agent must be deposited in the account not later than the first banking day following the receipt thereof.
(2) A title insurance agent must not make any disbursement from an escrow trust account unless it is in compliance with RCW 48.29.190
(3) Escrow trust accounts and operating accounts of the title insurance agent must be separately maintained and not commingled with the title insurance agent's operating account or an employee or manager's personal account.
(4) On at least a monthly basis, the title insurance agent must prepare trial balances for all escrow trust accounts using a three-way reconciliation method which requires that the escrow trial balance, the book balance, and the reconciled bank balance be verified on all open escrow balances. If all three parts of the three-way reconciliation do not agree, the title insurance agent must identify and reconcile the difference within a commercially reasonable period of time.
(5) On at least a daily basis, reconciliation of the receipts and disbursements of the escrow trust account must be performed.
(6) Segregation of duties must be in place to ensure the reliability of the reconciliation and reconciliations must be conducted by someone other than those with signing authority.
(7) Results of the reconciliation must be reviewed and approved by management.
(8) Appropriate identification must appear on all account-related documentation including bank statements, bank agreements, disbursement checks, and deposit tickets to identify the account as an escrow trust account.
(9) Outstanding escrow trust account file balances must be documented.
(10) Appropriate authorization levels must be set by the title insurance agent and reviewed annually for updates. Former employees must immediately be deleted as listed signatories on all bank accounts of the title insurance agent.
(11) Unless directed by the beneficial owner, all escrow trust accounts must be maintained in federally insured financial institutions.
(12) The title insurance agent must use positive pay or reverse positive pay, automated clearing house blocks and international wire blocks, if available.
WAC 284-29-340Retention of records after closure of business—Notice.
(1) Every title insurance agent providing escrow services must retain and preserve business and accounting records for five years after each transaction as required by RCW 48.29.190
, WAC 284-12-080, and 284-29-265 and must continue to do so after the business is closed.
(2) Every title insurance agent must provide the commissioner thirty days' advance written notice of its intent to close the business. This notice must provide the following:
(a) The most recently completed reconciliation of the escrow fund account to the trial balance and all supporting accounting records, including the escrow bank statement;
(b) A valid contact name, address, phone number, and email address;
(c) The location of the business records and how they are being retained; and
(d) A description how the records will be made available for inspection by the commissioner for five years after the date of completion of the escrow transactions as required by RCW 48.17.470