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ESCROW 190 (Escrow I)
Spring Term 2016
WELCOME BACK!!!
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The Escrow Process (review)
 We’ve
reviewed the overall process of escrow
 Quiz questions/answers
 Questions?
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Professional Designations and
Licenses
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Now lets talk about WHO can close an escrow and the
laws and and regulations govern escrow activities
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In Washington, real estate closings are typically handled by
licensed escrow companies, closing escrow departments of
title companies and financial institutions and attorneys
Independents must be licensed under RCW 18.44: Escrow
Agent Registration Act AND the WA Department of Financial
Institutions (DFI)
 Attorneys, title companies, banks, s& l’s, credit unions,
insurance companies, and federally approved lenders are
regulated by other agencies and exempt from this licensing
requirement.
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Professional Designations and
Licenses
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The Escrow Officer
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The DEO (Designated Escrow Officer) is responsible for
maintaining the client trust account in accordance with
Washington State Regulations
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RCW 18.44: A trust account must be a separate account in a WA
State depository and is segregated from the agent’s own
operating funds
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Agent responsible for maintaining a complete an accurate
accounting AT ALL TIMES of all deposits and disbursements made
form the trust account and for which transactions they are for.
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Generally there is one pooled trust account
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Professional Designations and
Licenses
John is an Escrow Agent at ABC Escrow, Inc. John is in the
process of closing the Adams/Jones transaction. Mr.
Adams is the purchaser and Mr. Jones is the seller. John
has sent the documents for recording pending receipt
of a wire transfer for loan proceeds from Mr. Adams’
new lender. The real estate agent calls John and tells
him that Mr. Jones wants to close on a house he is
buying. In order to accomplish that, John would have to
record and disburse the seller’s proceeds right now.
John knows he will be receiving funds imminently,
however he has not received them yet. Can John
disburse funds?
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Professional Designations and
Licenses
No!
Why?
John would be guilty of using someone else’s deposits to
fund this transaction and would be in violation of RCW
18.44.
What if Mr. Adams’ lender went bankrupt in the interim
or refused to fund the loan? If caught, John and his
company could be responsible for any losses incurred
by parties damaged and lose their license to practice
escrow.
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Professional Designations and
Licenses
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Collected Funds Statute
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Anyone falling under the definition of “escrow” cannot disburse funds
until deposits are verified as “good funds”
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Collected Funds Statute affects anyone in the settlement industry
whether a Licensed Escrow agent or not.
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RCW 18:44 says cash, interbank transfers and wire transfers are all
good funds the day of deposit
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Cashiers checks or money orders drawn on a WA State depository are
considered good funds one business day after deposit
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Anything else like certified checks, money orders, or cashier’s checks
drown on an out of state bank, personal checks, traveler’s checks must
be verified before disbursements are made. It can take one to ten
business days for these to clear.
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Professional Designations and
Licenses
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Most escrow agents will only accept wire transfers or a cashier’s check
for funds to close.
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Yes, cash is immediately considered good funds but is not a preferred
form of deposit because of the liability
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Escrow Officers are not bank tellers
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Several parties must verify cash deposit amounts
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Security risk is greater when handling cash
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Cash deposits over $10,000.00 requires additional paperwork to
comply with Federal reporting requirements
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Most escrow agents have escrow instructions that identify the forms
of payment they will accept for funds to close.
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Professional Designations and
Licenses
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Escrow agent cannot “hold” deposits.
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All funds presented to the escrow agent must be deposited into a trust
account no later than one banking day after receipt of funds:
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to ensure funds are accessible for disbursement
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to prove funds are not being held elsewhere
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to clear the bank in time for closing
Escrow agent will prepare a Closing Disclosure or Settlement
Statement for the purchaser or seller that outlines all of the credits and
debits of their transaction.
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Professional Designations and
Licenses
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The DEO (not DIO, the hair metal band)
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Each Licensed Escrow Agent must have one Designated Escrow
Officer (DEO) who is personally responsible, above and beyond
the Escrow Agent itself, for the accuracy of the trust account.
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If record keeping is found to be inaccurate or funds on deposit
are used improperly, both the DEO and the Escrow Agent can be
fined or lose their license to practice escrow.
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If a Licensed Escrow Agent should cease operations, the DEP at
the time the office closed is responsible for the maintenance and
storage of the files for the next six years to comply with WA State
statutes. A Licensed Escrow Agent can have more than one
Licensed Escrow Officer but only one DEO
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Professional Designations and
Licenses
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The DEO has a professional obligation to report any
wrong doing to the DFI (Department of Financial
Institutions), whether it will incriminate the company or
themselves.
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The Escrow Agent is not licensed to prepare any
documents other than the Settlement Statement and
Escrow Instructions.
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If there is no attorney on staff, an Escrow Agent would
need to employ a Limited Practice Officer (LPO) to
prepare the legal documents in connection with the real
estate closing
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Professional Designations and
Licenses
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The Limited Practice Officer
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Given authority to select, prepare and /or complete certain legal
documents under the Washington State Supreme Court Admission to
Practice Rule 12 (“APR 12”).
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APR 12 was written and enacted into law after the occurrence of a
milestone court case (next slide)
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The findings in the case we are about to talk about created a major
stir within the escrow industry
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No escrow offices had attorneys on staff to select and prepare legal
documents.
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Bowers vs. Transamerica
In the early 1980’s, Ms. Bowers entered into a contract to
sell her home. As part of the contract, Ms. Bowers
agreed to finance part of the sales price. A copy of the
Purchase and Sale Agreement was submitted to an
Escrow Closer at Transamerica. According to the terms
of the agreement, the Escrow Closer was to prepare a
Deed transferring title to the property and a Note for
the amount the seller was financing.
Unfortunately, the agreement contained a blinding
omission…..
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Bowers vs. Transamerica
There were no instructions to prepare documents that
would SECURE the seller’s loan (i.e. no Deed of Trust to
help ensure repayment of the loan).
The Escrow Closer did not notify the seller of the omission
and closed the transaction according to the terms of the
Purchase and Sale Agreement.
The debt was left unsecured.
So what happened?.....
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Bowers vs. Transamerica
Some months later, the purchaser of Ms. Bowers home
defaulted on the loan. Ms. Bowers was unable to recover
funds owed to her and sued the Escrow Closer. Her suit
alleged that the Escrow Closer was practicing law when
she prepared the legal documents to close the
transaction. The Escrow Closer should have advised Ms.
Bowers to seek legal counsel about how the documents
would affect her legal rights.
The court found that the Escrow Closer was guilty of the
unauthorized practice of law and ruled in Ms. Bowers
favor.
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Professional Designations and
Licenses
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The findings in the case created a major stir within the escrow
industry
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No escrow offices had attorneys on staff to select and prepare
legal documents
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The membership of the Escrow Association and the Washington
State Bar Association worked in conjunction to enact the
Admission to Practice Rule 12
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Washington Courts 1983: “The purpose of this rule is to authorize
certain lay persons to select, prepare and complete legal
documents incident to the closing of real estate and personal
property transactions and to prescribe the conditions of and
limitations upon such activities”.
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Professional Designations and
Licenses
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A licensed LPO is authorized by the State to select and prepare
certain legal documents in connection with the closing or real and
personal property transactions
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Some of the documents include:
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Transfer deeds (Statutory Warranty Deed, Quit Claim Deed, Excise
Tax Affidavits)
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Certain financing and/or security documents (Note, Deed of Trust,
Real Estate Contract, Subordination)
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Professional Designations and
Licenses
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LPOs are:
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Not ever authorized to prepare any legal documents other than
those previously approved by the Limited Practice Board
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Held to the same standard of care as an attorney because they are
responsible for the preparation of documents that affect the legal
rights of parties involved
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Required to obtain a minimum of ten clock hours of continuing
education each year
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Specifically prohibited from giving legal advice.
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An LPO must advise clients to seek legal counsel as needed and
provide disclosures as follows
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Professional Designations and
Licenses
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An LPO must advise clients to seek legal counsel as
needed and provide disclosures as follows:
1.
2.
3.
4.
5.
The Limited Practice Officer is not a representative of either
party (hence, the very natures of escrow is to be a neutral third
party);
The documents that the LPO prepares will affect the legal rights
of the parties;
The interests of each party will differ in the documents
prepared;
The parties have the right to be represented by an attorney of
their own selection; and
The LPO cannot give any legal advice as to how the party’s rights
may be affected by the document which were prepared. (Since
the LPO is not an attorney, they cannot give advice)
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Professional Designations and
Licenses
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These 5 disclosures must be presented in writing to the
parties prior to the signing of any documents for which
the LPO duties have been performed.
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In order to become an LPO, one must pass an
examination which is presented twice a year by the
Limited Practice Board. The requirements to sit for the
exam are:
1.
2.
3.
4.
5.
The applicant must be at least 18 years old;
Be of good moral character (a back ground check and
fingerprinting are madatory);
Fulfill all examination requirements;
Provide two copies of the application signed under oath;
And pay the examination fee.
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Professional Designations and
Licenses
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Upon passing the requirements for licensing, the LPO is
required to take and oath.
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The exam centers around aspects of real estate and contract
law, and terms and scenarios which an LPO will need to know
in every day transactions.
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Just as the Escrow Agent isn’t authorized to prepare legal
documents, the LPO is not authorized to maintain trust funds.
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The LPO is not authorized to complete a Purchase and Sale
Agreement (including filling in missing information or
preparing an extension). This document is to be completed
by the purchaser and/or seller, an attorney or a licensed real
estate agent.
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Professional Designations and
Licenses
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Currently, Washington State is the only state in the
Union which has a professional designation for a
Limited Practice Officer.
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All other states either close via attorney, or continue to
prepare the documents in an “unauthorized” capacity
without licensing
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An individual may hold an Escrow Officer license or a
Limited Practice Officer license; quite often, they hold
both.