Escrow Agent Memorandum 02-01
DATE: November 15, 2002
TO: All Escrow Agent Licensees, and Interested Parties
FROM: Whittier Johnson, Program Manager
SUBJECT: Payment of Excise Taxes in Real Estate Transactions
This interpretive letter clarifies the policy of the Department of Financial Institutions with respect to the payment of excise taxes for real estate transactions. The payment of excie taxes in a real estate transaction is an exceptional circumstance and this interpretation is narrowly construed by the Department to apply only in the case of the payment of excise taxes in a real estate transaction. It is the Department’s opinion that disbursement from a licensee’s trust account occurs at the time a check is signed by an authorized representative of the escrow agent, and that the disbursement of funds from the trust account without sufficient funds in the sub-account for that specific transaction for any reason other than the payment of excise taxes is a violation of the Escrow Agent Registration Act, (“Act”), Ch. 18.44 RCW. In the case of disbursement for payment of excise taxes, it is the Department’s opinion that failure to comply in all respects with the requirements of this interpretive letter is a violation of the Act.
A lender frequently requires that the excise tax on the sale of property be paid before the lender funds the loan for the purchase of the property, but the seller usually needs the proceeds of the sale to pay the excise taxes. This has placed the Escrow Agent in a “Catch-22” position, where the agent must forward funds to pay the excise taxes without benefit of receiving funds to forward. To address this problem, the Department is writing this interpretive letter in advance of promulgating a rule to the same effect.
Benefits of the interpretation:
Homebuyers, especially low income or first time homebuyers, generally come to a real estate transaction with a lack of ready cash for expenses additional to the home purchase. The Department expects this interpretation to help facilitate the purchase of homes by low income and minority buyers and to facilitate the collection of excise taxes by local government.
RCW 18.44.410 provides the Department with the “power and broad administrative discretion to administer and interpret this chapter to facilitate the delivery of services to citizens of this state by escrow agents and others subject to this chapter.
Effective December 1, 2002, the Division of Consumer Services will permit an Escrow Agent, when authorized by the escrow instructions, to deposit with a title insurance company a check to pay the excise tax on a real estate closing. The check must be made out to the appropriate governmental agency to which the excise tax payment is due. The Escrow Agent must provide the title insurance company a check for the excise tax, together with written instructions to retain that check until the Escrow Agent directs them to release the excise tax payment to the appropriate governmental agency. The check provided to the title insurance company must be made payable to the appropriate governmental entity and may not be deposited into any account owned by the title insurance company.
The Escrow Agent shall only direct the title insurance company to release the check to the appropriate governmental agency when the Escrow Agent has received funds for the specific transaction into its trust account in an amount at least equal to the amount of the check, net any previous disbursements.
In the event the title insurance company forwards the check to the appropriate governmental agency prior to an affirmative instruction from the Escrow Agent to do so, the Escrow Agent shall deposit funds equal to or greater than the amount of the check into its trust account within one business day of the forwarding of the check. Failure to deposit such funds into the trust account shall constitute a violation of the Escrow Agent Registration Act (RCW 18.44.400), and may subject the Escrow Agent to prosecution for the commission of a felony.
The Division will be paying special attention to these transactions in upcoming examinations to make certain they are being handled in accordance with this interpretation. If you have additional questions regarding this matter, please contact me at 360-902-8755.