Escrow Letter No. 97-08ES
DATE: July 28, 1997
MEMO TO: All Escrow Agents, Designated Escrow Officers, and Other Interested Parties
FROM: Mark Thomson, Assistant Director
SUBJECT: Excise Tax Payments
Question: Can an escrow agent prepare a check drawn on its trust account for payment of excise taxes and forward that check to the title company or the county prior to receiving funds from the lender or the customer for payment of excise taxes.
Analysis: The simple answer to this question is that if the customer’s trust account contains sufficient funds to cover the check for excise taxes, then this is permissible. If the customer’s trust account does not contain sufficient funds to cover the check for excise taxes, then the act of preparing the check and forwarding it to another party in effect “overdraws” the customer’s trust account, the check represents a disbursement in excess, and the accounts of other customers are being used to cover this disbursement in excess. The Escrow Agent Registration Act, RCW 18.44.070, and WAC 208-680E-011(14)c prohibit disbursements in excess.
This answer begs the question of when disbursement occurs. WAC 208-680E-011(3) clearly contemplates that disbursement occurs upon signature of a check or other instrument. This rule reads in part, “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 agents behalf.” Furthermore, the signing of the check or other instrument is the only point at which the act of disbursement remains under the control of the escrow agent or designated escrow officer in all circumstances. Therefore, it is the logical point to define as when disbursement occurs.
The Department understands that excise taxes must be paid prior to recording, and that many lenders require recording prior to funding the loan, so that funds are not available from the loan proceeds to pay excise taxes. However, disbursement in excess forces other consumers with trust funds in the escrow agent’s trust account to bear the risk of closing a particular transaction. This violates the intent of the trust account, which is to safeguard customer funds. Acceptable alternatives include the escrow agent paying the excise taxes from its general business account, collecting the funds from the customer up front, or collecting the funds up front from the lender.
The Department recognizes that the position expressed in this letter is a reversal of a long-held position inherited along with the escrow program. However, a long and thorough review of the issue and the applicable law supports this change. We are open to continuing discussion to identify other alternatives.