Washington State Department of Financial Institutions

Escrow Agent Letter No. 98-02ES

TO: All Escrow Agents, Designated Escrow Officers, and Other Interested Parties

FROM: Mark Thomson, Director

DATE: July 15, 1998

SUBJECT: Termination or resignation of Designated Escrow Officer

Question: Can a certificated escrow agent continue to conduct escrow business when the designated escrow officer has been terminated?

Analysis: The Department has encountered situations in which the designated escrow officer of a certificated escrow agent is terminated or resigns with no immediate replacement available. In such situations it is a clear violation for the escrow agent to continue to conduct business under chapter 18.44 RCW, the Escrow Agent Registration Act ("Act"). This letter sets forth support for the Department’s interpretation, and provides information on the Department’s intended response as well as guidance to licensees faced with this situation.

Pursuant to RCW 18.44.200, no escrow agent shall engage in the business of handling escrow transactions unless such transactions are supervised by a licensed "escrow officer": Provided, That (1) in the case of a partnership, one licensed partner shall act on behalf of the partnership; (2) in the case of a corporation, one licensed officer thereof shall act on behalf of the corporation; and (3) each branch office shall be required to have at least one licensed escrow officer designated by the escrow agent. Responsibility for the conduct of any escrow agent, escrow officers, or branch escrow officers covered by this chapter shall rest with the escrow officer having direct supervision of such person's escrow activities. The branch escrow officer shall bear responsibility for persons operating under each branch escrow officer's supervision at a branch escrow office.

Pursuant to WAC 208-680B-070, 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.

Pursuant to WAC 208-680D-010, 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 branch escrow officer shall bear responsibilities for the custody, safety and correctness of entries of all transactions at the branch office. Prior to issuing a new certificate 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 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 designated escrow officer, the outgoing and incoming branch designated escrow officers may sign the statement.

Pursuant to WAC 208-680E-011, the designated escrow officer or branch designated 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.

It is clear to the Department that the intent of the Act was to require the constant supervision of every escrow transaction by a licensed escrow officer, and every escrow officer employed by the agent must be supervised by a designated escrow officer. The conduct of the escrow agent in the handling of escrow transactions and the protection and proper maintenance of funds held in trust is of paramount importance. The legislature has authorized only the designated escrow officer to accept these responsibilities.

Based on the foregoing, it is the Department’s interpretation that the handling of any escrow transactions without the direct supervision of an escrow officer who in turn is supervised by a designated escrow officer is a violation of RCW 18.44.200. Further, each location of an escrow agent that conducts escrow business must be supervised by a licensed escrow officer at all times.

The Department expects all designated escrow officers and certificated escrow agents faced with the termination or resignation of its designated escrow officer to immediately undertake the following:

1. Notify the Department telephonically within one business day of the termination or resignation of the designated escrow officer, and follow this notification in writing no less than five business days from the date of termination or resignation.

2. Replace the designated escrow officer with a licensed escrow officer authorized with full management and supervisory responsibilities. However, no escrow officer shall supervise more than one location of an escrow agent and no escrow officer shall be simultaneously engaged for more than one escrow agent.

3. The escrow agent, the incoming designated escrow officer and the outgoing escrow officer shall comply fully with WAC 208-680D-010, prior to the Department’s acceptance of the incoming designated escrow officer, except that where the outgoing designated escrow officer refuses to sign the statement required by this section, the Department shall determine the acceptability of the incoming designated escrow officer.

4. No handling of escrow transactions shall occur during the interim period of transfer of responsibilities from the outgoing designated escrow officer to the incoming designated escrow officer.

5. In the event that an escrow agent loses the escrow officer designated to supervise a branch office, the escrow agent may transfer its escrows to another branch supervised by a licensed escrow officer without any interruption of business discussed in 4. above.

6. In the event that the escrow agent is unable to provide a replacement designated escrow officer within five business days of the loss of the designated escrow officer, the escrow agent must provide all parties involved in any open escrow transactions with a notice. The notice must be delivered or deposited into the mail no later than the end of the fifth business day. The notice shall contain the following information:

a. An explanation that the escrow agent no longer has a designated escrow officer on staff;
b. The current status of the parties’ escrow transaction;
c. Language affording the principals the right to withdraw the escrow without monetary loss or escrow agent charges.

7. No escrow agent or officer shall intentionally interfere with or delay the closing of an escrow transaction. The Department expects that all decisions on the matters discussed in this letter will be made first and foremost in the interest of the parties’ escrow transaction.

Response to violations: The Department intends to treat violations of RCW 18.44.200, WAC 208-680B-070 and WAC 208-680D-030, as grounds for termination of the certificates and licenses of either or both the escrow agent or designated escrow officer, as well as any other sanctions authorized under the Act. Additionally, the Department may seek an immediate injunction against the escrow agent and/or designated escrow officer pursuant to RCW 18.44.160, in order to prevent any handling of escrow transactions in violation of the Act.

Recommendation to escrow agents: The Department advises escrow agents to establish a licensed escrow officer as a backup position to the designated escrow officer to prevent any interruption in the lawful handling of escrow transactions.

Effective: This interpretation is effective immediately.

DFI