Keith Mack
Escrow laws vary by state, but generally, certain entities are exempt from needing a license to perform escrow services. These include attorneys with a client relationship to a principal of a real estate transaction, banks, trust companies, insurance companies, or savings and loan companies. Title companies or brokers performing escrow services for a real estate client are also exempt from licensing requirements. In California, escrow laws protect members of the public who entrust their money or other assets to independent escrow agents, and these agents must be licensed by the California Corporations Commissioner. However, some people are exempt from licensing requirements, including lawyers with a bona fide client relationship with a principal in a real estate transaction and brokers licensed by the Real Estate Commissioner. Similarly, in Arizona, most government agencies are required to print specific licensing information on all license applications, and escrow agents must have their accounts examined at least once every two years. In Washington, certain individuals are exempt from needing a license to act as escrow agents, such as real estate brokers or agents while performing acts incidental to sales or purchases of real or personal property, as long as they do not receive compensation for escrow services.
| Characteristics | Values |
|---|---|
| Location | California, Washington, Arizona |
| Exemptions | Attorneys with a client relationship to a principal of a real estate transaction, banks, trust companies, insurance companies or a savings and loan company, title companies, brokers performing escrow services for a real estate client, any person doing business under the law of this state or the United States relating to banks, trust companies, mutual savings banks, savings and loan associations, credit unions, insurance companies, or any federally approved agency or lending institution under the National Housing Act |
| Licensing authority | California Corporations Commissioner, Director of Licensing (Washington), Arizona Department of Financial Institutions |
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What You'll Learn
Lawyers with a client relationship to a principal in a real estate transaction
In California, any person licensed to practice law who has a bona fide client relationship with a principal in a real estate or personal property transaction and who is not actively engaged in the business of an escrow agent is exempt from escrow licensing laws. This exemption also extends to any person whose principal business is that of preparing abstracts or conducting title searches that serve as the basis for issuing a policy of title insurance by an insurance company.
It's important to note that while lawyers can act as escrow agents in California, they must comply with state escrow laws and licensing requirements. The Escrow Law in California defines "escrow" as:
> "...any transaction in which one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other things of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter."
The Escrow Law in California protects members of the public who entrust their money or other assets to independent escrow agents. It's crucial for lawyers to verify if their legal license alone permits escrow activities or if additional escrow licensing is necessary to ensure lawful handling of funds and transaction documents, avoiding potential conflicts of interest and regulatory penalties.
In Washington state, a similar exemption exists for lawyers licensed to practice law in the state, provided that all escrow transactions are performed by the lawyer while engaged in the practice of law or by employees of the law practice under the lawyer's direct supervision. Additionally, all escrow funds must be deposited, maintained, and disbursed from a trust account in compliance with the rules enacted by the Washington Supreme Court regulating lawyer conduct.
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Banks, trust companies, and insurance companies
For example, a person licensed to practice law in California with a bona fide client relationship in a real estate or personal property transaction is exempt, provided they are not actively engaged in escrow agent business. Similarly, a broker licensed by the Real Estate Commissioner is exempt when performing acts incidental to a real estate transaction, as long as they are not actively engaged as an escrow agent.
In the context of insurance companies, the exemption applies to companies doing business under any law of the state relating to insurance. This includes companies whose principal business is preparing abstracts or conducting title searches as a basis for issuing title insurance policies. The exemption is specific to the nature of their business and does not extend beyond the scope of insurance-related activities.
It is important to note that while banks, trust companies, and insurance companies may be exempt from escrow licensing laws, they are still subject to other regulatory frameworks specific to their industries. These institutions are governed by comprehensive regulations that ensure the protection of their customers' financial assets and adherence to industry standards. Therefore, while exempt from escrow licensing, these entities operate within a separate set of legal and regulatory guidelines.
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Savings and loan associations
In the context of escrow licensing laws, savings and loan associations refer to financial institutions that are exempt from specific regulatory requirements applicable to escrow agents. These exemptions are outlined in the legislative frameworks of various states in the United States, such as California and Washington.
In California, the Escrow Law, as defined by the Department of Financial Protection and Innovation, governs the licensing and regulation of escrow agents, joint control agents, and Internet escrow agents. The law aims to protect members of the public who entrust their money or assets to these independent escrow entities. While the law mandates licensing for escrow agents, it exempts specific entities, including those doing business under the laws related to savings and loan associations. This exemption applies to individuals or entities conducting business in accordance with laws pertaining to banks, trust companies, building and loan associations, credit unions, or insurance companies.
Similarly, in Washington, the licensing requirements for escrow agents are outlined in RCW 18.44.021. This legislation specifies that any person engaging in the business of an escrow agent within the state must possess a valid license issued by the director. However, the licensing requirements explicitly exclude individuals or entities doing business under the laws related to savings and loan associations. This exemption aligns with the one in California, encompassing those conducting business concerning banks, trust companies, mutual savings banks, credit unions, insurance companies, and specific lending institutions under the National Housing Act.
It is important to note that while savings and loan associations are exempt from the licensing requirements for escrow agents, they may still be subject to other regulatory frameworks and industry-specific guidelines. These exemptions do not necessarily imply a lack of oversight but rather recognize the unique nature of these financial institutions and their operations, which may involve different types of financial services and customer interactions.
The exemption of savings and loan associations from escrow licensing laws is a recognition of the distinct regulatory landscape applicable to these entities. This exemption ensures that they can operate effectively within their specific industry context while maintaining appropriate standards and safeguards for their customers and stakeholders.
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Credit unions
Similarly, in California, credit unions are exempt from escrow licensing laws when they are acting as escrow agents and providing employment references, as long as the information provided is not false and given without knowledge or malice.
In terms of mortgage transactions, credit unions that operate predominantly in rural or underserved areas, originate a limited number of first-lien covered transactions, have assets below a certain threshold, and do not maintain escrow accounts on mortgage obligations they currently service may be exempt from escrow requirements. This exemption was created in response to the mortgage crisis to strengthen consumer protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The NCUA provides guidance and information to federally insured credit unions on regulatory matters, trends, and potential risks and threats. This includes information on escrow requirements and other regulatory changes that may impact credit unions' financial statements and compliance obligations.
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Real estate brokers performing acts incidental to a transaction
In California, real estate brokers who are licensed by the Real Estate Commissioner are exempt from escrow licensing laws when performing acts incidental to a transaction. This exemption applies when the broker is acting as an agent or a party to the transaction and performing a duty that requires a real estate license. It's important to note that this exemption is specific to the individual broker and they are not allowed to delegate any duties beyond what is performed under their direct supervision.
In Washington state, there is a similar exemption for any real estate broker subject to the jurisdiction of the director of licensing. This exemption applies when the broker is performing acts incidental to the sale or purchase of real or personal property, as long as no compensation is received for escrow services.
These exemptions recognise that real estate brokers often play a crucial role in facilitating transactions and may need to perform certain duties that overlap with escrow functions. By exempting them from specific licensing requirements, it allows for a more streamlined process while still ensuring consumer protection through regulatory oversight.
It's important to understand that while real estate brokers may be exempt from escrow licensing laws in certain situations, they are still held to high professional standards and are expected to adhere to ethical guidelines in their dealings. The specific regulations and exemptions may vary across different states, so it's always advisable to consult the relevant state laws and seek legal advice when in doubt.
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Frequently asked questions
The following people are exempt from escrow licensing law in California:
- Lawyers with a bona fide client relationship with a principal in a real estate or personal property transaction.
- Persons preparing abstracts or making title searches for the issuance of a policy of title insurance.
- Real estate brokers while performing acts in the course of or incidental to a real estate transaction in which the broker is an agent or a party to the transaction.
- Banks, trust companies, insurance companies, or a savings and loan company.
- Title companies or brokers performing escrow services for a real estate client.
The following people are exempt from escrow licensing law in Washington:
- Any person doing business under the law of this state relating to banks, trust companies, mutual savings banks, savings and loan associations, credit unions, insurance companies, or any federally approved agency or lending institution under the National Housing Act.
- Any lawyer licensed to practice law in this state, provided that all escrow transactions are performed by the lawyer while engaged in the practice of law, or by employees of the law practice under the direct supervision of the lawyer.
- Any real estate company, broker, or agent subject to the jurisdiction of the director of licensing while performing acts in the course of or incidental to sales or purchases of real or personal property, provided that no compensation is received for escrow services.
Yes, in addition to the specific exemptions outlined above, there may be other instances where an escrow license is not required depending on the state and the nature of the transaction. It is important to review the specific laws and regulations in your state or jurisdiction to determine if a license is required in a particular situation.
