No. 28986 (New Rule): R592-5. Fiduciary and Other Responsibilities of a Title Insurance Producer Providing Escrow Service

 

DAR File No.: 28986
Filed: 09/01/2006, 12:41
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this proposed new rule is to define the fiduciary and other responsibilities of title insurance producers when engaging in the escrow business under the authority of Section 31A-23a-406 and to identify those practices which the Commission finds are harmful to the public interest.

 

Summary of the rule or change:

The rule defines "escrow agent" and "escrow services." Only one escrow agent is to be designated by written agreement by the parties to the transaction. The rule sets the fiduciary and escrow responsibilities of the escrow to all parties to the transaction. Enforcement of the rule will begin 45 days after the rule goes into effect.

 

State statutory or constitutional authorization for this rule:

Sections 31A-2-404 and 31A-23a-406

 

Anticipated cost or savings to:

the state budget:

This rule will have no fiscal impact on the department. The rule will not impact the revenues or expenditures of the department. There will be no change in the filings required or the fees to be paid by the industry to the department.

 

local governments:

This rule will nave no effect on local governments since it only deals with the relationship between the department and its licensees.

 

other persons:

In a real estate transaction the rule will make one fiduciary agent responsible for all the documents and funds to close the escrow. Frequently in the past one agent has acted for the buyer and one agent for the seller. The latter practice causes a delay in the disbursing of funds which costs the seller additional interest. The way the practice is now, the potential for fraud and the violation of the Expedited Funds Availability Act increased. It is doubtful that there will be any fiscal impact on the consumer. The impact on consumers may only be the closure of loopholes for potential fraud in a real estate transaction.

 

Compliance costs for affected persons:

In a real estate transaction the rule will make one fiduciary agent responsible for all the documents and funds to close the escrow. Frequently in the past, one agent has acted for the buyer and one agent for the seller. The latter practice causes a delay in the disbursing of funds which costs the seller additional interest. The way the practice is now, the potential for fraud and the violation of the Expedited Funds Availability Act increased. It is doubtful that there will be any fiscal impact on the consumer. The impact on consumers may only be the closure of loopholes for potential fraud in a real estate transaction.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule may cause a positive impact on the net profitability for title agencies that previously participated in split closing. As a result of the rule, title agencies will be doing the same amount of work for the full escrow charge. Kent D. Michie, Commissioner

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Title and Escrow Commission
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY UT 84114-1201

 

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/16/2006

 

Interested persons may attend a public hearing regarding this rule:

10/11/2006 at 11:00 AM, State Office Building (behind the Capitol), Room 4112, Salt Lake City, UT

 

This rule may become effective on:

10/23/2006

 

Authorized by:

Jilene Whitby, Information Specialist

 

 

RULE TEXT

R592. Insurance, Title and Escrow Commission.

R592-5. Fiduciary and Other Responsibilities of a Title Insurance Producer Providing Escrow Service.

R592-5-1. Authority.

This rule is promulgated by the Title and Escrow Commission pursuant to Section 31A-2-404(2), which authorizes the Commission to make rules related to standards of conduct for a title licensee, and pursuant to the specific authority granted in Subsection 31A-23a-406(7), which authorizes the Commission to establish rules that govern escrows.

 

R592-5-2. Purpose and Scope.

(1) The purpose of this rule is to define the fiduciary and other responsibilities of title insurance producers when engaging in the escrow business under the authority granted in Section 31A-23a-406 and to identify those practices, which the commissioner finds are harmful to the public interest.

(2) This Rule applies to title insurers, title insurance agencies, title insurance producers and their employees, representatives and any other party working for or on behalf of said entities whether as a full time or part time employee or as an independent contractor doing the business of escrow in Utah.

 

R592-5-3. Definitions.

For the purpose of this rule the Commission adopts the definitions as set forth in Section 31A-1-301 and the following:

(1) "Escrow Agent" means any person who provides or offers to provide escrow services to the public and who acts as an independent and neutral third party for a particular escrow.

(2) "Escrow Services" are those services specifically provided in conducting an escrow as defined in Section 31A-1-301.

 

R592-5-4. Title Insurance Producers Acting as an Escrow Agent.

(1) The Commission finds the following:

(a) When conducting an escrow, an escrow agent assumes a fiduciary role to all parties to the escrow and is held to a high standard of care in dealing with all parties to the escrow; and

(b) An escrow agent's failure to fulfill the fiduciary and other duties outlined below constitute a danger to the legitimate interests of their customers and the public.

(2) Each transaction shall have no more than one escrow agent. All portions of an escrow, including any loan(s), that are dependent upon the completion of another portion of that escrow to fulfill the terms of that escrow are considered to be part of a single escrow and must be conducted by the designated escrow agent.

(3) When the terms of the escrow require that the parties deliver or entrust to an escrow agent, money, certificate of deposit, security, negotiable instrument, deed or other property or asset, those items must be delivered to and be held by the designated escrow agent prior to recordation and disbursement.

(4) In conducting an escrow, and escrow agent, must:

(a) be designated as the escrow agent for the specific escrow by a written agreement, executed by the parties, and must retain a copy of that agreement;

(b) issue a title insurance policy to the owner, or the lender, or both;

(c) act as a neutral and independent third party;

(d) exercise proper fiduciary responsibility to all of the parties to the escrow;

(e) act as the escrow depository; and

(f) maintain the transaction file.

(5) The designated escrow agent has the duty to ensure that all conditions of the escrow have been met prior to recordation and disbursement.

(6) When the terms of the escrow require the preparation of documents by an escrow agent, the preparation of the documents must be done by the designated escrow agent.

(7) The designated escrow agent must follow all applicable federal and state laws.

(8) All funds deposited into the escrow shall be sent to, and received directly by, the designated escrow agent.

(9) All necessary items to settle the escrow must be in the possession of the designated escrow agent prior to recordation and disbursement.

 

R592-5-5. Enforcement Date.

The Commissioner will begin enforcing the provisions of this rule 45 days from the effective date of the rule.

 

R592-5-6. Severability.

If any provision or clause of this rule or its application to any person or situation is held invalid, such invalidity shall not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

 

KEY: title, escrow fiduciary

Date of Enactment or Last Substantive Amendment: 2006

Authorizing, and Implemented or Interpreted Law: 31A-2-404, 31A-23a-406