California Land Title Association January 27, 2022

CLTA Escrow Manual

California Land Title Association January 27, 2022

Contents

CLTA Escrow Manual...................................................................................................... 0 Definition of Escrow......................................................................................................... 2 Duties and Responsibilities ............................................................................................. 2 Types of Transactions Handled by Escrow ..................................................................... 2 Location of property that is subject of an Escrow ............................................................ 3 Necessity of mutual written escrow instructions and compliance therewith..................... 3 Regulatory oversight ....................................................................................................... 3 Unauthorized Practice of Law (UPL) ............................................................................... 4 Settlement Statement...................................................................................................... 4 Accounting/Good Funds.................................................................................................. 4 Disbursement of funds .................................................................................................... 5 Disbursement of lender funds and interest payment requirements ................................. 5 Limited or Sub Escrows................................................................................................... 5 Rate filings ...................................................................................................................... 5 Tax Reporting requirements ............................................................................................ 5 Remote online notarization (RON) and digital notarization.............................................. 6 Business email compromise ? wire fraud ........................................................................ 6 California Privacy Regulations (CCPA and CPRA) ......................................................... 7 FinCEN GTO ................................................................................................................... 7

This manual is intended to be a guide for title agents and escrow employees of title companies regulated by the California Department of Insurance.

Its purpose is to provide general information regarding escrow/settlement practices. It is not intended to be a comprehensive discourse or summary of escrow/settlement practices.

Employees should avail themselves of their company's management, training, and other resources in the subjects discussed herein.

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Definition of Escrow

The Settlement Agent, whose practitioners are commonly referred to as "Escrow Officers," is a neutral third party that holds documents and/or funds until such time as the terms and conditions of the written instructions from all principals have been satisfied. The term Settlement Agent is often used interchangeably with Escrow Officer. The Consumer Financial Protection Bureau (CFPB) and lenders often refer to the escrow agent or Escrow Officer as the Settlement Agent.

California Civil Code Section 1057: A grant may be deposited by the grantor with a third person, to be delivered on performance of a condition, and, on delivery by the depositary, it will take effect. While the grant is in the possession of the third person, and subject to condition, it is called an escrow.

Escrow impound accounts are held by lenders and are also referred to as "escrow" accounts. For purposes of this document, we are not referring to an impound account.

The word "escrow" is commonly used in many different ways. Throughout this document, it may be used to describe the transaction, person, or branch handling the transaction.

Duties and Responsibilities

The escrow employee of a title company has two main responsibilities:

- Fiduciary: Maintaining trust and neutrality in the real estate closing; closing the transaction when instructed by the principal(s).

- Risk mitigation: Avoiding or minimizing risk to the title insurance underwriter by addressing the exceptions to title to either show on the final title policy or be paid and/or released through the closing process.

Types of Transactions Handled by Escrow

There are several types of transactions that may require an escrow. In general, the Escrow Officer should handle transactions involving the issuance of a title insurance policy to limit the liability of the employer to the terms and conditions of the policy.

In addition to real estate transactions involving the issuance of a title insurance policy, other examples of escrow transactions may include:

- Bulk Sales - Mobile/Manufactured Homes - Personal Property - Stock Certificates

While all of the above are considered escrow transactions, some of the transaction types ? such as those involving personal property or stock certificates ? are generally

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not handled by title companies, or, as in the case of transactions involving bulk sales or mobile/manufactured homes, may require management approval.

Location of property that is subject of an Escrow

Section 12389 states that "(a) On and after July 1, 2016, an underwritten title company as defined in Section 12340.5 that is a stock corporation may, subject to subdivision (b), (1) engage in the business of preparing title searches, title reports, title examinations, or certificates or abstracts of title, upon the basis of which a title insurer writes title policies, and (2) conduct escrow services through business locations, as defined in Section 12340.13, in counties in which the underwritten title company is licensed to conduct escrow services regardless of the location of the real or personal property involved in the transaction."

Sister State Law Controls

The effect of Section 12389 Ins. Code, as so amended, may be negated by the laws of a state of these United States other than California wherein the subject property is located. It can be that an underwritten title company licensed by the State of California is prohibited by a sister state's law from escrowing property located in that state.

Necessity of mutual written escrow instructions and compliance therewith

The opening, processing and closing of escrow must be documented with mutual and agreed upon written instructions from the parties (principals and any new lender), and evidence of compliance must be retained in the written record of the transaction. The Escrow Officer should resolve ambiguous or conflicting instructions prior to closing escrow. The scope of duties of escrow is defined by written instructions of the principals. A request by a party or third party for escrow to perform an act not otherwise authorized or provided for in the instructions of the principal(s), or that impose undue liability or exposure to escrow, the title company or underwriter, must either be withdrawn by the submitting party, or approved by company management.

Regulatory oversight

Escrow must comply with laws established by the Federal Government, the State of California, and municipalities that regulate the subject property and escrow process.

The Consumer Financial Protection Bureau (CFPB) has created regulatory requirements for both escrow and residential lenders. The American Land Title Association (ALTA) created a body of standards for the title insurance industry to allow title agents the opportunity to upgrade their policies, procedures, and internal controls for the purpose of mitigating business risk, referred to as the 7 Pillars of ALTA Best Practices. For more information visit .

The California State agency that regulates the title insurance industry, including escrow, is the Department of Insurance.

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Unauthorized Practice of Law (UPL)

There is no requirement for the Escrow Officer to be licensed individually in the State of California and the Escrow Officer may close escrows as an employee of the title company. The escrow employee must work within the confines as established by the company and must not provide legal advice on any matters, including but not limited to taxes, loan programs, real estate law and title insurance policies. An escrow employee may not prepare legal documents and can only act as a scrivener of documents approved by the company's legal department.

Settlement Statement

An escrow settlement statement must reflect all costs and charges for the escrow transaction and follow the written instructions from all principals and lenders. Disbursements should only include title and property related matters and include items related to clearing title, meeting contractual requirements related to the transfer of the property, lender charges and title, escrow and recording charges. Proceeds should be disbursed to named principals in the transaction and not to third parties designated by the principals without company management approval.

The use of either the ALTA Settlement Statement or escrow software system closing settlement statement is acceptable.

Accounting/Good Funds

California's good funds law as set forth in Section 12413.1 of the California Insurance Code (hereinafter referred to as Good Funds Law) requires that a title insurance company, controlled escrow company or underwritten title company have in possession sufficient good funds in order to close transactions. All funds for escrow transactions must be deposited and have cleared in an escrow trust account insured by the Federal Deposit Insurance Corporation.

Although the Good Funds Law states that cash and funds deposited by electronic payment are considered good funds, not all electronic payments are acceptable as good funds to title companies. Contact your bank and/or accounting administrator regarding recourse that payors may have with different forms of electronic payments, such as ACH transfers or payments using digital and/or electronic funds vendors. Today the most common accepted form of good funds electronic payment is wires. Typically, title and escrow companies do not accept cash deposits.

All other forms of payment must be confirmed as having been collected by the financial institution from which the funds have been received. This includes personal checks, cashier's checks, money orders and bank checks.

All funds received by escrow must be deposited in the escrow trust account no later than one business day from receipt.

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