Are RE Agents Inducing Escrow Officers to Violate the Law?

Recently it’s come to our attention that RE agents are leaving blanks in the residential purchasing agreements (RPAs) being submitted to escrow.

This is a dangerous and careless practice, which not only breaks the law but encourages escrow officers to fill in the blanks with their own favorite vendors.

The California Financial Code 17403.2 and California Financial Code 17403.3 specifically state that no one shall solicit or accept an escrow instruction containing any blank to be filled in after the signing. These were intended to prevent escrow agents from accepting easily altered written instructions containing blanks and to assure that any party opening an escrow has an accurate idea of what the instructions provide.

Additionally, the California Code of Regulations 110.208 specifically states that no escrow agent can solicit or accept escrow instructions containing any blanks after signing or initialing.

And when RPAs come into escrow with blanks, instead of returning to agents to have their clients decide and sign, some escrow officers conveniently enter their preferred vendors or perhaps even vendors owned by their parent companies; in this event, agents and escrow officers become liable and at risk of losing their license.

So the law is pretty clear about this violation of California Financial Code, California Code of Regulations, and Department of Real estate regulations etc. Now, is it a RESPA violation? What are the penalties if you are caught breaking this law? Could you be subject to losing your license? Could agents, brokers and escrow officers be subject to financial penalties or even jail time? We’d like to know because we don’t know. Send us your experience.

  • WOW!

    Is it just me or does this sound bad?

  • RE-Insider

    From our mail bag:


    I received an e-mail from your site, with the article about escrow officers getting in trouble for filling in the blanks on Residential Purchase Agreements….(!!)…

    After being in the escrow industry for over 36 years (I’m definitely crazy, but I love this business), I’m amazed at some of the “war” stories that continue to crop up regarding criminal activities involving dumb escrow officers (and not so dumb..just crooked).

    I’ve consistently turned down “get rich quick” deals from shifty real estate agents looking for a spot to land and have often made a lot less money by doing so…at least I can sleep at night. Many years ago I was trained by an educational staff and powerful escrow manager with Western Mutual Escrow (in Southern CA) and the lessons learned from their experienced guidance have stayed with me and continue to kick me in the shin, any time I even THINK about the possibility of doing something “creative” with someone else’s funds and someone else’s property.

    The answer to many of the issues that seem to plague our profession is EDUCATION..EDUCATION…along with EXPERIENCE, INTEGRITY AND TEAMWORK. Unfortunately, a system of unannounced reviews and audits of an escrow company by the Dept. of Corporations (I will only work for and with a licensed and bonded, fully independent escrow company) seems to be one of the few checks and balances procedures that can at least slow down some of this unethical and sloppy practice.

    We all need to be able to understand the elements of a contract, along with its interpretation, direction and legal ramifications…AND…we can NOT practice law OR insert anything into a blank space of contract.. BUT..the best class I took in connection with extensive real estate and escrow education was BUSINESS LAW. The attorney/professor drilled into the class what elements needed to be in a contract, how to interpret and carry out the conditions of the contract and so on…The bottom line: An escrow officer NEEDS to know these contractual elements and which specific elements affect the duties of an escrow officer ONLY…BUT, she/he also needs to KNOW the law and to be able to ascertain when the line is drawn for escrow to step aside and await written instructions.

    Sorry for the long dissertation! I’m a former high school English teacher…never stopped learning OR teaching.

    I’ll be interested in hearing from you,

  • RE-Insider

    More from our mail bag: Our advice — when in doubt, contact a good lawyer.

    I read the lawsuit and had a question about how the lawsuit could affect me. I got a home loan from Washington Mutual. Which I had to modify because of payment. During this time I realize the assessed value prior to the crash was close to 354K.AT the sale property was purchased for 310K. If the appraisal was overstated this would explain the higher assess value. Is there any recourse or rights regarding Washington Mutual Bank and its lending practices. Please give me any information regarding this question.

  • RE-Insider

    From a reader and lawyer:

    So let’s face it. The realtors put in the vendor companies that their broker requires them to write in on the contract including the escrow company. Even if the offer is ok the way it is the realtor will counter the offer only for escrow and title services which most brokers require their agents to do. Some agents commission is affected when they are not using the services that the broker recommends/demands. Most of the time the escrow company that the realtor uses is affiliated some way with the real estate company so what’s the difference. I am scratching my head trying to figure out how this becomes such a big deal..

  • RE-Insider

    From a broker:

    Yes blanks are left because more and more – if not 100% of the time REO companies – or more specifically their listing agent dictates the NHD company, the escrow company, the terms of the contract, etc.

    I just had a short sale and the escrow office drew docs a) with out any approvals from short sale lenders – there were 2, b) without ever speaking to me c) without the RPA in her possession which is why she could not send me page 8 d) and she too $60K from buyers under these circumstances.

    Title and Escrow officers have gone as rogue as REO and Short Sale agents who have sellers who’s only concern is getting the property sold.

  • RE-Insider

    This from a curious reader:

    Someone printed out your Memo or Article or Advisory about realtors leaving contracts with blanks on it.

    Was this in Southern or Northern California?

    Is there a chance you could narrow down “Escrow Officers” to a particular niche of escrow company?

    Here are the Escrow Service Providers in CA,

    Was it / Is the problem noted seen in:

    1) Real Estate Broker Owned, DRE Escrow Companies, Regulated by the *Department of Real Estate?

    2) Real Estate Broker Owned, Independent Escrow Companies, with a company name different from the real estate brokerage, Regulated by the *Department of Corporations?

    3) Title Insurance Company Escrows, Regulated by the *Department of Insurance?

    4) Independent Escrow Companies, truly neutral 3rd Party’s Regulated by the *Department of Corporations?

    The first two have all the profit motive reason in the world to do this.

    The third is prevented by AB 133 passed in ’09. The could file low rates to induce as a loss-leader I guess.

    The fourth has would put themselves at risk at losing their license.

    Those of us in #4 are affected by this and rarely if ever are involved in any of the escrow shenanigans we ever hear about in the media in past twenty years.

    -Group Four generates revenue from only one source: Escrow Services for Escrow Fee’s.

    The other two, RE Brokers and Title Co’s, are in business for: Real Estate Commissions and Title Insurance Premiums, and their escrow departments support those operations and by default make some portion of their revenue.

    Thank you for bringing this matter to light and if you’re able, could you please provide any clarification on whether the Escrow Officers in question come from a particular?

    • RE-Insider

      Thanks for the note. In our investigations, we’re finding that these violations are all over the board. Blanks are found everywhere. Keep asking questions – an informed escrow officer is a good escrow officer. And keep reading!