Could Agents Be Liable for Escrow Officers’ Conspiracy?

It’s been over two years since we last wrote about escrow diversions. On many occasions, we found that escrow officers were deliberately ignoring written instructions in Residential Purchasing Agreements (RPA) from buyers and sellers. Recently, we looked into the practice again to see if it was still prevalent. Unfortunately, we found this practice has not only continued, but it has escalated.

The RPA is the contract that the buyer, seller and their respective agents complete and sign, giving the escrow company instructions on a number of subjects, most notably the buyer and seller decisions on service providers.

When the escrow officer orders services from companies not listed in the RPA, is the escrow officer violating the law? And more importantly, is the real estate agent liable for the conduct of the escrow officer? Can they lose their license? Sadly, the answer to all of the above is “Yes.”

“Since real estate agents are ultimately responsible for all the stipulations of the final RPA, any change in the terms of the contract fall under the purview of the agents,” said Robert Mobasseri, a Los Angeles-based attorney focused on the real estate industry. “If, after the sale, any new liens are brought against the buyer due to an inaccurate settlement investigation, the fault could lie with the agent.”

Do real estate agents have a duty to act in the best interests of their clients? Please write us and let us know your thoughts or post to this story. Could a failure to do so could result in a claim alleging breach of fiduciary duty?

In the event of a unilateral change to the RPA by an escrow officer, the agent could be charged with violating their fiduciary duty to defend the interests of the client and can be held responsible for any problems that arise from a change in service providers.

“The paper trail can run back to the agents,” said Mobasseri. “Some agents think that they bear no responsibility, but they do.”

So what could be the consequence of failing to correct changes in the written instructions in the RPA? If a real estate agent is found complicit, the result could be a loss of license and punitive damages. In the case of one class-action lawsuit in Minnesota, the judgment for the plaintiffs was over $200,000.

Is this something that you have seen? Are you worried about escrow agents changing the terms of the RPA? Would you continue to work with an escrow officer who did?

  • Nicole Bosecker

    So it sounds like what you are talking about is the escrow officer ordering the NHD or Home Warranty from a company not listed on the RPA. For one thing escrow officers SHOULD NOT be ordering anything! It is not our job to do so it is the agents! I NEVER EVER order those items or anything else out of the realm of my responsibilty under the RPA , it is not our job period. If more escrow people took that stand it would not be an issue.

    • Karen Bauereis

      I understand how you feel, and being an escrow officer, I have to agree. However, when all escrow officers in your area are willing to order those items, you don’t have much choice. If I don’t order those items, they will just go the the next escrow officer that will. I always follow the contract, and if it states “sellers/buyers choice”, I contact their respective agent to find out who to order these items from.

  • Adrienne Hochee

    That is why it is so important to READ the documents that come from vendors. Yes, vendors, folks.
    Title, lenders, escrow, pest, etc.are adjuncts to the agents. Don’ t assume they are doing their job. It is yours to make sure they do.
    If you don’t like the product they turn out don’t use them again. When the listing agent says that “the seller
    reserves all services” they are in violation. The buyer is allowed to choose their service providers. If the agent
    resists, turn them in. We really need to clean this up.

    • Chuck Semerciyan

      Other than financing , listing agent can say “Seller sellects all the services” and it is not a violation . It is a unilateral precondition to the listing contract and it may be negotiable.
      If you or your client does not agree with the listing brokers request , just walk away.
      In order to prevent future problems , agents must read the title report and call the title rep. to ask questions.
      As far as the Title Report , always purchase the “Eagle policy”.

  • The agent dives the deal. Stay at the wheel. Know where the bus is going.
    If the bus goes over the cliff, “Oh, I let someone else drive for a minute,” is not an excuse.

  • RE-Insider

    A comment from our friends at the California Escrow Association:

    If the real estate agents used an escrow officer who is a member of the California Escrow Association, they would not have that problem. All our members are up to date on current issues and practices.

  • Ed

    “If, after the sale, any new liens are brought against the buyer due to an inaccurate settlement investigation, the fault could lie with the agent.” This entire statement is not on point. If this would occur expect everyone who is involved to be named in a lawsuit. Next, the key word is “Could” there are so many possibilities that it may or may not happen.

    What if there is no lien brought forth ? is the agent’s license still in jeopardy?

    As for not following the contract and ordering the NHD or Home warranty with another company (if in fact this the practice that is key in this article) this would be a breach of contract and would take civil litigation to rectify. This is a civil and not criminal, therefore no one would go to jail. Are you exposing yourself to possible civil litigation,….. sure you are if someone is will to complain and pursue civil action against you.

    Now I’m not endorsing this type of behavior, but there are a lot bigger issues that threaten our industry.

  • Ray G

    I think the problem is a “mentality” of legalism……everyone is a lawyer! and afraid to get sued. Instead of working to together in a fair, honest way, sometimes escrow officers, agents and lenders begin to pull in different directions.

    It all starts with the understanding or lack of the real estate agent. If the agent is poorly trained then the agent is expecting for others to do their job. having said that some escrow officers don’t know their “neutral” role and think they are in control of the escrow. If the agent is response-able then that agent should get informed and care.

  • Ann B

    I recently sold a FNMA property and was told verbally by the listing agent that even though my buyer had offered to pay for title and escrow so she could choose a local company, the asset manager would not look at our offer unless we agreed to us their title company. That’s in direct violation of RESPA. So what do you do? What’s best for the buyer is to obtain the home they want…what’s best for you, is different.

    My buyer and I discussed this and finally we elected to have the offer presented with a verbal agreement to use their title company if they took the offer “as written”. They did and we got stuck with the escrow company from hell! Pick a problem from HUDs that were incorrect, documents with misspelled names, over 12 items that had to be corrected because of escrow mistakes that delayed our funding and thus the buyer had penalties, bonuses weren’t paid, you name it.

    I’m filing a complaint against that company, but in the end I feel some of the problem was mine. I elected to let my client move forward. My client had been in escrow on two other properties…both of which had structural issues that weren’t disclosed and made them un-lendable. She’d finally found a house that worked, that was in good shape and was living in a hotel because of a job transfer. I did what was right for her…got the house; but we all paid the price in stress and actual dollars because of these jerks! It needs to stop!

  • Phyllis Yanagihara

    I take exception to the comment “escrow officers deliberately ignore instructions”. Probably 90% of the time, the agents don’t list a vendor name for some of the ancillary services at all. Certainly a knowledgeable and professional escrow officer is going to then contact the agents or principals for further instructions. Since you are specifically speaking about the home warranty plans and hazard reports, those are not the responsibility of the escrow officer at all. It is real estate agent responsibility that is dumped on an escrow officer as a gentle form of blackmail “do my job for me or I’ll find someone who will”.

    The overwhelming sense that I get here though is that you seem to think the escrow officer is here to do your bidding, working for you. We are in fact a neutral third party, possibly directed by the agent, but responsible only to the buyer and seller and to a limited degree, the lenders of both. Escrow is about assuring the terms and conditions that the agent has put into the purchase contract for the benefit of the buyer and seller are in fact met. We are licensed to safeguard the money and the documents, we perform the curative process required prior to a title policy being issued and disburse funds in accordance with the instructions of the principals, as well as meet the governmental mandates that have been added to the settlement process.

    Everyone is better off utilizing the services of an “Escrow Professional” evidenced by membership in the California Escrow Association through a local regional escrow association. We know what we are doing and why we’re doing it. Many in the industry have no clue and take no interest in developing their knowledge or skill.

  • A very catchy headline. It certainly got our attention! No conspiracy involved however. Maybe more of each Real Estate Agent and Escrow Officer taking care of their own responsibilities!

    Working with an Escrow Institute of California member, will provide the best in escrow service! They all have take great care in being true professionals.

    • RE-Insider

      FYI – the website for the Escrow Institute of California is:

      Our readers are correct. Working with established associations (like this one) is one step to ensuring that you are working with professionals. Please check the site and ask them if you have any questions.