Update: Many of the major title companies have been repeatedly caught and fined by the Dept. of Insurance for unethical and illegal acts.

Regarding the article " Escrow serves buyer, seller equally" by Rick Wallace, it is important for the consumer to be involved in the choice of escrow, title and mortgage companies that will handle their transaction. It is common practice today that brokers, through their real estate agents, are vigorously soliciting business for
their broker-owned escrow, title and mortgage companies.

In 1983 the Real Estate Settlement Procedure Act (RESPA) was amended to allow Controlled Business Arrangements. Many real estate brokers have affiliated services such as escrow, title and mortgage companies. There have been periodic reports that some affiliated companies have employed unfair, and often times unethical practices to assure all services remain in house. Some real estate offices are given printing, computers and advertising by representatives of an affiliated company, which is illegal. Such unethical practices are alleged to include brokers providing bonuses, paid vacations or office rent reductions to their agents as reward for guiding the transaction to their affiliated escrow, title or mortgage company. The consumer will eventually pay for these incentives through the fees they are charged.

Some claim that controlled business equates to lower fees to the consumer, although this is simply not true. Because the consumer thinks they do not have the opportunity to shop for the company they want to use for these services, they make no attempt to compare what they will be charged. According to consumer advocate Ralph Nader "the mutually accommodating manner in which real estate broker and agents work with lenders, title companies, attorneys and other professionals leads to enforced consumption, which is all part of an informal, but nonetheless anti-competitive cartel costing consumers billions of dollars a year."

Moreover, with regard to escrow services, the consumer may lose the protection afforded by a truly neutral third party against potential unethical acts. Most consumers, and even many realtors, do not realize that only escrow entities licensed by the Department of Corporations are required under state law to provide the following consumer safeguards:

Net worth and minimum liquidity requirements.

Surety bonding

$5,000,000 fidelity bonding through the Escrow Agent's Fidelity Corporation (no other regulatory agency comes near to this protection of trust funds).

Minimum of two audits a year.

Certification program including fingerprinting, photograph and background check of all employees by the Dept. of Justice.

Prohibition of employment of convicted felons or anyone who has been disbarred from the escrow industry. ( This is not the case with the Dept. of Real Estate and Dept. of Insurance escrow regulations.)

An escrow officer with at least five years experience to be on site.

 

According to the Department of Real Estate 1995 Fall bulletin, over $22,670,513 is missing from DRE broker trust funds. Over half of the offices they audited had major violations relating to trust fund handling, record keeping and other compliance areas. Since last year over $4,000,000 in trust funds have disappeared from the title offices in San Diego, Santa Barbara and San Luis Obispo.

When choosing an escrow company to handle your transaction your main concern should be that you are working with an independent escrow company that is licensed by the Department of Corporations. For over 40 years licensed and independent escrow corporations have worked to provide consumers with ethical and quality escrow services for a fair price, with the greatest consumer protection.

Malibu Times, June 1996
Sharon Sharp-Kelley
President, Escrow L.A. Inc.
Board of Directors, Escrow Institute of CA
Board of Directors, Los Angeles Escrow Association