Washington State Department of Financial Institutions

Interpretive Statement #02-01A ES *RESCINDS #02-01*

DATE: August 8, 2003

TO: All Escrow Agent Licensees, and Interested Parties

FROM: Chuck Cross, Acting Director and Enforcement Chief

SUBJECT: Excise taxes

This interpretive letter rescinds the policy of the Department of Financial Institutions with respect to the payment of excise taxes for real estate transactions established by Interpretive Letter #02-01 ES dated November 15, 2002. Interpretive Letter #02-01 ES provided for authorization of disbursements from the escrow trust account for the payment of excise taxes in advance of the receipt of funds into the account for those taxes.  Upon further review and legal consult the Department has found that it erred in establishing this policy.  Therefore, Interpretive Letter #02-01 ES is hereby rescinded and replaced with this interpretation.

The issue:

A lender frequently requires that the excise tax on the sale of property be paid before the lender funds the loan for the purchase of the property, but the seller usually needs the proceeds of the sale to pay the excise taxes. This has placed the Escrow Agent in a “Catch-22” position, where the agent must forward funds to pay the excise taxes without benefit of receiving funds to forward.


State agencies are created by the Legislature and have only those powers conferred by the Legislature.  Therefore, any rulemaking by an agency must be consistent with the relevant statutes passed by the Legislature.

In regard to escrow agents, RCW 18.44.400(2) establishes the following requirement relating to disbursements from an escrow account:

An escrow agent, unless exempted by RCW 18.44.021(2), shall not make disbursements on any escrow account without first receiving deposits directly relating to the account in amounts at least equal to the disbursements.


RCW 18.44.400(2), clearly prohibits an escrow agent from making a disbursement until deposits at least equal to the disbursement are received for the particular account.  The proposed revision of the rule would allow an escrow agent to give the title company a check drawn on the trust account before funds have been received for that account.  This is clearly a disbursement of funds from the trust account and is in direct conflict with the statutory provision requiring the escrow agent to receive the deposits before making any disbursement.  The language in the statute is not ambiguous--deposits for the account must come before disbursements.  Further, the legislature did not provide for any exceptions to that rule. Adoption of the previously established policy and/or implementation of such a rule would exceed the agency’s rulemaking authority and would be subject to challenge on that basis.

The policy established in 2002 is also in conflict with the existing language in the rule which states:

WAC 208-680E-011(14)  No disbursement from the trust bank account shall be made: …

(c)Pertaining to a specific escrow transaction or collection account in excess of the actual amount held in the trust bank account in connection with such account.

The policy anticipates disbursement occurring before funds are received for that account, and thus would be a disbursement in excess of the actual amount held in the trust bank account in connection with such account. The very language of the rule itself admits that once the check leaves the hands of the escrow agent, it could be cashed, and it is only by the agreed forbearance of the title company that it would not be immediately cashed. In these circumstances, I do not see any room for argument that this is not a “disbursement.”

A third problem with the policy is that it sets up the potential for the funds from customer B to be used to cover a check disbursing funds related to customer A. It is obvious that neither the statutes or the rules permit this – indeed, this seems to be the very situation that the statute and rules are intended to prevent.

Fourth, the policy provided that if the funds are not received for that account, the escrow agent is required to deposit funds to cover the check.  Presumably this would be done with the escrow agent’s own funds. However, escrow agents are prohibited from depositing their own funds into the trust account by section 13 of WAC 208-680E-011 which provides as follows:

(13) No deposits to the trust bank accounts shall be made of funds that do not pertain to an escrow transaction or not received in connection with an escrow collection account, or that belong to the agent, including fees to "open" the bank account or to keep the account from being closed.

Effective immediately, the Department will not permit an Escrow Agent, to deposit with a title insurance company a check to pay the excise tax on a real estate closing unless such funds have been receipted and cleared in advance of such disbursement. The Department will not cite violations for transactions conducted between the dates November 12, 2002, and July 15, 2003, that followed the guidance provided in Interpretive Letter #02-01 ES.

The Division will be paying special attention to these transactions in upcoming examinations to make certain they are being handled in accordance with this interpretation.  If you have additional questions regarding this matter, please contact me at 360-902-8703.


Chuck Cross

Acting Director and Enforcement Chief

* There can be no doubt of the seriousness that the legislature placed on this provision since they provide that violation can be grounds for suspension or revocation of the escrow agent license as well as “penalties as prescribed in Title 9A RCW”, the Washington Criminal Code.