TITLE 12 TRADE,
COMMERCE AND BANKING
CHAPTER 25 ESCROW COMPANIES
PART 2 ESCROW COMPANY ACT
12.25.2.1 ISSUING AGENCY: Financial Institutions Division
of the Regulation and Licensing Department, 2550 Cerrillos Road, Santa Fe, New
Mexico 87505. Telephone No. (505)
476-4885.
[12.25.2.1
NMAC - Rp, 12 NMAC 25.2.1, 10/1/15]
12.25.2.2 SCOPE: All escrow companies required
to be licensed by the state of New Mexico.
[12.25.2.2
NMAC - Rp, 12 NMAC 25.2.2, 10/1/15]
12.25.2.3 STATUTORY AUTHORITY: Section 58-22-6(A) NMSA 1978.
[12.25.2.3
NMAC - Rp, 12 NMAC 25.2.3, 10/1/15]
12.25.2.4 DURATION: Permanent.
[12.25.2.4
NMAC - Rp, 12 NMAC 25.2.4, 10/1/15]
12.25.2.5 EFFECTIVE DATE: October 1, 2015, unless a later
date is cited at the end of a section.
[12.25.2.5
NMAC - Rp, 12 NMAC 25.2.5, 10/1/15]
12.25.2.6 OBJECTIVE: The objective of this sub-part is
to effectuate the purposes of the Escrow Company Act.
[12.25.2.6
NMAC - Rp, 12 NMAC 25.2.6, 10/1/15]
12.25.2.7 DEFINITIONS:
A. “Act” means the
Escrow Company Act, Sections 58-22-1 NMSA 1978 et seq., as amended.
B. “Banking day”
means a day a financial institution is open for the normal conduct of its
business, but does not include Saturday, Sunday or any legal holiday.
C. “Director” means
the director of the financial institutions division.
D. “Division” means
the financial institutions division of the regulation and licensing department,
state of New Mexico.
E. “Escrow” means
any transaction wherein any written instrument, money, evidence of title to
real or personal property or other thing of value is delivered to a person not
otherwise having any right, title or interest therein for the purpose of
effecting the sale, transfer, encumbrance or lease of real or personal
property, to be held by that person as a neutral third-party until the
happening of a specified event or the performance of a prescribed condition
when it is then to be delivered by such person to a grantee, grantor, promise,
promisor, oblige, obligor, bailee, bailor or any
agent or employee of any of them pursuant to the written instructions of the
principals to the transaction; escrow also includes accepting payments on loans
for remission to a third party, otherwise known as “servicing”.
F. “Escrow agent”
means any person, other than escrow closing agent as defined in Subsection F of
12.25.2.7 NMAC, who engages in the business of receiving escrows for deposit or
delivery and who receives or is promised any fee, commission, salary or other
valuable consideration, whether contingent or otherwise, for or in anticipation
of performance.
G. “Escrow closing
agent” means an escrow company which, in the normal
course of business, acts as the agent of a buyer and seller of real estate for
the purpose of consummating a sale, including, but not limited to, the
performance of the following described functions:
(1) preparation of deeds, mortgages,
promissory notes, deeds of trust, real estate contracts, assignments or other
documents incidental to the sale as permitted by law;
(2) calculations and disbursements of prorated taxes, insurance
premiums, utility bills and other charges incidental to the sale;
(3) preparation of buyers’ and seller’ closing statements;
(4) supervision of signing of documents;
(5) collection and disbursement of a down payment, realtors’ commissions,
fees and other charges pursuant to a sales agreement; and
(6)
recordation of documents.
H. “Escrow company”
means any person, other than an escrow closing agent as defined in Subsection F
of 12.25.2.7 NMAC, engaged in the business of receiving escrows for deposit or
delivery for compensation who is required to be licensed under the Escrow
Company Act.
I. “Generally
accepted accounting principles” means professional standards of accounting
practice as promulgated from time to time by the American institute of
certified public accountants.
J. “Ledger” means
a chronological record of dated debits and credits maintained either in a
bookkeeping ledger book or in a readily retrievable electronic format.
K. “Licensee” means
a person holding a valid license as an escrow company or escrow agent.
L. “Person” means
an individual, cooperative, association, company, firm, partnership,
corporation or other legal entity.
M. “Principal(s)”
means all the actual parties or legal entities to the escrow closing
transaction, and the term principal(s) shall be deemed to include a duly
appointed agent or attorney-in-fact.
[12.25.2.7
NMAC - Rp, 12 NMAC 25.2.7, 10/1/15]
12.25.2.8 ESCROW COMPANY ACT REGULATIONS:
A. Surety bond:
(1) the surety
bond shall run concurrent with the licensing period and shall be in the minimum
amount of $100,000.00 for the benefit of the people of the state of New Mexico;
(2) it shall be
in a form devised by the director; and
(3) the escrow
company shall provide the director with notice of cancellation of the bond at
least fifteen (15) days prior to the effective date of cancellation.
B. A person may satisfy the
requirements of Subsection A of 12.25.2.8 NMAC by depositing with the financial
institutions division, in an amount equal to the surety required, a deposit
consisting only of the following: cash, certificates of deposit in any
financial institution doing business in the state of New Mexico which are
insured by the federal deposit insurance corporation or the national credit
union administration, or any combination of these. The deposit shall be accepted and held by the
financial institutions division. No
claimant or judgment creditor of the escrow company or escrow agent shall have
the right to attach or levy upon any of the assets or securities held on
deposit. The director, by order, shall
have discretion to use such deposit, as follows:
(1) to satisfy any final judgment entered
against the escrow company for
actual damages suffered by any person by reason of any fraud, dishonesty,
misrepresentation or concealment of material fact growing out of any escrow
transaction;
(2) for use
in the liquidation of the escrow company under the provisions of Section
58-22-27 (B) NMSA 1978 of the Escrow Company Act; and
(3) to release
any or all of such deposit to the escrow company when, in the opinion of the
director, such deposit is no longer required by state law.
C. Manager’s experience: The office manager of an applicant to be
licensed as an escrow company under the act shall be an employee of the
applicant, and shall:
(1) not
have been convicted of a felony or a misdemeanor involving moral turpitude,
subject to the provisions of the “Criminal Offender Employment Act,” Section
28-2-1 NMSA 1978 et seq;
and
(2) have
at least two (2) years previous escrow experience with a title company,
abstract company, real estate company, trust department of a bank or any other
entity conducting an escrow business; and
(3) have
at least two (2) years experience in the bookkeeping
or accounting field, one (1) year of which involved the handling of custodial
funds while in the employ of a financial organization; or
(4) have such other experience as the director may deem
acceptable.
D. Accounting controls:
(1) An
escrow company shall establish and maintain on a current basis the following
books and records, which shall be maintained in accordance with generally
accepted accounting principles:
(a) a separate ledger for each escrow account, which shall contain
a record of all receipts and disbursements made on that particular escrow
account;
(b) a general ledger and a cash receipts and disbursements
journal;
(c) a
control ledger with each bank the escrow company is doing business with,
listing the name and account number of the buyer or obligor and recording the
monies paid to the escrow company by the buyer or obligor for taxes and
insurance; the control ledger shall be reconciled at least once each calendar
month with the trust account(s) and copies of the monthly reconciliation
accompanied by corresponding bank statements, for the three (3) months
immediately preceding the license renewal, shall be remitted to the division as
part of the license renewal package;
(d) trust funds held for future payments, such as semiannual or
annual payments, shall be documented and reconciled showing the current balance;
a separate ledger or control sheet shall be maintained, showing all trust funds
collected by the escrow company and not disbursed.
(2) An
escrow company shall post all receipts and disbursements to the cash receipts
and disbursements journal and the general ledger. The reconciliation
necessary to trace the individual transaction in an examination and shall be
preserved and maintained in a logical sequence.
(3) Receipts
shall be reconciled with disbursements at least once each calendar month, and a
permanent record of each reconciliation and shall be retained by the escrow
company.
(4) Each
entry on the general ledger and the cash receipts and disbursements journal
shall include a cross reference to the separate escrow ledger to which it
relates. Receipts and disbursements
corresponding to the same cross referenced transaction on the separate escrow
ledger shall be in balance.
(5) The
general ledger and cash receipts and disbursements journal shall be reconciled
with the trust account at least monthly and not later than the 30th day after
the last day of each calendar month. The
net interim debits and credits reflected on the general ledger and cash
receipts and disbursements journal shall be in balance with the debits and
credits to the trust account(s) during the same time period or the differences,
if any, shall be explained to the satisfaction of the director. All reconciliations shall be approved and
signed by the escrow manager or by an employee otherwise designated by the
escrow manager. A permanent record of each reconciliation shall be retained by the escrow
company.
(6) The
provisions of Paragraph (5) of Subsection D above, shall also apply to any
other accounts maintained by the escrow company, provided, however, that such
accounts must be reconciled monthly or as frequently as statements are issued
by the depository institution.
(7) An
escrow company shall submit to the director at the time of license renewal the
following information for the tax or accounting year most recently closed:
(a) copy
of the federal and state tax return for the year immediately preceding the
license renewal or if the income and expenses of the escrow company are
reported on an individual federal tax return, then the schedule C associated
with the escrow company;
(b) a statement of financial condition of the escrow company
prepared in accordance with generally accepted accounting principles;
(c) a statement of income and expense;
(d) a financial statement of the principal owners prepared in
accordance with generally accepted accounting principles;
(e) a summary of the amount of trust funds received and
disbursed each month and the amount of trust funds received and disbursed for
the entire year;
(f) a list of total number of accounts serviced and dollar amount
serviced by the escrow company;
(g) reconciliations for the three (3) months immediately
preceding renewal, accompanied by the corresponding bank statements; and
(h) in the event that required information is not available, the
director shall use discretion as to whether a conditional license will be
issued pending receipt of requisite information.
E. Records:
(1) The
records of an escrow company shall include, but are not limited to:
(a) copies
of all pre-numbered cash receipt forms used by the escrow company, which shall
be filed in numerical order with al numbers accounted for, including voided
cash receipts;
(b) all
pre-numbered vouchers and pre-numbered blank checks used by the escrow company,
which shall be stored in numerical order with all numbers accounted for,
including voided vouchers and checks with signature blocks removed from voided
checks;
(c) copies of all forms, other than checks, used by the escrow
company to make transfers of funds between customer escrow accounts; and
(d) an
accounting for all lost or missing receipts, checks, vouchers or transfer memos;
such statement shall be renewed at least once in each calendar quarter, and
shall be dated and signed by the person designated, by the escrow company, as
responsible for maintaining the records required by this section.
(2) No
cash shall be received in trust by the escrow company without issuing a receipt
therefor. No funds shall be disbursed
out of trust by an escrow company without issuing a check or obtaining a wire
transfer memo or electronic confirmation from the bank to account for the
transaction. All cash receipt forms and
checks used by the escrow company shall be pre-numbered in consecutive
numerical order and, when used, shall bear the number of the pertinent escrow
account on its face.
F. Record
inspection:
(1) The
offices, places of business, books, records, accounts, safes, files and papers
of an escrow company shall be maintained freely accessible and available for
inspection or examination during normal business hours by the director or a
duly authorized representative of the director.
(2) The
escrow company shall, upon request, provide to the director or the director’s
designee, continuing authorization to certify the actual balance in any trust
account. Such authorization shall be
placed on file with the depository institution in which the account is
maintained and a copy filed with the director.
The director shall give twelve (12) hours advance notice to the escrow
company before using the continuing authorization unless waived by the escrow
company.
(3) Section
58-22-19 NMSA 1978 of the Escrow Company Act provides that division examination
reports, financial information contained in licensee applications and renewal
applications and information on investigations relating to violations of the
Escrow Company Act that do not result or have not yet resulted in
administrative, civil or criminal action are not subject to the Inspection of
Public Records Act, are not subject to subpoena, and may be disclosed only with
the consent of the director.
G. Preservation of
records: An escrow company shall
preserve for at least six (6) years all bank statements of its bank accounts
and all records required by these regulations.
H. Trust fund
accounts:
(1) All
money deposited in escrow shall be deposited and maintained in a federally
insured bank, savings and loan association or credit union and kept separate
and distinct and apart from funds belonging to the escrow company or escrow
agent. Such funds, when deposited, are
to be designated as trust funds, indicating that the funds are not the funds of
the escrow company.
(2) The
escrow company shall notify the director in writing of the opening and closing
of pooled trust accounts within ten (10) days following the date of opening or
closing. The notification shall include
the licensed name of the escrow company, the name of the bank, savings and loan
association or credit union, the number of each account opened or closed and
the designation for each account opened.
(3) Each
escrow company shall maintain a permanent record of all investments of trust
funds, including, but not limited to, amounts and dates of deposits and
withdrawals, copies of certificates of deposit, corresponding debits and
credits to affected trust accounts, and amounts and dates of interest earned or
credited.
(4) Trust
funds are not subject to execution or attachment on any claim against an escrow
company.
I. Written escrow
instructions:
(1) An
escrow company or escrow agent may not accept funds, property or documents in
escrow without dated, written escrow instructions from the principals to the
transaction, or their agent, or a dated executed agreement in writing between
the principals to the transaction.
(2) An
escrow company or escrow agent may not close an escrow or disburse any funds or
property except as provided by Paragraph (6) of Subsection I of 12.25.2.8 NMAC
without obtaining dated escrow instructions in writing from the principals to
the transaction or their duly appointed agent, adequate to administer and close
the transaction, or, in the case of disbursement, to disburse the funds and
property.
(3) An
escrow company or escrow agent may not solicit or accept any original, amended
or supplemental escrow instructions containing any blank to be filled in after
signing. An escrow company or escrow
agent shall not allow any alteration of original, amended or supplemental
escrow instructions, unless the alteration is signed or initialed by the
principals.
(4) If
a real estate contract or promissory note which is the subject of an escrow
provides for a late payment fee, the fee shall be treated by the escrow company
as the property of the payee, unless expressly stated otherwise in the
contract, note or written escrow instructions.
(5) An
escrow company, except a company acting as an escrow closing agent as defined
in these codes, shall use, deliver or transfer documents or other property
deposited in escrow only in accordance with the written instructions of the
principals to the escrow transaction or pursuant to an order of a court of
competent jurisdiction.
(6) If
an escrow agent receives conflicting demands from the parties, regarding the
performance of duties, the escrow agent may hold any money or documents related
to the conflicting demands. The money or
documents may be held until mutual instructions, that resolve the conflict, are
received by all parties to the escrow or until a civil action has been finally
concluded in a court of competent jurisdiction determining the rights of all
parties to the escrow. In any civil
action commenced to resolve the conflicting demands of the parties to the
escrow, the escrow agent may recover a reasonable amount of attorney’s fees and
costs.
J. Restriction on
escrow clients:
(1) When
an escrow company is appointed by the parties to an escrow as their mutual or
dual agent, the escrow company shall not act with partiality to any of the
parties to the escrow.
(2) An
escrow company shall not act as an escrow agent in any escrow transaction in
which it or any of its owners, officers, directors, partners or employees may
directly or indirectly have a monetary or title interest in the real property
either as buyer or seller, unless the escrow company upon acquiring knowledge
of the existence of an interest discloses that interest to the parties to the
escrow.
(3) An
escrow company shall not act as escrow agent in any transaction in which the
escrow company is related to any party to a promissory note, mortgage, deed of
trust, real estate contract or other debt instrument for which the escrow
company acts as escrow agent, unless the escrow company, upon acquiring knowledge
of the existence of a relationship, fully discloses such relationship to the
parties to the escrow.
(4) An
escrow company, upon acquiring knowledge of either an “interest” as described
in Paragraph (2) of Subsection J of 12.25.2.8 NMAC, or a “relationship” as
described in Paragraphs (3) and (5) of Subsection J of 12.25.2.8 NMAC, shall:
(a) immediately
upon receipt of the escrowed documents, deliver or cause to be delivered to the
parties to the document a written notice disclosing the nature and extent of
the relationship; the notice shall contain substantially the following
statement: “we call this interest (relation) to your attention in order to be
perfectly open and fair with you; this interest (relation) will not, IN OUR
OPINION, prevent us from being a fair and impartial escrow agent in this
transaction; nevertheless, you may request that this transaction be handled by
some other escrow company or agent if you so desire”;
(b) obtain proof of a receipt from each party to whom the notice
is delivered;
(c) maintain a separate file of all notices delivered and proof
of receipt obtained pursuant to this section;
(d) if,
within ten (10) business days after delivery of a notice of disclosure required
by this section, any party to the document requests in writing that the file be
transferred to another escrow company or agent, then the escrow company shall
permit such transfer, without imposing any additional fees against the party.
(5) For
the purposes of this section, an escrow company shall be deemed to be “related”
to a party if:
(a) the escrow company is owned in whole or in part by the party
or by an owner, officer, director, partner or an employee of the party;
(b) the escrow company or any of its owners, officers,
directors, partners or employees owns, in whole or in part, a party which is a
legal entity;
(c) any
owner, officer, director, partner or employee of the escrow company is also a
party or is an owner, officer, director, partner or an employee of a party; and
(d) any owner, officer, director, partner or employee of the
escrow company is related by blood or marriage to a party, or to any owner,
officer, director, partner or employee of a party which is a legal entity.
K. Required notice
to the director:
(1) Except
as otherwise provided, an escrow company or escrow agent shall notify the
director of:
(a) the entry of a judgment against the escrow company in any
civil action involving the alleged misconduct of the escrow company or escrow
agent in an escrow transaction;
(b) the
entry of a judgment against an officer, director, partner, employee or owner of
the escrow company involving the alleged misconduct of the officer, director,
partner, employee or owner in an escrow transaction handled by the escrow
company or escrow agent; and
(c) the
entry of a conviction judgment by a court of competent jurisdiction in any
criminal proceeding involving the alleged misconduct of the escrow company or
of any officer, director, partner, employee or owner of the escrow company or
escrow agent in an escrow transaction handled by the escrow company or escrow
agent.
(2) The
notification to the director required by Paragraph (1) of Subsection K of
12.25.2.8 NMAC shall be in writing and shall include a brief description of the
escrow transaction involved and the names of the principals. In a civil action, the notification shall
include a copy of the conviction judgment entered.
(3) The
notification of the director required by Paragraphs (1) and (2) of Subsection K
of 12.25.2.8 NMAC shall be made within ten (10) business days after the date of
entry of the judgment. Notification
shall include whether or not the judgment has been or will be appealed. If a judgment is appealed, each subsequent decision
of an appellate court shall be subject to the notification requirements of this
section.
L. Required notice
to parties to an escrow account:
(1) Within
ten (10) business days of a written request made by a party to the escrow
agreement, a licensee shall provide a full statement of the escrow account,
setting forth credits to principal and interest for the period and other
information requested.
(2) Within
ten (10) business days following a buyer depositing the final payment on an
account, the licensee shall send a notice to the seller and the buyer of
property, containing a final statement of account, which statement shall
disclose at a minimum the following:
(a) the names of all sellers and all buyers on the account;
(b) the address or legal description of real property or a
definitive description of the property if it is not real property;
(c) a statement that the account was paid in full;
(d) the amount of the final payment;
(e) the date that the final payment was deposited with the
licensee; and
(f) the date that the final payment was or is expected to be
disbursed by the licensee; money shall be disbursed within five (5) business days
of the money becoming available to the licensee.
(3) A
copy of the notice required by this section shall be retained by the licensee
and shall be available for examination by the director pursuant to Section
58-22-17 NMSA 1978.
M. Unauthorized
business practices: In addition to the
unauthorized business practices listed in Section 58-22-26 NMSA 1978 as
amended, it shall be an unauthorized business practice for an escrow company to
do the following:
(1) refuse
to provide to any party to an escrow account, upon written request, any
information pertaining to that party’s escrow account such as the date a
payment was received and disbursed, a history which provides all details as to
monies received and disbursed and amount applied to interest and principal, and
copies of the escrow instructions;
(2) arbitrarily charge higher fees to individuals who transfer
their escrow account from one (1) escrow company to another;
(3) assess
escrow fees without notifying in writing all parties to the escrow account to
be charged;
(4) borrow
or otherwise appropriate trust funds for the use of the escrow company, escrow
agent or its owners, officers, directors, partners or employees; or
(5) operate a trust account which for any reason is unable to
meet its current obligations.
N. Escrow
fees: Escrow fees charged by the escrow
company for collection or disbursement shall be withdrawn from any trust
account within two (2) business days after the fees become available, except
that if escrow fees are recorded on a fee ledger separate from the account
ledger they shall be withdrawn from the trust account no less than once each
month. The check or voucher used to
withdraw the escrow fees shall disclose the pertinent escrow account number and
the amount of each fee included in the check total.
O. Escrow closing
agents: The following requirements shall
be applicable to escrow closing agents.
(1) All
funds received in conjunction with an escrow closing shall be considered trust
funds and shall be placed in a trust account.
All trust funds received into escrow shall be deposited in the trust
account no later than the close of business of the business day following the
date of receipt, unless the escrow closing agent is instructed in writing by
all principals to the transactions to delay such deposit.
(2) Immediately
upon deposit of trust funds, the escrow closing agent shall create and maintain
a separate ledger dedicated to each individual escrow upon which funds have
been received. The escrow closing agent
shall close and escrow only upon specific written instructions from all
principals to the transaction. Such
written escrow instructions shall be in the form of loan closing instructions
from a lender in the case of loan closings or by any other specific document
executed by all principals to the transaction which incorporates instructions
for closing.
(3) Upon
completion of an escrow transaction, an escrow closing agency shall deliver to
each principal to the transaction, an appropriate, duly verified statement of
the applicable escrow account in writing.
The statement shall specify all receipts and disbursements of escrow
funds for that account and shall include to whom made.
(4) All
documents furnished to or prepared by the escrow closing agent together with
the escrow closing agent’s accounting records shall be retained for a period of
not less than six (6) years.
P. Internal controls:
An escrow company shall maintain the
following:
(1) an operations guide containing detailed daily operating
procedures of the escrow company;
(2) written
procedures regarding cash controls and deposit policies; written procedures
including, but not limited to, accepting payments, cash accounting, handling
and safeguarding, separation of duties; written procedures regarding dual
controls and security;
(3) an employee manual that includes definitive information on
employee positions and duties.
[12.25.2.8
NMAC - Rp, 12 NMAC 25.2.8, 10/1/15]
History OF 12.25.2
NMAC:
Pre-NMAC History: The material in this part was
derived from that previously filed with the State Records Center under:
Regulation
84-2, Escrow Company Act Regulations, filed 12/12/84.
Regulation
87-4, Escrow Company Act Regulations, filed 6/11/87.
History
of Repealed Material:
12
NMAC 25.2, Escrow Company Act, filed 9/17/97 - Repealed 10-1-15.