Current through Register Vol. 35, No. 18, September 24, 2024
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
fled in numerical order with all 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 fled 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 flied 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.