Join us with eXp of Northern California Broker Ryan Rosas Live In Person.
Key Points:
- Compliance with Escrow and Real Estate Laws: Real estate brokers must ensure escrow instructions are lawful and transparent. The DFPI and DRE have identified improper practices where brokers direct escrow agents to use Commission Disbursement Authorizations (CDA) to pay personal or business expenses (e.g., credit card bills, rent, or tuition) or unlicensed entities/individuals, violating California’s Escrow Law and Real Estate Law.
- Proper Disbursement Protocols: Escrow funds, including commissions, must only be disbursed based on written instructions from the transaction principals (buyer and seller). Brokers are not principals and cannot direct payments to third parties for personal expenses or unlicensed parties via CDAs, as this compromises transaction integrity and may violate federal RESPA rules.
- Broker-Controlled Escrows: DRE-licensed brokers handling in-house escrows are exempt from Escrow Law but must adhere to strict trust account rules, ensuring funds are disbursed only per the principals’ instructions.
- Regulatory Oversight and Consequences: The DFPI and DRE will investigate violations, including unlawful referral fee arrangements, to ensure transparency and fairness. Non-compliance may lead to administrative actions, such as penalties, license suspension, or revocation.
- Best Practices for Agents:
- Ensure all escrow instructions are clear, written, and authorized by principals.
- Avoid directing escrow agents to make payments for personal or business expenses.
- Verify that any recipient of commission funds is licensed if required.
- Maintain accurate records to demonstrate compliance during audits.
Conclusion:
Real estate agents must adhere to DFPI and DRE regulations to maintain transparency and protect all parties in escrow transactions. Understanding and following proper escrow instruction protocols is critical to avoiding legal and regulatory issues.
