AGENCY ESCROW DISBURSEMENT AGREEMENT REVISED FOR MEMBER USE


ATG has made the Agency/Escrow Disbursement Agreement available to members. ATG strongly urges all ATG members conducting closings to use the form to avoid any disputes over potential interest income earned on an escrow account. See below for a detailed discussion of the Illinois legislation that makes the issue of interest on escrow accounts a special concern for Illinois title agents.


The Agency/Escrow Disbursement Agreement is an escrow closing agreement, in which the parties name an escrow agent (escrowee) for the real estate transaction and put the escrow instructions in writing. It is designed for situations in which the closing is expected to happen within a short time frame of a day or two. For closings that may take more time, or New York-style closings, the Deed and Money Escrow Instructions (ATG Form 3031-A) would be a more appropriate escrow agreement form, which form also will help avoid any disputes over potential interest income earned on an escrow account.


There are two versions of this disbursement agreement:

  • ATG Form 4000: Agency/Escrow Disbursement Agreement (for use when ATG conducts the closing through ATG staff or independent closers)



  • ATG Form 4000-A: Agency/Escrow Disbursement Agreement - Member Closer (for use when the member conducts the closing)



Paragraph 8 of ATG Form 4000-A allows the member, closer, or ATG as escrowee (depending upon the version of the form used) to retain interest on deposits. The specific language of Paragraph 8 of the member version states as follows:

Neither the Settlement Agent nor Closer shall be under any duty to invest or reinvest any funds held by them under this agreement. Settlement Agent shall have the full right, power, and authority to commingle any deposits or part thereof with its other escrow deposits. All income derived from any use that Settlement Agent, Closer, or ATG may make of these deposits shall belong to Settlement Agent, Closer, ATG or their appointee as the case may be.

"Settlement Agent" is defined as the Member Closer conducting the real estate closing. The "Closer" is defined as the individual who is conducting the closing on behalf of the Settlement Agent. The language "or their appointee" is inserted to protect those members who are using their Real Estate Funds Account (REFA) as an Interest on Lawyers' Trust Account (IOLTA). We believe this language allows the Settlement Agent to have any interest earned paid either to the Settlement Agent or to IOLTA.


ATG Form 4000-A also provides a variety of other protections to the Settlement Agent as part of the closing process. Paragraph 2 clarifies that the closer is the lender's agent and the parties waive any apparent conflicts of interest. Further, the parties are informed that any of the borrower's statements made to the closer and any documents given to the closer may be made known to or delivered to the lender.


Each version of this form has space to indicate which Schedule B exceptions from the commitment will appear on the final title policies. Members should be aware that this section must be completed with the exceptions thatwill appearon the final policies,notthose thatare waivedfor the final policies.


Paragraphs 6 and 7 both require the seller/borrower to help ATG in obtaining release(s) of seller's mortgage(s) that are paid off at closing. Particularly, the seller/borrower agrees to reimburse ATG for any amounts necessary to obtain a mortgage release from the existing lender(s). This paragraph is very helpful to both members and ATG in administering claims arising from inadequate payoffs.


In addition, the following ATG forms also clarify that any interest earned on escrow funds may be retained by the ATG member:

  • ATG Form 4009-A: Joint Order Escrow Instruction



  • ATG Form 3011-A: Personal Undertaking with Title Indemnity Deposit Agreement



  • ATG Form 3031-A: Deed and Money Escrow Instructions



Note that in all cases, there also exist versions of the same forms for use by ATG staff or independent closers that have the same form number, without the "-A" designation.

Illinois Title Insurance Act


The Illinois Title Insurance Act places certain requirements on title agents who hold money in escrow in connection with real estate transactions. The most significant requirement for Illinois ATG members is the requirement that title insurance agents maintain a separate real estate funds account to hold any escrow funds relating to real estate transactions. Section 16(e) of the act, "Title Insurance Agents," makes the following requirements of funds placed in those accounts:

(1) Funds deposited in connection with any escrows, settlements, or closings shall be deposited in a separate fiduciary trust account or accounts in a bank or other financial institution insured by an agency of the federal government unless the instructions provide otherwise. The funds shall be the property of the person or persons entitled thereto under the provisions of the escrow, settlement, or closing and shall be segregated by escrow, settlement, or closing in the records of the escrow agent. The funds shall not be subject to any debts of the escrowee and shall be used only in accordance with the terms of the individual escrow, settlement, or closing under which the funds were accepted.


(2) Interest received on funds deposited with the escrow agent in connection with any escrow, settlement, or closing shall be paid to the depositing party unless the instructions provide otherwise.


(3) The escrow agent shall maintain separate records of all receipts and disbursements of escrow, settlement, or closing funds.


(4) The escrow agent shall comply with any rules adopted by the Secretary pertaining to the escrow, settlement, or closing transactions. 215 ILCS 155/16(e).

The Title Insurance Act defines an escrow agent as follows:

"Escrow Agent" means any title insurance company or any title insurance agent, including independent contractors of either, acting on behalf of a title insurance company which receives deposits, in trust, of funds or documents, or both, for the purpose of effecting the sale, transfer, encumbrance or lease of real property to be held by such escrow agent until title to the real property that is the subject of the escrow is in a prescribed condition. An escrow agent conducting closings shall be subject to the provisions of paragraphs (1) through (4) of subsection (e) of Section 16 of this Act. 215 ILCS 155/3(8).

Of special concern is the requirement that any interest on escrowed funds shall be paid to the depositing party unless the instructions provide otherwise. Based upon the short time escrow funds might be in this account, it is easy to see that it would be an accounting and banking nightmare to try to keep interest earned on such deposits separate for the benefit of the depositor.


If you have any questions about ATG's escrow forms, or any escrow in which you are acting as escrowee, please contact the ATG Underwriting Department,legal@atgf.com, 217.403.0020, or 312.752.1990, to discuss the situation.

© ATG UB0705vol12no2

 

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