DAR File No. 38824

Insurance, Title and Escrow Commission

Rule R592-16

Prohibited Escrow Settlement Closing Transactions

Notice of Proposed Rule

(New Rule)

DAR File No.: 38824
Filed: 08/28/2014 02:35:00 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule replaces Bulletin 2007-1, Prohibited Escrow Settlement Closing Transactions. The purpose of this rule is to identify certain escrow practices involving two or more back-to-back sales and purchases of the same parcel of real property, which the Title and Escrow Commission (Commission) finds may violate the insurance code or rules.

Summary of the rule or change:

The rule defines a land flip and then describes a permitted and prohibited escrow flip transaction.

State statutory or constitutional authorization for this rule:

• Subsection 31A-2-404(2)

Anticipated cost or savings to:

the state budget:

The rule provides permitted and prohibited escrow procedures for a flip transaction. Those found to be in violation of this rule may be required to pay a forfeiture that would go into the state fund. Forfeiture amounts would vary depending on the severity of the violation.

local governments:

The implementation of this rule will have no fiscal impact on local governments. The rule deals solely with the process of a flip transaction by a title licensee.

small businesses:

This rule specifically requires title insurance agencies involved in property flip transactions to use separate and distinct funds for each transaction. This rule is being promulgated to stop the practice of using the same funds for multiple transactions in a flip. Each transaction is to stand on its own financially. This may slow the process of flipping a property. As a result, slowing the flow of income may reduce the income. Not all licensees participate in the practice of flipping properties without properly funding each transaction. The fiscal impact will vary for those that do and now are not allowed to. The department has no way of calculating the impact on these licensees.

persons other than small businesses, businesses, or local governmental entities:

This rule specifically requires title insurance licensees, agencies, and individuals, involved in property flip transactions to use separate and distinct funds for each transaction. This rule is being promulgated to stop the practice of using the same funds for multiple transactions in a flip. Each transaction is to stand on its own financially. This may slow the process of flipping a property. As a result, slowing the flow of income may reduce the income. Not all licensees participate in the practice of flipping properties without properly funding each transaction. The fiscal impact will vary for those that do and now are not allowed to. The department has no way of calculating the impact on these licensees.

Compliance costs for affected persons:

Not all licensees participate in the practice of flipping properties without proper funding for each transaction, and those that do, vary in how often they flip properties. As a result the fiscal impact of this rule, if any, will vary among those that participate in this practice. It cannot be calculated by the department.

Comments by the department head on the fiscal impact the rule may have on businesses:

Any fiscal impact to businesses will be to those title licensees that have not used separate and distinct funds for multiple transactions in a flip. It is, however, a measure that protects individuals that could unknowingly be involved in a prohibited flip transaction not properly funded that could be financially harmful to them.

Todd E. Kiser, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Title and Escrow Commission
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

• Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/27/2014

Interested persons may attend a public hearing regarding this rule:

• 10/20/2014 09:00 AM, Senate Bldg, 420 N State St, Copper Room, Salt Lake City, UT

This rule may become effective on:

11/03/2014

Authorized by:

Todd Kiser, Commissioner

R592. Insurance, Title and Escrow Commission.

R592-16. Prohibited Escrow Settlement Closing Transactions.

R592-16-1. Authority.

This rule is promulgated pursuant to Section 31A-2-404(2), which authorizes the Title and Escrow Commission (Commission) to make rules for the administration of the Insurance Code related to title insurance, including rules related to standards of conduct for a title insurer, agency title insurance producer or individual title insurance producer.

 

R592-16-2. Purpose and Scope.

(1) The purpose of this rule is to identify certain escrow practices involving two or more back to back sales and purchases of the same parcel of real property, which the Commission finds may violate the Insurance Code or rules, and therefore it is necessary to identify and prohibit such conduct.

(2) These practices include sales and purchases of the same parcel of real property where funds from the final purchaser are received by the initial seller despite having no contractual privity and those where no statutory authority exists for the title insurer, agency title insurance producer, or individual title insurance producer to conduct one or more of such escrows under Section 31A-23a-406 and Rule R592-6-4(5).

(3) This rule applies to all title insurers, agency title insurance producers, individual title insurance producers, and all employees, representatives, and any other party working for or on behalf of said entities whether as a full time or part time employee or as an independent contractor.

 

R592-16-3. Definitions.

For the purpose of this rule the Commission adopts the definitions as set forth in Section 31A-1-301 and the following:

(1) "Land flip" means two or more escrows involving real property where the following circumstances exist:

(a) Buyer B contracts with Seller A to buy a parcel of real property;

(b) Buyer B then contracts with Buyer C to sell the same parcel of real property; and

(c) Buyer B anticipates buying and selling the same parcel at or near the same time to Buyer C.

 

R592-16-4. Permitted Escrows of Flip Transactions.

Title insurers, agency title insurance producers, and individual title insurance producers are permitted to conduct escrows involving a land flip if each real estate transaction stands on its own and the following conditions are met:

(1) Buyer B, in the transaction with Seller A, must use funds separate and distinct from the funds used by Buyer C as part of the transaction between Buyer B and Buyer C.

 

R592-16-5. Prohibited Escrows of Flip Transactions.

Except as allowed under R592-16-4, title insurers, agency title insurance producers, and individual title insurance producers are prohibited from conducting any escrows involving a land flip.

 

R592-16-6. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule 45 days from the effective date of the rule.

 

R592-16-7. Severability.

If any provision or clause of this rule or its application to any person or situation is held invalid, such invalidity may not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

 

KEY: escrow insurance flip

Date of Enactment or Last Substantive Amendment: 2014

Authorizing, Implemented, or Interpreted Law: 31A-2-404(2)