Steven Keefe, Broker/Owner
Coldwell Banker Sky Ridge Realty 
Arrowhead Home Loans, Inc.
www.mountainmoves.com
steve@mountainupdate.com
909.336.2131
Yesterday I was forwarded an email sent to one of my agents that said: "There is no difference in the liability or handling of an escrow when the escrow company is not a California Corporation." That statement doesn't make a lot of sense unless she means there is no difference between a DRE (Broker Owned) escrow company and a DOC (Department of Corporations) Escrow Company.
My agents have been trained to understand that there is a difference, and that difference must be disclosed to a buyer or seller. Failure to do so, could result in loss that may or may not be covered depending upon the type of escrow company used.
Agents like the one who sent the email above who clearly does not understand the difference could be advising their client to settle for less protection in the transaction, simply because they want to use an "in house" service. In some instances the agent may be deriving some type of personal benefit, while subjecting themselves and their client to un-necessary risk. Who's interests are being served under those circumstances.
Buyers and sellers often don't realize that there is a difference. They go with the recommendation of the real estate agent. Buyers and sellers need to be aware that in the event of embezellment, or fraud involving the funds in escrow, either their property or money may be gone forever. Between the two types of escrow company's there are significant differences in the protection for clients money. In the event a client looses their money in an escrow that has inadequate levels of protection, the brokerage and the real eastate agent will be held responsible for not disclosing those limitations, even if the real estate agent claims they were unaware of the additional risk to the buyer or seller.
For this reason, Coldwell Banker Sky Ridge Realty Agents will recommend only Department of Corporation regulated escrow company's. Using a DRE escrow company poses too great a threat to our clients.
Some say "What is the big deal?" "A few thousand dollars of earnest money for a few clients?" It might surprise you, but even a small escrow company can have between $500,000 and $1,000,000 of funds held in trust.... other peoples money. The DRE has thousands of examples of "Brokers Gone Wild" with other peoples money they are holding in trust. One of the largest reported reasons for Broker discipline is mishandling of trust funds. It is a very real danger... let me give you an illustration:
I use a bank bank analogy to demonstrate the difference. A DOC escrow company is like Bank of America. They have hoops to jump through and are regulated by the government to protect the assets on deposit that belong to you and I. A DRE escrow company is like "Freds Bank" they are regulated by Fred, and have virtually no requirements for start up. A broker has to file a DBA and open a trust account and they are in the escrow business. Where do you put your money? I am pretty sure I know the answer. I am not sure how an agent can recommend that his client put their money in Freds bank when Bank of America is available and all of their protections. I don't care how much an agent knows or loves Fred, they are falling short of their fiduciary if they tell their client to use him.
Here are the differences:
Bonding Requirement
Department of Corporations Yes
Department of Real Estate No
Manager/Escrow Experience Requirement
Department of Corporations Yes
Department of Real Estate No
Regulator Audits
Department of Corporations Yes
Department of Real Estate No
Annual CPA Audit Required
Department of Corporations Yes
Department of Real Estate No
Trust Fund Insured
Department of Corporations $5,000,000
Department of Real Estate $25,000
Financial Liquidity Requirements
Department of Corporations Yes
Department of Real Estate No
Escrow License Requirement
Department of Corporations Yes
Department of Real Estate No
Department of Justice Background Check for Employees
Department of Corporations Yes
Department of Real Estate No
Department of Corporations escrow company's are likely the highest regulated industry in the state. In dealing with our clients property and money, they deserve nothing less than the best protection. Real estate agents who fail to understand and disclose the differences to their clients are subjecting the client and themselves to un-necessary risk. Insist on full protection in the escrow transaction, you will be glad you did.
