Hawaii Real Estate Broker Exam — All Questions

Under HRS chapter 449, a Hawaii brokerage may itself hold the escrow for a transaction:

• a.only where the principal broker holds an escrow depository license
• b.in any transaction, since brokers are exempt from that chapter
• c.only where it is the broker for a party and charges no escrow fee✓
• d.only with the written approval of the Real Estate Commission

Section 449-5(a) sets the general rule: "No person shall act as an escrow depository in this State unless it is a corporation licensed to do so by the commissioner," the commissioner of financial institutions, and the same subsection bars unlicensed persons from even using the word "escrow" in a business name. Section 449-3 then lists who is outside the chapter when acting as an escrow depository, and paragraph (2) is the brokerage's exception: "any person licensed as a real estate broker in the State who is the broker for a party to the escrow, provided the person does not charge any escrow fee." Both conditions are load-bearing, so a brokerage that charges even a modest escrow fee falls back under the licensing requirement. Banks, trust companies and savings and loan associations are excepted by paragraph (1) and attorneys, on similar fee terms, by paragraph (3). Section 449-1 explains why neutrality matters: an escrow is a transaction in which the holder is "a person not a party to the transaction and neither having nor acquiring any interest in the title."

A bank that took a Hawaii house back at foreclosure resells it and tells the buyer which escrow company to use. HRS section 667-52:

• a.permits the direction, because the seller selects escrow in Hawaii
• b.forbids requiring a particular title insurer or escrow depository✓
• c.requires the buyer to use the escrow that handled the foreclosure
• d.forbids the resale until the mortgagee has held title for one year

Section 667-52(a) applies to a judicial foreclosure or a foreclosure by power of sale of residential property improved by four or fewer dwelling units, and provides that no foreclosing mortgagee, or mortgagee who acquires the property through the foreclosure, "shall require, directly or indirectly, as a condition of selling the property, that the buyer purchase an owner's title insurance policy covering the property or escrow service in connection with the sale of the property from a particular title insurer or escrow depository." Recommending is still allowed, but only if "written notice of the right to make an independent selection of those services is first provided to the buyer." The remedy is specific and expensive: section 667-52(b) makes the mortgagee liable to the buyer for "three times all charges incurred in the purchase of the title insurance or escrow service." Section 667-52(c) preserves the transaction itself, which is not invalidated solely by the breach. No holding period is imposed on the mortgagee, and no rule of Hawaii practice gives the seller the escrow choice as of right.

On a Hawaii closing statement, the conveyance tax imposed by HRS chapter 247 is charged to:

• a.the parties in equal shares, unless the contract provides otherwise
• b.the buyer, and is due at the moment the deed is recorded
• c.the escrow depository, out of its own fee for the closing
• d.the seller, and is due within ninety days of the transaction✓

Section 247-4(a) allocates the tax by statute rather than by custom: it "shall be paid by the grantor, lessor, sublessor, assignor, transferor, seller, conveyor, or any other person conveying realty," with one reversal, where a federal, state or county body is the conveyor and the tax then falls on the grantee. Section 247-4(b) fixes timing: the tax is "due and payable no later than ninety days after the taxable transaction, and in any event prior to the imprinting of the seal or seals as provided by section 247-5," so in practice escrow pays it at recording to obtain the certificate, well inside the outer deadline. Penalties and interest attach under section 231-39. Parties can and do allocate closing costs between themselves by contract, but that private allocation does not change whom the Department of Taxation looks to, which is why the line appears on the seller's side of a Hawaii settlement statement. The escrow depository handles the payment; it does not bear it.

Before a Hawaii escrow depository's license takes effect, HRS section 449-9 requires it to give the commissioner:

• a.a surety bond in the penal sum of not less than $100,000✓
• b.a fidelity bond of $500 for each escrow the company opens
• c.proof of errors and omissions cover of at least $1,000,000
• d.a deposit of one year's escrow fees held in a state account

Section 449-9 requires a bond "in the penal sum of not less than $100,000 executed by a surety insurer authorized in this State," conditioned that the depository "will honestly, faithfully, and with diligence apply all funds, other consideration, or property and instruments affecting title in accordance with the instructions under which the same were deposited with it, and will promptly account for the same," and that it will satisfy judgments recovered against it under the chapter. The aggregate liability of the surety cannot exceed the penal sum, and cash, a letter of credit or securities acceptable to the commissioner may be deposited in lieu of a bond. Section 449-13 protects the arrangement from quiet cancellation: sixty days' written notice to the commissioner is required for bonds or deposits and thirty days for insurance, and the license is suspended on cancellation or withdrawal. The $500-per-unit figure belongs to a different bond entirely, the condominium hotel operator's fidelity bond under HRS section 467-30, which runs from a $20,000 minimum to a $100,000 maximum.