Housing and Community Development (HCD) Practice Exam

What limits the establishment of an escrow account by a manufactured home dealer?

1. Ownership interest exceeding 5% in the escrow company

2. Any ownership interest in the escrow company

3. Accumulated investment over a year

4. Location of the escrow company's office

The correct answer is: Ownership interest exceeding 5% in the escrow company

The establishment of an escrow account by a manufactured home dealer is limited primarily by the concern over conflicts of interest that could arise from ownership stakes in the escrow company. Specifically, ownership interest exceeding 5% in the escrow company introduces the possibility of undue influence or bias in the escrow process, which is meant to be impartial and secure for both parties involved in a transaction. This regulation helps ensure that the funds held in escrow are managed independently and that the transaction's integrity is upheld. The other options do not align with the regulatory framework that governs escrow accounts. While any ownership interest could theoretically affect impartiality, the specific threshold of 5% establishes a clear boundary to maintain transparency and protect consumers in the transaction process. Additionally, addressing ownership stake or accumulated investment is not the primary focus of establishing escrow limits; instead, it is the potential conflict of interest that arises from ownership associated with the escrow process itself that is critical.