BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 479|
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THIRD READING
Bill No: AB 479
Author: Maldonado (R)
Amended: 6/16/03 in Senate
Vote: 21
SENATE BANKING, COMM. & INT. TRADE COMMITTEE : 9-0, 7/9/03
AYES: Florez, Hollingsworth, Denham, Ducheny, Dunn,
Karnette, McClintock, Murray, Ortiz
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 73-0, 5/8/03 - See last page for vote
SUBJECT : Escrow agents
SOURCE : Escrow Agents Fidelity Corporation
DIGEST : This bill revises licensing, penalty and surety
fund requirements for escrow companies.
ANALYSIS : Existing law provides for the licensure and
regulation of escrow agents by the Commissioner of the
State Department of Corporations (DOC). An "escrow" is
defined as any transaction where a person, for the purpose
of selling, transferring, or encumbering real or personal
property to another person, delivers money or a thing of
value to a third person to be held by that person until a
specified event or prescribed condition occurs, when it is
then delivered by the third person to a grantee, grantor,
promisee, promisor, obligee or obligor.
CONTINUED
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Current law also establishes the Escrow Agents Fidelity
Corporation (EAFC), whose purpose is to indemnify losses of
licensed escrow agents. Membership in EAFC is a condition
of escrow agent licensure. EAFC is required to maintain
three separate funds for the payment of loss claims and the
cost of operations: the membership fund, the operations
fund, and the fidelity fund.
Under current law the membership fund is funded by the
$3000 membership fee for each separate escrow agent
business location. This is for payment of claims which
exceed the fidelity fund balance and for payment of
extraordinary operational costs. An annual assessment is
collected from each member of EAFC to fund the operations
and the fidelity fund. If the aggregate balance of the
membership and fidelity funds is less than $5 million, then
EAFC is required to assess the membership $1 million.
This bill revises licensing, penalty and surety fund
requirements for escrow companies. Specifically, this
bill:
1. Allows the Commissioner of DOC to deny an escrow agent
license to any applicant failing to comply with the
membership and fidelity funding requirements of EAFC.
2. Requires applicants for a license by DOC as an escrow
agent to show that the required membership fee of $3000
has been paid to EAFC and to provide DOC with copies of
EAFC certificates for every shareholder, officer,
director, trustee, manager or employee of an escrow
agent.
3. Revises the assessment formula for replenishing the
fidelity fund of EAFC to provide for a minimum balance
of $2.5 million, with a required assessment of $400,000
among all members of the corporation when needed to
achieve the minimum balance.
4. Provides that any person convicted of an offense and
required to make restitution to a victim may requalify
for an EAFC certificate only if the individual can
clearly and convincingly show that the restitution order
is no longer reasonably related to the duties and
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responsibilities of a person engaged in the escrow
business.
Comments
This bill is intended to allow EAFC to maintain its minimum
fund balance without levying excessive assessments on
licensed escrow agents. Under current law, if the
aggregate balance in specified funds (the Fidelity Fund and
the Membership Fund) drops below a minimum balance of $5
million, even if only by $1, then a $1 million assessment
must be made by the Fidelity Fund. Based on an analysis of
claim losses over a 10 year period, EAFC believes that a
$400,000 assessment would be more than adequate to ensure
maintenance of the minimum balance. This eases the
financial impact on licensed escrow agents while allowing
the funds to maintain a balance of $5 million.
This bill essentially makes a series of largely technical
changes to six sections of the Financial Code, which
address EAFC operations and finances. One of the key
provisions is the amendment to Section 17304 of the
Financial Code, which addresses the definition of "loss"
which triggers the obligation of the EAFC to reimburse the
escrow trust account. This is the result of recent
litigation in which the issues of what constituted a
covered loss and the maximum coverage under the statute
were debated. The definition of loss is intended to
conform to a recent appellate court decision.
EAFC is a statutorily created non-profit organization under
the Financial Code. All escrow companies licensed by DOC
are required to be members of EAFC, which assesses its
members in order to provide fidelity coverage in the event
of losses from escrow trust accounts. In this way, the
funds of consumers in real estate transactions, and other
transactions using escrow account services, are covered
against theft or embezzlement. This bill supports the
ability of DOC and EAFC to prevent convicted felons from
having access to escrow accounts. Another key provision of
this bill is that it will actually provide for the
possibility of lower assessments against escrow companies
by EAFC, while still providing EAFC with ample reserves to
respond to potential claims. Finally this bill clarifies
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the issues of minimum and maximum coverage against loss
provided by EAFC.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/21/03)
Escrow Agents Fidelity Corporation (source)
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Chan, Chavez, Chu, Cogdill, Cohn, Corbett,
Correa, Cox, Daucher, Diaz, Dutra, Dutton, Dymally,
Firebaugh, Frommer, Garcia, Goldberg, Hancock, Harman,
Jerome Horton, Shirley Horton, Jackson, Keene, Kehoe,
Koretz, La Malfa, La Suer, Laird, Leno, Levine, Lieber,
Liu, Longville, Lowenthal, Maldonado, Matthews, Maze,
McCarthy, Montanez, Mountjoy, Mullin, Nakanishi, Nakano,
Nation, Negrete McLeod, Nunez, Oropeza, Pacheco, Parra,
Pavley, Plescia, Reyes, Richman, Ridley-Thomas, Runner,
Salinas, Samuelian, Simitian, Spitzer, Steinberg,
Strickland, Vargas, Wiggins, Wolk, Wyland, Wesson
NC:mel 7/22/03 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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