BILL NUMBER: AB 607 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Dodd
FEBRUARY 24, 2015
An act to amend Section 10145 of the Business and Professions
Code, relating to real estate brokers.
LEGISLATIVE COUNSEL'S DIGEST
AB 607, as introduced, Dodd. Real estate trust fund accounts: bond
requirement.
Existing law, the Real Estate Law, provides for the licensure and
regulation of real estate brokers by the Real Estate Commissioner.
Existing law requires a real estate broker who accepts funds
belonging to others in connection with a transaction to deposit all
those funds in either a neutral escrow depository, into the hands of
the broker's principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among
others, a real estate salesperson licensed under the broker to
withdrawal funds from a trust fund account of the broker if
specifically authorized in writing. The bill would authorize an
unlicensed employee of the broker to withdraw funds from the broker's
trust fund account if the broker has fidelity bond coverage equal to
the maximum amount of the trust funds to which the unlicensed
employee has access to at any time. The bill would authorize the
commissioner to require, by regulation, separate evidence of
financial responsibility by the employing broker that is sufficient
to protect members of the public against a loss subject to the
deductible amount, if any, of the fidelity bond.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10145 of the Business and Professions Code is
amended to read:
10145. (a) (1) A real estate broker who accepts funds belonging
to others in connection with a transaction subject to this part shall
deposit all those funds that are not immediately placed into a
neutral escrow depository or into the hands of the broker's
principal, into a trust fund account maintained by the broker in a
bank or recognized depository in this state. All funds deposited by
the broker in a trust fund account shall be maintained there until
disbursed by the broker in accordance with instructions from the
person entitled to the funds.
(2) Withdrawals may be made from a trust fund account of an
individual broker only upon the signature of that broker or one, or
more, of the following persons if specifically authorized in writing
by the individual broker:
(A) A real estate salesperson licensed under the broker.
(B) Another broker acting pursuant to a written agreement with the
individual broker that conforms to the requirements of this part and
any regulations.
(C) An unlicensed employee of the individual broker if the broker
has fidelity bond coverage equal to at least the maximum amount of
the trust funds to which the unlicensed employee has access to at any
time. For purposes of this section, bonds providing coverage may be
written with a deductible of up to 5 percent of the coverage amount.
The commissioner may, by regulation, require separate evidence of
financial responsibility by the employing broker that is sufficient
to protect members of the public against a loss subject to the
deductible amount, if any.
(2)
(3) Notwithstanding the provisions of
paragraph (1), paragraphs (1) and (2),
a real estate broker collecting payments or performing services for
investors or note owners in connection with loans secured by a first
lien on real property may deposit funds received in trust in an
out-of-state depository institution insured by the Federal Deposit
Insurance Corporation, if the investor or note owner is any one of
the following:
(A) The Federal National Mortgage Association, the Government
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal Housing Administration, or the United States
Department of Veterans Affairs.
(B) A bank or subsidiary thereof, bank holding company or
subsidiary thereof, trust company, savings bank or savings and loan
association or subsidiary thereof, savings bank or savings
association holding company or subsidiary thereof, credit union,
industrial bank or industrial loan company, or insurance company
doing business under the authority of, and in accordance with, the
laws of this state, another state, or the United States relating to
banks, trust companies, savings banks or savings associations, credit
unions, industrial banks or industrial loan companies, or insurance
companies, as evidenced by a license, certificate, or charter issued
by the United States or a state, district, territory, or commonwealth
of the United States.
(C) Trustees of a pension, profit-sharing, or welfare fund, if the
pension, profit-sharing, or welfare fund has a net worth of not less
than fifteen million dollars ($15,000,000).
(D) A corporation with outstanding securities registered under
Section 12 of the Securities Exchange Act of 1934 or a wholly owned
subsidiary of that corporation.
(E) A syndication or other combination of any of the entities
specified in subparagraph (A), (B), (C), or (D) that is organized to
purchase the promissory note.
(F) The California Housing Finance Agency or a local housing
finance agency organized under the Health and Safety Code.
(G) A licensed residential mortgage lender or servicer acting
under the authority of that license.
(H) A licensed real estate broker selling all or part of the loan,
note, or contract to a lender or purchaser specified in
subparagraphs (A) to (G), inclusive.
(3)
(4) A real estate broker who deposits funds held in
trust in an out-of-state depository institution in accordance with
paragraph (2) (3) shall make available,
in this state, the books, records, and files pertaining to the trust
accounts to the commissioner or the commissioner's representatives
or pay the reasonable expenses for travel and lodging incurred by the
commissioner or the commissioner's representatives in order to
conduct an examination at an out-of-state location.
(b) A real estate broker acting as a principal pursuant to Section
10131.1 shall place all funds received from others for the purchase
of real property sales contracts or promissory notes secured directly
or collaterally by liens on real property in a neutral escrow
depository unless delivery of the contract or note is made
simultaneously with the receipt of the purchase funds.
(c) A real estate sales person who accepts trust funds from others
on behalf of the broker under whom he or she is licensed shall
immediately deliver the funds to the broker or, if so directed by the
broker, shall deliver the funds into the custody of the broker's
principal or a neutral escrow depository or shall deposit the funds
into the broker's trust fund account.
(d) If not otherwise expressly prohibited by this part, a real
estate broker may, at the request of the owner of trust funds or of
the principals to a transaction or series of transactions from whom
the broker has received trust funds, deposit the funds into an
interest-bearing account in a bank, savings and loan association,
credit union, or industrial loan company, the accounts of which are
insured by the Federal Deposit Insurance Corporation, if all of the
following requirements are met:
(1) The account is in the name of the broker as trustee for the
designated beneficiary or principal of a transaction or series of
transactions.
(2) All of the funds in the account are covered by insurance
provided by an agency of the United States.
(3) The funds in the account are kept separate, distinct, and
apart from funds belonging to the broker or to any other person for
whom the broker holds funds in trust.
(4) The broker discloses to the person from whom the trust funds
are received, and to a beneficiary whose identity is known to the
broker at the time of establishing the account, the nature of the
account, how interest will be calculated and paid under various
circumstances, whether service charges will be paid to the depository
and by whom, and possible notice requirements or penalties for
withdrawal of funds from the account.
(5) Interest earned on funds in the account may not inure directly
or indirectly to the benefit of the broker or a person licensed to
the broker.
(6) In an executory sale, lease, or loan transaction in which the
broker accepts funds in trust to be applied to the purchase, lease,
or loan, the parties to the contract shall have specified in the
contract or by collateral written agreement the person to whom
interest earned on the funds is to be paid or credited.
(e) The broker shall have no obligation to place trust funds into
an interest-bearing account unless requested to do so and unless all
of the conditions in subdivision (d) are met, nor, in any event, if
he or she advises the party making the request that the funds will
not be placed in an interest-bearing account.
(f) Nothing in subdivision (d) shall preclude the commissioner
from prescribing, by regulation, circumstances in which, and
conditions under which, a real estate broker is authorized to deposit
funds received in trust into an interest-bearing trust fund account.
(g) The broker shall maintain a separate record of the receipt and
disposition of all funds described in subdivisions (a) and (b),
including any interest earned on the funds.
(h) Upon request of the commissioner, a broker shall furnish to
the commissioner an authorization for examination of financial
records of those trust fund accounts maintained in a financial
institution, in accordance with the procedures set forth in Section
7473 of the Government Code.
(i) As used in this section, "neutral escrow" means an escrow
business conducted by a person licensed under Division 6 (commencing
with Section 17000) of the Financial Code or by a person described in
paragraph (1) or (3) of subdivision (a) of Section 17006 of that
code.