Amended in Senate June 23, 2015

Amended in Senate June 8, 2015

Amended in Senate May 22, 2015

Amended in Assembly April 23, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 607

Introduced by Assembly Member Dodd

(Principal coauthor: Assembly Member Gatto)

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 amended, 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 to the broker to withdraw 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 this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner. begin insert The bill would prohibit an arrangement from relieving the persons authorized by a broker or officer from responsibility or liability in handling trust funds in the broker’s custody, as specified. end insert

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 in the
case of a corporate broker, only upon the signature of an officer
through whom the corporation is licensed pursuant to Section
10158 or 10211, or one, or more, of the following persons if
specifically authorized in writing by the individual broker or
officer:

(A) A real estate salesperson licensed to 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 promulgated pursuant to this part.

(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 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. For bonds with a deductible, the employing
broker shall have evidence of financial responsibility that is
sufficient to protect members of the public against a loss subject
to the deductible amount.

Evidence of financial responsibility shall include one or more
of the following:

(i) Separate fidelity bond coverage adequate to cover the amount
of the fidelity bond deductible.

(ii) A cash deposit held in a separate account, apart from other
funds of the broker, the broker’s employees, or the broker’s
principals, in a bank or recognized depository in this state adequate
to cover the amount of the fidelity bond deductible and held
exclusively and solely for the purpose of paying the fidelity bond
deductible amount.

(iii) Any other evidence of financial responsibility approved by
the commissioner.

begin insert

(3) An arrangement under which a person enumerated in
subparagraph (A), (B), or (C) of paragraph (2) is authorized to
make withdrawals from a trust fund account of a broker shall not
relieve an individual broker, nor the broker-officer of a corporate
broker licensee, from responsibility or liability as provided by law
in handling trust funds in the broker’s custody.

end insert begin delete

(3)

end delete

begin insert (4) end insert  Notwithstanding the provisions of paragraphs begin delete (1) and end delete begin insert (1), end insert
(2), begin insert and (3), end insert 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.

begin delete

(4)

end delete

begin insert (5) end insert  A real estate broker who deposits funds held in trust in an
out-of-state depository institution in accordance with paragraph
(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.