BILL ANALYSIS Ó
AB 607
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
607 (Dodd) - As Amended April 23, 2015
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY: This bill codifies Bureau of Real Estate (BRE)
regulations allowing brokers to employ certain persons to manage
real estate broker trust fund accounts, and codifies and expands
the conditions regarding non-real estate licensees.
AB 607
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Specifically, this bill:
1)Authorizes withdrawals from a trust fund account of an
individual broker or corporate broker only upon signature of
that broker or officer, 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 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.
2)Allows for bonds providing coverage for purposes of (c) above,
to be written with a deductible of up to five percent of the
coverage amount, and requires evidence of financial
responsibility, as defined, by the employing broker that is
sufficient to protect members of the public against a loss.
FISCAL EFFECT:
Costs to CalBRE will be minor and absorbable within existing
resources.
COMMENTS:
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1)Purpose. According to the author, "[This bill] would allow
real estate broker trust accounts to operate more efficiently
and better protect the public. Currently, real estate brokers
can use unlicensed employees - like CPAs or professional
bookkeepers - to manage their broker trust accounts. However,
regulations make it very difficult to do so because the
brokers must secure a zero deductible bond to cover the amount
in the trust, and such zero deductible bonds are not generally
available. Since CPAs and other professionals are ideally
suited to manage these accounts, the public interest is
hindered by this requirement. This bill would fix the problem
by allowing brokers to obtain fidelity bonds with deductibles
of up to five percent. The bill ensures the public is well
protected by giving the BRE the power to require evidence of
financial responsibility from the broker to protect against a
loss subject to the deductible."
2)Background. Real estate brokers and salespersons receive
trust funds in the normal course of doing business, on behalf
of others, thereby creating a fiduciary responsibility to the
funds' owners. Trust accounts are set up as a means to
separate trust funds from non-trust funds, and to separate a
client's funds from the broker's own funds.
Existing law requires all funds deposited by a broker in a
trust fund account to be maintained there until disbursed by
the broker in accordance with instructions from the person
entitled to the funds. Regulations require that withdrawals
may be made from a trust account of an individual broker only
upon the signature of the broker or by one of the following
persons if specifically authorized in writing by the broker:
1) a salesperson licensed to the broker; 2) a person licensed
as a broker who entered into a written broker-salesperson
agreement with the broker; or 3) an unlicensed employee of the
broker with fidelity bond coverage at least equal to the
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maximum amount of the trust funds to which the employee has
access at any time.
According to the author, real estate brokers often prefer to
retain a CPA or skilled bookkeeper rather than a salesperson
for the administration of larger real estate broker trust
accounts. However, because CPAs and bookkeepers are not
licensed, they must have fidelity bond coverage in the total
amount they have access to. Existing law does not specify
whether these bonds can or cannot have a deductible. However,
the BRE has required that these bonds may not have a
deductible based on their reading of the law.
According to the author, real estate brokers have reported
that insurers (bond companies) are unwilling or unable to sell
the required fidelity bond coverage in amounts greater than
$100,000 without a deductible. This bill seeks to remedy this
by allowing fidelity bond coverage for this purpose to have a
deductible of up to five percent.
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081
AB 607
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