BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 607|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 607
Author: Dodd (D)
Amended: 6/23/15 in Senate
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/17/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 77-0, 5/7/15 (Consent) - See last page for
vote
SUBJECT: Real estate trust fund accounts: bond requirement
SOURCE: California Association of Realtors
DIGEST: This bill prescribes the circumstances under which
withdrawals may be made from a real estate broker's trust fund
account.
ANALYSIS:
Existing law:
1)Requires a real estate broker who accepts funds belonging to
others in connection with a transaction regulated under the
Real Estate Law to deposit all of those funds that are not
immediately placed into a neutral escrow depository or into
the hands of the broker's principal (i.e., client), into a
trust fund account maintained by the broker in a bank or
recognized depository in this state (Business and Professions
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Page 2
Code Section 10145).
2)Requires all funds deposited by the 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 (Business and Professions Code Section 10145).
3)Provides that withdrawals from a real estate broker's trust
fund account may be made 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), or one or more of the following persons, if
specifically authorized in writing by the individual broker or
officer (Bureau of Real Estate [BRE] Regulation 2834):
a) A real estate salesperson licensed to the broker.
b) Another broker acting pursuant to a written agreement
with the broker that controls the trust fund account.
c) An unlicensed employee of the broker, if the broker has
fidelity bond coverage equal to or greater than the maximum
amount of the trust funds to which the unlicensed employee
has access at any time.
4)Provides that an arrangement under which a person other than
the broker or corporate officer is authorized to make
withdrawals from a trust fund account does 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 (BRE
Regulation 2834).
This bill:
1)Codifies BRE Regulation 2834, but clarifies that fidelity
bonds providing coverage for unlicensed employees with access
to trust fund accounts may be written with deductibles of up
to 5% of their coverage amounts. Provides that when a bond is
written with a deductible, the employing broker must have
evidence of financial responsibility sufficient to cover the
amount of the deductible. Evidence of financial
responsibility must include one or more of the following:
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Page 3
a) Separate fidelity bond coverage adequate to cover the
amount of the fidelity bond deductible.
b) 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
the state, adequate to cover the amount of the fidelity
bond deductible, and held exclusively and solely for the
purpose of covering the deductible.
c) Any other evidence of financial responsibility approved
by the Real Estate Commissioner.
Background
AB 607 is sponsored by the California Association of Realtors
(CAR) to give real estate brokers greater flexibility in meeting
their fidelity bonding requirements, when they authorize
unlicensed employees to make withdrawals from their real estate
trust fund accounts. BRE Regulation 2834 allows real estate
brokers to authorize their unlicensed employees to withdraw
funds from the brokers' trust fund accounts, as long as the
brokers hold fidelity bond coverage equal to or greater than the
maximum amount of trust funds to which the unlicensed employees
have access at any one time. However, Regulation 2834 is silent
on the extent to which the fidelity bonds it requires may have
deductibles.
Given the cost of housing, brokers wishing to grant unlicensed
employees permission to withdraw funds from their trust fund
accounts are commonly required to obtain fidelity bonds greater
than $100,000. According to CAR, many brokers are unable to
obtain fidelity bond coverage in amounts greater than $100,000
without a deductible. Deductibles on fidelity bonds greater
than $100,000 range from 1% to 5% of the bond amount.
Because Regulation 2834 does not expressly authorize the
fidelity bonds it requires to contain deductibles, BRE has
interpreted that regulation as failing to allow deductibles in
this context. CAR is sponsoring AB 607 to codify Regulation
2834, and to expressly authorize deductibles of up to 5%,
provided that brokers maintain evidence of financial
responsibility sufficient to cover the amounts of their
deductibles.
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FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified7/7/15)
California Association of Realtors (source)
California Society of Certified Public Accountants
North Bay Association of Realtors
OPPOSITION: (Verified7/7/15)
None received
ARGUMENTS IN SUPPORT: CAR states "AB 607 (Dodd) creates the
clarity needed to allow regulations to conform to the types of
bonds available on the market. With the necessary fidelity
bonds in place, realtors will be able to continue to employ
skilled bookkeepers and CPAs to administer their trust
accounts."
The North Bay Association of Realtors states, "Current policy
was established when homes in California rarely sold for more
than $100,000 and consumer trust funds were almost always 100%
protected." Nowadays, insurers do not sell coverage for more
than $100,000 without a deductible. "Given that the price of
real state in California is typically well over $100,000, it is
essential that this policy is changed to ensure that insurance
products are available to protect the funds entrusted by
consumers to real estate brokerages."
ASSEMBLY FLOOR: 77-0, 5/7/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
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Page 5
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Campos, Roger Hernández, Steinorth
Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
7/8/15 11:27:59
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