Amended in Assembly April 6, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 704


Introduced by Assembly Member Cooley

February 25, 2015


An act tobegin insert amend Section 12340.3 of, to amend, repeal, and add Section 12389 of, and toend insert addbegin delete Section 12340.12 toend deletebegin insert Sections 12340.12 and 12340.13 to,end insert the Insurance Code, relating tobegin delete insurance.end deletebegin insert escrow.end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 704, as amended, Cooley. begin deleteInsurance. end deletebegin insertEscrow services: authorization to transact business.end insert

Existing law provides for the regulation of title insurers and underwritten title companies by the Insurance Commissioner. Existing law, the Escrow Law, defines escrow agents and regulates their activities.begin delete Existing law requires that prior to the disbursement by an underwritten title company from any escrow account each underwritten agreement shall contain certain written procedures reasonably calculated to prevent the misappropriation, disappearance, or wrongful use of funds.end delete Existing law defines escrow as a transaction in which one person, for the purpose of effecting a sale or transfer to another, delivers a thing of value to a 3rd person to be held by that person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered.

This bill would define “escrow” as it relates to transactionsbegin delete involvingend deletebegin insert regarding the sale, transfer, encumbrance, or lease of real or personal property, as the delivery of a thing of value toend insert an insurer, underwritten title company, or controlled escrowbegin delete company as a transaction in which one person, for the purpose of effecting a sale or transfer to another, delivers a thing of value to a 3rd personend deletebegin insert company,end insert to be held by thatbegin delete personend deletebegin insert entityend insert until the happening of a specified event or the performance of a prescribed condition, whenbegin delete it isend deletebegin insert that thing isend insert then to bebegin delete delivered.end deletebegin insert delivered to another specified person.end insert

begin insert

Existing law authorizes an underwritten title company to engage in the escrow business and to act as an escrow agent if the company satisfies specified requirements, including maintenance of specified records, and the deposit of a specified sum of money with the commissioner. Existing law specifies the conditions under which the commissioner may release or return those deposits to the company.

end insert
begin insert

This bill would expand the requirements for a company to be authorized to conduct escrow services, to engage in the escrow business, and to act as an escrow agent. This bill would authorize a company that is a stock corporation to conduct escrow services through a business location, as defined, if the company receives approval of its name from the commissioner, maintains a minimum net worth, obtains a license to transact its business from the commissioner, and furnishes audits to the commissioner, as specified. This bill would require a company, on and after July 1, 2016, as a condition of engaging in the escrow business or acting as an escrow agent, to maintain a bond in a specified amount based on its annual trust fund obligations. This bill would authorize a company to, with the approval of the commissioner, make a cash deposit or obtain an irrevocable letter of credit in lieu of that bond. This bill would specify conditions for the issuance of that bond or letters of credit or use of that cash deposit. This bill would require the commissioner to release all escrow-related deposits made with the commissioner before July 1, 2016, under specified conditions, including the deposit of the bond, letter of credit, or cash deposit described above.

end insert

Vote: majority. Appropriation: no. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 12340.3 of the end insertbegin insertInsurance Codeend insertbegin insert is amended
2to read:end insert

3

12340.3.  

“Business of title insurance” includes:

4(a) Issuing or proposing to issue any title policy as insurer,
5guarantor, or indemnitor;

6(b) Transacting or proposing to transact any phase of title
7insurance, including solicitation, negotiation preliminary to
P3    1execution, or execution of a title policy, insuring and transacting
2matters subsequent to the execution of a title policy and arising
3out of such policy, excluding reinsurance;

4(c) The performance by a title insurer, an underwritten title
5company or a controlled escrow company of any service in
6conjunction with the issuance or contemplated issuance of a title
7begin delete policy including but not limited to the handling of any escrow,
8settlement or closing in connection therewith; or the doing of or
9proposing to do any business, which is in substance the equivalent
10of any of the above.end delete
begin insert policy.end insert

begin insert

11(d) The handling of any escrow, settlement, or closing.

end insert
begin insert

12(e) The doing of or proposing to do any business which is in
13substance the equivalent of any of the items listed in subdivisions
14(a) to (d), inclusive.

end insert
begin delete

15(d)

end delete

16begin insert(f)end insert The issuance, by a title insurer, of a letter of indemnity. Any
17such letter of indemnity shall be limited to and issued solely for
18the purpose of indemnifying the commissioner on behalf of any
19member of the public who transacts an escrow with an underwritten
20title company, with whom the title insurer has an underwriting
21agreement. A title insurer may charge a reasonable fee in
22connection with the issuance of any such letter. No rate or form
23filing shall be required with respect to any such letter of indemnity.

begin delete

24(e)

end delete

25begin insert(g)end insert The act of an insurer in furnishing in writing to a prospective
26purchaser of the insurer’s title policy a statement which assures,
27and assumes the liability for, the proper performance of services
28necessary to the conduct of a real estate closing performed by an
29underwritten title company with whom the insurer maintains an
30underwriting agreement. A title insurer may charge a reasonable
31fee in connection with the furnishing of any such statement. No
32rate or form filing shall be required with respect to any such
33statement.

34

begin deleteSECTION 1.end delete
35begin insertSEC. 2.end insert  

Section 12340.12 is added to the Insurance Code, to
36read:

37

12340.12.  

“Escrow” means any transaction in whichbegin delete an insurer,
38underwritten title company, or controlled escrow company,end delete
begin insert a
39person,end insert
for the purposes of effecting the sale, transfer,
40begin delete encumbering, or leasingend deletebegin insert encumbrance, or leaseend insert of real or personal
P4    1property, regardless of the location of the real or personal property,
2deliversbegin delete anyend deletebegin insert aend insert written instrument, money, evidence of title to real
3or personal property, or other thing of value tobegin delete a third personend deletebegin insert an
4insurer, underwritten title company, or controlled escrow company,end insert

5 to be held by thatbegin delete third personend deletebegin insert insurer, underwritten title company,
6or controlled escrow companyend insert
until the happening of a specified
7event or the performance of a prescribed condition, when it is then
8to be delivered by thatbegin delete third personend deletebegin insert insurer, underwritten title
9company, or controlled escrow companyend insert
to a grantee, grantor,
10promisee, promisor, obligee, obligor, or any agent or employee of
11any of the latter.

12begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 12340.13 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to
13read:end insert

begin insert
14

begin insert12340.13.end insert  

“Business location” means a facility or other place
15of business where an underwritten title company or controlled
16escrow company engages in the business of receiving an escrow
17for deposit or delivery.

end insert
18begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 12389 of the end insertbegin insertInsurance Codeend insertbegin insert is amended to
19read:end insert

20

12389.  

(a) An underwritten title company as defined in Section
2112340.5, which shall be a stock corporation, may engage in the
22business of preparing title searches, title reports, title examinations,
23or certificates or abstracts of title, upon the basis of which a title
24insurer writes title policies,begin insert and conducting escrow services
25through business locations, as defined in Section 12340.13, in
26counties in which the underwritten title company is licensed to
27transact business,end insert
provided that:

28(1) Only domestic corporations may be licensed under this
29section and no underwritten title company, as defined in Section
3012340.5, shall become licensed under this section, or change the
31name under which it is licensed or operates, unless it has first
32complied with Section 881.

33(2) begin insert(A)end insertbegin insertend insertDepending upon the county or counties in which the
34company is licensed to transact business, it shall maintain required
35minimum net worth as follows:


P5   14

 

Aggregate number of documents
recorded and documents filed in the
offices of the county recorders in the
preceding calendar year in all counties
where the company is licensed to transact
business.

  

Number of documents

 

Amount of required
minimum net worth

Less than 50,000    

$ 75,000 

50,000 to 100,000    

120,000

100,000 to 500,000    

200,000

500,000 to 1,000,000    

300,000

1,000,000 or more    

400,000

 

begin delete

15 “Net

end delete

16begin insert(B)end insertbegin insertend insertbegin insert“Netend insert worth” is defined as the excess of assets over all
17liabilities and required reserves. It may carry as an asset the actual
18cost of its titlebegin delete plantend deletebegin insert plant,end insert provided the value ascribed to that asset
19shall not exceed the aggregate value of all other assets.

begin delete

20 Where

end delete

21begin insert(C)end insertbegin insertend insertbegin insertIfend insert a title plant of an underwritten title company is not being
22currently maintained, the asset value of the plant shall not exceed
23its asset value as determined in the preceding paragraph as of the
24date to which that plant is currently maintained, less one-tenth
25thereof for each succeeding year or part of the succeeding year
26that the plant is not being currently maintained. For the purposes
27of this section, a title plant shall be deemed currently maintained
28so long as it is used in the normal conduct of the business of title
29insurance, andbegin delete (A)end deletebegin insert (i)end insert the owner of the plant continues regularly
30to obtain and index title record data to the plant or to a continuation
31thereof in a format other than that previously used, including, but
32not limited to, computerization of the data, orbegin delete (B)end deletebegin insert (ii)end insert the owner
33of the plant is a participant, in an arrangement for joint use of a
34title plant system regularly maintained in any format, provided the
35owner is contractually entitled to receive a copy of the title record
36data contained in the jointly used title plant system during the
37period of the owner’s participation therein, either periodically or
38upon termination of that participation, at a cost not to exceed the
39actual cost of duplication of the title record data.

begin delete

40 An

end delete

P6    1begin insert(D)end insertbegin insertend insertbegin insertAnend insert underwritten title company at all times shall maintain
2current assets of at least ten thousand dollars ($10,000) in excess
3of its current liabilities, as current assets and liabilities may be
4defined pursuant to regulations made by the commissioner. In
5making the regulations, the commissioner shall be guided by
6generally accepted accounting principles followed by certified
7public accountants in this state.

8(3) begin insert(A)end insertbegin insertend insert An underwritten title company shall obtain from the
9commissioner a license to transact its business. The license shall
10not be granted until the applicant conforms to the requirements of
11this section and all other provisions of this code specifically
12applicable to applicant. After issuance the holder shall continue
13to comply with the requirements as to its business set forth in this
14code, in the applicable rules and regulations of the commissioner
15and in the laws of this state.

begin delete

16 Any

end delete

17begin insert(B)end insertbegin insertend insertbegin insertAnend insert underwritten title companybegin delete whoend deletebegin insert thatend insert possesses, or is
18required to possess, a license pursuant to this sectionbegin delete shall beend deletebegin insert isend insert
19 subject as if an insurer to the provisions of Article 8 (commencing
20with Section 820) of Chapter 1 of Part 2 of Division 1 of this code
21andbegin delete shall beend deletebegin insert isend insert deemed to be subject to authorization by the
22Insurance Commissioner within the meaning of subdivision (e) of
23Section 25100 of the Corporations Code.

begin delete

24 The

end delete

25begin insert(C)end insertbegin insertend insertbegin insertTheend insert license may be obtained by filing an application on a
26form prescribed by the commissioner accompanied by a filing fee
27of three hundred fifty-four dollars ($354). The license when issued
28shall be for an indefinite term and shall expire with the termination
29of the existence of the holder, subject to the annual renewal fee
30imposed under Sections 12415 and 12416.

begin delete

31 An

end delete

32begin insert(D)end insertbegin insertend insertbegin insertAnend insert underwritten title company seeking to extend its license
33to an additional county shall pay abegin delete two hundred seven dollarend delete
34begin insert two-hundred-seven-dollarend insert ($207) fee for each additional county,
35and shall furnish to the commissioner evidence, at least sufficient
36to meet the minimum net worth requirements of paragraph (2), of
37its financial ability to expand its business operation to include the
38additional county or counties.

39(4) (A) An underwritten title company shall furnish an audit to
40the commissioner on the forms provided by the commissioner
P7    1annually, either on a calendar year basis on or before March 31
2or, if approved in writing by the commissioner in respect to any
3individual company, on a fiscal year basis on or before 90 days
4after the end of the fiscal year. The time for furnishing any audit
5required by this paragraph may be extended, for good cause shown,
6on written approval of the commissioner for a period, not to exceed
760 days. Failure to submit an audit on time, or within the extended
8time that the commissioner may grant, shall be grounds for an
9order by the commissioner to accept no new business pursuant to
10subdivision (d). The audits shall be private, except that a synopsis
11of the balance sheet on a form prescribed by the commissioner
12may be made available to the public.

13(B) The audits shall be made in accordance with generally
14accepted auditing standards by an independent certified public
15accountant or independent licensed public accountant whose
16certification or license is in good standing at the time of the
17preparation. The fee for filing the audit shall be three hundred
18thirteen dollars ($313).

19(C) The commissioner may refuse to accept an audit or order a
20new audit for any of the following reasons:

21(i) begin deleteAdverse end deletebegin insertAn adverse end insertresult in any proceeding before the
22California Board of Accountancy affecting the auditor’s license.

23(ii) The auditor has an affiliation with the underwritten title
24begin delete companyend deletebegin insert company,end insert or any of its officers orbegin delete directorsend deletebegin insert directors,end insert
25 that would prevent his or her reports on the company from being
26reasonably objective.

27(iii) The auditor has suffered conviction ofbegin delete anyend deletebegin insert aend insert misdemeanor
28or felony based on his or her activities as an accountant.

29(iv) begin deleteJudgment end deletebegin insertA judgment end insertadverse to the auditor in any civil
30action finding him or her guilty of fraud, deceit, or
31misrepresentation in the practice of his or her profession.

begin delete

32 Any

end delete

33begin insert(D)end insertbegin insertend insertbegin insertAend insert company that fails to file any audit or other report on or
34before the date it is due shall pay to the commissioner a penalty
35fee of one hundred eighteen dollars ($118) and on failure to pay
36that orbegin delete any otherend deletebegin insert anotherend insert fee or file the audit required by this
37section shall forfeit the privilege of accepting new business until
38the delinquency is corrected.

39(b) An underwritten title company may engage in the escrow
40business and act as escrow agent provided that:

P8    1(1) begin deleteIt shall maintain end deletebegin insertThe company maintains a end insertrecord ofbegin delete allend delete
2 receipts and disbursements of escrow funds.

3(2) begin deleteIt shall deposit end deletebegin insert(A)end insertbegin insertend insertbegin insertThe company deposits end insertseven thousand
4five hundred dollars ($7,500) for each county in which it transacts
5business in some form permitted by Section 12351 with the
6commissioner who shall immediately make a special deposit of
7that amount in the State Treasury and that deposit shall be subject
8to Sections 12353, 12356, 12357, and 12358 and, as long as there
9are no claims against the deposit, all interest and dividends thereon
10shall be paid to the depositor. The deposit shall be for the security
11and protection of persons having lawful claims against the
12depositor growing out of escrow transactions with it. The deposit
13shall be maintained until four years after all escrows handled by
14the depositor have been closed.

begin delete

15(A)

end delete

16begin insert(B)end insert The commissioner may release the deposits prior to the
17passage of the four-year period upon presentation of evidence
18satisfactory to the commissioner of either a statutory merger of
19the depositor into a licensee or certificate holder subject to the
20jurisdiction of the commissioner, or a valid assumption agreement
21under which all liability of the depositor stemming from escrow
22transactions handled by it is assumed by a licensee or certificate
23holder subject to the jurisdiction of the commissioner.

begin delete

24(B)

end delete

25begin insert(C)end insert With the foregoing exceptions, the deposit shall be returned
26to the depositor or lawful successor in interest following the
27four-year period, upon presentation of evidence satisfactory to the
28commissioner that there are no claims against the deposit stemming
29from escrow transactions handled by the depositor. If the
30commissioner has evidence of one or more claims against the
31depositor, and the depositor is not in conservatorship or liquidation,
32the commissioner may interplead the deposit by special
33endorsement to a court of competent jurisdiction for distribution
34on the basis that claims against the depositor stemming from
35escrow transactions handled by it have priority in the distribution
36over other claims against the depositor.

37(c) The commissioner shall, whenever it appears necessary,
38examine the business and affairs of a company licensed under this
39section.begin delete All of these examinationsend deletebegin insert The examinationend insert shall be at the
40expense of the company.

P9    1(d) begin deleteAt any time that end deletebegin insert(1)end insertbegin insertend insertbegin insertIf end insertthe commissioner determines, after
2notice and hearing, that a company licensed under this section has
3willfully failed to comply with a provision of this section, the
4commissioner shall make his or her order prohibiting the company
5from conducting its business for a period of not more than one
6year.

begin delete

7 Any

end delete

8begin insert(2)end insertbegin insertend insertbegin insertAend insert company violating the commissioner’s order is subject to
9seizure under Article 14 (commencing with Section 1010) of
10Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and
11may have the license revoked by the commissioner. Any person
12aiding and abetting any company in a violation of the
13commissioner’s order is guilty of a misdemeanor.

begin delete

14 The

end delete

15begin insert(e)end insertbegin insertend insertbegin insertTheend insert purpose of this section is to maintain the solvency of
16the companies subject to this section and to protect the public by
17preventing fraud and requiring fair dealing. In order to carry out
18these purposes, the commissioner may make reasonable rules and
19regulations to govern the conduct of its business of companies
20subject to this section.begin insert The rules and regulations shall be adopted,
21amended, or repealed in accordance with the procedure provided
22in Chapter 3.5 (commencing with Section 11340) of Part 1 of
23Division 3 of Title 2 of the Government Code. end insert

begin delete

24 The

end delete

25begin insert(f)end insertbegin insertend insertbegin insertTheend insert name under which each underwritten title company is
26licensed shall at all times be an approved name. The fee for filing
27an application for a change of name shall be one hundred eighteen
28dollars ($118). Each such company shall be subject to the
29provisions of Article 14 (commencing with Section 1010) and
30Article 14.5 (commencing with Section 1065.1) of Chapter 1 of
31Part 2 of Division 1.

begin delete

32The rules and regulations shall be adopted, amended, or repealed
33in accordance with the procedure provided in Chapter 3.5
34(commencing with Section 11340) of Part 1 of Division 3 of Title
352 of the Government Code.

end delete
begin insert

36(g) This section is repealed as of July 1, 2016.

end insert
37begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 12389 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to read:end insert

begin insert
38

begin insert12389.end insert  

(a) On and after July 1, 2016, an underwritten title
39company as defined in Section 12340.5 that is a stock corporation
40may engage in the business of preparing title searches, title reports,
P10   1title examinations, or certificates or abstracts of title, upon the
2basis of which a title insurer writes title policies, and conducting
3escrow services through business locations, as defined in Section
412340.13, in counties in which the underwritten title company is
5licensed to transact business, provided that:

6(1) Only a domestic corporation may be licensed under this
7section and no underwritten title company, as defined in Section
812340.5, may become licensed under this section, or change the
9name under which it is licensed or operates, unless it has first
10complied with Section 881.

11(2) (A) Depending upon the county or counties in which the
12company is licensed to transact business, it shall maintain required
13minimum net worth as follows:


14

 

begin insert

Aggregate number of documents
recorded and documents filed in the
offices of the county recorders in the
preceding calendar year in all counties
where the company is licensed to transact
business.

end insert
begin insert end insertbegin insert end insert
begin insert

Number of documents

end insert
begin insert end insertbegin insert

Amount of required
minimum net worth

end insert
begin insert

Less than 50,000    

end insert
begin insert

$ 75,000 

end insert
begin insert

50,000 to 100,000    

end insert
begin insert

120,000

end insert
begin insert

100,000 to 500,000    

end insert
begin insert

200,000

end insert
begin insert

500,000 to 1,000,000    

end insert
begin insert

300,000

end insert
begin insert

1,000,000 or more    

end insert
begin insert

400,000

end insert
P10  28

 

29(B) “Net worth” for the purposes of this section is defined as
30the excess of assets over all liabilities and required reserves. The
31company may carry as an asset the actual cost of its title plant,
32provided the value ascribed to that asset shall not exceed the
33aggregate value of all other assets.

34(C) If a title plant of an underwritten title company is not
35currently maintained, the asset value of the plant shall not exceed
36its asset value as determined in the preceding paragraph as of the
37date to which that plant is currently maintained, less one-tenth
38thereof for each succeeding year or part of the succeeding year
39that the plant is not being currently maintained. For the purposes
40of this section, a title plant shall be deemed currently maintained
P11   1so long as it is used in the normal conduct of the business of title
2insurance, and (i) the owner of the plant continues regularly to
3obtain and index title record data to the plant or to a continuation
4thereof in a format other than that previously used, including, but
5not limited to, computerization of the data, or (ii) the owner of the
6plant is a participant, in an arrangement for joint use of a title
7plant system regularly maintained in any format, provided the
8owner is contractually entitled to receive a copy of the title record
9data contained in the jointly used title plant system during the
10period of the owner’s participation therein, either periodically or
11upon termination of that participation, at a cost not to exceed the
12actual cost of duplication of the title record data.

13(D) An underwritten title company shall at all times maintain
14current assets of at least ten thousand dollars ($10,000) in excess
15of its current liabilities, as current assets and liabilities may be
16defined pursuant to regulations made by the commissioner. In
17making the regulations, the commissioner shall be guided by
18generally accepted accounting principles followed by certified
19public accountants in this state.

20(3) (A) An underwritten title company shall obtain from the
21commissioner a license to transact its business. The license shall
22not be granted until the applicant conforms to the requirements
23of this section and all other provisions of this code specifically
24applicable to the applicant. After issuance the holder of the license
25shall continue to comply with the requirements as to its business
26set forth in this code, in the applicable rules and regulations of
27the commissioner, and in the laws of this state.

28(B) An underwritten title company that possesses, or is required
29to possess, a license pursuant to this section shall be subject as if
30an insurer to the provisions of Article 8 (commencing with Section
31820) of Chapter 1 of Part 2 of Division 1 of this code and is deemed
32to be subject to authorization by the Insurance Commissioner
33within the meaning of subdivision (e) of Section 25100 of the
34Corporations Code.

35(C) The license may be obtained by filing an application on a
36form prescribed by the commissioner accompanied by a filing fee
37of three hundred fifty-four dollars ($354). The license when issued
38shall be for an indefinite term and shall expire with the termination
39of the existence of the holder, subject to the annual renewal fee
40imposed under Sections 12415 and 12416.

P12   1(D) An underwritten title company seeking to extend its license
2to an additional county shall pay a two-hundred-seven-dollar
3($207) fee for each additional county, and shall furnish to the
4commissioner evidence, at least sufficient to meet the minimum
5net worth requirements of paragraph (2), of its financial ability
6to expand its business operation to include the additional county
7or counties.

8(4) (A) An underwritten title company shall furnish an audit to
9the commissioner on the forms provided by the commissioner
10annually, either on a calendar year basis on or before March 31
11or, if approved in writing by the commissioner in respect to any
12individual company, on a fiscal year basis on or before 90 days
13after the end of the fiscal year. The time for furnishing any audit
14required by this paragraph may be extended, for good cause shown,
15on written approval of the commissioner for a period, not to exceed
1660 days. Failure to submit an audit on time, or within the extended
17time that the commissioner may grant, is grounds for an order by
18the commissioner to accept no new business pursuant to
19subdivision (d). The audits shall be private, except that a synopsis
20of the balance sheet on a form prescribed by the commissioner
21may be made available to the public.

22(B) The audits shall be made in accordance with generally
23accepted auditing standards by an independent certified public
24accountant or independent licensed public accountant whose
25certification or license is in good standing at the time of the
26preparation. The fee for filing the audit shall be three hundred
27thirteen dollars ($313).

28(C) The commissioner may refuse to accept an audit or order
29a new audit for any of the following reasons:

30(i) An adverse result in any proceeding before the California
31Board of Accountancy affecting the auditor’s license.

32(ii) The auditor has an affiliation with the underwritten title
33company or any of its officers or directors that would prevent his
34or her reports on the company from being reasonably objective.

35(iii) The auditor has been convicted of a misdemeanor or felony
36based on his or her activities as an accountant.

37(iv) A judgment adverse to the auditor in any civil action finding
38him or her guilty of fraud, deceit, or misrepresentation in the
39practice of his or her profession.

P13   1(D) A company that fails to file an audit or other report on or
2before the date it is due shall pay to the commissioner a penalty
3fee of one hundred eighteen dollars ($118) and on failure to pay
4that or another fee or file the audit required by this section shall
5forfeit the privilege of accepting new business until the delinquency
6is corrected.

7(b) An underwritten title company may engage in the escrow
8business and act as escrow agent, provided that:

9(1) It maintains a record of all receipts and disbursements of
10escrow funds.

11(2) (A) Except as provided in subdivision (c), the company shall
12maintain a bond satisfactory to the commissioner in the amount
13of one of the following:

14(i) Twenty-five thousand dollars ($25,000) if 150 percent of the
15previous year’s average annual trust fund obligations, as
16calculated in subparagraph (D), does not exceed two hundred fifty
17thousand dollars ($250,000).

18(ii) Thirty-five thousand dollars ($35,000) if 150 percent of the
19previous year’s average annual trust fund obligations, as
20calculated in subparagraph (D), exceeds two hundred fifty
21thousand dollars ($250,000), but does not exceed five hundred
22thousand dollars ($500,000).

23(iii) Fifty thousand dollars ($50,000) if 150 percent of the
24previous year’s average annual trust fund obligations, as
25calculated in subparagraph (D), exceeds five hundred thousand
26dollars ($500,000).

27(B) A deposit given instead of the bond required by this section
28shall not be deemed an asset of the applicant or licensee.

29(C) An applicant or licensee may make a cash deposit or obtain
30an irrevocable letter of credit approved by the commissioner in
31lieu of the bond. The bond, cash deposit, or letter of credit, as
32applicable, shall run to the state for the use of the state, and for
33any person who has cause against the obligor of the bond or the
34applicant of a letter of credit, under the provision of this division.

35(D) Calculations of trust fund obligations shall be based on the
36previous calendar year’s average of the monthly trust fund
37liabilities or credit balances occurring on the last day of each
38calendar month.

39(3) (A) The issuance of a bond or letter of credit of an
40underwritten title company, and the use of a cash deposit of an
P14   1underwritten title company, shall be subject to the following
2conditions:

3(i) The licensee shall faithfully conform to and abide by the
4provisions of this division and all of the rules made by the
5commissioner under this division.

6(ii) The licensee will honestly and faithfully apply all funds
7received, will faithfully and honestly perform all obligations and
8undertakings under this division, and will pay to the state or to
9the person under the provisions of this division, including the costs
10in any conservatorship, or liquidation, whether by the
11commissioner or by a receiver.

12(B) In determining the liability of the principal and the sureties
13under the bond, the applicant and issuing bank of a letter of credit,
14or the use of a cash deposit, escrow money held in trust and any
15money recovered to restore any deficiency in the trust shall not be
16considered as an asset of the liquidation subject to the assessment
17for the cost of the liquidation.

18(C) The surety under the bond, or the issuing bank of a letter
19of credit, may pay the full amount of its liability thereunder to the
20commissioner or a conservator appointed by the commissioner in
21lieu of payment to the state or persons having a cause of action
22against the principal of a bond or applicant under a letter of credit,
23and upon such payment the surety under a bond, or the issuing
24bank under a letter of credit, is completely released from further
25liability under the bond or letter of credit, as applicable.

26(4) On and after July 1, 2016, the commissioner shall release
27all individual escrow-related deposits previously made pursuant
28to paragraph (2) of subdivision (b) of Section 12389, as amended
29by Section 4 of the act that added this section, if any of the
30 following occurs:

31(A) The underwritten title company has deposited with the
32commissioner bond coverage acceptable to the commissioner, an
33approved irrevocable letter of credit or a cash deposit in lieu of
34the letter of credit as set forth in subdivision (b).

35(B) Presentation of evidence satisfactory to the commissioner
36of either a statutory merger of the underwritten title company
37depositor into a licensee or certificate holder subject to the
38jurisdiction of the commissioner, or a valid assumption agreement
39under which all liability of the depositor stemming from escrow
P15   1transactions handled by it is assumed by a licensee or certificate
2holder subject to the jurisdiction of the commissioner.

3(5) With the foregoing exceptions, the deposit shall be returned
4to the depositor, its duly appointed trustee in bankruptcy or lawful
5successor in interest following the four-year period specified in
6paragraph (2) of subdivision (b), as that paragraph read on June
730, 2016, unless the commissioner has received claims against the
8deposit stemming from escrow transactions handled by the
9depositor. If the commissioner has received one or more claims
10against the depositor, and the depositor is not in conservatorship
11or liquidation, the commissioner may interplead the deposit by
12special endorsement to a court of competent jurisdiction for
13distribution on the basis that claims against the depositor stemming
14from escrow transactions handled by the depositor have priority
15in the distribution over other claims against the depositor.

16(c) A new applicant for an underwritten title company license
17shall deposit with the commissioner a bond satisfactory to the
18commissioner in the amount of at least twenty-five thousand dollars
19($25,000) or a cash deposit in said amount. After 12 months of
20operation as a new underwritten title company, the applicant shall
21comply with the requirements set forth in paragraph (3) of
22subdivision (b).

23(d) The commissioner shall, whenever it appears necessary,
24examine the business and affairs of a company licensed under this
25section. The examination shall be at the expense of the company.

26(e) (1) At any time that the commissioner determines, after
27notice and hearing, that a company licensed under this section
28has willfully failed to comply with a provision of this section, the
29commissioner shall make his or her order prohibiting the company
30from conducting its business for a period of not more than one
31year.

32(2) A company that violates the commissioner’s order is subject
33to seizure under Article 14 (commencing with Section 1010) of
34Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and
35may have its license revoked by the commissioner. Any person
36aiding and abetting any company in a violation of the
37commissioner’s order is guilty of a misdemeanor.

38(f) The purpose of this section is to maintain the solvency of the
39companies subject to this section and to protect the public by
40preventing fraud and requiring fair dealing. In order to carry out
P16   1these purposes, the commissioner may make reasonable rules and
2regulations to govern the conduct of its business of companies
3subject to this section. The rules and regulations shall be adopted,
4amended, or repealed in accordance with the procedures provided
5in Chapter 3.5 (commencing with Section 11340) of Part 1 of
6Division 3 of Title 2 of the Government Code.

7(g) The name under which each underwritten title company is
8licensed shall at all times be an approved name. The fee for filing
9an application for a change of name shall be one hundred eighteen
10dollars ($118). Each company shall be subject to the provisions
11of Article 14 (commencing with Section 1010) and Article 14.5
12(commencing with Section 1065.1) of Chapter 1 of Part 2 of
13Division 1.

14(h) This section does not prohibit an underwritten title company
15from engaging in escrow, settlement, or closing activities on
16properties located outside this state if those activities do not violate
17the laws of that other state or country.

18(i) This section is operative on July 1, 2016.

end insert


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