Amended in Senate June 15, 2015

Amended in Assembly April 6, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 704


Introduced by Assembly Member Cooley

February 25, 2015


An actbegin delete to amend Section 12340.3 of,end delete to amend, repeal, and add Section 12389 of, and to addbegin delete Sections 12340.12 andend deletebegin insert Sectionend insert 12340.13 to, the Insurance Code, relating to escrow.

LEGISLATIVE COUNSEL’S DIGEST

AB 704, as amended, Cooley. Escrow services: authorization to transact business.

begin delete

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. 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.

end delete
begin delete

This bill would define “escrow” as it relates to transactions regarding the sale, transfer, encumbrance, or lease of real or personal property, as the delivery of a thing of value to an insurer, underwritten title company, or controlled escrow company, to be held by that entity until the happening of a specified event or the performance of a prescribed condition, when that thing is then to be delivered to another specified person.

end delete

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.

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.begin delete Thisend deletebegin insert Theend insert 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.begin delete Thisend deletebegin insert Theend insert 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 bondbegin delete in a specified amount based on its annual trust fund obligations. Thisend deletebegin insert of $50,000. Theend insert bill would authorize a company to, with the approval of the commissioner,begin delete make a cash deposit orend delete obtain an irrevocable letter of credit in lieu of that bond.begin delete Thisend deletebegin insert Theend insert bill would specify conditions for the issuance of that bond or letters of credit or use of that cash deposit.begin delete Thisend deletebegin insert Theend insert bill would require the commissioner tobegin insert promptlyend insert 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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

begin delete
P2    1

SECTION 1.  

Section 12340.3 of the Insurance Code is
2amended to read:

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
8execution, or execution of a title policy, insuring and transacting
9matters subsequent to the execution of a title policy and arising
10out of such policy, excluding reinsurance;

P3    1(c) The performance by a title insurer, an underwritten title
2company or a controlled escrow company of any service in
3conjunction with the issuance or contemplated issuance of a title
4 policy.

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

6(e) The doing of or proposing to do any business which is in
7substance the equivalent of any of the items listed in subdivisions
8(a) to (d), inclusive.

9(f) The issuance, by a title insurer, of a letter of indemnity. Any
10such letter of indemnity shall be limited to and issued solely for
11the purpose of indemnifying the commissioner on behalf of any
12member of the public who transacts an escrow with an underwritten
13title company, with whom the title insurer has an underwriting
14agreement. A title insurer may charge a reasonable fee in
15connection with the issuance of any such letter. No rate or form
16filing shall be required with respect to any such letter of indemnity.

17(g) The act of an insurer in furnishing in writing to a prospective
18purchaser of the insurer’s title policy a statement which assures,
19and assumes the liability for, the proper performance of services
20necessary to the conduct of a real estate closing performed by an
21underwritten title company with whom the insurer maintains an
22underwriting agreement. A title insurer may charge a reasonable
23fee in connection with the furnishing of any such statement. No
24rate or form filing shall be required with respect to any such
25statement.

26

SEC. 2.  

Section 12340.12 is added to the Insurance Code, to
27read:

28

12340.12.  

“Escrow” means any transaction in which a person,
29for the purposes of effecting the sale, transfer, encumbrance, or
30lease of real or personal property, regardless of the location of the
31real or personal property, delivers a written instrument, money,
32evidence of title to real or personal property, or other thing of value
33to an insurer, underwritten title company, or controlled escrow
34company, to be held by that insurer, underwritten title company,
35or controlled escrow company until the happening of a specified
36event or the performance of a prescribed condition, when it is then
37to be delivered by that insurer, underwritten title company, or
38controlled escrow company to a grantee, grantor, promisee,
39promisor, obligee, obligor, or any agent or employee of any of the
40latter.

end delete
P4    1

begin deleteSEC. 3.end delete
2begin insertSECTION 1.end insert  

Section 12340.13 is added to the Insurance Code,
3to read:

4

12340.13.  

“Business location” means a facility or other place
5of businessbegin insert in this stateend insert where an underwritten title company or
6controlled escrow company engages in the business ofbegin delete receiving
7an escrow for deposit or delivery.end delete
begin insert conducting escrow services.end insert

8

begin deleteSEC. 4.end delete
9begin insertSEC. 2.end insert  

Section 12389 of the Insurance Code is amended to
10read:

11

12389.  

(a) An underwritten title company as defined in Section
1212340.5, which shall be a stock corporation,begin delete mayend deletebegin insert may, subject to
13subdivision (b), (1)end insert
engage in the business of preparing title
14searches, title reports, title examinations, or certificates or abstracts
15of title, upon the basis of which a title insurer writes title policies,
16andbegin delete conductingend deletebegin insert (2) conductend insert escrow servicesbegin delete throughend deletebegin insert atend insert business
17locations, as defined in Section 12340.13, in counties in which the
18underwritten title company is licensed tobegin delete transact business,
19provided that:end delete
begin insert conduct escrow services regardless of the location
20of the real or personal property involved in the transaction.end insert

begin delete

21(1)

end delete

22begin insert(b)end insertbegin insertend insertbegin insert(1)end insert Only domestic corporations may be licensed under this
23section and no underwritten title company, as defined in Section
2412340.5, shall become licensed under this section, or change the
25name under which it is licensed or operates, unless it has first
26complied with Section 881.

27(2) (A) Depending upon the county or counties in which the
28company is licensed to transact business, it shall maintain required
29minimum net worth as follows:


30

 

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

P5   12

 

13(B) “Net worth” is defined as the excess of assets over all
14liabilities and required reserves. It may carry as an asset the actual
15cost of its title plant, provided the value ascribed to that asset shall
16not exceed the aggregate value of all other assets.

17(C) If a title plant of an underwritten title company is not being
18currently maintained, the asset value of the plant shall not exceed
19its asset value as determined in the preceding paragraph as of the
20date to which that plant is currently maintained, less one-tenth
21thereof for each succeeding year or part of the succeeding year
22that the plant is not being currently maintained. For the purposes
23of this section, a title plant shall be deemed currently maintained
24so long as it is used in the normal conduct of the business of title
25insurance, and (i) the owner of the plant continues regularly to
26obtain and index title record data to the plant or to a continuation
27thereof in a format other than that previously used, including, but
28not limited to, computerization of the data, or (ii) the owner of the
29plant is a participant, in an arrangement for joint use of a title plant
30system regularly maintained in any format, provided the owner is
31contractually entitled to receive a copy of the title record data
32contained in the jointly used title plant system during the period
33of the owner’s participation therein, either periodically or upon
34termination of that participation, at a cost not to exceed the actual
35cost of duplication of the title record data.

36(D) An underwritten title company at all times shall maintain
37current assets of at least ten thousand dollars ($10,000) in excess
38of its current liabilities, as current assets and liabilities may be
39defined pursuant to regulations made by the commissioner. In
40making the regulations, the commissioner shall be guided by
P6    1generally accepted accounting principles followed by certified
2public accountants in this state.

3(3) (A) An underwritten title company shall obtain from the
4commissioner a license to transact its business. The license shall
5not be granted until the applicant conforms to the requirements of
6this section and all other provisions of this code specifically
7applicable tobegin insert theend insert applicant. After issuance the holder shall continue
8to comply with the requirements as to its business set forth in this
9code, in the applicable rules and regulations of the commissioner
10and in the laws of this state.

11(B) An underwritten title company that possesses, or is required
12to possess, a license pursuant to this section is subject as if an
13insurer to the provisions of Article 8 (commencing with Section
14820) of Chapter 1 of Part 2 of Division 1 of this code and is deemed
15to be subject to authorization by the Insurance Commissioner
16within the meaning of subdivision (e) of Section 25100 of the
17Corporations Code.

18(C) The license may be obtained by filing an application on a
19form prescribed by the commissioner accompanied by a filing fee
20of three hundred fifty-four dollars ($354). The license when issued
21shall be for an indefinite term and shall expire with the termination
22of the existence of the holder, subject to the annual renewal fee
23imposed under Sections 12415 and 12416.

24(D) An underwritten title company seeking to extend its license
25to an additional county shall pay a two-hundred-seven-dollar ($207)
26fee for each additional county, and shall furnish to the
27commissioner evidence, at least sufficient to meet the minimum
28net worth requirements of paragraph (2), of its financial ability to
29expand its business operation to include the additional county or
30counties.

31(4) (A) An underwritten title company shall furnish an audit to
32the commissioner on the forms provided by the commissioner
33annually, either on a calendar year basis on or before March 31
34or, if approved in writing by the commissioner in respect to any
35individual company, on a fiscal year basis on or before 90 days
36after the end of the fiscal year. The time for furnishing any audit
37required by this paragraph may be extended, for good cause shown,
38on written approval of the commissioner for a period, not to exceed
3960 days. Failure to submit an audit on time, or within the extended
40time that the commissioner may grant, shall be grounds for an
P7    1order by the commissioner to accept no new business pursuant to
2subdivision (d). The audits shall be private, except that a synopsis
3of the balance sheet on a form prescribed by the commissioner
4may be made available to the public.

5(B) The audits shall be made in accordance with generally
6accepted auditing standards by an independent certified public
7accountant or independent licensed public accountant whose
8certification or license is in good standing at the time of the
9preparation. The fee for filing the audit shall be three hundred
10thirteen dollars ($313).

11(C) The commissioner may refuse to accept an audit or order a
12new audit for any of the following reasons:

13(i) An adverse result in any proceeding before the California
14Board of Accountancy affecting the auditor’s license.

15(ii) The auditor has an affiliation with the underwritten title
16company, or any of its officers or directors, that would prevent his
17or her reports on the company from being reasonably objective.

18(iii) The auditor has suffered conviction of a misdemeanor or
19felony based on his or her activities as an accountant.

20(iv) A judgment adverse to the auditor in any civil action finding
21him or her guilty of fraud, deceit, or misrepresentation in the
22practice of his or her profession.

23(D) A company that fails to file any audit or other report on or
24before the date it is due shall pay to the commissioner a penalty
25fee of one hundred eighteen dollars ($118) and on failure to pay
26that or another fee or file the audit required by this section shall
27forfeit the privilege of accepting new business until the delinquency
28is corrected.

begin delete

29(b)

end delete

30begin insert(c)end insert An underwritten title company may engage in the escrow
31business and act as escrow agent provided that:

32(1) The company maintains a record ofbegin insert allend insert receipts and
33disbursements of escrow funds.

34(2) (A) The company deposits seven thousand five hundred
35dollars ($7,500) for each county in which it transacts business in
36some form permitted by Section 12351 with the commissioner
37who shall immediately make a special deposit of that amount in
38the State Treasury and that deposit shall be subject to Sections
3912353, 12356, 12357, and 12358 and, as long as there are no claims
40against the deposit, all interest and dividends thereon shall be paid
P8    1to the depositor. The deposit shall be for the security and protection
2of persons having lawful claims against the depositor growing out
3of escrow transactions with it. The deposit shall be maintained
4until four years after all escrows handled by the depositor have
5been closed.

6(B) The commissioner may release the deposits prior to the
7passage of the four-year period upon presentation of evidence
8satisfactory to the commissioner of either a statutory merger of
9the depositor into a licensee or certificate holder subject to the
10jurisdiction of the commissioner, or a valid assumption agreement
11under which all liability of the depositor stemming from escrow
12transactions handled by it is assumed by a licensee or certificate
13holder subject to the jurisdiction of the commissioner.

14(C) With the foregoing exceptions, the deposit shall be returned
15to the depositor or lawful successor in interest following the
16four-year period, upon presentation of evidence satisfactory to the
17commissioner that there are no claims against the deposit stemming
18from escrow transactions handled by the depositor. If the
19commissioner has evidence of one or more claims against the
20depositor, and the depositor is not in conservatorship or liquidation,
21the commissioner may interplead the deposit by special
22endorsement to a court of competent jurisdiction for distribution
23on the basis that claims against the depositor stemming from
24escrow transactions handled by it have priority in the distribution
25over other claims against the depositor.

begin delete

26(c)

end delete

27begin insert(d)end insert The commissioner shall, whenever it appears necessary,
28examine the business and affairs of a company licensed under this
29section. The examination shall be at the expense of the company.

begin delete

30(d)

end delete

31begin insert(e)end insert (1) If the commissioner determines, after notice and hearing,
32that a company licensed under this section has willfully failed to
33comply with a provision of this section, the commissioner shall
34make his or her order prohibiting the company from conducting
35its business for a period of not more than one year.

36(2) A company violating the commissioner’s order is subject to
37seizure under Article 14 (commencing with Section 1010) of
38Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and
39may have the license revoked by the commissioner. Any person
P9    1aiding and abetting any company in a violation of the
2commissioner’s order is guilty of a misdemeanor.

begin delete

3(e)

end delete

4begin insert(f)end insert The purpose of this section is to maintain the solvency of
5the companies subject to this section and to protect the public by
6preventing fraud and requiring fair dealing. In order to carry out
7these purposes, the commissioner may make reasonable rules and
8regulations to govern the conduct of its business of companies
9subject to this section. The rules and regulations shall be adopted,
10amended, or repealed in accordance with the procedure provided
11in Chapter 3.5 (commencing with Section 11340) of Part 1 of
12Division 3 of Title 2 of the Government Code.

begin delete

13(f)

end delete

14begin insert(g)end insert The name under which each underwritten title company is
15licensed shall at all times be an approved name. The fee for filing
16an application for a change of name shall be one hundred eighteen
17dollars ($118). Each such company shall be subject to the
18provisions of Article 14 (commencing with Section 1010) and
19Article 14.5 (commencing with Section 1065.1) of Chapter 1 of
20Part 2 of Division 1.

begin delete

21(g)

end delete

22begin insert(h)end insert This section is repealed as of July 1, 2016.

23

begin deleteSEC. 5.end delete
24begin insertSEC. 3.end insert  

Section 12389 is added to the Insurance Code, to read:

25

12389.  

(a) On and after July 1, 2016, an underwritten title
26company as defined in Section 12340.5 that is a stock corporation
27begin delete mayend deletebegin insert may, subject to subdivision (b), (1)end insert engage in the business of
28preparing title searches, title reports, title examinations, or
29certificates or abstracts of title, upon the basis of which a title
30insurer writes title policies, andbegin delete conductingend deletebegin insert (2) conductend insert escrow
31services through business locations, as defined in Section 12340.13,
32in counties in which the underwritten title company is licensed to
33begin delete transact business, provided that:end deletebegin insert conduct escrow services regardless
34of the location of the real or personal property involved in the
35transaction.end insert

begin delete

36(1)

end delete

37begin insert(b)end insertbegin insertend insertbegin insert(1)end insert Only a domestic corporation may be licensed under this
38section and no underwritten title company, as defined in Section
3912340.5, may become licensed under this section, or change the
P10   1name under which it is licensed or operates, unless it has first
2complied with Section 881.

3(2) (A) Depending upon the county or counties in which the
4company is licensed to transact business, it shall maintain required
5minimum net worth as follows:


6

 

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

P10  20

 

21(B) “Net worth” for the purposes of this section is defined as
22the excess of assets over all liabilities and required reserves. The
23company may carry as an asset the actual cost of its title plant,
24provided the value ascribed to that asset shall not exceed the
25aggregate value of all other assets.

26(C) If a title plant of an underwritten title company is not
27currently maintained, the asset value of the plant shall not exceed
28its asset value as determined in the preceding paragraph as of the
29date to which that plant is currently maintained, less one-tenth
30thereof for each succeeding year or part of the succeeding year
31that the plant is not being currently maintained. For the purposes
32of this section, a title plant shall be deemed currently maintained
33so long as it is used in the normal conduct of the business of title
34insurance, and (i) the owner of the plant continues regularly to
35obtain and index title record data to the plant or to a continuation
36thereof in a format other than that previously used, including, but
37not limited to, computerization of the data, or (ii) the owner of the
38plant is a participant, in an arrangement for joint use of a title plant
39system regularly maintained in any format, provided the owner is
40contractually entitled to receive a copy of the title record data
P11   1contained in the jointly used title plant system during the period
2of the owner’s participation therein, either periodically or upon
3termination of that participation, at a cost not to exceed the actual
4cost of duplication of the title record data.

5(D) An underwritten title company shall at all times maintain
6current assets of at least ten thousand dollars ($10,000) in excess
7of its current liabilities, as current assets and liabilities may be
8defined pursuant to regulations made by the commissioner. In
9making the regulations, the commissioner shall be guided by
10generally accepted accounting principles followed by certified
11public accountants in this state.

12(3) (A) An underwritten title company shall obtain from the
13commissioner a license to transact its business. The license shall
14not be granted until the applicant conforms to the requirements of
15this section and all other provisions of this code specifically
16applicable to the applicant. After issuance the holder of the license
17shall continue to comply with the requirements as to its business
18set forth in this code, in the applicable rules and regulations of the
19commissioner, and in the laws of this state.

20(B) An underwritten title company that possesses, or is required
21to possess, a license pursuant to this section shall be subject as if
22an insurer to the provisions of Article 8 (commencing with Section
23820) of Chapter 1 of Part 2 of Division 1 of this code and is deemed
24to be subject to authorization by the Insurance Commissioner
25within the meaning of subdivision (e) of Section 25100 of the
26Corporations Code.

27(C) The license may be obtained by filing an application on a
28form prescribed by the commissioner accompanied by a filing fee
29of three hundred fifty-four dollars ($354). The license when issued
30shall be for an indefinite term and shall expire with the termination
31of the existence of the holder, subject to the annual renewal fee
32imposed under Sections 12415 and 12416.

33(D) An underwritten title company seeking to extend its license
34to an additional county shall pay a two-hundred-seven-dollar ($207)
35fee for each additional county, and shall furnish to the
36commissioner evidence, at least sufficient to meet the minimum
37net worth requirements of paragraph (2), of its financial ability to
38expand its business operation to include the additional county or
39counties.

P12   1(4) (A) An underwritten title company shall furnish an audit to
2the commissioner on the forms provided by the commissioner
3annually, either on a calendar year basis on or before March 31
4or, if approved in writing by the commissioner in respect to any
5individual company, on a fiscal year basis on or before 90 days
6after the end of the fiscal year. The time for furnishing any audit
7required by this paragraph may be extended, for good cause shown,
8on written approval of the commissioner for a period, not to exceed
960 days. Failure to submit an audit on time, or within the extended
10time that the commissioner may grant, is grounds for an order by
11the commissioner to accept no new business pursuant to
12subdivision (d). The audits shall be private, except that a synopsis
13of the balance sheet on a form prescribed by the commissioner
14may be made available to the public.

15(B) The audits shall be made in accordance with generally
16accepted auditing standards by an independent certified public
17accountant or independent licensed public accountant whose
18certification or license is in good standing at the time of the
19 preparation. The fee for filing the audit shall be three hundred
20thirteen dollars ($313).

21(C) The commissioner may refuse to accept an audit or order a
22new audit for any of the following reasons:

23(i) An adverse result in any proceeding before the California
24Board of Accountancy affecting the auditor’s license.

25(ii) The auditor has an affiliation with the underwritten title
26company or any of its officers or directors that would prevent his
27or her reports on the company from being reasonably objective.

28(iii) The auditor has been convicted of a misdemeanor or felony
29based on his or her activities as an accountant.

30(iv) A judgment adverse to the auditor in any civil action finding
31him or her guilty of fraud, deceit, or misrepresentation in the
32practice of his or her profession.

33(D) A company that fails to file an 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 or another fee or file the audit required by this section shall
37forfeit the privilege of accepting new business until the delinquency
38is corrected.

begin delete

39(b)

end delete

P13   1begin insert(c)end insert An underwritten title company may engage in the escrow
2business and act as escrow agent, provided that:

3(1) It maintains a record of all receipts and disbursements of
4escrow funds.

5(2) (A) begin deleteExcept as provided in subdivision (c), the end deletebegin insertThe end insertcompany
6shall maintain a bondbegin delete satisfactory to the commissioner in the
7amount of one of the following:end delete
begin insert of fifty thousand dollars ($50,000).end insert

begin delete

8(i) Twenty-five thousand dollars ($25,000) if 150 percent of the
9previous year’s average annual trust fund obligations, as calculated
10in subparagraph (D), does not exceed two hundred fifty thousand
11dollars ($250,000).

end delete
begin delete

12(ii) Thirty-five thousand dollars ($35,000) if 150 percent of the
13previous year’s average annual trust fund obligations, as calculated
14in subparagraph (D), exceeds two hundred fifty thousand dollars
15($250,000), but does not exceed five hundred thousand dollars
16($500,000).

end delete
begin delete

17(iii) Fifty thousand dollars ($50,000) if 150 percent of the
18previous year’s average annual trust fund obligations, as calculated
19in subparagraph (D), exceeds five hundred thousand dollars
20($500,000).

end delete
begin delete

21(B) A deposit given instead of the bond required by this section
22shall not be deemed an asset of the applicant or licensee.

end delete
begin delete

23(C)

end delete

24begin insert(B)end insert An applicant or licensee maybegin delete make a cash deposit or obtainend delete
25begin insert obtainend insert an irrevocable letter of credit approved by the commissioner
26inbegin delete lieuend deletebegin insert lieu, and in the amount,end insert of the bond. Thebegin delete bond, cash deposit,
27orend delete
begin insert bond orend insert letter of credit, as applicable, shall run to the state for
28the use of the state, and for any person who has cause against the
29obligor of the bond or the applicant of a letter of credit, under the
30begin delete provisionend deletebegin insert provisionsend insert of thisbegin delete division.end deletebegin insert chapter.end insert

begin delete

31(D) Calculations of trust fund obligations shall be based on the
32previous calendar year’s average of the monthly trust fund
33liabilities or credit balances occurring on the last day of each
34calendar month.

end delete

35(3) (A) Thebegin delete issuance of a bond or letter of credit of anend deletebegin insert bond
36provided by a surety insurer naming theend insert
underwritten title
37begin delete company, andend deletebegin insert company as principal obligor orend insert thebegin delete use of a cash
38depositend delete
begin insert letter of creditend insert of anbegin delete underwritten title company,end deletebegin insert issuing
39bankend insert
shall be subject to the following conditions:

P14   1(i) The licensee shall faithfully conform to and abide by the
2provisions of thisbegin delete divisionend deletebegin insert chapterend insert and all of the rules made by the
3commissioner under thisbegin delete division.end deletebegin insert chapter concerning the conduct
4of escrow services.end insert

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

12(B) In determining the liability of the principal and the sureties
13under the bond,begin delete the applicant and issuing bank of a letter of credit,
14or the use of a cash deposit, escrow money held in trust andend delete
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 of
19credit, may pay the full amount of its liability thereunder to the
20commissionerbegin delete or a conservatorend deletebegin insert as conservator, liquidator, receiver,
21or anyoneend insert
appointed by the commissionerbegin insert as a conservator,
22liquidator, or receiverend insert
in lieu of payment to the state or persons
23having a cause of action against the principal of a bond or applicant
24under a letter of credit, and upon such payment the suretybegin delete under
25aend delete
begin insert on theend insert bond, or the issuing bank under a letter ofbegin delete credit, isend deletebegin insert credit
26shall beend insert
completelybegin delete releasedend deletebegin insert released, discharged, and exoneratedend insert
27 from further liability under the bond or letter of credit, as
28applicable.begin insert The conservator, liquidator, or receiver may use the
29proceeds of the bond, or letter of credit, for any purposes, including
30the funding of the costs of conservatorship, receivership, or
31liquidation.end insert

begin insert

32(D) If there is no reasonable or adequate admitted market for
33surety bonds as required by this section, the commissioner may
34act pursuant to Section 1763.1 or, under extraordinary
35circumstances and for good cause shown, permit a cash deposit
36in lieu thereof, and in the amount of the bond required by this
37section. In that case, the commissioner may fashion the deposit
38requirements as appropriate to the circumstances and cause.

end insert

39(4) On and after July 1, 2016, the commissioner shallbegin insert promptlyend insert
40 releasebegin delete all individualend deletebegin insert to the depositor, upon application, allend insert
P15   1 escrow-related deposits previously made pursuant tobegin delete paragraph
2(2) of subdivision (b) of Section 12389, as amended by Section 4
3of the act that added this section,end delete
begin insert paragraph (2) of subdivision (c)
4of former Section 12389end insert
if any of the following occurs:

5(A) The underwritten title company hasbegin delete deposited withend deletebegin insert provided
6toend insert
the commissioner bond coveragebegin delete acceptable to the
7commissioner,end delete
begin insert orend insert an approved irrevocable letter of creditbegin delete or a cash
8deposit in lieu of the letter of creditend delete
as set forth inbegin delete subdivision (b).end delete
9begin insert this subdivision.end insert

10(B) begin deletePresentation end deletebegin insertUpon presentation end insertof evidence satisfactory to
11the commissioner of either a statutory merger of the underwritten
12title company depositor into a licensee or certificate holder subject
13to the jurisdiction of the commissioner, or a valid assumption
14agreement under which all liability of the depositor stemming from
15escrow transactions handled by it is assumed by a licensee or
16certificate holder subject to the jurisdiction of the commissioner.

17(5)  begin deleteWith the foregoing exceptions, end delete begin insertOtherwise end insertthe deposit shall
18bebegin insert promptlyend insert returned to the depositor, its duly appointed trustee
19in bankruptcy or lawful successor in interestbegin insert upon application for
20releaseend insert
following the four-year period specified in paragraph (2)
21begin delete of subdivision (b)end delete, as that paragraph read on June 30, 2016, unless
22the commissioner has received claims against the deposit stemming
23from escrow transactions handled by the depositor. If the
24commissioner has received one or more claims against the
25depositor, and the depositor is not inbegin delete conservatorshipend delete
26begin insert conservatorship, bankruptcy,end insert or liquidation, the commissioner
27may interplead the deposit by special endorsement to a court of
28competent jurisdiction for distribution on the basis that claims
29against the depositor stemming from escrow transactions handled
30by the depositor have priority in the distribution over other claims
31against the depositor.

begin delete

32(c)  A new applicant for an underwritten title company license
33shall deposit with the commissioner a bond satisfactory to the
34commissioner in the amount of at least twenty-five thousand dollars
35($25,000) or a cash deposit in said amount. After 12 months of
36operation as a new underwritten title company, the applicant shall
37comply with the requirements set forth in paragraph (3) of
38subdivision (b).

end delete

P16   1(d) The commissioner shall, whenever it appears necessary,
2examine the business and affairs of a company licensed under this
3section. The examination shall be at the expense of the company.

4(e) (1) At any time that the commissioner determines, after
5notice and hearing, that a company licensed under this section has
6willfully failed to comply with a provision of this section, the
7commissioner shall make his or her order prohibiting the company
8from conducting its business for a period of not more than one
9year.

10(2) A company that violates the commissioner’s order is subject
11to seizure under Article 14 (commencing with Section 1010) of
12Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and
13may have its license revoked by the commissioner. Any person
14aiding and abetting any company in a violation of the
15commissioner’s order is guilty of a misdemeanor.

16(f) The purpose of this section is to maintain the solvency of
17the companies subject to this section and to protect the public by
18preventing fraud and requiring fair dealing. In order to carry out
19these purposes, the commissioner may make reasonable rules and
20regulations to govern the conduct of its business of companies
21subject to this section. The rules and regulations shall be adopted,
22amended, or repealed in accordance with the procedures provided
23in Chapter 3.5 (commencing with Section 11340) of Part 1 of
24Division 3 of Title 2 of the Government Code.

25(g) The 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 company shall be subject to the provisions
29of Article 14 (commencing with Section 1010) and Article 14.5
30(commencing with Section 1065.1) of Chapter 1 of Part 2 of
31Division 1.

32(h) This section does not prohibit an underwritten title company
33from engaging in escrow, settlement, or closing activities on
34properties located outside this state if those activities do not violate
35the laws of that other state or country.

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



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