BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 704|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 704
Author: Cooley (D)
Amended: 7/6/15 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 6/24/15
AYES: Roth, Gaines, Berryhill, Glazer, Hernandez, Liu,
Mitchell, Wieckowski
NO VOTE RECORDED: Hall
SENATE BANKING & F.I. COMMITTEE: 7-0, 7/15/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
ASSEMBLY FLOOR: 75-0, 5/22/15 - See last page for vote
SUBJECT: Escrow services: authorization to transact business
SOURCE: California Land Title Association
DIGEST: This bill revises escrow rules governing underwritten
title companies (UTCs) by streamlining the security required to
protect against escrow account shortages and provides that UTCs
may handle escrows related to property in any county as long as
it operates out of a business located in a county where it is
licensed to conduct escrow services.
ANALYSIS:
AB 704
Page 2
Existing law:
1)Provides for the regulation of title insurance and title
insurers by the Insurance Commissioner (IC) through the
California Department of Insurance (CDI).
2)Defines "underwritten title company" (UTC) as any corporation
engaged in the business of preparing title searches, title
examinations, title reports, certificates or abstracts of
title upon the basis of which a title insurer writes title
policies.
3)Authorizes a UTC to perform a range of activities with respect
to real estate and personal property transactions, including
acting as the agent of a title insurer for purposes of
underwriting and issuing policies of title insurance, and
handling the escrow in a real estate transaction.
4)Requires a UTC, depending on the county, to maintain a minimum
net worth based on the number of documents recorded and filed
in the county recorders offices in the preceding year.
5)Permits a UTC to engage in the escrow business and act as an
escrow agent by making and maintaining $7,500 deposit for each
county in which it transacts business.
6)Provides that a title insurer operating under an underwriting
agreement with a UTC during the 6 months prior it being placed
into bankruptcy, receivership, or conservation by the IC shall
be liable for its proportionate share of the IC's costs and
any escrow account shortages.
This bill:
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1)Defines "business location" as the place where a UTC conducts
escrow services and permits a UTC to provide escrow services
at its licensed business locations regardless of the location
of the real or personal property involved.
2)Repeals, as of July 1, 2016, a requirement that a UTC deposit
$7,500 with the IC for each county in which it conducts
business and provides for a process of returning the deposits
to the UTC when specified conditions are met.
3)Effective July 1, 2016, adds a requirement that a UTC maintain
a bond of $50,000 or $100,000, depending on the volume of
documents filed in counties where the UTC will offer escrow
services as specified, or make a deposit with the IC in lieu
of, and in the amount of, the bond.
4)Provides that the IC may permit a UTC to provide a letter of
credit in lieu of, and in the same amount of, the bond or
deposit, if there is no reasonable or adequate admitted market
for surety bonds, or upon a showing of good cause by the UTC.
5)Authorizes the surety under the bond or the issuing bank of a
letter of credit to pay the full amount of its liability to
the IC as conservator, liquidator, or receiver in lieu of
payment to the state or persons having a cause of action
against the obligor, as specified.
Background
Escrow services provide a neutral third-party to conduct real
estate transactions. Generally, the escrow agent receives and
holds funds from the buyer to be released to the seller and
other parties when certain conditions related to the transaction
are met. This provides the buyer, lenders, and seller a way of
confirming that each party has the ability to and will complete
the transaction. Parties to the transaction place their trust
and money in the hands of the escrow agent and the law requires
escrow agents to provide security against potential shortfalls.
AB 704
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Escrow agents basically come in three forms: "independent"
escrow companies licensed by the Department of Business
Oversight, real estate brokers licensed by the Bureau of Real
Estate, and UTCs licensed by CDI. This bill impacts UTCs.
UTCs perform title searches and issue title policies, as well as
provide escrow services. UTCs are required to deposit $7,500
with the IC for every county in which they conduct business.
When the deposit requirement was enacted, UTCs needed physical
access to hardcopy title records kept by each county; now UTCs
have remote access to extensive electronic databases. There is
general agreement among stakeholders that the $7,500 deposit has
only a tenuous connection to business practices and offers
little, if any, consumer protection. There is no known case of
it ever being used.
This bill updates and streamlines the UTC security requirements
by replacing the existing $7,500 deposit with a bond, or
authorized alternative, in the amount of $50,000 or $100,000.
The bond requirement is tied to the volume of transactions in
counties in which the UTC operates. Roughly speaking, UTCs
operating in counties with a higher volume of real estate
transactions will be required to obtain a $100,000 bond, while
UTCs operating in counties with fewer real estate transactions
would have to secure a $50,000 bond. This approach increases
the security available for all UTCs, particularly those
operating in high-volume areas, but limits the impact on UTCs
that serve large counties with sparse populations.
This bill also addresses a lack of clarity in current law by
providing that UTCs may handle transactions involving property
located in a county where it is not licensed as long as it
operates out of a business located in a county where it is
licensed.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, this bill
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results in regulatory and licensing costs to CDI of $192,000
(offset by $32,000 in fee revenues) in 2015-16, $107,000 (offset
by $65,000) in 2016-17, and $80,000 (offset by $56,000) per year
thereafter (Insurance Fund).
SUPPORT: (Verified8/27/15)
California Land Title Association (source)
Fidelity National Title Group
First American Title Insurance Company
OPPOSITION: (Verified8/27/15)
None received
ARGUMENTS IN SUPPORT: The California Land Title Association
(CLTA) notes that existing law requires well-funded and reserved
title insurers to cover any escrow losses associated with a UTC
that acts as their agent in conducting escrows and issuing title
policies. AB 704 creates another "safety net behind this
primary safety net" in the form of a bond or cash deposit
ranging from $50,000 to $100,000, depending on the size of the
county of licensure. These bonds or cash deposits are superior
to the $7,500 certificates of deposit currently required but
never used by CDI.
ASSEMBLY FLOOR: 75-0, 5/22/15
AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, 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, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
AB 704
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Steinorth, Mark Stone, Thurmond, Ting, Wagner, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Alejo, O'Donnell, Olsen, Waldron, Weber
Prepared by:Hugh Slayden / INS. / (916) 651-4110
8/30/15 19:07:45
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