BILL ANALYSIS Ó
AB 704
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CONCURRENCE IN SENATE AMENDMENTS
AB
704 (Cooley)
As Amended July 6, 2015
Majority vote
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|ASSEMBLY: |75-0 |May 22, 2015 |SENATE: |40-0 |(September 1, |
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Original Committee Reference: INS.
SUMMARY: Adopts escrow rules governing underwritten title
companies (UTCs) more consistent with rules that currently
govern independent escrow companies.
The Senate amendments:
1)Delete Assembly language that would have expanded the
definition of the "business of title insurance."
2)Delete Assembly language that clarified the definition of
"escrow."
3)Clarify the definition of "business location" for purposes of
providing escrow services.
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4)Delete the 3-tiered bond requirement ($25,000, $35,000 or
$50,000, depending on the size of the UTC) in favor of a
schedule that matches either a $50,000 or $100,000 bond,
letter of credit, or cash deposit requirement, depending on
the net worth of the UTC.
5)Clarify how a conservator or receiver accesses the bond,
letter of credit, or deposit in the case of an insolvency of a
UTC.
6)Allow the commissioner to authorize a UTC to use a
non-admitted surety insurer to purchase a bond if there is not
an adequate admitted market for this type and amount of bond.
EXISTING LAW:
1)Provides for the regulation of title insurance and title
insurers by the commissioner.
2)Authorizes UTCs 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.
3)Establishes various regulatory requirements on UTCs, including
statutory net worth and escrow deposit requirements.
4)Requires a UTC to post a deposit with the commissioner of
$7,500 for each county in which it is licensed to conduct
title business.
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5)Provides for the regulation of independent escrow companies,
which are licensed to handle real estate and other escrow
transactions, by the Department of Business Oversight (DBO).
7)Authorizes a licensed real estate broker to handle real estate
escrows.
8)Provides that an independent escrow company must maintain a
bond satisfactory in form to the DBO in the amount of $25,000,
$35,000, or $50,000, as determined by a formula that takes
into consideration the volume of escrow business conducted by
the independent escrow company.
FISCAL EFFECT: According to the Senate Appropriations
Committee, the current version of the bill involves regulatory
and licensing costs to the department of Insurance 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).
COMMENTS:
Purpose. According to the author, this bill is designed to
level the playing field for companies authorized to perform
escrow services that are licensed by the DBO (independent escrow
companies) and the companies that are authorized to perform
escrow services that are licensed by the commissioner (UTCs).
The author argues that UTCs face unnecessarily burdensome
regulatory requirements in comparison to the independent escrow
companies regulated by the DBO, and the escrow rules that govern
UTCs should be made consistent with those rules.
Background. There are three different types of licensees
authorized to perform escrow services in California: real estate
brokers, independent escrow companies, and UTCs - each with a
separate regulator. Real estate brokers, while authorized,
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rarely perform this function. Thus, the DBO licensed escrow
companies compete primarily with the Department of Insurance
(DOI) licensed UTCs.
A UTC performs two distinct functions in the typical real estate
transaction where it is performing escrow services: it
underwrites (title search and report) the title insurance
policy, and it handles the escrow. The UTC also acts as the
title insurer's agent to issue the title policy. An independent
escrow company performs only one function - the escrow portion
of the transaction. One element of that function is to ensure
that a title company provides a title insurance policy, but the
independent escrow company is not licensed to either underwrite
or issue a title insurance policy.
There is a debate within the title/escrow industry about which
format is best, and for historically unclear reasons, some
regions of the state tend to use independent escrow companies
and a separate title company, and other regions of the state
tend to use the title company for both functions. Regardless of
which approach is used, it is clear that the title
functions/services and the escrow functions/services are
distinct. The purpose of the bill is to align the regulatory
structures for the two primary types of escrow services
companies, but to leave the regulatory structure for title
services and insurance unchanged.
Analysis Prepared by:
Mark Rakich / INS. / (916) 319-2086 FN: 0001835
AB 704
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