Senate Bill No. 736

Introduced by Senators Vidak and Block

(Coauthor: Senator Morrell)

February 27, 2015

An act to amend Sections 17202 and 17310 of, and to add Section 17665 to, the Financial Code, relating to escrow agents, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

SB 736, as introduced, Vidak. Escrow agents: loss of trust fund obligations.

The Escrow Law requires the licensing of escrow agents by the Commissioner of Business Oversight, and further requires licensees to participate as members of the Escrow Agents’ Fidelity Corporation, a nonprofit corporation established to pay members for loss of trust fund obligations, as specified. The law requires a licensed escrow agent to maintain a bond based on the previous year’s average annual trust fund obligations, as specified.

This bill would authorize the commissioner to increase the minimum bond required of an escrow agent by up to 100% of its face value if the commissioner reasonably believes, based on an examination, that conservation or liquidation of that escrow agent may become necessary for the protection of the public. This bill would make findings and declarations regarding the role of Fidelity Corporation to support and enhance preservation of the public’s trust in licensed escrow agents, and specify that Fidelity Corporation is required to indemnify a member escrow agent against loss is accordance with the Escrow Law. This bill would also state the intent of the Legislature for the commissioner to utilize the services of 3rd parties who are independent of the department to perform conservation, liquidation, and receiver functions, and would require the full amount of any penalty revenue, as specified, to be available for use by the commissioner to compensate a conservator, liquidator, or receiver. By making this penalty revenue available to the commissioner in this regard, this bill would make an appropriation.

Vote: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

Section 17202 of the Financial Code is amended
to read:

17202.  

begin delete (a) end delete begin delete   end delete At the time of filing an application for an escrow
agent’s license, the applicant shall deposit with the commissioner
a bond satisfactory to the commissioner in the amount of at least
twenty-five thousand dollars ($25,000). Thereafter, a licensee shall
maintain a bond satisfactory to the commissioner in the amount
of: (1) twenty-five thousand dollars ($25,000) if 150 percent of
the previous year’s average annual trust fund obligations, as
calculated under Section 17348, equals two hundred fifty thousand
dollars ($250,000) or less; (2) thirty-five thousand dollars ($35,000)
if 150 percent of the previous year’s average annual trust fund
obligations, as calculated under Section 17348, equals at least two
hundred fifty thousand one dollars ($250,001) but not more than
five hundred thousand dollars ($500,000); or (3) fifty thousand
dollars ($50,000) if 150 percent of the previous year’s average
annual trust fund obligations, as calculated under Section 17348,
equals five hundred thousand one dollars ($500,001) or more. begin insert The
commissioner may increase the minimum bond required of an
escrow agent by up to 100 percent of its face value if the
commissioner reasonably believes, based on an examination
conducted pursuant to Section 17405, that conservation or
liquidation of that escrow agent may become necessary for the
protection of the public. end insert The bond shall run to the state for the
use of the state and for any person who has cause against the
obligor of the bond under the provision of this division. A deposit
given instead of the bond required by this section shall not be
deemed an asset of the applicant or licensee for the purpose of
complying with Section 17210. An applicant or licensee may obtain
an irrevocable letter of credit approved by the commissioner in
lieu of the bond.

begin delete

(b) Escrow agents licensed prior to January 1, 1986, shall
comply with the requirements of subdivision (a) on or before July
1, 1986.

end delete

SEC. 2.  

Section 17310 of the Financial Code is amended to
read:

17310.  

(a)  begin delete It shall be the purpose of Fidelity end delete begin insert The Legislature
finds and declares that persons who entrust their money to escrow
agents licensed under this division are entitled to full compensation
for any loss of trust fund moneys they experience due to loss, theft,
or misappropriation by a licensed escrow agent. It is the intent of
the Legislature that Fidelity Corporation undertake its
responsibilities under this division in a manner that supports and
enhances preservation of the public’s trust in licensed escrow
agents. end insert

begin insert (b) end insert begin insert   end insert begin insert Fidelity end insert Corporation begin delete to end delete begin insert shall end insert indemnify a member within
the State of California against loss, subject to the limitations set
forth in this chapter.

begin delete

(b)

end delete

begin insert (c) end insert  Fidelity Corporation shall not be liable for any consequential
damages sustained by a member, or by any other person, nor for
any punitive damages whatsoever.

begin delete

(c)

end delete

begin insert (d) end insert  The indemnification shall be provided by any of the
following:

(1) A fund established by Fidelity Corporation pursuant to
Section 17320.

(2) A fidelity bond or insurance policy to be approved by the
commissioner.

(3) A combination of paragraphs (1) and (2) subject, however,
to the maximum coverage specified in subdivision (b) of Section
17314.

begin delete

(d)

end delete

begin insert (e) end insert  Fidelity Corporation shall provide a copy to all of its
members and the commissioner of the fidelity bond or insurance
policy as it is acquired or renewed, and Fidelity Corporation shall
promptly provide a copy to any member or successor in interest,
upon request.

SEC. 3.  

Section 17665 is added to the Financial Code, to read:

17665.  

(a) The full amount of any penalty revenue collected
from persons who are found to have violated any provision of this
division shall be available for use by the commissioner to
compensate a conservator appointed pursuant to Section 17630, a
liquidator appointed pursuant to Section 17635, or a receiver
pursuant to Section 17636.

(b) It is the intent of the Legislature that the commissioner utilize
the services of third parties who are independent of the department
to perform conservation, liquidation, and receiver functions, when
possible.