Amended in Senate May 5, 2015

Senate Bill No. 736

Introduced by Senators Vidak and Block

(Coauthor: Senator Morrell)

February 27, 2015

An act to amend Sections begin delete 17202 and 17310 end delete begin insert 17310, 17630, 17635, and 17636 end insert 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 amended, Vidak. Escrow begin delete agents: loss of trust fund obligations. end delete begin insert agents. end insert

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 begin delete 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 end delete make findings and declarations regarding the role of Fidelity Corporation to support and enhance begin delete preservation of the public’s end delete trust in licensed escrow agents, and specify that Fidelity Corporation is required to indemnify a member escrow agent against loss begin delete is end delete begin insert in end insert accordance with the Escrow Law. begin delete This end delete begin insert The end insert bill would begin delete also end delete state the intent of the Legislature for the commissioner to utilize the services of begin insert private end insert 3rd begin delete parties end delete begin insert parties, with prior escrow or escrow conservation, liquidation, or receivership experience, end insert who are independent of the department to perform conservation, liquidation, and receiver functions, and would require the full amount of any penalty revenue, begin insert up to $125,000 at any one time, end insert as specified, to be available for use by the commissioner to compensate begin delete a end delete begin insert an appointed end insert conservator, liquidator, or receiver. begin insert The bill would also authorize the commissioner to utilize all or a portion of the bond or other required obligations, and all or a portion of a licensee’s assets remaining following conservation, liquidation, or receivership to compensate an appointed conservator, liquidator, or receiver. end insert By making this penalty revenue begin insert and other revenue end insert 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:

begin delete

SECTION 1.  

Section 17202 of the Financial Code is amended
to read:

17202.  

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. 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. 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.

end delete

begin delete SEC. 2. end delete
begin insert SECTION 1. end insert   

Section 17310 of the Financial Code is amended
to read:

17310.  

(a)  begin delete 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. end delete It is the intent of the Legislature that
Fidelity Corporation undertake its responsibilities under this
division in a manner that supports and enhances begin delete preservation of
the public’s end delete trust in licensed escrow agents.

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

(c) 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.

(d) 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.

(e) 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.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 17630 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

17630.  

begin insert (a) end insert begin insert   end insert If any facts occur begin delete which end delete begin insert that end insert would entitle the
commissioner under Section 17621 to take possession of the
property, begin delete business end delete begin insert business, end insert and assets of a begin delete licensee end delete begin insert licensee, end insert the
commissioner may appoint a conservator of a licensee and require
of him begin delete such end delete begin insert or her a end insert bond as the commissioner deems proper. The
commissioner may also, upon the request of the board of directors
of a licensee, appoint a conservator of begin delete such end delete begin insert the end insert licensee and require
of him begin delete such end delete begin insert or her a end insert bond as the commissioner deems proper. The
conservator, under the direction of the commissioner, shall take
possession of the property, begin delete business end delete begin insert business, end insert and assets of the
licensee and take begin delete such end delete begin insert the end insert action as he begin insert or she end insert may deem necessary
to conserve the assets of begin delete such end delete begin insert the end insert licensee pending further
disposition of its business. The conservator shall retain begin delete such end delete begin insert the end insert
possession until the property, begin delete business end delete begin insert business, end insert and assets of the
licensee are returned to the licensee or until further order of the
commissioner.

begin insert

(b) Whenever possible, the commissioner shall utilize the
services of one or more qualified private individuals with prior
escrow or escrow conservation experience to act as conservator.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 17635 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

17635.  

begin insert (a) end insert begin insert   end insert If at any time after taking possession of the property
and business of a licensee it shall appear to the commissioner that
it would be futile to proceed as conservator with the conduct of
the business of begin delete such end delete begin insert the end insert person he begin insert or she end insert may apply to the superior
court of the county in which is located the principal office of begin delete such end delete
begin insert the end insert person in this begin delete State end delete begin insert state end insert for an order to liquidate and wind up
the business of begin delete said end delete begin insert that end insert person. Upon a full hearing of begin delete such end delete begin insert an end insert
application, the court may make an order directing the winding up
and liquidation of the business of begin delete such end delete begin insert the end insert person by the
commissioner, as liquidator.

begin insert

(b) If the commissioner appoints a representative to act on his
or her behalf as a liquidator, the commissioner shall, whenever
possible, utilize the services of one or more qualified private
individuals with prior escrow or escrow liquidation experience to
act in this capacity.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 17636 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

17636.  

begin insert (a) end insert begin insert   end insert Whenever the commissioner has taken possession
of the property and business of a licensee he begin insert or she end insert may petition
the superior court for the appointment of a receiver to liquidate
the affairs of the licensee.

begin insert

(b) Whenever possible, the commissioner shall utilize the
services of one or more qualified private individuals with prior
escrow or escrow receivership experience to act as receiver.

end insert

begin delete SEC. 3. end delete
begin insert SEC. 5. end insert   

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

17665.  

(a)  begin delete The end delete begin insert Except as provided in subdivision (b), the end insert 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 begin insert appointed end insert pursuant to
Section 17636.

begin insert

(b) The maximum amount of penalty revenue available for use
by the commissioner at any one time to compensate conservators,
liquidators, or receivers shall not exceed one hundred twenty-five
thousand dollars ($125,000). Any amounts above one hundred
twenty-five thousand dollars ($125,000) shall revert to the General
Fund.

end insert begin insert

(c) The commissioner may utilize all or a portion of the bond
or other obligations required pursuant to Section 17202, and all
or a portion of a licensee’s assets remaining following
conservation, liquidation, or receivership to compensate
conservators, liquidators, or receivers.

end insert begin delete

(b)

end delete

begin insert (d) end insert  It is the intent of the Legislature that the commissioner utilize
the services of begin insert private end insert third parties begin insert with prior escrow or escrow
conservation, liquidation, or receivership experience, end insert who are
independent of the department to perform conservation, liquidation,
and receiver functions, begin delete when end delete begin insert whenever end insert possible.