BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 736 (Vidak) - Escrow agents
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|Version: May 5, 2015 |Policy Vote: B. & F.I. 6 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 18, 2015 |Consultant: Maureen Ortiz |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 736 provides the Department of Business Oversight
(DBO) with two forms of revenue to hire conservators,
liquidators, or receivers in cases of a failed escrow agent.
Fiscal
Impact:
Redirection of penalty revenue up to $125,000 annually
(General)
SB 736 will allow the department to use up to $125,000 of
penalty revenue that would otherwise be deposited into the
General Fund. This redirection will unlikely be as high as
$125,000 each year because the penalty revenue varies greatly
every year and has ranged between $5,731 and $133,311 during the
last six fiscal years. The intent is to create a reserve of
SB 736 (Vidak) Page 1 of
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$125,000 that can be used in years when the DBO needs to
compensate a conservator, liquidator, or receiver.
Additionally, SB 736 authorizes the commissioner to use all or a
portion of an escrow agents bond and assets to compensate
conservators, liquidators, or receivers. The bill does not cap
the amount of money that can be used from this source.
Background: The Escrow Law is administered by the Department of Business
Oversight, and requires each licensee to maintain a surety bond
equal to $25,000, $35,000, or $50,000 depending on the size of
its prior year's average annual trust fund obligations. The
bond must be taken out in the name of the state and be available
for use by the state or any person who has cause against the
licensee.
Current law authorizes the commissioner to take possession of
the property and business of an escrow agent, as specified, when
it appears to the commissioner that an escrow agent is in an
insolvent condition; is conducting escrow business in an unsafe
or unauthorized manner; has violated its charter or any law of
the State of California; refuses to submit its books, papers and
affairs for inspection by an examiner; neglects or refuses to
observe any order of the commissioner made pursuant to the
Escrow Law or its regulations, as specified; or any officer,
director, stockholder, trustee, or attorney of an escrow agent
has embezzled, sequestered, or willfully diverted the assets or
trust funds of such escrow agent, has permitted its tangible net
worth to be lower than the minimum required by law, or has
failed to comply with the bonding requirements of the Escrow
Law.
Additionally, escrow agents are required to maintain a tangible
net worth of at least fifty thousand dollars ($50,000),
including liquid assets of at least twenty-five thousand dollars
($25,000) in excess of current liabilities.
Existing law establishes the Escrow Agents' Fidelity Corporation
(EAFC) for the purpose of indemnifying its members against loss,
and requires each person licensed as an escrow agent to
participate as a member in Fidelity Corporation. The EAFC
provides fidelity coverage to its members based on their monthly
average escrow liability per licensed location of between $1
million and $5 million.
SB 736 (Vidak) Page 2 of
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Proposed Law: SB 736 does the following:
1) Authorizes the commissioner to redirect up to $125,000
in penalty revenue to use to compensate conservators,
liquidators, or receivers.
2) Authorizes the commissioner to use all or a portion of a
licensee's bond or other assets that remain following
conservation, liquidation, or receivership to compensate
conservators, liquidators, or receivers.
3) Provides that the commissioner, whenever possible, shall
utilize the services of one or more qualified private
individuals with prior escrow or escrow liquidation
experience when appointing a representative to act on his
or her behalf as a conservator, liquidator, or receiver.
Staff Comments: SB 736 authorizes the Department of Business
Oversight Commissioner to use up to $125,000 of penalty revenue
that would otherwise be deposited into the state's General Fund
for the purpose of compensating a conservator, a liquidator, or
a receiver to liquidate the assets of a failed escrow agent.
Additionally, SB 736 authorizes the commissioner to use all or a
portion of the bond or a portion of the licensee's assets that
remain after conservation, liquidation, or receivership to
compensate conservators, liquidators, or receivers.
Existing California law contains a number of provisions which
are intended to help prevent the loss of escrow trust funds
following the failure of an Escrow Law licensee. Among these
provisions: authority for DBO to conserve (wind down) and
liquidate a failed escrow company; authority for DBO to petition
a court to place a failed escrow company into receivership;
authority for DBO to appoint a conservator, liquidator, or
receiver; a requirement that every company licensed under the
SB 736 (Vidak) Page 3 of
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Escrow Law obtain a surety bond, to ensure that money is
available with which to compensate DBO and its
conservator/liquidator/receiver in the event it must place an
escrow company into conservatorship or receivership; a
requirement that every company licensed under the Escrow Law
obtain a fidelity bond, to provide insurance against theft of
trust funds; and language creating and establishing the rules
EAFC, a private entity created by the Legislature, which serves
as the fidelity insurer for Escrow Law licensees.
During the last ten years, there have been between 0-4
conservatorships and receiverships each year, while penalties
collected have been as follows:
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| Fiscal Year | Escrow Penalties |
| |Collected |
|-----------------+----------------------|
| 2008-09 | $133,311 |
|-----------------+----------------------|
| 2009-10 | $119,386 |
|-----------------+----------------------|
| 2010-11 | $ 67,523 |
|-----------------+----------------------|
| 2011-12 | $ 99,863 |
|-----------------+----------------------|
| 2012-13 | $ 5,731 |
|-----------------+----------------------|
| 2013-14 | $ 17,943 |
|-----------------+----------------------|
|Total |$443,757 |
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SB 736 (Vidak) Page 4 of
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The author's intent is that the revenue each year will be
redirected from the General Fund and deposited into the Escrow
Agents account until the total amount collected is no more than
$125,000. At that time, any penalty revenue will go to the
state's General Fund.
Under existing law, escrow agents buy a surety bond in amounts
of $25,000, $35,000 or $50,000. The bond is taken out in the
name of the state and can be used for actions against the
licensee. SB 736 will authorize the surety bond money and other
assets to be used to compensate conservators, liquidators, or
receivers.
Recommended
Amendments: Staff recommends placing the Legislative Intent
from Sections 17310 (a) and 17665 (d) into an uncodified section
of SB 736 in order to provide code clarity and consistency.
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