BILL ANALYSIS Ó
SB 736
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Date of Hearing: July 15, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 736
(Vidak) - As Amended May 5, 2015
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|Policy |Banking and Finance |Vote:|11 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill requires that, whenever possible, the Commissioner of
the Department of Business Oversight (DBO) use the services of
private individuals with prior escrow experience to act as
conservator, receiver, or liquidator for instances in which the
commissioner must take possession of the assets and business of
an escrow agent following that agent's insolvency. The bill
authorizes the commissioner to use all or a portion of the
insolvent escrow agent's surety bond and assets following
conversion, as well as redirect up to $125,000 in penalty
revenue at any one time, to compensate private conservators,
liquidators, and receivers.
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FISCAL EFFECT:
Potential GF revenue decrease of up to $125,000 per event, from
redirection of penalty revenue, additional GF cost to DBO if
private conservator, liquidator, or receiver fees exceed
$125,000 in a limited period.
The redirection of penalty revenue is unlikely to generate
$125,000 in any given year as total penalty revenue has averaged
approximately $48,000 annually during the last four fiscal
years. Total costs for private conservators, liquidators, and
receivers would very likely exceed $150,000 in a year if more
than one escrow agent were to fail, or, if a single failed
agency were place in receivership.
COMMENTS:
1)Purpose. According to the author, this bill is a response to
a case in which a couple sold their home yet was unable to
collect the profit from sale because their escrow agent
failed. An employee of the DBO was appointed conservator for
the failed escrow agent but the employee neglected to submit a
proof of loss claim within the statutory deadline. As a
result, the sellers were unable to collect the full value of
their profit from sale.
2)Public v. Private Administration. DBO indicates there have
been 20 cases of escrow agents conserved, liquidated, or
placed into receivership during the past 10 years. Private
individuals handled 15 of those cases, while DBO employees
handled 5. However, escrow agent failures tend to group
together as a result of broader market dynamics. DBO
experienced multiple escrow agent failures in a single year
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twice in the past 5 years, with 4 agents failing in one of
those years.
Unlike private conservators, DBO employees must continue to
perform their regular duties as escrow examiners while also
administering failed agents. DBO estimates average fees for
private conservators are approximately $145,000, though these
fees can be significantly higher if the failed escrow agency
is placed in receivership. This bill is intended to provide
additional resources to allow the commissioner to increase the
use of private parties to carry out those duties, but the
$125,000 in penalty revenue may not fully cover the cost of a
single private conservator.
3)Escrow Insolvency. Existing law authorizes DBO to wind-down
and liquidate failed escrow agents, petition the court to
place agents in receivership, and appoint conservators in
order to prevent the loss of escrow trust funds. Every
licensed escrow agent is required to obtain a surety bond
between $25,000 and $50,000 (depending on prior year trust
obligations) to compensate DBO and its representatives in the
event of insolvency; however such funds may be inadequate to
fund the administration in certain cases.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081
SB 736
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