BILL ANALYSIS
SB 1223
Page 1
Date of Hearing: June 21, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 1223 (Calderon) - As Amended: May 27, 2010
SENATE VOTE : 33-0
SUBJECT : Escrow agents
SUMMARY : Provides that in an auction of a bank-owned property,
that an un-successful bidder may recover their deposit and fees
associated with the losing bid. Specifically, this bill :
1)Provides that contingent on instructions from the bidder,
auctioneer, or auction company, the escrow agent shall return
to the bidder all deposits and fees received from the bidder
in connection with an auction sale real property.
2)Requires the provisions above to apply to licensed escrow
agents and to those entities exempt from licensure which
includes banks, credit unions, attorneys, or licensed real
estate broker.
3)Requires notification to the Department of Corporations, and
the Escrow Agents Fidelity Corporation if the surety bond
required of all escrow licenses is canceled, not renewed, or
released.
EXISTING LAW
1)Regulates the activities of auctioneers and auction companies
pursuant to the Auctioneer and Auction Companies Law. [Civil
Code Section 1812.600 et seq.]
2)Requires every auction company and auctioneer to, among other
things: disclose their name, telephone number, and bond number
in all advertising; post a specified sign at the main entrance
to each auction; post or distribute the terms, conditions,
restrictions, and procedures whereby goods will be sold at the
auction; disclose the existence and amount of any liens or
encumbrances; and return the blank check or deposit of each
buyer who purchased no goods at the sale. Existing law
imposes specified fines for violation of the above provisions.
[Civil Code Section 1812.607.]
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3)Exempts the following from the definition of "auction": (1)
wholesale motor vehicle auction; and (2) a sale of real estate
or a sale of real estate with personal property or fixtures or
both in a unified sale in accordance with Section 9604 of the
Commercial Code. [Civil. Code Section 1812.601(b).]
4)Regulates the business of escrow under the Escrow Law and
defines "escrow" as a transaction in which one person, for the
purpose of effecting the sale, transfer, encumbering, or
leasing of real or personal property to another person,
delivers any written instrument, money, evidence of title to
real or personal property to a third person to be held by that
third person until the happening of a specified event or the
performance of a prescribed condition, when it is then to be
delivered by that third person to a specified person.
[Financial Code Section 17000 et seq.]
5)Exempts a variety of entities from Escrow Law including
depository institutions; a person licensed to practice law in
California as specified; title insurance companies regulated
by the Department of Insurance; and real estate brokers
performing in the course of, or incidental to a real estate
transaction in which the broker is an agent or a party to the
transaction and is performing an act for which a real estate
license is required [Financial Code Section 17006.]
FISCAL EFFECT : Unknown
COMMENTS :
According to the author.
Auction sales of foreclosed properties are commonly conducted
as "reserve" auctions, in which the seller of the property
(typically a financial institution or a government-sponsored
enterprise) establishes an unpublished reserve price, above
which it is willing to sell the property, but below which it
may be unwilling to agree to a sale. When an auction is
conducted and the high bid is below the unpublished reserve
price, the auctioneer typically announces that the sale is
made subject to seller confirmation, approval, or acceptance.
The high bidder is instructed to open escrow on the property,
and is asked to place a deposit on hold with the escrow agent,
pending a decision by the property owner regarding whether to
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accept the bid.
If a seller does not accept a bidder's bid (likely because it
is too far below the reserve price to warrant acceptance), the
bidder is entitled to receive a refund of his or her deposit.
However, some bidders have reported having trouble obtaining
refunds of their refundable deposits following auctions. The
problem they encounter is circular: The auction company
doesn't hold the money so has no ability to return the
deposit. The escrow agent holds the money, but requires
instructions from both parties to the real estate contract
(the property buyer and the property seller) before it will
release the funds. If the property seller has rejected the
bid that formed the basis for a bidder's deposit, it often has
no further interest in the transaction, and can be difficult
to reach for purposes of obtaining escrow instructions. Yet,
without escrow instructions from the property seller, the
escrow agent is unable to release the deposit to the bidder.
This bill solves the Catch -22, by allowing auctioneers and
auction companies to act as the agent of the property seller,
for the purpose of directing an escrow agent to return
deposits and fees received from a bidder in connection with an
auction sale of foreclosed real property.
This bill seeks accomplish two different objectives. First, it
is intended to provide some protections for individuals who bid
on foreclosed properties that are banked owned. This proposal
provides a framework for unsuccessful auction bidders to get a
refund of their auction deposit and fees by allowing the auction
sellers to act as agents of the property sellers for purposes of
directing the escrow agent to return funds to the bidder.
Sometimes sellers, not present at the actual action, reject a
bid for being to low, or the bid does not meet a particular
reserve price. These sellers are sometimes not available to
give direction to the escrow agent to return the funds to the
unsuccessful bidder.
The second provision of this bill concerns notification
regarding surety bonds of escrow agents. If a surety bond
required of an escrow agent were cancelled, not renewed, or
released, the surety bond company would be required to provide
notification to DOC and the Escrow Agents' Fidelity Corporation.
This provision is designed to be an early warning system to
prevent trust account losses so that businesses know of
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impending problems with escrow companies.
This auction related provision of this bill is a follow-up to
last year's SB 109 (Calderon) which was vetoed by the Governor.
Senate Bill 109 was a more comprehensive bill than this bill and
would have done the following: 1) removed the exemption for
sales of real property from the Auctioneer and Auction Company
Law for sales of real property; 2) established specific rules
for auction sales of foreclosed real estate, including requiring
notification to an auction audience of all fees that would be
levied as a condition of bidding and an explanation of specified
terms relating to the auction; and 3) required the return of
deposits and fees in a specified time if the high bidder's offer
was rejected or if the seller did not respond to the offer.
Governor Schwarzenegger vetoed SB 109, stating:
While the goals of SB 109 are laudable, this bill adds
additional unnecessary regulatory burdens on business.
Existing law provides consumers with civil remedies should a
seller fail to release a deposit in a timely fashion. In
addition, auctions of real property by third parties often
involve a real estate broker whose improper conduct would
already be subject to discipline by the Department of Real
Estate. Since this measure would impose unnecessary
restrictions and fees upon real estate auctioneers, I am
unable to sign this bill.
This bill is narrower in focus than SB 109 and is intended to
make certain that refundable deposits at auctions are returned
to a bidder of a foreclosed property in a timely manner if his
or her bid is ultimately rejected by the seller of the property.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors
Escrow Agents' Fidelity Corporation
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081