BILL ANALYSIS
SB 1223
Page 1
Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1223 (Calderon) - As Amended: May 27, 2010
Policy Committee: Banking and
Finance Vote: 10-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill contains two relatively minor and noncontroversial
provisions relating to escrow agents. Specifically, the bill
1)Allows an auction company to act as the agent of the property
seller for the purpose of directing an escrow agent to return
deposits and fees to the non-winning bidders in an auction
sale of a foreclosed home.
2)Requires notification to the Department of Corporations and
the Escrow Agents' Fidelity Corporation if a surety bond
required of escrow licensees is cancelled, not renewed, or
released.
FISCAL EFFECT
Minor and probably absorbable enforcement-related costs to the
Department of Corporations. Local enforcement costs, if any, are
not reimbursable.
COMMENTS
1)Background. . Escrow agents are "third parties" that
facilitate the sale, transfer, or lease of property between
two entities. In such transactions, the seller and buyer
deliver money and evidence of title to the escrow agent, who
holds the items until specified conditions are met, whereupon
the items are delivered to appropriate parties.
2)Purpose - deposit refund provision . This provisions is
intended to address an anomaly in current law which has made
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it difficult for bidders in foreclosure sales to receive
timely refunds of deposits they have made, when their bid is
ultimately rejected by the seller.
According to the author, sales of foreclosed properties are
commonly conducted as "reserve" auctions, in which the seller
of the property establishes an unpublished reserve price,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is conducted and the high bid is below the unpublished reserve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
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 encounter a problem in obtaining a
refund. 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.
To address this concern, this bill allows the auctioneer or
auction company to act as the agent of the property seller,
for the purpose of directing the escrow agent to return
deposits and fees received from a bidder in connection with an
auction sale of foreclosed real property.
3)Rationale - reporting requirement . Existing law requires every
licensed escrow agent to deposit and maintain with the
Commissioner of Corporations a surety bond in the amount of at
least $25,000. The sponsor of this provision, Escrow Agents'
Fidelity Corporation (EAFC), believes that escrow company
trust account losses can be prevented or minimized if the
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Department of Corporations, EAFC, and owners of the escrow
business are promptly informed of problems within the escrow
companies.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081