BILL ANALYSIS �
AB 1679
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Date of Hearing: April 7, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 1679 (Harkey) - As Introduced: February 12, 2014
SUBJECT : Escrow companies: Fidelity Corporation: hearings.
SUMMARY : Requires the Commissioner of the Department of
Business Oversight (DBO) to abstain from a hearing for an Escrow
Agents' Fidelity Corporation (EAFC) if an employee of DBO is the
member's successor in interest.
EXISTING LAW
1)Allows a member or successor in interest aggrieved by any
action or decision of a Fidelity Corporation to file a written
request for a hearing with the commissioner within 30 days
from the action or decision. [Financial Code, Section 17345.1]
2)Establishes that each person licensed who is engaged in the
business of receiving escrows and whose escrow business
location is located within the State of California shall
participate as a member in a Fidelity Corporation in
accordance with this chapter and rules established by the
Board of Directors of the Fidelity Corporation. [Financial
Code, Section 17312]
3)Provides the purpose of a Fidelity Corporation is to indemnify
a member within the State of California against loss.
[Financial Code, Section 17310]
4)Requires persons licensed to maintain a corporation under the
Nonprofit Mutual Benefit Corporation Law operating under the
name Escrow Agents' Fidelity Corporation. [Financial Code,
Section 17311]
FISCAL EFFECT : None.
COMMENTS :
Essentially, AB 1679 adds an additional basis for the
Commissioner of DBO to abstain from deciding an appeal of the
denial of a claim by the EAFC, in cases where an employee of the
DBO is acting as the successor in interest of the escrow company
AB 1679
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suffering a fidelity loss. In this case, the appeal would be
decided by the Superior Court.
Existing law establishes a comprehensive scheme for
indemnification of losses of funds from trust accounts held by
escrow companies licensed by DBO. Each licensed escrow company
is a member of the EAFC, a nonprofit entity established in the
Financial Code. The purpose of EAFC is to indemnify escrow
company members for fidelity (theft) losses from escrow trust
accounts. EAFC performs this function by assessing members
according to a statutory formula, and satisfying claims through
a combination of EAFC funds and blanket fidelity bond coverage
purchased by EAFC.
In the case of a claim for a loss of trust obligations by a
member, a claim is first filed with EAFC, which makes a
determination whether the claim is a covered loss under the
provisions of the Financial Code. In cases where EAFC denies a
claim, the member, or the member's "successor in interest", is
authorized to appeal the denial of the claim pursuant to the
provisions of Financial Code Section 17345.1. The appeal is
administrative, conducted by an Administrative Law Judge within
the Office of Administrative Hearings, and subject to the final
decision of the Commissioner of DBO.
In limited circumstances, Financial Code, Section 17345.1
provides for the Commissioner to abstain from deciding the
appeal of the claim denial through the administrative process,
in which case the appeal would be conducted by a "court of
competent jurisdiction" which would be the Superior Court.
Existing grounds for abstention by the Commissioner include
cases where the escrow company claiming a loss is a principal in
the underlying transaction, cases where there is a risk of
double recovery by a party to the escrow because of conflicting
claims of title to real property, and cases where deciding the
claim could cause some escrows to have favorable treatment over
other escrows conducted by the escrow company.
AB 1679 adds a fourth ground for abstention by the Commissioner,
in cases where an employee of the DBO is the "successor in
interest" of the escrow company. Often when DBO determines that
an escrow company is not meeting its statutory obligations such
that a risk exists to escrow principals, DBO appoints a
conservator or receiver to take control of the company,
investigate the status of escrows and the escrow trust account,
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determine if losses have occurred, etc. Sometimes the
conservator or receiver is a private third party lawyer or other
professional, but in other cases DBO appoints a DBO employee to
act as the successor in interest of the escrow company member.
If the receiver makes a claim to EAFC, which is denied, an
administrative appeal essentially means DBO is adjudicating its
own appeal. The Superior Court is the more appropriate venue in
these situations.
REGISTERED SUPPORT / OPPOSITION :
Support
Escrow Agents' Fidelity Corporation (Sponsor)
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081