Amended in Assembly March 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1704

Introduced by Assembly Member Hagman

February 13, 2014

An act to amend Section 12389 of the Insurance Code, relating to title insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1704, as amended, Hagman. Underwritten title companies: escrow.

Existing law authorizes an underwritten title company, as defined, to engage in the escrow business and act as an escrow agent as long as it fulfills specified requirements. begin insert Existing law requires an underwritten title company to obtain a license from the Insurance Commissioner by filing an application with the commissioner and paying a filing fee of $354. end insert

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This bill would make technical, nonsubstantive changes to those provisions.

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This bill would authorize the commissioner to license an underwritten title company to engage in escrow business in all counties of this state with one application. This bill would also require an underwritten title company seeking to expand its escrow business to pay a one-time fee of $449 or the reasonable regulatory cost, whichever is less.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 12389 of the Insurance Code is amended
to read:

12389.  

(a) An underwritten title company as defined in Section
12340.5, which shall be a stock corporation, may engage in the
business of preparing title searches, title reports, title examinations,
or certificates or abstracts of title, upon the basis of which a title
insurer writes title policies, provided that:

(1) Only domestic corporations may be licensed under this
section and an underwritten title company, as defined in Section
12340.5, shall not become licensed under this section, or change
the name under which it is licensed or operates, unless it has first
complied with Section 881.

(2)  begin delete (A) end delete begin delete   end delete Depending upon the county or counties in which the
company is licensed to transact business, it shall maintain required
minimum net worth as follows:

 

Aggregate number of documents recorded and documents filed in the offices of the county recorders in the preceding calendar year in all counties where the company is licensed to transact business.
Number of documents		Amount of required minimum net worth
Less than 50,000		$ 75,000
50,000 to 100,000		120,000
100,000 to 500,000		200,000
500,000 to 1,000,000		300,000
1,000,000 or more		400,000

 

“Net worth” is defined as the excess of assets over all liabilities
and required reserves. It may carry as an asset the actual cost of
its title plant provided the value ascribed to that asset shall not
exceed the aggregate value of all other assets.

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(B) Where

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begin insert Where end insert a title plant of an underwritten title company is not being
currently maintained, the asset value of the plant shall not exceed
its asset value as determined in the preceding paragraph as of the
date to which that plant is currently maintained, less one-tenth
thereof for each succeeding year or part of the succeeding year
that the plant is not being currently maintained. For the purposes
of this section, a title plant shall be deemed currently maintained
so long as it is used in the normal conduct of the business of title
insurance, and begin delete (i) end delete begin insert (A) end insert the owner of the plant continues regularly
to obtain and index title record data to the plant or to a continuation
thereof in a format other than that previously used, including, but
not limited to, computerization of the data, or begin delete (ii) end delete begin insert (B) end insert the owner
of the plant is a participant, in an arrangement for joint use of a
title plant system regularly maintained in any format, provided the
owner is contractually entitled to receive a copy of the title record
data contained in the jointly used title plant system during the
period of the owner’s participation therein, either periodically or
upon termination of that participation, at a cost not to exceed the
actual cost of duplication of the title record data.

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(C) An

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begin insert An end insert underwritten title company at all times shall maintain current
assets of at least ten thousand dollars ($10,000) in excess of its
current liabilities, as current assets and liabilities may be defined
pursuant to regulations made by the commissioner. In making the
regulations, the commissioner shall be guided by generally
accepted accounting principles followed by certified public
accountants in this state.

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(3) (A) An

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begin insert (3) end insert begin insert   end insert begin insert An end insert underwritten title company shall obtain from the
commissioner a license to transact its business. The license shall
not be granted until the applicant conforms to the requirements of
this section and all other provisions of this code specifically
applicable to applicant. After issuance the holder shall continue
to comply with the requirements as to its business set forth in this
code, in the applicable rules and regulations of the commissioner
and in the laws of this state.

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(B) Any

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begin insert Any end insert underwritten title company who possesses, or is required to
possess, a license pursuant to this section shall be subject as if an
insurer to the provisions of Article 8 (commencing with Section
820) of Chapter 1 of Part 2 of Division 1 of this code and shall be
deemed to be subject to authorization by the Insurance
Commissioner within the meaning of subdivision (e) of Section
25100 of the Corporations Code.

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(C) The

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begin insert The end insert license may be obtained by filing an application on a form
prescribed by the commissioner accompanied by a filing fee of
three hundred fifty-four dollars ($354). The license when issued
shall be for an indefinite term and shall expire with the termination
of the existence of the holder, subject to the annual renewal fee
imposed under Sections 12415 and 12416.

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(D) An

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begin insert An end insert underwritten title company seeking to extend its license to
an additional county shall pay a two hundred seven dollar ($207)
fee for each additional county, and shall furnish to the
commissioner evidence, at least sufficient to meet the minimum
net worth requirements of paragraph (2), of its financial ability to
expand its business operation to include the additional county or
counties. begin insert An underwritten title company seeking to expand its
escrow business pursuant to subdivision (c) shall pay a one-time
fee of four hundred forty-nine dollars ($449) or the reasonable
regulatory cost, whichever is less. end insert

(4) (A) An underwritten title company shall furnish an audit to
the commissioner on the forms provided by the commissioner
annually, either on a calendar year basis on or before March 31
or, if approved in writing by the commissioner in respect to an
individual company, on a fiscal year basis on or before 90 days
after the end of the fiscal year. The time for furnishing an audit
required by this paragraph may be extended, for good cause shown,
on written approval of the commissioner for a period, not to exceed
60 days. Failure to submit an audit on time, or within the extended
time that the commissioner may grant, shall be grounds for an
order by the commissioner to accept no new business pursuant to
subdivision (d). The audits shall be private, except that a synopsis
of the balance sheet on a form prescribed by the commissioner
may be made available to the public.

(B) The audits shall be made in accordance with generally
accepted auditing standards by an independent certified public
accountant or independent licensed public accountant whose
certification or license is in good standing at the time of the
preparation. The fee for filing the audit shall be three hundred
thirteen dollars ($313).

(C) The commissioner may refuse to accept an audit or order a
new audit for any of the following reasons:

(i) Adverse result in any proceeding before the California Board
of Accountancy affecting the auditor’s license.

(ii) The auditor has an affiliation with the underwritten title
company or any of its officers or directors that would prevent his
or her reports on the company from being reasonably objective.

(iii) The auditor has suffered conviction of a misdemeanor or
felony based on his or her activities as an accountant.

(iv) Judgment adverse to the auditor in any civil action finding
him or her guilty of fraud, deceit, or misrepresentation in the
practice of his or her profession.

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(D) Any

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begin insert Any end insert company that fails to file an audit or other report on or before
the date it is due shall pay to the commissioner a penalty fee of
one hundred eighteen dollars ($118) and on failure to pay that or
any other fee or file the audit required by this section shall forfeit
the privilege of accepting new business until the delinquency is
corrected.

(b) An underwritten title company may engage in the escrow
business and act as escrow agent begin delete , as defined in Sections 17003
and 17004 of the Financial Code, end delete provided that:

(1) It shall maintain record of all receipts and disbursements of
escrow funds.

(2) It shall deposit seven thousand five hundred dollars ($7,500)
for each county in which it transacts business in some form
permitted by Section 12351 with the commissioner who shall
immediately make a special deposit of that amount in the State
Treasury and that deposit shall be subject to Sections 12353, 12356,
12357, and 12358 and, as long as there are no claims against the
deposit, all interest and dividends thereon shall be paid to the
depositor. The deposit shall be for the security and protection of
persons having lawful claims against the depositor growing out of
escrow transactions with it. The deposit shall be maintained until
four years after all escrows handled by the depositor have been
closed.

(A) The commissioner may release the deposits prior to the
passage of the four-year period upon presentation of evidence
satisfactory to the commissioner of either a statutory merger of
the depositor into a licensee or certificate holder subject to the
jurisdiction of the commissioner, or a valid assumption agreement
under which all liability of the depositor stemming from escrow
transactions handled by it is assumed by a licensee or certificate
holder subject to the jurisdiction of the commissioner.

(B) With the foregoing exceptions, the deposit shall be returned
to the depositor or lawful successor in interest following the
four-year period, upon presentation of evidence satisfactory to the
commissioner that there are no claims against the deposit stemming
from escrow transactions handled by the depositor. If the
commissioner has evidence of one or more claims against the
depositor, and the depositor is not in conservatorship or liquidation,
the commissioner may interplead the deposit by special
endorsement to a court of competent jurisdiction for distribution
on the basis that claims against the depositor stemming from
escrow transactions handled by it have priority in the distribution
over other claims against the depositor.

begin insert (c) end insert begin insert   end insert begin insert An underwritten title company may be licensed by the
commissioner to engage in escrow business in all counties in this
state with one application. end insert

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(c)

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begin insert (d) end insert  The commissioner shall, whenever it appears necessary,
examine the business and affairs of a company licensed under this
section. All of these examinations shall be at the expense of the
company.

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(d) (1)

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begin insert (e) end insert  At any time that the commissioner determines, after notice
and hearing, that a company licensed under this section has
willfully failed to comply with a provision of this section, the
commissioner shall make his or her order prohibiting the company
from conducting its business for a period of not more than one
year.

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(2) Any

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begin insert Any end insert company violating the commissioner’s order is subject to
seizure under Article 14 (commencing with Section 1010) of
Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and
may have the license revoked by the commissioner. A person
aiding and abetting a company in a violation of the commissioner’s
order is guilty of a misdemeanor.

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(e) The

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begin insert The end insert purpose of this section is to maintain the solvency of the
companies subject to this section and to protect the public by
preventing fraud and requiring fair dealing. In order to carry out
these purposes, the commissioner may make reasonable rules and
regulations to govern the conduct of its business of companies
subject to this section.

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(f) The

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begin insert The end insert name under which each underwritten title company is
licensed shall at all times be an approved name. The fee for filing
an application for a change of name shall be one hundred eighteen
dollars ($118). Each company shall be subject to the provisions
of Article 14 (commencing with Section 1010) and Article 14.5
(commencing with Section 1065.1) of Chapter 1 of Part 2 of
Division 1.

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(g) The

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begin insert The end insert rules and regulations shall be adopted, amended, or repealed
in accordance with the procedure provided in Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code.

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(f) This section does not prohibit an underwritten title company
from engaging in escrow activities in its counties of licensure on
properties located outside this state if those activities do not violate
the laws of that other state or country.

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