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SB-736 Escrow agents.(2015-2016)

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SB736:v98#DOCUMENT

Amended  IN  Senate  May 05, 2015

CALIFORNIA LEGISLATURE— 2015–2016 REGULAR SESSION

Senate Bill No. 736


Introduced by Senators Vidak and Block
(Coauthor: Senator Morrell)

February 27, 2015


An act to amend Sections 17202 and 17310 17310, 17630, 17635, and 17636 of, and to add Section 17665 to, the Financial Code, relating to escrow agents, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 736, as amended, Vidak. Escrow agents: loss of trust fund obligations. agents.
The Escrow Law requires the licensing of escrow agents by the Commissioner of Business Oversight, and further requires licensees to participate as members of the Escrow Agents’ Fidelity Corporation, a nonprofit corporation established to pay members for loss of trust fund obligations, as specified. The law requires a licensed escrow agent to maintain a bond based on the previous year’s average annual trust fund obligations, as specified.
This bill would authorize the commissioner to increase the minimum bond required of an escrow agent by up to 100% of its face value if the commissioner reasonably believes, based on an examination, that conservation or liquidation of that escrow agent may become necessary for the protection of the public. This bill would make findings and declarations regarding the role of Fidelity Corporation to support and enhance preservation of the public’s trust in licensed escrow agents, and specify that Fidelity Corporation is required to indemnify a member escrow agent against loss is in accordance with the Escrow Law. This The bill would also state the intent of the Legislature for the commissioner to utilize the services of private 3rd parties parties, with prior escrow or escrow conservation, liquidation, or receivership experience, who are independent of the department to perform conservation, liquidation, and receiver functions, and would require the full amount of any penalty revenue, up to $125,000 at any one time, as specified, to be available for use by the commissioner to compensate a an appointed conservator, liquidator, or receiver. The bill would also authorize the commissioner to utilize all or a portion of the bond or other required obligations, and all or a portion of a licensee’s assets remaining following conservation, liquidation, or receivership to compensate an appointed conservator, liquidator, or receiver. By making this penalty revenue and other revenue available to the commissioner in this regard, this bill would make an appropriation.
Vote: 2/3   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.Section 17202 of the Financial Code is amended to read:
17202.

At the time of filing an application for an escrow agent’s license, the applicant shall deposit with the commissioner a bond satisfactory to the commissioner in the amount of at least twenty-five thousand dollars ($25,000). Thereafter, a licensee shall maintain a bond satisfactory to the commissioner in the amount of: (1) twenty-five thousand dollars ($25,000) if 150 percent of the previous year’s average annual trust fund obligations, as calculated under Section 17348, equals two hundred fifty thousand dollars ($250,000) or less; (2) thirty-five thousand dollars ($35,000) if 150 percent of the previous year’s average annual trust fund obligations, as calculated under Section 17348, equals at least two hundred fifty thousand one dollars ($250,001) but not more than five hundred thousand dollars ($500,000); or (3) fifty thousand dollars ($50,000) if 150 percent of the previous year’s average annual trust fund obligations, as calculated under Section 17348, equals five hundred thousand one dollars ($500,001) or more. The commissioner may increase the minimum bond required of an escrow agent by up to 100 percent of its face value if the commissioner reasonably believes, based on an examination conducted pursuant to Section 17405, that conservation or liquidation of that escrow agent may become necessary for the protection of the public. The bond shall run to the state for the use of the state and for any person who has cause against the obligor of the bond under the provision of this division. A deposit given instead of the bond required by this section shall not be deemed an asset of the applicant or licensee for the purpose of complying with Section 17210. An applicant or licensee may obtain an irrevocable letter of credit approved by the commissioner in lieu of the bond.

SEC. 2.SECTION 1.

 Section 17310 of the Financial Code is amended to read:

17310.
 (a) The Legislature finds and declares that persons who entrust their money to escrow agents licensed under this division are entitled to full compensation for any loss of trust fund moneys they experience due to loss, theft, or misappropriation by a licensed escrow agent. It is the intent of the Legislature that Fidelity Corporation undertake its responsibilities under this division in a manner that supports and enhances preservation of the public’s trust in licensed escrow agents.
(b) Fidelity Corporation shall indemnify a member within the State of California against loss, subject to the limitations set forth in this chapter.
(c) Fidelity Corporation shall not be liable for any consequential damages sustained by a member, or by any other person, nor for any punitive damages whatsoever.
(d) The indemnification shall be provided by any of the following:
(1) A fund established by Fidelity Corporation pursuant to Section 17320.
(2) A fidelity bond or insurance policy to be approved by the commissioner.
(3) A combination of paragraphs (1) and (2) subject, however, to the maximum coverage specified in subdivision (b) of Section 17314.
(e) Fidelity Corporation shall provide a copy to all of its members and the commissioner of the fidelity bond or insurance policy as it is acquired or renewed, and Fidelity Corporation shall promptly provide a copy to any member or successor in interest, upon request.

SEC. 2.

 Section 17630 of the Financial Code is amended to read:

17630.
 (a) If any facts occur which that would entitle the commissioner under Section 17621 to take possession of the property, business business, and assets of a licensee licensee, the commissioner may appoint a conservator of a licensee and require of him such or her a bond as the commissioner deems proper. The commissioner may also, upon the request of the board of directors of a licensee, appoint a conservator of such the licensee and require of him such or her a bond as the commissioner deems proper. The conservator, under the direction of the commissioner, shall take possession of the property, business business, and assets of the licensee and take such the action as he or she may deem necessary to conserve the assets of such the licensee pending further disposition of its business. The conservator shall retain such the possession until the property, business business, and assets of the licensee are returned to the licensee or until further order of the commissioner.
(b) Whenever possible, the commissioner shall utilize the services of one or more qualified private individuals with prior escrow or escrow conservation experience to act as conservator.

SEC. 3.

 Section 17635 of the Financial Code is amended to read:

17635.
 (a) If at any time after taking possession of the property and business of a licensee it shall appear to the commissioner that it would be futile to proceed as conservator with the conduct of the business of such the person he or she may apply to the superior court of the county in which is located the principal office of such the person in this State state for an order to liquidate and wind up the business of said that person. Upon a full hearing of such an application, the court may make an order directing the winding up and liquidation of the business of such the person by the commissioner, as liquidator.
(b) If the commissioner appoints a representative to act on his or her behalf as a liquidator, the commissioner shall, whenever possible, utilize the services of one or more qualified private individuals with prior escrow or escrow liquidation experience to act in this capacity.

SEC. 4.

 Section 17636 of the Financial Code is amended to read:

17636.
 (a) Whenever the commissioner has taken possession of the property and business of a licensee he or she may petition the superior court for the appointment of a receiver to liquidate the affairs of the licensee.
(b) Whenever possible, the commissioner shall utilize the services of one or more qualified private individuals with prior escrow or escrow receivership experience to act as receiver.

SEC. 3.SEC. 5.

 Section 17665 is added to the Financial Code, to read:

17665.
 (a) The Except as provided in subdivision (b), the full amount of any penalty revenue collected from persons who are found to have violated any provision of this division shall be available for use by the commissioner to compensate a conservator appointed pursuant to Section 17630, a liquidator appointed pursuant to Section 17635, or a receiver appointed pursuant to Section 17636.
(b) The maximum amount of penalty revenue available for use by the commissioner at any one time to compensate conservators, liquidators, or receivers shall not exceed one hundred twenty-five thousand dollars ($125,000). Any amounts above one hundred twenty-five thousand dollars ($125,000) shall revert to the General Fund.
(c) The commissioner may utilize all or a portion of the bond or other obligations required pursuant to Section 17202, and all or a portion of a licensee’s assets remaining following conservation, liquidation, or receivership to compensate conservators, liquidators, or receivers.

(b)

(d) It is the intent of the Legislature that the commissioner utilize the services of private third parties with prior escrow or escrow conservation, liquidation, or receivership experience, who are independent of the department to perform conservation, liquidation, and receiver functions, when whenever possible.