Code Section Group

Financial Code - FIN

DIVISION 6. ESCROW AGENTS [17000 - 17703]

  ( Division 6 enacted by Stats. 1951, Ch. 364. )

CHAPTER 2.5. Escrow Agents’ Fidelity Corporation [17300 - 17350]

  ( Heading of Chapter 2.5 amended by Stats. 1988, Ch. 1458, Sec. 1. )

ARTICLE 2. Purpose: Scope of Guarantee [17310 - 17315]
  ( Article 2 added by Stats. 1982, Ch. 1106, Sec. 1. )

17310.
  

(a) It shall be the purpose of Fidelity Corporation to indemnify a member within the State of California against loss, subject to the limitations set forth in this chapter.

(b) 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.

(c) 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.

(d) 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.

(Amended by Stats. 2006, Ch. 376, Sec. 1. Effective January 1, 2007.)

17311.
  

(a) Persons licensed pursuant to this division shall maintain a corporation under the Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code) operating under the name Escrow Agents’ Fidelity Corporation.

(b) The State of California, the Department of Business Oversight, or any officer, agent, or employee of either shall not be liable in any way for the conduct of Fidelity Corporation, its directors, officers, agents, employees, or members.

(Amended by Stats. 2015, Ch. 190, Sec. 39. Effective January 1, 2016.)

17312.
  

(a) Each person licensed pursuant to this division who is engaged in the business of receiving escrows specified in subdivision (c) and whose escrow business location is located within the State of California shall participate as a member in Fidelity Corporation in accordance with this chapter and rules established by the Board of Directors of Fidelity Corporation. Fidelity Corporation shall not deny membership to any escrow agent holding a valid unrevoked license under the Escrow Law who is required to be a member under this subdivision.

(b) Upon filing a new application for licensure as required by Section 17201, persons required to be a member of Fidelity Corporation shall file a copy thereof concurrently with Fidelity Corporation. If an application for licensure submitted to Fidelity Corporation contains personal or confidential information, Fidelity Corporation and its board shall maintain this information in confidence to protect the privacy of the information. The copy of the application shall include the three-thousand-dollar ($3,000) fee specified in subdivision (a) of Section 17320 and all required Fidelity Corporation Certificates set forth in Sections 17331 and 17331.1. Fidelity Corporation shall promptly furnish to the commissioner a compliance letter confirming that the applicant has satisfied the requirements to be a member of Fidelity Corporation.

(c) The required membership in Fidelity Corporation shall be limited to those licensees whose escrow business location is located within the State of California and who engage, in whole or in part, in the business of receiving escrows for deposit or delivery in the following types of transactions:

(1) Real property escrows, including, but not limited to, the sale, encumbrance, lease, transfer of title, loans or other obligations to be secured by a lien upon real property, and exchanges, excluding money or property held or deposited pursuant to paragraph (3) of subdivision (a) of Section 51003.

(2) Bulk sale escrows, including, but not limited to, the sale or transfer of title to a business entity and the transfer of liquor licenses or other types of business licenses or permits.

(3) Fund or joint control escrows, including, but not limited to, transactions specified in Section 17005.1, and contracts specified in Section 10263 of the Public Contract Code.

(4) The sale, transfer of title, or refinance escrows for manufactured homes or mobilehomes.

(5) Reservation deposits required under Article 2 (commencing with Section 11010) of Chapter 1 of Part 2 of Division 4 of the Business and Professions Code or by regulation of the Bureau of Real Estate to be held in an escrow account.

(6) Escrows for sale, transfer, modification, assignment, or hypothecation of promissory notes secured by deeds of trust.

(d) Coverage required to be provided by Fidelity Corporation under this chapter shall be provided to members only for loss of trust obligations with respect to those types of transactions specified in subdivision (c). If a loss covered by Fidelity Corporation is also covered by a member’s general liability, dishonesty, or indemnity policy, or other private insurance policy, then the member’s private policy shall first be applied as the primary indemnity to cover the loss. However, the failure of the member’s private primary policy to indemnify the member’s loss within the time specified for Fidelity Corporation indemnity in subdivision (a) of Section 17314 shall not limit the indemnity obligations of Fidelity Corporation as defined in this chapter. Indemnity coverage for those types of transactions not specified in subdivision (c) shall be provided by escrow agents in accordance with Section 17203.1.

(Amended by Stats. 2013, Ch. 352, Sec. 88. Effective September 26, 2013. Operative July 1, 2013, by Sec. 543 of Ch. 352.)

17313.
  

The commissioner shall review and approve the articles of incorporation and bylaws of Fidelity Corporation before they are filed with the Secretary of State.

(Amended by Stats. 1985, Ch. 1560, Sec. 11. Effective October 2, 1985.)

17313.1.
  

The fiscal year of Fidelity Corporation shall commence on July 1 of each year.

(Added by Stats. 1988, Ch. 1458, Sec. 5. Effective September 28, 1988.)

17314.
  

(a) Fidelity Corporation shall pay a member for loss of trust obligations subject to the limitations set forth in this chapter. Fidelity Corporation shall pay or deny the claim within 90 days of receipt of the proof of loss filed by a member, or a member’s successor in interest. Notwithstanding any other provision of this article, the protection to members provided by Fidelity Corporation and by the fidelity bond or insurance policy, if any, shall not extend to any transaction involving any member at any branch or business location outside the State of California, but shall extend only to escrow trust obligations and trust funds located within the State of California.

(b) Coverage shall be provided to members in accordance with the following schedule:

MONTHLY AVERAGE ESCROW
LIABILITY PER LOCATION

COVERAGE

$0 - $  1,000,000 

$1,000,000

over $1,000,000 - $  3,000,000 

$2,000,000

over $3,000,000 - $  5,000,000 

$3,000,000

over $5,000,000 - $  7,500,000 

$4,000,000

over $7,500,000 - $10,000,000 

$5,000,000

Pursuant to the schedule, the minimum coverage by Fidelity Corporation for each licensed location shall be one million dollars ($1,000,000) and the maximum coverage for each licensed location shall be five million dollars ($5,000,000).

(c) A member shall maintain minimum coverage in accordance with the schedule in subdivision (b) and shall monitor its escrow liability monthly. An increase in escrow liability above the monthly average escrow liability coverage as provided for in subdivision (b) shall be reported immediately to Fidelity Corporation. Upon receipt of this report, Fidelity Corporation shall immediately provide for the increase in coverage, and shall immediately bill and collect pursuant to Section 17321, an amount necessary to provide for the increased coverage.

(d) Any member with a licensed location or locations with a monthly average escrow liability greater than ten million dollars ($10,000,000) shall obtain a bond from a corporate surety which is an admitted insurer in the State of California insuring the balance of trust funds not covered by Fidelity Corporation, in a ratio of one dollar of coverage for every three dollars of trust obligations not covered by Fidelity Corporation. The Fidelity Corporation shall have the authority to obtain the excess coverage bond. The cost of the bond shall be shared pro rata by those members included in the coverage.

(e) If a member establishes, to the satisfaction of the commissioner, that a bond is not available or is impracticable under subdivision (d), then, at the member’s election, either:

(1) The member shall place average trust obligations in excess of ten million dollars ($10,000,000) in a restricted escrow trust account. Each transfer or release of the funds to be made by specific resolution of the member’s board of directors and the signature of a neutral third party; or

(2) The licensed location of the member with average trust balances in excess of ten million dollars ($10,000,000) shall be subject to examinations to be conducted at a frequency as deemed appropriate and necessary by the commissioner or Fidelity Corporation, but not less frequently than once a year.

(f) Any member subject to subdivision (e) shall within 10 business days after the effective date of this section notify Fidelity Corporation of its election. A member who subsequently becomes subject to subdivision (e) shall within a like period of time notify Fidelity Corporation of its election. Fidelity Corporation shall also be notified of any change of election in a like period of time. Fidelity Corporation shall notify the commissioner within 10 business days of receipt of any notice under this subdivision of the elections made. All notices under this subdivision shall be in writing.

(Amended by Stats. 2004, Ch. 180, Sec. 1. Effective January 1, 2005.)

17314.1.
  

(a) Notwithstanding any other provision of this article, Fidelity Corporation shall not be obligated to pay any claim made by a member unless (1) the claim would, except for the dollar amount thereof, be a valid claim under the bond as prescribed by Section 17203.1 and (2) the claim is made within the time prescribed by Section 17205. The protection to members provided by Fidelity Corporation and by the fidelity bond or insurance policy, if any, shall therefore be deemed to be coextensive except as to the dollar amounts as set forth in Section 17314. All defenses available to the insurer under the fidelity bond or insurance policy, if any, on any claim shall also be a defense to Fidelity Corporation, as either an indemnitor or surety, on any claim brought against the corporation.

(b) No person other than a member, or the member’s successor in interest, who shall be the commissioner, a conservator, receiver, or trustee as designated by a court of competent jurisdiction, is entitled to assert a claim against Fidelity Corporation for losses covered under this article.

(Amended by Stats. 2006, Ch. 376, Sec. 2. Effective January 1, 2007.)

17314.2.
  

Claims filed prior to the effective date of this chapter shall be governed by the provisions in effect when the loss occurred.

(Added by Stats. 1988, Ch. 1458, Sec. 9. Effective September 28, 1988.)

17314.3.
  

(a) A deductible shall apply to each loss suffered by a member in the amount of five thousand dollars ($5,000), plus 5 percent of the amount by which the loss exceeds five thousand dollars ($5,000). If a member with more than one licensed location suffers a covered loss at more than one location, the deductible shall apply to each location separately in proportion to the amount of the loss suffered at each such licensed location.

(b) Fidelity Corporation shall pay the full amount of any member’s loss to the member or the member’s successor in interest. The member shall be obligated to pay to Fidelity Corporation the amount of the member’s deductible after payment in full of the loss by Fidelity Corporation.

(c) In the event a license is surrendered, suspended, or revoked prior to payment in full by the member of all or any portion of the deductible, the member shall nevertheless be liable to Fidelity Corporation for the amount of the deductible. If the license of the member is surrendered, suspended, or revoked prior to payment in full of the deductible, Fidelity Corporation shall have priority over all other claimants, except the State of California and any conservator or receiver of the member’s estate, against the assets of the licensee, including the bond required under Section 17202.

(d) Nothing in this section shall be construed to give any person or entity not (1) a member of Fidelity Corporation, or (2) a successor in interest of a member, or (3) the commissioner any right of action or any right to make a claim directly against Fidelity Corporation, its officers, directors, agents, or employees. Fidelity Corporation shall be entitled to recover its reasonable costs and attorney’s fees as an item of costs, as provided for in paragraph (10) of subdivision (a) and paragraph (5) of subdivision (c) of Section 1033.5 of the Code of Civil Procedure, in defending any claim made directly against Fidelity Corporation, not authorized in this division.

(e) If a member fails to pay the deductible within the time set forth in the bylaws of Fidelity Corporation, Fidelity Corporation may bring an action at law or in equity against the member to recover the amount of the deductible. Fidelity Corporation shall recover its reasonable costs and attorney’s fees as an item of costs, as provided for in paragraph (10) of subdivision (a) and paragraph (5) of subdivision (c) of Section 1033.5 of the Code of Civil Procedure, provided, that the payment of the costs and attorney’s fees will not cause the member to be in violation of Section 17202, 17202.1, or 17210.

(Amended by Stats. 1990, Ch. 1431, Sec. 1.)

17315.
  

The commissioner may establish rules which are reasonable and necessary to carry out the provisions of this chapter.

(Added by Stats. 1982, Ch. 1106, Sec. 1.)

FINFinancial Code - FIN2.