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 3. Membership Fee and Assessments [17320 - 17324]
  ( Article 3 added by Stats. 1982, Ch. 1106, Sec. 1. )

17320.
  

Fidelity Corporation shall establish and maintain the following funds for payment of claims and for payment of costs of administration: the membership fund, the operations fund, and the fidelity fund.

(a) An applicant or a licensee shall, at the time an application is filed for a license, pay to Fidelity Corporation a membership fee of three thousand dollars ($3,000) for each location for which a license is applied. If the application is denied, withdrawn, or abandoned, Fidelity Corporation may retain two hundred dollars ($200) from the membership fee to cover costs of administration.

(1) The membership fund shall be reserved for payment of claims which exceed the fidelity fund balance and for payment of extraordinary operational costs.

(2) Any member who, on the effective date of this section, has an account balance which exceeds the three thousand dollars ($3,000) membership fee times the number of its licensed locations shall be credited in a special reserve account for the excess amount. This balance shall be credited against future assessments made pursuant to subdivision (b) of Section 17321 in an amount not exceeding four hundred dollars ($400) per licensed location per year. Any member whose account balance is less than three thousand dollars ($3,000) times the number of its licensed locations shall, on or before December 1, 1988, pay to Fidelity Corporation an amount sufficient to allow the member’s account to be maintained at three thousand dollars ($3,000) times the number of licensed locations. Fidelity Corporation shall provide each member with an accounting of the amounts being reserved for the members’ membership account and amounts being held as a special reserve.

(3) The membership fee, less any unpaid assessments and related costs, shall be refunded to the member in accordance with Fidelity Corporation’s bylaws not less than 30 months and no more than 36 months after the effective date of surrender of a license.

(4) Any member who does not engage in any escrow transactions pursuant to subdivision (c) of Section 17312 may terminate its membership in Fidelity Corporation by written notice to Fidelity Corporation and the Department of Business Oversight, as provided in the Fidelity Corporation’s bylaws and rules and regulations. The membership fee, less any unpaid assessments and related costs, shall be refunded to the member in accordance with Fidelity Corporation’s bylaws not less than 30 months and no more than 36 months after the effective date of the member’s written request to terminate its membership in Fidelity Corporation. Before a licensee resumes those escrow transactions, it shall first be required to become a member of Fidelity Corporation, as provided in this subdivision.

(b) Fidelity Corporation shall prepare, prior to its fiscal year end, an estimated annual operational budget projecting the costs of operations and administration for the succeeding fiscal year, excluding the amount paid for claims and premiums paid for excess coverage bonding. The amount of the assessment shall be 150 percent of the budgetary projection. In succeeding years, the assessment shall be adjusted by adding the prior year’s deficit or deducting unused surplus from the prior year.

(c) Fidelity Corporation shall establish a fidelity fund for the payment of claims and for the payment of the premium for the fidelity bond or insurance policy, if any. All claims shall be paid from the fidelity fund, provided that, to the extent that the fidelity fund balance is not sufficient to pay claims, the claim shall be paid from the membership fund by charging each member’s membership account a pro rata share of the excess.

(d) All interest earned on the membership fund and the operations fund shall be credited to the fidelity fund.

(Amended by Stats. 2015, Ch. 190, Sec. 40. Effective January 1, 2016.)

17321.
  

Fidelity Corporation shall bill and collect from each member an annual premium that in the aggregate shall consist of assessments for the operations fund and the fidelity fund.

(a) The annual assessment for the operations fund shall be assessed no later than October 15 of each year for the current fiscal year in accordance with subdivision (b) of Section 17320. The payment of any invoice for assessments under this subdivision is payable by the member escrow agent in three equal and consecutive monthly installments with the first installment payable at or within 30 days after receipt of the Fidelity Corporation invoice. The assessment shall include:

(1) All costs and expenses of administration as budgeted by the board of directors for the current fiscal year.

(2) Any expenses actually incurred in the preceding fiscal year which exceeded the budgeted costs of expenses and administration except for expenses recovered pursuant to subdivision (a) of Section 17321.1.

Each member’s assessment shall be determined pro rata based upon the ratio of each member’s licensed locations to the total licensed locations of all members as of the preceding June 30.

Members licensed on or after July 1 of each year shall be assessed only for costs and expenses pursuant to paragraph (1) of this subdivision. This assessment shall be prorated on a monthly basis.

(b) The annual assessment for the fidelity fund shall be assessed no later than May 1. The assessment shall include any amount necessary to replenish the membership fund pursuant to Section 17324, and shall be based upon the balances of the membership fund and the fidelity fund as of December 31 of the previous year and the escrow liability schedule of each licensed location as provided in Section 17348, and shall be calculated as follows:

(1) If the membership fund and fidelity fund in the aggregate equal an amount less than five million dollars ($5,000,000), or if the balance in the fidelity fund is less than two million five hundred thousand dollars ($2,500,000), then the assessment shall be the greater of: (A) the amount necessary to bring the membership fund and fidelity fund in the aggregate up to five million dollars ($5,000,000), but not to exceed one million dollars ($1,000,000) per assessment, or (B) the amount necessary to maintain a minimum fidelity fund balance of two million five hundred thousand dollars ($2,500,000), including the amount of the assessment, or (C) four hundred thousand dollars ($400,000).

(2) If the membership fund and fidelity fund in the aggregate equal an amount that is at least five million dollars ($5,000,000), and the balance in the fidelity fund is at least two million five hundred thousand dollars ($2,500,000), then the assessment shall be four hundred thousand dollars ($400,000).

Each member’s fidelity fund assessment for paragraphs (1) and (2) shall be the amount derived by multiplying the amount to be assessed by the ratio that each member’s risk factors bear to the total of all members’ risk factors.

A member’s risk factors shall be computed in accordance with the following formula, except that the total factors of a member shall be reduced by one for each licensed branch location:

Coverage per
Licensed Location


Factors

$1,000,000

3

$2,000,000

5

$3,000,000

7

$4,000,000

8

$5,000,000

9

(c) Notwithstanding subdivision (b), the assessment for the fidelity fund for the fiscal year beginning July 1, 1989, shall be made immediately upon 90-day notice of cancellation of the fidelity bond or insurance policy permitted by paragraph (2) of subdivision (c) of Section 17310, but in no event later than 60 days prior to the date of cancellation.

(d) Every licensed member as of March 31 shall pay the fidelity fund assessment, without any pro rata adjustment, notwithstanding that the member may have surrendered a license or have a license revoked prior to the date that the assessment is mailed.

(Amended by Stats. 2004, Ch. 180, Sec. 3. Effective January 1, 2005.)

17321.1.
  

Fidelity Corporation shall levy a special assessment against its members whenever:

(a) Deemed necessary by the board of directors in the event of any extraordinary expenses which would seriously deplete the resources of the operations fund; or

(b) A proof of loss has been submitted by a member which, if paid during that fiscal year, would reduce the membership fund by 10 percent or more.

(Added by Stats. 1988, Ch. 1458, Sec. 15. Effective September 28, 1988.)

17321.2.
  

Fidelity Corporation shall be entitled to collect late fees as specified in Fidelity Corporation’s bylaws for any late payment of assessments under Section 17320, 17321, or 17321.1.

(Added by Stats. 1988, Ch. 1458, Sec. 16. Effective September 28, 1988.)

17322.
  

Fidelity Corporation shall report to the commissioner each levy of assessment within 10 business days after the levy.

(Repealed and added by Stats. 1988, Ch. 1458, Sec. 18. Effective September 28, 1988.)

17323.
  

(a) In the event any member fails to pay an assessment when due, Fidelity Corporation shall by written demand addressed to the member request the payment of the assessment within 30 days of the demand letter. If the member fails to pay an assessment, the commissioner may issue an order pursuant to subdivision (b).

(b) If a member fails to pay the assessment, or any applicable late fee, the commissioner may by order summarily suspend the license issued to the company. If after the order is made, a request for a hearing is filed in writing and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its license is suspended, a company shall not conduct business pursuant to this division, except as may be permitted by order of the commissioner. However, the suspension of a license shall not affect the powers of the commissioner as provided in this division.

(c) Fidelity Corporation may bring an action at law or in equity against the member to recover any assessment or fees.

(d) Fidelity Corporation may be awarded costs and reasonable attorney’s fees, if it prevails in any action against a member, or against a third party, except the commissioner, to enforce a claim against the bond or other security posted by the member pursuant to Section 17202, or in any action against a member pursuant to subdivision (c). Those costs and attorney’s fees may be awarded 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. 2.)

17324.
  

Any reduction in the membership fund caused by payment of an extraordinary expense pursuant to subdivision (a) of Section 17320 or payment of claims pursuant to subdivision (c) of Section 17320 shall be replenished by the operations fund or the fidelity fund, as appropriate. The next assessment for the operations fund or the fidelity fund, as appropriate, shall include an amount necessary for that replenishment.

(Added by Stats. 1988, Ch. 1458, Sec. 20. Effective September 28, 1988.)

FINFinancial Code - FIN3.