Bill Text: CA AB1885 | 2015-2016 | Regular Session | Amended
Bill Title: Title and escrow services: authorization to transact business.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Failed) 2016-11-30 - From committee without further action. [AB1885 Detail]
Download: California-2015-AB1885-Amended.html
BILL NUMBER: AB 1885 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 17, 2016
INTRODUCED BY Assembly Member Waldron
FEBRUARY 11, 2016
An act to amend Section 12340.1 12389
of the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 1885, as amended, Waldron. Title insurance.
Title and escrow services: authorization to transact business.
Existing law authorizes a company that is a stock corporation to
engage in the business of preparing title searches, title reports,
title examinations, or certificates or abstracts of title, and to
conduct escrow services, if the company, among other things,
furnishes audits to the Insurance Commissioner annually on or before
March 31, or, if approved in writing by the commissioner, on a fiscal
year basis on or before 90 days after the end of the fiscal year.
Existing law authorizes the commissioner to extend that deadline, for
good cause shown, for a period not to exceed 60 days.
This bill would extend the maximum amount of time permitted for an
extension of the deadline to submit an audit to 90 days.
Under existing law, title insurance is defined as insuring,
guaranteeing, or indemnifying an owner of real or personal property
or the holder of liens or encumbrances or others who have interests
in the property against loss or damage due to liens, encumbrances, or
defects in the title to the insured property, defects in liens or
encumbrances, or defects in title searches.
This bill would make technical, nonsubstantive changes to those
provisions.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 12389 of the
Insurance Code , as added by Section 3 of Chapter 370 of
the Statutes of 2015, is amended to read:
12389. (a) On and after July 1, 2016, an underwritten title
company as defined in Section 12340.5 that is a stock corporation
may, subject to subdivision (b), (1) 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, and (2) conduct escrow services
through business locations, as defined in Section 12340.13, in
counties in which the underwritten title company is licensed to
conduct escrow services regardless of the location of the real or
personal property involved in the transaction.
(b) (1) Only a domestic corporation may be licensed under this
section and no underwritten title company, as defined in Section
12340.5, may 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) (A) Depending upon the county or counties in which the company
is licensed to transact business, it shall maintain required minimum
net worth and a bond or cash deposit as follows:
Aggregate number of
documents
recorded and documents
filed in
the
preceding calendar year
in all
counties
where the company is
licensed to
transact
business
Amount of Amount of
required bond
Number of documents or
minimum net cash
worth deposit
Less than 50,000.... $ 75,000 $ 50,000
50,000 to 100,000......... 120,000 50,000
100,000 to 500,000........ 200,000 100,000
500,000 to 1,000,000...... 300,000 100,000
1,000,000 or more......... 400,000 100,000
(B) "Net worth" for the purposes of this section is defined as the
excess of assets over all liabilities and required reserves. The
company 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.
(C) If a title plant of an underwritten title company is not
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 (i) 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 (ii) 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.
(D) An underwritten title company shall at all times 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.
(3) (A) An 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 the applicant. After issuance the holder of the license
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.
(B) An underwritten title company that 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 is deemed
to be subject to authorization by the Insurance Commissioner within
the meaning of subdivision (e) of Section 25100 of the Corporations
Code.
(C) The 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.
(D) An 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.
(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 any individual company,
on a fiscal year basis on or before 90 days after the end of the
fiscal year. The time for furnishing any 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
90 days. Failure to submit an audit on time, or within
the extended time that the commissioner may grant, is 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) An 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 been convicted of a misdemeanor or felony
based on his or her activities as an accountant.
(iv) A 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.
(D) A 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
another fee or file the audit required by this section shall forfeit
the privilege of accepting new business until the delinquency is
corrected.
(c) An underwritten title company may engage in the escrow
business and act as escrow agent, provided that:
(1) It maintains a record of all receipts and disbursements of
escrow funds.
(2) (A) It maintains a bond satisfactory to the commissioner in
the amount set forth in subparagraph (A) of paragraph (2) of
subdivision (b) of this section. 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 or under the provisions of this chapter.
(B) (i) In lieu of the bond described in subparagraph (A), the
company shall maintain a deposit in the amount set forth in
subparagraph (A) of paragraph (2) of subdivision (b) of this section,
and in a form permitted by Section 12351, with the commissioner, who
shall immediately make a special deposit in that amount in the State
Treasury. The deposit shall be subject to Sections 12353, 12356,
12357, and 12358. 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 security for the same beneficiaries and purposes
as the bond, as set forth in subparagraph (A) and in paragraph (3)
of this subdivision. The deposit shall be maintained until four years
after all escrows handled by the depositor have been closed.
(ii) The commissioner may release the deposit prior to the passage
of the four-year period described in clause (i) upon presentation of
evidence satisfactory to the commissioner of either a statutory
merger of the depositor into a licensee subject to the jurisdiction
of the commissioner, or a valid assumption agreement under which the
liability of the depositor stemming from escrow transactions handled
by it is assumed by a licensee subject to the jurisdiction of the
commissioner.
(iii) With the foregoing exceptions, the deposit shall be returned
to the depositor or lawful successor in interest following the
four-year period described in clause (i) upon presentation of
evidence satisfactory to the commissioner that there are no claims
against the deposit arising out of escrow transactions handled by the
depositor. If claims against the deposit are presented to the
commissioner, the commissioner may pay a valid claim or claims until
the deposit amount is exhausted. If the commissioner has evidence of
one or more claims against the depositor, and the depositor is in
conservatorship, bankruptcy, or liquidation proceedings, the
commissioner may release the deposit to the conservator, trustee, or
liquidator. If the depositor is not in conservatorship, bankruptcy or
liquidation, the commissioner may interplead the deposit by special
endorsement to a court of competent jurisdiction for distribution to
claimants on the deposit.
(3) (A) The bond provided by a surety insurer naming the
underwritten title company as principal obligor or the letter of
credit of an issuing bank shall be subject to the following
conditions:
(i) The licensee shall faithfully conform to and abide by the
provisions of this chapter and all of the rules made by the
commissioner under this chapter concerning the conduct of escrow
services.
(ii) The licensee will honestly and faithfully apply all funds
received, and will faithfully and honestly perform all obligations
and undertakings under this chapter, concerning the conduct of escrow
services.
(B) In determining the liability of the principal and the sureties
under the bond, any money recovered to restore any deficiency in the
trust shall not be considered as an asset of the liquidation subject
to the assessment for the cost of the liquidation.
(C) The surety under the bond, or the issuing bank of a letter of
credit, may pay the full amount of its liability thereunder to the
commissioner as conservator, liquidator, receiver, or anyone
appointed by the commissioner as a conservator, liquidator, or
receiver in lieu of payment to the state or persons having a cause of
action against the principal of a bond or applicant under a letter
of credit, and upon such payment the surety on the bond, or the
issuing bank under a letter of credit shall be completely released,
discharged, and exonerated from further liability under the bond or
letter of credit, as applicable. The conservator, liquidator, or
receiver may use the proceeds of the bond, or letter of credit, for
any purposes, including the funding of the costs of conservatorship,
receivership, or liquidation.
(D) If there is no reasonable or adequate admitted market for
surety bonds as required by this section, the commissioner may act
pursuant to Section 1763.1 or, for good cause shown, may permit a
letter of credit in lieu thereof, and in the amount of the bond or
deposit required by this section. In that case, the commissioner may
fashion the letter of credit requirements as appropriate to the
circumstances and cause.
(4) On and after July 1, 2016, the commissioner shall promptly
release to the depositor, upon application, all escrow-related
deposits previously made pursuant to paragraph (2) of subdivision (c)
of former Section 12389 if any of the following occurs:
(A) The underwritten title company has provided to the
commissioner bond coverage, a deposit, or an approved irrevocable
letter of credit as set forth in this subdivision.
(B) Upon presentation of evidence satisfactory to the commissioner
of either a statutory merger of the underwritten title company
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.
(5) Otherwise the deposit shall be promptly returned to the
depositor, its duly appointed trustee in bankruptcy or lawful
successor in interest upon application for release following the
four-year period specified in paragraph (2) , as that paragraph read
on June 30, 2016, unless the commissioner has received claims against
the deposit stemming from escrow transactions handled by the
depositor. If the commissioner has received one or more claims
against the depositor, and the depositor is not in conservatorship,
bankruptcy, 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 the depositor have
priority in the distribution over other claims against the depositor.
(d) The commissioner shall, whenever it appears necessary, examine
the business and affairs of a company licensed under this section.
The examination shall be at the expense of the company.
(e) (1) 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.
(2) A company that violates 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
its license revoked by the commissioner. Any person aiding and
abetting any company in a violation of the commissioner's order is
guilty of a misdemeanor.
(f) The 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. The rules and regulations shall be adopted,
amended, or repealed in accordance with the procedures provided in
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3
of Title 2 of the Government Code.
(g) The 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.
(h) This section does not prohibit an underwritten title company
from engaging in escrow, settlement, or closing activities on
properties located outside this state if those activities do not
violate the laws of that other state or country.
(i) This section is operative on July 1, 2016.
SECTION 1. Section 12340.1 of the Insurance
Code is amended to read:
12340.1. "Title insurance" means insuring, guaranteeing or
indemnifying owners of real or personal property or the holders of
liens or encumbrances thereon or others interested therein against
loss or damage suffered by reason of:
(a) Liens or encumbrances on, or defects in the title to the
property;
(b) Invalidity or unenforceability of any liens or encumbrances on
the property; or
(c) Incorrectness of searches relating to the title to real or
personal property.
