AB 607: Real estate trust fund accounts: bond requirement.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2015-08-17
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed to the broker to withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner. The bill would prohibit an arrangement from relieving the persons authorized by a broker or officer from responsibility or liability in handling trust funds in the brokers custody, as specified.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed to the broker to withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner. The bill would prohibit an arrangement from relieving the persons authorized by a broker or officer from responsibility or liability in handling trust funds in the brokers custody, as specified.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed to the broker to withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner. The bill would prohibit an arrangement from relieving the persons authorized by a broker or officer from responsibility or liability in handling trust funds in the brokers custody, as specified.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed under to the broker to withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed under the broker to withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed under the broker to withdrawal withdraw funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize the commissioner to require, by regulation, separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against a loss subject to the deductible amount, if any, of the fidelity bond. The bill would authorize this bond to have a deductible of up to 5% of the coverage amount, if the employing broker has evidence of financial responsibility and require financial responsibility to be a separate fidelity bond coverage or a cash deposit adequate to cover the amount of the fidelity bond deductible, as specified, or any other evidence of financial responsibility approved by the commissioner.
Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner. Existing law requires a real estate broker who accepts funds belonging to others in connection with a transaction to deposit all those funds in either a neutral escrow depository, into the hands of the brokers principal, or into a trust fund account, as specified.
This bill would authorize certain persons, including, among others, a real estate salesperson licensed under the broker to withdrawal funds from a trust fund account of the broker if specifically authorized in writing. The bill would authorize an unlicensed employee of the broker to withdraw funds from the brokers trust fund account if the broker has fidelity bond coverage equal to the maximum amount of the trust funds to which the unlicensed employee has access to at any time. The bill would authorize the commissioner to require, by regulation, separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against a loss subject to the deductible amount, if any, of the fidelity bond.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker or officer:
(A)A real estate salesperson licensed to the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations promulgated pursuant to this part.
(C)An unlicensed employee of the individual broker, if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
Evidence of financial responsibility shall include one or more of the following:
(i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
(ii)A cash deposit held in a separate account, apart from other funds of the broker, the brokers employees, or the brokers principals, in a bank or recognized depository in this state adequate to cover the amount of the fidelity bond deductible and held exclusively and solely for the purpose of paying the fidelity bond deductible amount.
(iii)Any other evidence of financial responsibility approved by the commissioner.
(3)An arrangement under which a person enumerated in subparagraph (A), (B), or (C) of paragraph (2) is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the brokers custody.
(4)Notwithstanding the provisions of paragraphs (1), (2), and (3), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(5)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker or officer:
(A)A real estate salesperson licensed to the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations promulgated pursuant to this part.
(C)An unlicensed employee of the individual broker, if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
Evidence of financial responsibility shall include one or more of the following:
(i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
(ii)A cash deposit held in a separate account, apart from other funds of the broker, the brokers employees, or the brokers principals, in a bank or recognized depository in this state adequate to cover the amount of the fidelity bond deductible and held exclusively and solely for the purpose of paying the fidelity bond deductible amount.
(iii)Any other evidence of financial responsibility approved by the commissioner.
(3)An arrangement under which a person enumerated in subparagraph (A), (B), or (C) of paragraph (2) is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the brokers custody.
(4)Notwithstanding the provisions of paragraphs (1), (2), and (3), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(5)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker or officer:
(A)A real estate salesperson licensed to the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations promulgated pursuant to this part.
(C)An unlicensed employee of the individual broker, if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
Evidence of financial responsibility shall include one or more of the following:
(i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
(ii)A cash deposit held in a separate account, apart from other funds of the broker, the brokers employees, or the brokers principals, in a bank or recognized depository in this state adequate to cover the amount of the fidelity bond deductible and held exclusively and solely for the purpose of paying the fidelity bond deductible amount.
(iii)Any other evidence of financial responsibility approved by the commissioner.
(3)An arrangement under which a person enumerated in subparagraph (A), (B), or (C) of paragraph (2) is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the brokers custody.
(3)
(4)Notwithstanding the provisions of paragraphs (1) and (1), (2), and (3), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(4)
(5)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker or officer:
(A)A real estate salesperson licensed under to the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations. regulations promulgated pursuant to this part.
(C)An unlicensed employee of the individual broker broker, if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
Evidence of financial responsibility shall include one or more of the following:
(i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
(ii)A cash deposit held in a separate account, apart from other funds of the broker, employees, or clients, by a bank, trust company, or savings and loan association qualified to do business in the state the brokers employees, or the brokers principals, in a bank or recognized depository in this state adequate to cover the amount of the fidelity bond deductible and held exclusively and solely for the purpose of paying the fidelity bond deductible amount.
(iii)Any other evidence of financial responsibility approved by the commissioner.
(3)Notwithstanding the provisions of paragraphs (1) and (2), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(4)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker or officer:
(A)A real estate salesperson licensed under the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations.
(C)An unlicensed employee of the individual broker if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
Evidence of financial responsibility shall include one or more of the following:
(i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
(ii)A cash deposit held in a separate account, apart from other funds of the broker, employees, or clients, by a bank, trust company, title insurer, underwritten title company, or savings and loan association qualified to do business in the state adequate to cover the amount of the fidelity bond deductible and held exclusively and solely for the purpose of paying the fidelity bond deductible amount.
(iii)Any other evidence of financial responsibility approved by the commissioner.
(3)Notwithstanding the provisions of paragraphs (1) and (2), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(4)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker, or in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed pursuant to Section 10158 or 10211, or one, or more, of the following persons if specifically authorized in writing by the individual broker: broker or officer:
(A)A real estate salesperson licensed under the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations.
(C)An unlicensed employee of the individual broker if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. The commissioner may, by regulation, require separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against
a loss subject to the deductible amount, if any. For bonds with a deductible, the employing broker shall have evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount. Evidence of financial responsibility shall include one or more of the following: (i)Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible. (ii)A cash deposit held in a separate account, apart from other funds of the broker, employees, or clients, by a bank, trust company, title insurer, underwritten title company, or savings and loan association qualified to do business in the state adequate to cover the amount of the fidelity bond deductible and held
exclusively and solely for the purpose of paying the fidelity bond deductible amount. (iii)Any other evidence of financial responsibility approved by the commissioner.
(3)Notwithstanding the provisions of paragraphs (1) and (2), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(4)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
(a)(1)A real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the brokers principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.
(2)Withdrawals may be made from a trust fund account of an individual broker only upon the signature of that broker or one, or more, of the following persons if specifically authorized in writing by the individual broker:
(A)A real estate salesperson licensed under the broker.
(B)Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations.
(C)An unlicensed employee of the individual broker if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time. For purposes of this section, bonds providing coverage may be written with a deductible of up to 5 percent of the coverage amount. The commissioner may, by regulation, require separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against a loss subject to the deductible amount, if any.
(2)
(3)Notwithstanding the provisions of paragraph (1), paragraphs (1) and (2), a real estate broker collecting payments or performing services for investors or note owners in connection with loans secured by a first lien on real property may deposit funds received in trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, if the investor or note owner is any one of the following:
(A)The Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, or the United States Department of Veterans Affairs.
(B)A bank or subsidiary thereof, bank holding company or subsidiary thereof, trust company, savings bank or savings and loan association or subsidiary thereof, savings bank or savings association holding company or subsidiary thereof, credit union, industrial bank or industrial loan company, or insurance company doing business under the authority of, and in accordance with, the laws of this state, another state, or the United States relating to banks, trust companies, savings banks or savings associations, credit unions, industrial banks or industrial loan companies, or insurance companies, as evidenced by a license, certificate, or charter issued by the United States or a state, district, territory, or commonwealth of the United States.
(C)Trustees of a pension, profit-sharing, or welfare fund, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000).
(D)A corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation.
(E)A syndication or other combination of any of the entities specified in subparagraph (A), (B), (C), or (D) that is organized to purchase the promissory note.
(F)The California Housing Finance Agency or a local housing finance agency organized under the Health and Safety Code.
(G)A licensed residential mortgage lender or servicer acting under the authority of that license.
(H)A licensed real estate broker selling all or part of the loan, note, or contract to a lender or purchaser specified in subparagraphs (A) to (G), inclusive.
(3)
(4)A real estate broker who deposits funds held in trust in an out-of-state depository institution in accordance with paragraph (2) (3) shall make available, in this state, the books, records, and files pertaining to the trust accounts to the commissioner or the commissioners representatives or pay the reasonable expenses for travel and lodging incurred by the commissioner or the commissioners representatives in order to conduct an examination at an out-of-state location.
(b)A real estate broker acting as a principal pursuant to Section 10131.1 shall place all funds received from others for the purchase of real property sales contracts or promissory notes secured directly or collaterally by liens on real property in a neutral escrow depository unless delivery of the contract or note is made simultaneously with the receipt of the purchase funds.
(c)A real estate sales person who accepts trust funds from others on behalf of the broker under whom he or she is licensed shall immediately deliver the funds to the broker or, if so directed by the broker, shall deliver the funds into the custody of the brokers principal or a neutral escrow depository or shall deposit the funds into the brokers trust fund account.
(d)If not otherwise expressly prohibited by this part, a real estate broker may, at the request of the owner of trust funds or of the principals to a transaction or series of transactions from whom the broker has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, the accounts of which are insured by the Federal Deposit Insurance Corporation, if all of the following requirements are met:
(1)The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions.
(2)All of the funds in the account are covered by insurance provided by an agency of the United States.
(3)The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
(4)The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to the broker at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5)Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker.
(6)In an executory sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
(e)The broker shall have no obligation to place trust funds into an interest-bearing account unless requested to do so and unless all of the conditions in subdivision (d) are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account.
(f)Nothing in subdivision (d) shall preclude the commissioner from prescribing, by regulation, circumstances in which, and conditions under which, a real estate broker is authorized to deposit funds received in trust into an interest-bearing trust fund account.
(g)The broker shall maintain a separate record of the receipt and disposition of all funds described in subdivisions (a) and (b), including any interest earned on the funds.
(h)Upon request of the commissioner, a broker shall furnish to the commissioner an authorization for examination of financial records of those trust fund accounts maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code.
(i)As used in this section, neutral escrow means an escrow business conducted by a person licensed under Division 6 (commencing with Section 17000) of the Financial Code or by a person described in paragraph (1) or (3) of subdivision (a) of Section 17006 of that code.
|
Date
|
Status
|
|---|---|
| Jun 8, 2015 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on B. & F.I. |
| Aug 17, 2015 | Chaptered by Secretary of State - Chapter 216, Statutes of 2015. |
| Aug 17, 2015 | Approved by the Governor. |
| Aug 3, 2015 | Enrolled and presented to the Governor at 3 p.m. |
| Jul 13, 2015 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 79. Noes 0. Page 2355.). |
| Jul 13, 2015 | Senate amendments concurred in. To Engrossing and Enrolling. |
| Jul 9, 2015 | Read third time. Passed. Ordered to the Assembly. (Ayes 39. Noes 0. Page 1878.). |
| Jul 9, 2015 | Read third time. Passed. Ordered to the Assembly. |
| Jul 9, 2015 | In Assembly. Concurrence in Senate amendments pending. May be considered on or after July 11 pursuant to Assembly Rule 77. |
| Jul 7, 2015 | Read second time. Ordered to third reading. |
| Jul 6, 2015 | From committee: Be placed on second reading file pursuant to Senate Rule 28.8. |
| Jun 23, 2015 | Read second time and amended. Re-referred to Com. on APPR. |
| Jun 22, 2015 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (June 17). |
| Feb 24, 2015 | Read first time. To print. |
| May 22, 2015 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on B. & F.I. |
| May 21, 2015 | Referred to Com. on B. & F.I. |
| May 7, 2015 | Read third time. Passed. Ordered to the Senate. (Ayes 77. Noes 0. Page 1347.) |
| May 7, 2015 | Read third time. Passed. Ordered to the Senate. |
| May 7, 2015 | In Senate. Read first time. To Com. on RLS. for assignment. |
| Apr 30, 2015 | Read second time. Ordered to Consent Calendar. |
| Apr 29, 2015 | From committee: Do pass. To Consent Calendar. (Ayes 17. Noes 0.) (April 29). |
| Apr 27, 2015 | Re-referred to Com. on APPR. |
| Apr 23, 2015 | From committee chair, with author's amendments: Amend, and re-refer to Com. on APPR. Read second time and amended. |
| Apr 14, 2015 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 14. Noes 0.) (April 14). Re-referred to Com. on APPR. |
| Mar 9, 2015 | Referred to Com. on B. & P. |
| Feb 25, 2015 | From printer. May be heard in committee March 27. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Jul 13, 2015 | AB 607 DODD Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Jul 9, 2015 | Assembly 3rd Reading AB607 Dodd By McGuire | Senate Floor |
Passed |
|
| Jun 17, 2015 | Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations] | Senate Standing Committee on Banking and Financial Institutions |
Passed |
|
| May 7, 2015 | AB 607 DODD Consent Calendar Second Day Regular Session | Assembly Floor |
Passed |
|
| Apr 29, 2015 | Do pass. To Consent Calendar. | Assembly Standing Committee on Appropriations |
Passed |
|
| Apr 14, 2015 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Business and Professions |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| California Association Of Realtors | ** Support | Jul 9, 2015 |
| California Society Of Certified Public Accountants | ** Support | Jul 9, 2015 |
| North Bay Association of REALTORS | ** Support | Jul 9, 2015 |
AB 607
Page 2
CONCURRENCE IN SENATE AMENDMENTS
AB 607
(Dodd)
As Amended June 23, 2015
Majority vote
ASSEMBLY: |
77-0 |
(May 7, 2015) |
SENATE: |
39-0 |
(July 9, 2015) |
Original Committee Reference: B. & P.
SUMMARY: Authorizes real estate brokers to employ certain persons to manage real estate broker trust fund accounts, including non-real estate licensees if the broker has fidelity bond coverage for the maximum amount of the trust fund account to which the employee has access to at any time, and authorizes the fidelity bond to have a deductible of up to 5% if the broker has evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount.
The Senate amendments:
Clarify that cash deposits used as evidence of financial responsibility should also be held separately from funds belonging to the broker's principals.
Prohibit an arrangement under which a person is authorized to make withdrawals from a trust fund account of a broker from relieving an individual broker, or the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the broker’s custody, in accordance with existing regulations.
FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS:
Purpose. This bill is sponsored by the California Association of REALTORS. According to the author, "[This bill] would allow real estate broker trust accounts to operate more efficiently and better protect the public. Currently, real estate brokers can use unlicensed employees – like [certified public accounts] CPAs or professional bookkeepers – to manage their broker trust accounts. However, regulations make it very difficult to do so because the brokers must secure a zero deductible bond to cover the amount in the trust, and such zero deductible bonds are not generally available. Since CPAs and other professionals are ideally suited to manage these accounts, the public interest is hindered by this requirement. This bill would fix the problem by allowing brokers to obtain fidelity bonds with deductibles of up to [five]%. The bill ensures the public is well protected by giving the [Cal]BRE the power to require evidence of financial responsibility from the broker to protect against a loss subject to the deductible."
Trust Funds and Trust Accounts. Real estate brokers and salespersons receive trust funds in the normal course of doing business, on behalf of others, thereby creating a fiduciary responsibility to the funds' owners. Trust funds are money or other things of value received by a broker or salesperson on behalf of a principal or any other person, and which are held for the benefit of others in the performance of any acts for which a real estate license is required. Some examples are cash, a check used as a purchase deposit, or a personal note made payable to the seller. Trust accounts are set up as a means to separate trust funds from non-trust funds, and to separate a client's funds from the broker's own funds.
A typical trust fund transaction begins with the broker or salesperson receiving trust funds from a principal in connection with the purchase or lease of real property. According to Business and Professions Code (BPC) Section 10145, trust funds received must be placed into the hands of the owners of the funds, into a neutral escrow deposit or into a trust account in the name of the broker, or in a fictitious name if the broker is the holder of a license bearing such fictitious name, as trustee at a bank or other financial institution not later than three business days following receipt of the funds by the broker or by the broker's salesperson. Real estate brokers keep trust accounts to deposit funds belonging to others that are not immediately deposited in a neutral escrow depository or with the broker’s principal.
Trust Account Withdrawals. Under BPC Section 10145, all funds deposited by a broker in a trust fund account are required to be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds. Under 10 California Code of Regulations Section 2834(a), withdrawals may be made from a trust account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker: 1) a salesperson licensed to the broker; 2) a person licensed as a broker who entered into a written broker-salesperson agreement with the broker; or 3) an unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access at any time. With regard to the third type of person who may make withdrawals, existing law does not specify whether these bonds can or cannot have a deductible. However, the California Bureau of Real Estate (CalBRE) has required that these bonds may not have a deductible based on the language which requires that the unlicensed employee have fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access.
Fidelity Bond Coverage. Brokers and salespersons must handle, control and account for those trust funds according to established legal standards. Improper handling of trust funds is cause for revocation or suspension of a real estate license, and may also open the door to financial liability for damages incurred by clients. According to the author, real estate brokers often prefer to retain a certified public account (CPA) or skilled bookkeeper rather than a salesperson for the administration of larger real estate broker trust accounts. However, because CPAs and bookkeepers are not licensed, they must have fidelity bond coverage in the total amount they have access to, with a 0% deductible. According to the author, real estate brokers have reported that insurers (bond companies) are unwilling or unable to sell the required fidelity bond coverage in amounts greater than $100,000 without a deductible. Given housing prices, these trust accounts routinely exceed $100,000 in total funds, so $100,000 policies are insufficient. As a result, brokers need trust fund bond coverage for financial professionals, but that requisite coverage is not available in the general marketplace.
Under existing regulations, the only alternative to obtaining bond funding would be to require CPAs and bookkeepers to obtain real estate licenses, since salespersons licensed to the broker are not subject to the bond requirement. This bill would fix this problem by allowing fidelity bonds to have up to a 5% deductible if the employing broker has evidence of financial responsibility, as specified.
Analysis Prepared by: Eunie Linden / B. & P. / (916) 319-3301 FN: 0001187
AB 607
Page 4
|
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
THIRD READING
Bill No: AB 607
Amended: 6/23/15 in Senate
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/17/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 77-0, 5/7/15 (Consent) - See last page for vote
SUBJECT: Real estate trust fund accounts: bond requirement
SOURCE: California Association of Realtors
DIGEST: This bill prescribes the circumstances under which withdrawals may be made from a real estate broker’s trust fund account.
Existing law:
Requires a real estate broker who accepts funds belonging to others in connection with a transaction regulated under the Real Estate Law to deposit all of those funds that are not immediately placed into a neutral escrow depository or into the hands of the broker’s principal (i.e., client), into a trust fund account maintained by the broker in a bank or recognized depository in this state (Business and Professions Code Section 10145).
Requires all funds deposited by the broker in a trust fund account to be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds (Business and Professions Code Section 10145).
Provides that withdrawals from a real estate broker’s trust fund account may be made only upon the signature of that broker (or, in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed), or one or more of the following persons, if specifically authorized in writing by the individual broker or officer (Bureau of Real Estate [BRE] Regulation 2834):
A real estate salesperson licensed to the broker.
Another broker acting pursuant to a written agreement with the broker that controls the trust fund account.
An unlicensed employee of the broker, if the broker has fidelity bond coverage equal to or greater than the maximum amount of the trust funds to which the unlicensed employee has access at any time.
Provides that an arrangement under which a person other than the broker or corporate officer is authorized to make withdrawals from a trust fund account does not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the broker’s custody (BRE Regulation 2834).
This bill:
Codifies BRE Regulation 2834, but clarifies that fidelity bonds providing coverage for unlicensed employees with access to trust fund accounts may be written with deductibles of up to 5% of their coverage amounts. Provides that when a bond is written with a deductible, the employing broker must have evidence of financial responsibility sufficient to cover the amount of the deductible. Evidence of financial responsibility must include one or more of the following:
Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
A cash deposit held in a separate account, apart from other funds of the broker, the broker’s employees, or the broker’s principals, in a bank or recognized depository in the state, adequate to cover the amount of the fidelity bond deductible, and held exclusively and solely for the purpose of covering the deductible.
Any other evidence of financial responsibility approved by the Real Estate Commissioner.
Background
AB
607 is sponsored by the California Association of Realtors (CAR) to
give real estate brokers greater flexibility in meeting their
fidelity bonding requirements, when they authorize unlicensed
employees to make withdrawals from their real estate trust fund
accounts. BRE Regulation 2834 allows real estate brokers to
authorize their unlicensed employees to withdraw funds from the
brokers’ trust fund accounts, as long as the brokers hold fidelity
bond coverage equal to or greater than the maximum amount of trust
funds to which the unlicensed employees have access at any one time.
However, Regulation 2834 is silent on the extent to which the
fidelity bonds it requires may have deductibles.
Given the
cost of housing, brokers wishing to grant unlicensed employees
permission to withdraw funds from their trust fund accounts are
commonly required to obtain fidelity bonds greater than $100,000.
According to CAR, many brokers are unable to obtain fidelity bond
coverage in amounts greater than $100,000 without a deductible.
Deductibles on fidelity bonds greater than $100,000 range from 1% to
5% of the bond amount.
Because Regulation 2834 does not
expressly authorize the fidelity bonds it requires to contain
deductibles, BRE has interpreted that regulation as failing to allow
deductibles in this context. CAR is sponsoring AB 607 to codify
Regulation 2834, and to expressly authorize deductibles of up to 5%,
provided that brokers maintain evidence of financial responsibility
sufficient to cover the amounts of their deductibles.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
California Association of Realtors (source)
California Society of Certified Public Accountants
North Bay Association of Realtors
None received
ARGUMENTS
IN SUPPORT: CAR states “AB 607 (Dodd) creates the clarity
needed to allow regulations to conform to the types of bonds
available on the market. With the necessary fidelity bonds in place,
realtors will be able to continue to employ skilled bookkeepers and
CPAs to administer their trust accounts.”
The North
Bay Association of Realtors states, “Current policy was established
when homes in California rarely sold for more than $100,000 and
consumer trust funds were almost always 100% protected.” Nowadays,
insurers do not sell coverage for more than $100,000 without a
deductible. “Given that the price of real state in California is
typically well over $100,000, it is essential that this policy is
changed to ensure that insurance products are available to protect
the funds entrusted by consumers to real estate brokerages.”
ASSEMBLY FLOOR: 77-0, 5/7/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Campos, Roger Hernández, Steinorth
Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
7/8/15 11:27:59
**** END ****
AB 607 (Dodd) Page 4 of 4
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Marty Block, Chair
2015 - 2016 Regular
Bill No: AB 607 Hearing Date: June 17, 2015
Author: |
Dodd |
||
Version: |
June 8, 2015 Amended |
||
Urgency: |
No |
Fiscal: |
Yes |
Consultant: |
Eileen Newhall |
||
Subject: Real estate trust fund accounts: bond requirement.
SUMMARY
Prescribes the circumstances under which withdrawals may be made from a real estate broker’s trust fund account.
DESCRIPTION
Provides that withdrawals from a real estate broker’s trust fund account may be made only upon the signature of that broker (or, in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed), or one or more of the following persons, if specifically authorized in writing by the broker or officer:
A real estate salesperson licensed to the broker.
Another broker acting pursuant to a written agreement with the broker that controls the trust fund account.
An unlicensed employee of the broker, if the broker has fidelity bond coverage equal to or greater than the maximum amount of the trust funds to which the unlicensed employee has access at any time.
Clarifies that fidelity bonds providing coverage for unlicensed employees with access to trust fund accounts may be written with deductibles of up to 5% of their coverage amounts. However, when a bond is written with a deductible, the employing broker must have evidence of financial responsibility sufficient to cover the amount of the deductible. Evidence of financial responsibility must include one or more of the following:
Separate fidelity bond coverage adequate to cover the amount of the fidelity bond deductible.
A cash deposit held in a separate account, apart from other funds of the broker, the broker’s employees, or the broker’s principals, in a bank or recognized depository in the state, adequate to cover the amount of the fidelity bond deductible, and held exclusively and solely for the purpose of covering the deductible.
Any other evidence of financial responsibility approved by the Real Estate Commissioner (commissioner).
EXISTING LAW
Requires a real estate broker who accepts funds belonging to others in connection with a transaction regulated under the Real Estate Law to deposit all of those funds that are not immediately placed into a neutral escrow depository or into the hands of the broker’s principal (i.e., client), into a trust fund account maintained by the broker in a bank or recognized depository in this state (Business and Professions Code Section 10145).
Requires all funds deposited by the broker in a trust fund account to be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds (Business and Professions Code Section 10145).
EXISTING REGULATION
Provides that withdrawals from a real estate broker’s trust fund account may be made only upon the signature of that broker (or, in the case of a corporate broker, only upon the signature of an officer through whom the corporation is licensed), or one or more of the following persons, if specifically authorized in writing by the individual broker or officer (Bureau of Real Estate Regulation 2834):
A real estate salesperson licensed to the broker.
Another broker acting pursuant to a written agreement with the broker that controls the trust fund account.
An unlicensed employee of the broker, if the broker has fidelity bond coverage equal to or greater than the maximum amount of the trust funds to which the unlicensed employee has access at any time.
Provides that an arrangement under which a person other than the broker or corporate officer is authorized to make withdrawals from a trust fund account shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the broker’s custody (Regulation 2834).
COMMENTS
Purpose: AB 607 is sponsored by the California Association of Realtors (CAR) to give real estate brokers greater flexibility in meeting their fidelity bonding requirements, when they authorize unlicensed employees to make withdrawals from their real estate trust fund accounts.
Background: As summarized above, Real Estate Regulation 2834 allows real estate brokers to authorize their unlicensed employees to withdraw funds from the brokers’ trust fund accounts, as long as the brokers hold fidelity bond coverage equal to or greater than the maximum amount of trust funds to which the unlicensed employees have access at any one time. Regulation 2834 is silent on the extent to which the fidelity bonds it requires may have deductibles.
Given the cost of housing, brokers wishing to grant unlicensed employees permission to withdraw funds from their trust fund accounts are commonly required to obtain fidelity bonds greater than $100,000. However, according to CAR, many brokers are unable to obtain fidelity bond coverage in amounts greater than $100,000 without a deductible. Deductibles on fidelity bonds greater than $100,000 range from 1% to 5%.
Because Regulation 2834 does not expressly authorize the fidelity bonds it requires to contain deductibles, the Bureau of Real Estate (BRE) has interpreted that regulation as failing to allow deductibles in this context. CAR is sponsoring AB 607 to codify Regulation 2834, and to expressly authorize deductibles of up to 5%, provided brokers maintain evidence of financial responsibility sufficient to cover the amounts of their deductibles.
Discussion: According to BRE, Regulation 2834 has existed in substantially the same form as it currently reads since 1964. For that reason, codifying the regulation, as AB 607 proposes to do, does not appear problematic. However, as discussed below in the Suggested Amendments section, the current version of AB 607 fails to codify the entire regulation; the bill does not contain the provision of the regulation which clarifies that, regardless of who is authorized to withdraw trust funds, brokers retain the ultimate responsibility for trust funds under their control. Amendments are suggested to rectify this omission.
Summary of Arguments in Support: CAR is sponsoring the bill for the reasons stated above. “AB 607 (Dodd) creates the clarity needed to allow regulations to conform to the types of bonds available on the market. With the necessary fidelity bonds in place, realtors will be able to continue to employ skilled bookkeepers and CPAs to administer their trust accounts.”
The North Bay Association of Realtors writes, “Current policy was established when homes in California rarely sold for more than $100,000 and consumer trust funds were almost always 100% protected.” Nowadays, insurers do not sell coverage for more than $100,000 without a deductible. “Given that the price of real state in California is typically well over $100,000, it is essential that this policy is changed to ensure that insurance products are available to protect the funds entrusted by consumers to real estate brokerages.”
Summary of Arguments in Opposition: None received.
Amendments:
AB 607 would codify one portion of Regulation 2834, but not the entire regulation. The portion of the regulation that is not currently included in AB 607 is the portion which clarifies that, regardless of who is authorized to withdraw money from a broker’s trust fund account, the broker ultimately retains responsibility for the money in that account. Because the allocation of responsibility regarding trust funds is an important consumer protection, staff recommends adding the following language to the bill, to mirror the wording of Regulation 2834:
Page 3, between lines 16 and 17, insert: (D) An arrangement under which a person enumerated in subparagraph (A), (B), or (C) of paragraph (2) of subdivision (a) is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, nor the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the broker’s custody.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Association of Realtors (sponsor)
California Society of Certified Public Accountants
North Bay Association of Realtors
Opposition
None received
-- END --
AB 607
Page 2
Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB 607
(Dodd) – As Amended April 23, 2015
Policy Committee: |
Business and Professions |
Vote: |
14 - 0 |
|
|
|
|
|
|
|
|
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY: This bill codifies Bureau of Real Estate (BRE) regulations allowing brokers to employ certain persons to manage real estate broker trust fund accounts, and codifies and expands the conditions regarding non-real estate licensees. Specifically, this bill:
Authorizes withdrawals from a trust fund account of an individual broker or corporate broker only upon signature of that broker or officer, or one or more of the following persons if specifically authorized in writing by the individual broker or officer:
A real estate salesperson licensed under the broker.
Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations.
An unlicensed employee of the individual broker if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time.
Allows for bonds providing coverage for purposes of (c) above, to be written with a deductible of up to five percent of the coverage amount, and requires evidence of financial responsibility, as defined, by the employing broker that is sufficient to protect members of the public against a loss.
FISCAL EFFECT:
Costs to CalBRE will be minor and absorbable within existing resources.
COMMENTS:
Purpose. According to the author, "[This bill] would allow real estate broker trust accounts to operate more efficiently and better protect the public. Currently, real estate brokers can use unlicensed employees – like CPAs or professional bookkeepers – to manage their broker trust accounts. However, regulations make it very difficult to do so because the brokers must secure a zero deductible bond to cover the amount in the trust, and such zero deductible bonds are not generally available. Since CPAs and other professionals are ideally suited to manage these accounts, the public interest is hindered by this requirement. This bill would fix the problem by allowing brokers to obtain fidelity bonds with deductibles of up to five percent. The bill ensures the public is well protected by giving the BRE the power to require evidence of financial responsibility from the broker to protect against a loss subject to the deductible."
Background. Real estate brokers and salespersons receive trust funds in the normal course of doing business, on behalf of others, thereby creating a fiduciary responsibility to the funds' owners. Trust accounts are set up as a means to separate trust funds from non-trust funds, and to separate a client's funds from the broker's own funds.
Existing law requires all funds deposited by a broker in a trust fund account to be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds. Regulations require that withdrawals may be made from a trust account of an individual broker only upon the signature of the broker or by one of the following persons if specifically authorized in writing by the broker: 1) a salesperson licensed to the broker; 2) a person licensed as a broker who entered into a written broker-salesperson agreement with the broker; or 3) an unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access at any time.
According to the author, real estate brokers often prefer to retain a CPA or skilled bookkeeper rather than a salesperson for the administration of larger real estate broker trust accounts. However, because CPAs and bookkeepers are not licensed, they must have fidelity bond coverage in the total amount they have access to. Existing law does not specify whether these bonds can or cannot have a deductible. However, the BRE has required that these bonds may not have a deductible based on their reading of the law.
According to the author, real estate brokers have reported that insurers (bond companies) are unwilling or unable to sell the required fidelity bond coverage in amounts greater than $100,000 without a deductible. This bill seeks to remedy this by allowing fidelity bond coverage for this purpose to have a deductible of up to five percent.
Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081
AB 607
Page 4
Date of Hearing: April 14, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
AB 607
(Dodd) – As Introduced February 24, 2015
SUBJECT: Real estate trust fund accounts: bond requirement.
SUMMARY: Codifies Bureau of Real Estate (BRE) regulations allowing brokers to employ certain persons to manage real estate broker trust fund accounts, including non-real estate licensees, if the broker has fidelity bond coverage for the maximum amount of the trust fund account to which the employee has access to at any time, and authorizes the fidelity bond to have a deductible of up to 5%.
EXISTING LAW
Provides for the licensure and regulation of real estate brokers and real estate salespersons by the (BRE) under the direction of the Real Estate Commissioner (Commissioner). (Business and Professions Code (BPC) Sections 10000 - 10580)
Prohibits any person from engaging in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson without first obtaining a real estate license. (BPC Section 10130)
Defines a real estate broker, in part, as one who sells, buys, or who offers to sell or buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity; or who leases or rents, or offers to lease or rent, places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or negotiates the sale, purchase or exchanges of leases on real property or on a business opportunity, or collects rents from real property, or improvements thereon, or from business opportunities. (BPC Section 10131)
Requires a real estate broker, who accepts funds belonging to others in connection with a transaction, to deposit those funds in either a neutral escrow depository, into the hands of the broker's principal, or into a trust fund account, as specified, and requires all funds deposited by the broker in a trust fund account to be kept there until disbursed by the broker in accordance with instructions from the person entitled to the funds, as specified. (BPC Section 10145)
Authorizes withdrawals to be made from a trust fund account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker: (10 CCR Section 2834(a))
A salesperson licensed to the broker.
A person licensed as a broker who has entered into a written agreement pursuant to 10 CCR Section 2726 with the broker.
An unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access at any time.
THIS BILL
Authorizes withdrawals from a trust fund account of an individual broker only upon signature of that broker, or one or more of the following persons if specifically authorized in writing by the individual broker:
A real estate salesperson licensed under the broker;
Another broker acting pursuant to a written agreement with the individual broker that conforms to the requirements of this part and any regulations; or,
An unlicensed employee of the individual broker if the broker has fidelity bond coverage equal to at least the maximum amount of the trust funds to which the unlicensed employee has access to at any time. For purpose of this section, bonds providing coverage may be written with a deductible of up to five percent of the coverage amount.
Authorizes the Commissioner, by regulation, to require separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against a loss subject to the deductible amount, if any.
FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel.
COMMENTS
Purpose. This bill is sponsored by the California Association of REALTORS. According to the author, "[This bill] would allow real estate broker trust accounts to operate more efficiently and better protect the public. Currently, real estate brokers can use unlicensed employees – like CPAs or professional bookkeepers – to manage their broker trust accounts. However, regulations make it very difficult to do so because the brokers must secure a zero deductible bond to cover the amount in the trust, and such zero deductible bonds are not generally available. Since CPAs and other professionals are ideally suited to manage these accounts, the public interest is hindered by this requirement. This bill would fix the problem by allowing brokers to obtain fidelity bonds with deductibles of up to [five]%. The bill ensures the public is well protected by giving the BRE the power to require evidence of financial responsibility from the broker to protect against a loss subject to the deductible."
Background. Trust Funds and Trust Accounts. Real estate brokers and salespersons receive trust funds in the normal course of doing business, on behalf of others, thereby creating a fiduciary responsibility to the funds' owners. Trust funds are money or other things of value received by a broker or salesperson on behalf of a principal or any other person, and which are held for the benefit of others in the performance of any acts for which a real estate license is required. Some examples are cash, a check used as a purchase deposit, or a personal note made payable to the seller. Trust accounts are set up as a means to separate trust funds from non-trust funds, and to separate a client's funds from the broker's own funds.
A typical trust fund transaction begins with the broker or salesperson receiving trust funds from a principal in connection with the purchase or lease of real property. According to BPC Section 10145, trust funds received must be placed into the hands of the owners of the funds, into a neutral escrow deposit or into a trust account in the name of the broker, or in a fictitious name if the broker is the holder of a license bearing such fictitious name, as trustee at a bank or other financial institution not later than three business days following receipt of the funds by the broker or by the broker's salesperson. Real estate brokers keep trust accounts to deposit funds belonging to others that are not immediately deposited in a neutral escrow depository or with the broker’s principal.
Trust Account Withdrawals. Under BPC Section 10145, all funds deposited by a broker in a trust fund account are required to be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds. Under 10 CCR Section 2834(a), withdrawals may be made from a trust account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker: 1) a salesperson licensed to the broker; 2) a person licensed as a broker who entered into a written broker-salesperson agreement with the broker; or 3) an unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access at any time. With regard to the third type of person who may make withdrawals, existing law does not specify whether these bonds can or cannot have a deductible. However, the BRE has required that these bonds may not have a deductible based on the language which requires that the unlicensed employee have fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access.
Fidelity Bond Coverage. Brokers and salespersons must handle,
control and account for those trust funds according to established
legal standards. Improper handling of trust funds is cause for
revocation or suspension of a real estate license, and may also open
the door to financial liability for damages incurred by clients.
According to the author, real estate brokers often prefer to
retain a CPA or skilled bookkeeper rather than a salesperson for the
administration of larger real estate broker trust accounts. However,
because CPAs and bookkeepers are not licensed, they must have
fidelity bond coverage in the total amount they have access to, with
a zero percent deductible. According to the author, real estate
brokers have reported that insurers (bond companies) are unwilling or
unable to sell the required fidelity bond coverage in amounts greater
than $100,000 without a deductible. Given housing prices, these
trust accounts routinely exceed $100,000 in total funds, so $100,000
policies are insufficient. As a result, brokers need trust fund bond
coverage for financial professionals, but that requisite coverage is
not available in the general marketplace.
Under existing
regulations, the only alternative to obtaining bond funding would be
to require CPAs and bookkeepers to obtain real estate licenses, since
salespersons licensed to the broker are not subject to the bond
requirement. This bill would fix this problem by allowing fidelity
bonds to have up to a 5% deductible, while also allowing the BRE to
require evidence of financial responsibility by the employing broker
sufficient to protect members of the public against a loss subject to
the deductible.
Prior Related Legislation. AB 2602 (Lieu), Chapter 107, Statutes of 2006, authorized a commercial mortgage banker licensed as a real estate broker under the Real Estate Law to retain or arrange to allocate the interest earned on funds placed in an interest-bearing account, as specified.
ARGUMENTS IN SUPPORT
According to the
California Association of REALTORS, "[BRE's] current
regulations allow an unlicensed employee of a broker, such as a
bookkeeper or Certified Public Accountant (CPA), to manage the
broker's trust account if the employee has fidelity bond coverage
that is equal to the maximum amount of funds to which the employee
has access. This regulation is interpreted to mean that the bond
must be a zero deductible bond. REALTORS have reported that bond
companies will not send bond coverage exceeding $100,000 unless the
bond contains a deductible, usually of 1-5%. This measure would,
among other things, allow bonds for unlicensed employees to include a
deductible of up to 5%. [This bill] creates the clarity needed to
allow regulations to conform to the types of bonds available on the
market. With the necessary fidelity bonds in place, REALTORS will be
able to continue to employ skilled bookkeepers and CPAs to administer
their trust accounts."
According to the North Bay
Association of REALTORS, "Insurers…do not sell [fidelity
bond] coverage for more than $100,000 without a deductible. Current
policy was established when homes in California rarely sold for more
than $100,000 and consumer trust funds were almost always 100%
protected. This bill provides the necessary mechanisms to address
this problem. At the momeny, the only option for brokers to have
coverage on their trust funds is to ensure that CPAs and bookkeepers
have real estate licenses. This is because those with real estate
licenses under the broker are not required to have the bond
requirement – in reality, this requirement is infeasible….it is
essential that this policy is changed to ensure that insurance
products are available to protect the funds entrusted by consumers to
real estate brokerages."
POLICY ISSUE FOR CONSIDERATION. Currently, the bill authorizes the Commissioner to require, via regulation, separate evidence of financial responsibility by the employing broker that is sufficient to protect members of the public against a loss subject to the deductible amount. Instead of waiting for this requirement to be adopted via regulations, which may delay the ability to implement this bill, if enacted, the author may wish to consider working with the Commissioner to place such language in the bill.
ARGUMENTS IN OPPOSITION
None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
California Association of REALTORS (sponsor)
North Bay Association of REALTORS
Opposition
None on file.
Analysis Prepared by: Eunie Linden / B. & P. / (916) 319-3301
Discussed in Hearing
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Bill Author
Bill Co-Author(s):
