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Licensed vs. Unlicensed "Controlled"
All escrow companies in California can be classified into two basic
categories: Licensed or Controlled. "Licensed" escrow
companies are independent businesses licensed by the California
Department of Corporations. This license regulates the procedures
and practices of the companies and subjects them to stringent requirements
designed to protect consumers.
"Controlled" escrow companies are non-licensed businesses
that can be owned by a variety of entities, including real estate
brokers, mortgage brokers, banks, savings and loans, and title insurance
companies. Such companies fall under the jurisdiction of a variety
of supervising agencies, with regulations and requirements that vary
widely. One fact remains constant, however. None of the agencies
have regulations as strict as those imposed on the escrow companies
licensed by the Department of Corporations.
Better Protection
Although the majority of escrow companies are honest and above board,
the large sums of money handled by escrow companies can entice unscrupulous
individuals to abscond with the funds they are holding in trust.
And unless the escrow company is bonded, there is often no safeguard
assuring the return of the money to consumers.
Licensed escrow companies are consumers' best bet for safeguarding
their funds. All licensed escrow companies are required to be members
of the Escrow Agents' Fidelity Corporation, which provides fidelity
coverage for member trust accounts in the amount of $5 million. This
fidelity bond guarantees that, in the event of theft of trust accounts,
the consumers' funds are protected.
Higher Standards
The stringent requirements by the Department of Corporations assure
that every licensed escrow company has met the highest standards
in the industry. Consumer protection regulations unique to licensed
escrow companies include:
- A Certification Program for all escrow officers in the
company's employ, including fingerprinting and background checks
by the Department of Justice;
- A requirement that an escrow officer with at least five years
experience be on-site;
- Financial stability requirement, including at a minimum one CPA
audit a year; and, frequent surprise examinations conducted by
the Department of Corporations;
- Prohibiting employment of convicted felons or anyone who has been
disbarred from the real estate industry;
- Membership with the Escrow Agents' Fidelity Corporation which provides
a $5 million fidelity bond;
- Company's sole business is doing escrow, which requires a higher
level of state regulatory requirements and oversight.
The bottom line is that a licensed escrow company is the best possible
neutral third party to complete your real estate transaction. Whether
searching for an escrow holder yourself, or looking to recommend
one to a client, a licensed escrow company gives you peace of mind. |
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