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 these agencies have regulations as strict as those imposed on the escrow companies licensed by the industry. Consumer protections 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 an annual audit by an independent CPA; and frequent and unannounced 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 Corporations which provides fidelity bonding as well as seperate surety bonding;
- Company's sole business is providing escrow services, which requires a higher level of state regulatory requirements and oversight.
Better Protection
Although the majority of escrow companies are honest, 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.