Definition of Escrow
17003. (a) “Escrow” means any transaction in which one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor,
promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

(b) With regard to Internet escrow companies, “escrow” also includes any transaction in which one person, for the purpose of effecting the sale or transfer of personal property or services to another person, delivers money, or its Internet-authorized equivalent, to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

Exemptions from Escrow Law
17006. (a) This division does not apply to:
(1) Any person doing business under any law of this state or the United States relating to banks, trust companies, building and loan or savings and loan associations, credit unions, or insurance companies.

(2) Any person licensed to practice law in California who has a bona fide client relationship with a principal in a real estate or personal property transaction and who is not actively engaged in the business of an escrow agent.

(3) Any person whose principal business is that of preparing abstracts or making searches of title that are used as a basis for the issuance of a policy of title insurance by a company doing business under any law of this state relating to insurance companies.

(4) Any broker licensed by the Real Estate Commissioner while performing acts in the course of or incidental to a real estate transaction in which the broker is an agent or a party to the transaction and in which the broker is performing an act for which a real estate license is required.

(b) The exemptions provided for in paragraphs (2) and (4) of subdivision (a) are personal to the persons listed, and those persons shall not delegate any duties other than duties performed under the direct supervision of those persons. Notwithstanding the provisions of this subdivision, the exemptions provided for in paragraphs (2) and (4) of subdivision (a) are not available for any arrangement entered into for the purpose of performing escrows for more than one business.

License Disclosure Required of Person Preparing Written Escrow Instructions
17403.4. All written escrow instructions and all escrow instructions transmitted electronically over the Internet executed by a buyer or seller, whether prepared by a person subject to this division or by a person exempt from this division under Section 17006, shall contain a statement in not less than 10-point type which shall
include the license name and the name of the department issuing the license or authority under which the person is operating. This section shall not apply to supplemental escrow instructions or modifications to escrow instructions.

This section shall become operative on July 1, 1993.

4995. The following definitions shall apply for purposes of this division:
(a) “Higher-priced mortgage loan” has the meaning set forth in Section 1026.35 of Title 12 of the Code of Federal Regulations.

(b) “Licensed person” means a real estate broker licensed under the Real Estate Law (Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code), a finance lender or broker licensed under the California Financing Law (Division 9 (commencing with Section 22000)), a residential mortgage lender licensed under the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000)), a commercial or industrial bank organized under the Banking Law (Division 1.1 (commencing with Section 1000)), a savings association organized under the Savings Association Law (Division 2 (commencing with Section 5000)), and a credit union organized under the California Credit Union Law (Division 5 (commencing with Section 14000)).

(c) “Mortgage broker” means a licensed person who provides mortgage brokerage services. For purposes of this division, a licensed person who makes home loans is a “mortgage broker,” and subject to the requirements of this division applicable to mortgage brokers, only with respect to transactions in which the licensed person provides mortgage brokerage services.

(d) “Mortgage brokerage services” means arranging or attempting to arrange, as exclusive agent for the borrower or as dual agent for the borrower and lender, for compensation or in expectation of compensation, paid directly or indirectly, a higher-priced mortgage loan made by an unaffiliated third party.

4995.1. Notwithstanding any other provision of law, the maximum amount of a prepayment penalty that may be imposed by a licensed person in connection with a higher-priced mortgage loan shall not exceed 2 percent of the principal balance prepaid, for prepayment of the loan during the first 12 months following loan consummation or 1 percent of the principal balance prepaid, for prepayment of the loan during the second 12 months following loan consummation.

4995.2. (a) This division shall apply to any licensed person who in bad faith attempts to avoid the application of this division by doing either of the following:
(1) Dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this division.

(2) Any other subterfuge.

(b) Notwithstanding any other provision of law, a licensed person shall not make, or cause to be made, any false, deceptive, or misleading statement or representation in connection with a higher-priced mortgage loan.

(c) A mortgage broker who arranges only higher-priced mortgage loans shall disclose that fact to a borrower, both orally and in writing, at the time of initially engaging in mortgage brokerage services with that borrower.

(d) A mortgage broker who provides mortgage brokerage services shall not steer, counsel, or direct a borrower to accept a loan at a higher cost than that for which the borrower could qualify based upon the loans offered by the persons with whom the broker regularly does business.

(e) (1) A mortgage broker who provides mortgage brokerage services for a borrower shall not receive compensation, including a yield spread premium, fee, commission, or any other compensation, for arranging a higher-priced mortgage loan with a prepayment penalty that exceeds the compensation that the mortgage broker would otherwise receive for arranging that higher-priced mortgage loan without a prepayment penalty.

(2) When providing mortgage brokerage services for a borrower, a mortgage broker shall receive the same compensation for providing those services whether paid by the lender, borrower, or a third party.

(f) No licensed person shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a higher-priced mortgage loan that refinances all or any portion of the existing loan or debt.

(g) A licensed person shall not make a higher-priced mortgage loan that contains a provision for negative amortization. This subdivision shall not preclude a

licensed person from entering into a subsequent agreement with a borrower to capitalize payments as a means of permitting a borrower to cure or prevent a delinquency.

(h) A licensed person who makes a higher-priced mortgage loan and who, when acting in good faith, fails to comply with this section, shall not be liable if the licensed person establishes either of the following:

(1) Within 90 days of the loan closing and prior to the institution of any action against the licensed person under this section, the licensed person did all of the following:

(A) Notified the borrower of the compliance failure.

(B) Tendered appropriate restitution.

(C) Offered, at the borrower's option, either to make the higher-priced mortgage loan comply with the requirements of this division or change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a higher-priced mortgage loan subject to the provisions of this division.

(D) Within a reasonable period of time following the borrower's election of remedies, took appropriate action based on the borrower's choice.

(2) (A) The compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid those errors, and within 120 days after receipt of a complaint or the discovery of the compliance failure or the licensed person's receipt of written notice of the compliance failure, the licensed person did all of the following:

(i) Notified the borrower of the compliance failure.

(ii ) Tendered appropriate restitution.

(ii i) Offered, at the borrower's option, either to make the higher-priced mortgage loan comply with the requirements of this division or change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a higher-priced mortgage loan subject to the provisions of this division.

(iv ) Within a reasonable period of time following the borrower's election of remedies, took appropriate action based on the borrower's choice.

(B) For purposes of this subdivision, examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors.

4995.3. (a) Any licensed person who violates any provision of this division shall be deemed to have violated that person's licensing law.
(b) The licensing agency may, by order and after appropriate administrative hearing, prohibit licensees under this division from engaging in acts or practices in connection with higher-priced mortgage loans that the licensing agency finds to be unfair, deceptive, or designed to evade laws of this state.

(c) A violation of Section 2923.1 of the Civil Code in connection with a higher-priced mortgage loan is a violation of this division.

(d) A violation of the provisions of Part 226 of Title 12 of the Code of Federal Regulations, relating to prepayment penalties in connection with higher-priced mortgage loans, is a violation of this division.

(e) The provisions of this division may be enforced only by the Attorney General or the licensed person's licensing agency. Any licensed person who willfully and knowingly violates any provision of this division shall be liable for a civil penalty of not more than ten thousand dollars ($10,000) for each violation.

(f) A prepayment penalty or yield spread premium provision of a higher-priced mortgage loan that violates this division shall be unenforceable.

4995.4. The provisions of this division shall apply to higher-priced mortgage loans originated on or after July 1, 2010.

4995.5. The provisions of this division are severable. If any provision of this division or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

4995.6. Nothing in this division shall be construed to affect any other rights or remedies otherwise available under the law.

Exchange Facilitators
51000. As used in this division, the following terms shall have the following meanings:
(a) "Client" means the taxpayer with whom the exchange facilitator enters into an agreement described in subparagraph (A) of paragraph (1) of subdivision (b).

(b) (1) "Exchange facilitator" means a person that does any of the following:

(A) Facilitates, for a fee, as defined in subdivision (c), an exchange of like-kind property by entering into an agreement with a taxpayer by which the exchange facilitator acquires from the taxpayer the contractual rights to sell the taxpayer's relinquished property located in this state and transfers a replacement property to the taxpayer as a qualified intermediary as that term is defined under Treasury Regulation Section 1.1031(k)-1(g)(4), or enters into an agreement with the taxpayer to take title to a property in this state as an exchange accommodation titleholder (EAT) as that term is defined in Internal Revenue Service Revenue Procedure 2000-37, or enters into an agreement with a taxpayer to act as a qualified trustee or qualified escrow holder as those terms are defined under Treasury Regulation Section 1.1031(k)-1(g)(3), except as provided in paragraph (2).

(B) Maintains an office in this state for the purpose of soliciting business as an exchange facilitator.

(C) Holds himself, herself, or itself out as an exchange facilitator by advertising any of the services listed in paragraph (A) or soliciting clients in printed publications, direct mail, television or radio advertisements, telephone calls, facsimile transmissions, or other electronic communications directed to the general public in this state for purposes of providing any of those services.

(2) "Exchange facilitator" does not include any of the following:

(A) A taxpayer or a disqualified person, as that term is defined under Treasury Regulation Section 1.1031(k)-1(k), seeking to qualify for the

nonrecognition provisions of Section 1031 of the Internal Revenue Code of 1986, as amended.

(B) A financial institution that is acting as a depository for exchange funds or that is acting solely as a qualified escrow holder or qualified trustee, as those terms are defined under Treasury Regulation Section 1.1031(k)-1(g)(3), and that is not facilitating exchanges.

(C) A title insurance company, underwritten title company, or escrow company that is acting solely as a qualified escrow holder or qualified trustee, as those terms are defined under Treasury Regulation Section 1.1031(k)-1(g)(3), and that is not facilitating exchanges.

(D) A person that advertises for and teaches seminars or classes, or otherwise makes a presentation, to attorneys, accountants, real estate professionals, tax professionals, or other professionals, when the primary purpose is to teach the professionals about tax-deferred exchanges or to train them to act as exchange facilitators.

(E) A qualified intermediary, as that term is defined under Treasury Regulation 1.1031(k)-1(g)(4), who holds exchange funds from the disposition of relinquished property located outside this state.

(F) An entity in which an exchange accommodation titleholder (EAT) has a 100 percent interest and which is used by the EAT to take title to property in this state.

(c) "Fee" means compensation of any nature, direct or indirect, monetary or in-kind, that is received by a person or related person as defined in Section 267(b) or 707(b) of the Internal Revenue Code for any services relating to or incidental to the exchange of like-kind property.

(d) "Financial institution" means a bank, credit union, savings and loan association, savings bank, or trust company chartered under the laws of this state or the United States whose accounts are insured by the full faith and credit of the United States, the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund, or other similar or successor programs.

(e) A person is "affiliated" with another specified person if the person directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the other specified person.

(f) "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, or any other

form of a legal entity, and includes the agents and employees of that person.

(g) "Prudent investor standard" means the prudent investor rule described in Article 2.5 (commencing with Section 16045) of Chapter 1 of Part 4 of Division 9 of the Probate Code.

51001. (a) A person who engages in business as an exchange facilitator shall notify all existing exchange clients whose relinquished property is located in this state, or whose replacement property held under a qualified exchange accommodation agreement is located in this state, of any change in control of the exchange facilitator. That notification shall be provided within 10 business days of the effective date of the change in control by hand delivery, facsimile, electronic mail, overnight mail, or first-class mail, and shall be posted on the exchange facilitator's Internet Web site for at least 90 days following the change in control. The notification shall set forth the name, address, and other contact information of the transferees.
(b) For purposes of this section, "change in control" means any transfer of more than 50 percent of the assets or ownership interests, directly or indirectly, of the exchange facilitator.

51003. (a) A person who engages in business as an exchange facilitator shall at all times comply with one or more of the following:
(1) Maintain a fidelity bond or bonds in an amount not less than one million dollars ($1,000,000), executed by an insurer authorized to do business in this state or an eligible surplus line insurer pursuant to Section 1765.1 of the Insurance Code.

(2) Deposit an amount of cash or securities or irrevocable letters of credit in an amount not less than one million dollars ($1,000,000) in an interestbearing deposit account or a money market account with the financial institution of the person’s choice. Interest on that amount shall accrue to the exchange facilitator.

(3) Deposit all exchange funds in a qualified escrow account or qualified trust, as those terms are defined under Treasury Regulation 1.1031(k)-1(g)(3), with a financial institution and provide that any withdrawals from that escrow account or trust require that person’s and the client’s written authorization.

(b) A person who engages in business as an exchange facilitator may maintain a bond or bonds or deposit an amount of cash or securities or irrevocable letters of credit in excess of the minimum required amounts.

(c) If the person engaging in business as an exchange facilitator is listed as a named insured on one or more

fidelity bonds that total at least one million dollars ($1,000,000), the requirements of this section shall be deemed satisfied.

51005. Any person claiming to have sustained damage by reason of the failure of a person engaging in business as an exchange facilitator to comply with this division may file a claim on the bonds, deposits, or letters of credit described in Section 51003 to recover the damages.

51007. (a) A person who engages in business as an exchange facilitator shall at all times comply with either of the following:
(1) Maintain a policy of errors and omissions insurance in an amount not less than two hundred fifty thousand dollars ($250,000), executed by an insurer authorized to do business in this state or an eligible surplus line insurer pursuant to Section 1765.1 of the Insurance Code.

(2) Deposit an amount of cash or securities or irrevocable letters of credit in an amount not less than two hundred fifty thousand dollars ($250,000) in an interest-bearing deposit account or a money market account with the financial institution of the person’s choice. Interest on that amount shall accrue to the exchange facilitator.

(b) A person who engages in business as an exchange facilitator may maintain insurance or deposit an amount of cash or securities or irrevocable letters of credit in excess of the minimum required amounts.

(c) If the person engaging in business as an exchange facilitator is listed as a named insured on an errors and omissions policy of at least two hundred fifty thousand dollars ($250,000), the requirements of this section shall be deemed satisfied.

51009. (a) A person who engages in business as an exchange facilitator shall have the responsibility to act as a custodian for all exchange funds, including, but not limited to, money, property, other consideration, or instruments received by the person from, or on behalf of, a client, except funds received as the person's compensation. A person who engages in business as an exchange facilitator shall invest those exchange funds in investments that meet a prudent investor standard and that satisfy the investment goals of liquidity and preservation of principal. For purposes of this section, a prudent investor standard is violated if any of the following occurs:
(1) Exchange funds are knowingly commingled by the exchange facilitator with the operating accounts of the exchange facilitator.

(2) Exchange funds are loaned or otherwise transferred to any person or entity, other than a financial institution, that is affiliated with or related to the exchange facilitator. This paragraph does not apply to the transfer of funds from an exchange facilitator to an exchange accommodation titleholder in accordance with an exchange contract.

(3) Exchange funds are invested in a manner that does not provide sufficient liquidity to meet the exchange facilitator's contractual obligations to its clients and does not preserve the principal of the exchange funds.

(b) Exchange funds shall not be subject to execution or attachment on any claim against the exchange facilitator. An exchange facilitator shall not knowingly keep, or cause to be kept, any money in any bank, credit union, or other financial institution under a name designating the money as belonging to the client of any exchange facilitator, unless that money belongs to that client and was actually entrusted to the exchange facilitator by that client.

51011. A person engaged in business as an exchange facilitator shall not do any of the following:
(a) Make any material misrepresentations concerning any like-kind exchange transaction that are intended to mislead.

(b) Pursue a continued or flagrant course of misrepresentation, or make false statements through advertising or otherwise.

(c) Fail, within a reasonable time, to account for any moneys or property belonging to others that may be in the possession of, or under control of, the person.

(d) Engage in any conduct constituting fraudulent or dishonest dealings.

(e) Commit any crime involving fraud, misrepresentation, deceit, embezzlement, misappropriation of funds, robbery, or theft.

(f) Materially fail to fulfill its contractual duties to a client to deliver property or funds to the client, unless that failure is due to circumstances beyond the control of the person engaging in business as an exchange facilitator.

51013. A person who violates this division is subject to civil suit in a court of competent jurisdiction.
PERTINENT EXCERPTS FROM THE GOVERNMENT CODE