WHO MAY ACT AS ESCROW HOLDER/AGENT

WHO MAY ACT AS ESCROW HOLDER/AGENT

The Escrow Law (Division 6 of the California Financial Code) provides the Commissioner of Corporations
must license escrow holders/agents who conduct what are commonly know as public escrows. However, banks,
savings and loan associations, title insurance companies, underwritten title companies, trust companies,
attorneys and real estate brokers have certain exemptions from the licensing requirements of the Escrow Law.

Pursuant to Section 17006(a)(4) of the California Financial Code, a real estate broker licensed by the Real
Estate Commissioner is exempt from the Escrow Law when performing acts in the course of or directly
incidental to a real estate transaction. The exemption further requires that the real estate broker must either be
an agent or a party to the real estate transaction and performing an act for which a real estate license is required.
For example, if a real estate broker is acting as an agent on behalf of a buyer or seller in a real estate
transaction, the broker may lawfully perform the escrow. In contrast, if the real estate broker is acting solely as
a party (i.e., principal) to the transaction, and is not acting as a real estate agent on behalf of himself or any
other party, the broker is not authorized to perform the escrow under the Financial Code exemption.

The Department of Corporations has interpreted Section 17006 (a)(4) to mean that:

1. the exemption is personal to the broker and the broker (when acting as the escrow holder) cannot delegate
other than ministerial duties/functions;

2. the exemption is not available for any association or arrangement with other brokers for the purpose of
conducting escrows; and

3. when the broker’s escrow business is a substantial factor in the utilization of the broker’s services, the
escrow business is not “incidental to a real estate transaction.”

A real estate broker cannot advertise in any manner that would tend to be misleading to the public, or advertise
that he or she conducts escrows under the above exemption without specifying in the advertisement that such
services are only in connection with the broker’s real estate brokerage business. Moreover, a real estate broker
may not use a fictitious name containing the word “escrow,” or any name which implies that escrow services
are provided in connection with that broker’s licensed activities, unless the fictitious business name includes the
term “a non-independent broker escrow” following the name. Real estate brokers who have been or are issued
a license with a fictitious business name with the term “escrow”, or any term which implies that escrow services
are provided, must include the term “a non-independent broker escrow” in any advertising, signs, or electronic
promotional material (Real Estate Commissioner’s Regulation 2731(d)).

A real estate broker who conducts an escrow under the exemption must maintain all escrowed funds in a trust
account and keep proper records in accordance with the Real Estate Law and the Real Estate Commissioner’s
Regulations pertaining thereto, including Regulations 2830.1 et seq. and 2950 and 2951.

The agency and fiduciary duties of the real estate broker when acting as an escrow holder are not limited to the
course and scope of the escrow instructions (as previously described regarding neutral third party escrow
holders/agents). The real estate broker is an agent and fiduciary of one or more principals in the real estate
sales transaction, and the purpose and scope of the agency is expanded to include the escrow (when the broker
conducts the escrow pursuant to the previously described exemption from licensing under the Escrow Law). In
addition, the real estate broker representing either the buyer or seller or acting as either the buyer or seller
becomes the agent and fiduciary of the other principal(s) to the transaction when the broker elects to conduct
the escrow. The additional agency and fiduciary relationships created are to be disclosed and consented to by
the principals and the conflicts involved with the multiple roles of the broker must be identified.

Escrow Companies Must Be Incorporated

An individual cannot be licensed as an escrow holder/agent. A corporation duly organized for conducting an
escrow business must hold the license. Applicants for escrow licenses must be financially solvent and furnish a
surety bond in the amount of $25,000 or more, based upon yearly average trust fund obligations. All officers,
directors, trustees, and employees having access to money or negotiable instruments in the possession of the

corporate licensee must furnish a bond of indemnification against loss. All money deposited in escrow must be
placed in a trust account that is exempt from execution or attachment.