California Escrow Rules & Regulations

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California home sales require an escrow procedure.
California home sales require an escrow procedure. (Image: Jupiterimages/Comstock/Getty Images)

The California Financial Code, under Division 6, Section 17000, outlines the official rules and regulations concerning escrow law. Escrow offers a neutral party to handle money, contracts and paperwork in transactions involved in buying, selling or trading real property. All escrow agents, including joint control agents and Internet escrow agents, must hold licenses and follow the state escrow law. Joint control agents receive money or other goods to distribute, trade or use in construction improvements of a property in escrow.

Separate Accounts

California law requires real estate firms to open a separate, non-interest-bearing account for all buyer deposits given to office agents or the broker for a real estate purchase. The office holds the separate account specifically as an escrow account. Deposits in this account cannot be legally commingled with any other office funds. Once a seller accepts the buyer's offer and the written offer moves to the escrow agency, the deposit money moves from the real estate office fund to the escrow company account.

Time Limitations

Golden State escrow laws also mandate meeting time limits for depositing funds into an escrow account and returning funds to buyers, as specified in the purchase contract. Escrow agents working for a company must also undergo an annual audit of financial statements by the California State Commissioner at the close of each calendar or fiscal year. The California Financial Code Section 17406 and 1741.5 requires the audit but allows a window of 105 days from the last day of the calendar or fiscal year. Offices must report new escrow agents within 10 days of their hire, and all escrow agents must file a "Report of Escrow Liability" by February 15 each year.

Recording

Licensed brokers, by law, keep an official escrow record in the office. All deposit checks collected by the real estate agents under the broker's supervision must record the check on the official record. The recording requires the date, amount of the check, name of the buyer and also the property address, as well as the buyer’s agent's name. This record tracks the office deposits and traces the final deposition of the funds. When the property enters escrow, the recording shows the movement of the money to that office. If the offer fails and the deposit returns to the buyer, the record notes the return. Computerized offices use software programs to track deposit funds.

Licensing

Escrow companies and agents working at those companies must hold California escrow licenses to do business and represent the company in sales, leases, encumbrances and trades of real property. The California Code of Regulations, Chapter 3, Subchapter 9, Title 10 list the regulations for escrow companies and agents. Any person receiving escrow funds for deposit or delivery in California must hold a license issued by the California Department of Corporations. Escrow companies operating using the Internet must also hold California licenses when working with transactions originating in the state or directing escrow activities to any person located within California. Licensed agents must also purchase membership in the Escrow Agents' Fidelity Corporation, a reporting and auditing agency.

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