12389. (a) An underwritten title company as defined in Section
12340.5, which shall be a stock corporation, may engage in the
business of preparing title searches, title reports, title
examinations, certificates or abstracts of title, upon the basis of
which a title insurer writes title policies, provided that:
(1) Only domestic corporations may be licensed under this section
and no underwritten title company, as defined in Section 12340.5,
shall become licensed under this section, or change the name under
which it is licensed or operates, unless it has first complied with
Section 881.
(2) Depending upon the county or counties in which the company is
licensed to transact business, it shall maintain required minimum net
worth as follows:
Aggregate number of
documents
recorded and documents
filed in the
offices of the county
recorders in the
preceding calendar year in
all counties
where the company is
licensed to transact
business.
Amount of
required
Number of documents minimum net worth
Less than 50,000 ............... $ 75,000
50,000 to 100,000 .............. 120,000
100,000 to 500,000 ............. 200,000
500,000 to 1,000,000 ........... 300,000
1,000,000 or more .............. 400,000
"Net worth" is defined as the excess of assets over all
liabilities and required reserves. It may carry as an asset the
actual cost of its title plant provided the value ascribed to that
asset shall not exceed the aggregate value of all other assets.
Where a title plant of an underwritten title company is not being
currently maintained, the asset value of the plant shall not exceed
its asset value as determined in the preceding paragraph as of the
date to which that plant is currently maintained, less 1/10th thereof
for each succeeding year or part of the succeeding year that the
plant is not being currently maintained. For the purposes of this
section, a title plant shall be deemed currently maintained so long
as it is used in the normal conduct of the business of title
insurance, and (1) the owner of the plant continues regularly to
obtain and index title record data to the plant or to a continuation
thereof in a format other than that previously used, including, but
not limited to, computerization of the data, or (2) the owner of the
plant is a participant, in an arrangement for joint use of a title
plant system regularly maintained in any format, provided the owner
is contractually entitled to receive a copy of the title record data
contained in the jointly used title plant system during the period of
the owner's participation therein, either periodically or upon
termination of that participation, at a cost not to exceed the actual
cost of duplication of the title record data.
An underwritten title company at all times shall maintain current
assets of at least ten thousand dollars ($10,000) in excess of its
current liabilities, as current assets and liabilities may be defined
pursuant to regulations made by the commissioner. In making the
regulations, the commissioner shall be guided by generally accepted
accounting principles followed by certified public accountants in
this state.
(3) An underwritten title company shall obtain from the
commissioner a license to transact its business. The license shall
not be granted until the applicant conforms to the requirements of
this section and all other provisions of this code specifically
applicable to applicant. After issuance the holder shall continue to
comply with the requirements as to its business set forth in this
code, in the applicable rules and regulations of the commissioner and
in the laws of this state.
Any underwritten title company who possesses, or is required to
possess, a license pursuant to this section shall be subject as if an
insurer to the provisions of Article 8 (commencing with Section 820)
of Chapter 1 of Part 2 of Division 1 of this code and shall be
deemed to be subject to authorization by the Insurance Commissioner
within the meaning of subdivision (e) of Section 25100 of the
Corporations Code.
The license may be obtained by filing an application on a form
prescribed by the commissioner accompanied by a filing fee of three
hundred fifty-four dollars ($354). The license when issued shall be
for an indefinite term and shall expire with the termination of the
existence of the holder, subject to the annual renewal fee imposed
under Sections 12415 and 12416.
An underwritten title company seeking to extend its license to an
additional county shall pay a two hundred seven dollar ($207) fee for
each additional county, and shall furnish to the commissioner
evidence, at least sufficient to meet the minimum net worth
requirements of paragraph (2), of its financial ability to expand its
business operation to include the additional county or counties.
(4) (A) An underwritten title company shall furnish an audit to
the commissioner on the forms provided by the commissioner annually,
either on a calendar year basis on or before March 31st or, if
approved in writing by the commissioner in respect to any individual
company, on a fiscal year basis on or before 90 days after the end of
the fiscal year. The time for furnishing any audit required by this
paragraph may be extended, for good cause shown, on written approval
of the commissioner for a period, not to exceed 60 days. Failure to
submit an audit on time, or within the extended time that the
commissioner may grant, shall be grounds for an order by the
commissioner to accept no new business pursuant to subdivision (d).
The audits shall be private, except that a synopsis of the balance
sheet on a form prescribed by the commissioner may be made available
to the public.
(B) The audits shall be made in accordance with generally accepted
auditing standards by an independent certified public accountant or
independent licensed public accountant whose certification or license
is in good standing at the time of the preparation. The fee for
filing the audit shall be three hundred thirteen dollars ($313).
(C) The commissioner may refuse to accept an audit or order a new
audit for any of the following reasons:
(i) Adverse result in any proceeding before the California Board
of Accountancy affecting the auditor's license.
(ii) The auditor has an affiliation with the underwritten title
company or any of its officers or directors that would prevent his or
her reports on the company from being reasonably objective.
(iii) The auditor has suffered conviction of any misdemeanor or
felony based on his or her activities as an accountant.
(iv) Judgment adverse to the auditor in any civil action finding
him or her guilty of fraud, deceit, or misrepresentation in the
practice of his or her profession.
Any company that fails to file any audit or other report on or
before the date it is due shall pay to the commissioner a penalty fee
of one hundred eighteen dollars ($118) and on failure to pay that or
any other fee or file the audit required by this section shall
forfeit the privilege of accepting new business until the delinquency
is corrected.
(b) An underwritten title company may engage in the escrow
business and act as escrow agent provided that:
(1) It shall maintain record of all receipts and disbursements of
escrow funds.
(2) It shall deposit seven thousand five hundred dollars ($7,500)
for each county in which it transacts business in some form permitted
by Section 12351 with the commissioner who shall immediately make a
special deposit of that amount in the State Treasury and that deposit
shall be subject to Sections 12353, 12356, 12357, and 12358 and as
long as there are no claims against the deposit all interest and
dividends thereon shall be paid to the depositor. The deposit shall
be for the security and protection of persons having lawful claims
against the depositor growing out of escrow transactions with it. The
deposit shall be maintained until four years after all escrows
handled by the depositor have been closed.
(A) The commissioner may release the deposits prior to the passage
of the four-year period upon presentation of evidence satisfactory
to the commissioner of either a statutory merger of the depositor
into a licensee or certificate holder subject to the jurisdiction of
the commissioner, or a valid assumption agreement under which all
liability of the depositor stemming from escrow transactions handled
by it is assumed by a licensee or certificate holder subject to the
jurisdiction of the commissioner.
(B) With the foregoing exceptions, the deposit shall be returned
to the depositor or lawful successor in interest following the
four-year period, upon presentation of evidence satisfactory to the
commissioner that there are no claims against the deposit stemming
from escrow transactions handled by the depositor. If the
commissioner has evidence of one or more claims against the
depositor, and the depositor is not in conservatorship or
liquidation, the commissioner may interplead the deposit by special
endorsement to a court of competent jurisdiction for distribution on
the basis that claims against the depositor stemming from escrow
transactions handled by it have priority in the distribution over
other claims against the depositor.
(c) The commissioner shall, whenever it appears necessary, examine
the business and affairs of a company licensed under this section.
All of these examinations shall be at the expense of the company.
(d) At any time that the commissioner determines, after notice and
hearing, that a company licensed under this section has willfully
failed to comply with any of the provisions of this section, the
commissioner shall make his or her order prohibiting the company from
conducting its business for a period of not more than one year.
Any company violating the commissioner's order is subject to
seizure under Article 14 (commencing with Section 1010) of Chapter 1
of Part 2 of Division 1, is guilty of a misdemeanor, and may have its
license revoked by the commissioner. Any person aiding and abetting
any company in a violation of the commissioner's order is guilty of a
misdemeanor.
The purpose of this section is to maintain the solvency of the
companies subject to this section and to protect the public by
preventing fraud and requiring fair dealing. In order to carry out
these purposes, the commissioner may make reasonable rules and
regulations to govern the conduct of its business of companies
subject to this section.
The name under which each underwritten title company is licensed
shall at all times be an approved name. The fee for filing an
application for a change of name shall be one hundred eighteen
dollars ($118). Each such company shall be subject to the provisions
of Article 14 (commencing with Section 1010) and Article 14.5
(commencing with Section 1065.1) of Chapter 1 of Part 2 of Division
1.
The rules and regulations shall be adopted, amended or repealed in
accordance with the procedure provided in Chapter 3.5 (commencing
with Section 11350) of Part 1 of Division 3 of Title 2 of the
Government Code.
12389.1. Before granting a license or a reissued license to act as
an underwritten title company to any applicant, the commissioner
shall consider the qualifications of the applicant in respect to the
following subjects: (a) minimum net worth and working capital; (b)
reasonableness of its plan of operation; (c) lawfulness and quality
of investments; (d) financial stability; (e) competency, character,
and integrity of management; (f) ownership and control of issued and
outstanding shares; (g) fairness and honesty of methods of doing
business; (h) method by which the applicant was promoted if any of
its promoters remain as stockholders or in management; and (i) hazard
to the public.
Upon consideration of all relevant qualifications, the
commissioner shall issue or reissue a license to act as an
underwritten title company to the applicant, unless the commissioner
shall have made a finding, or findings, that the applicant is
materially deficient in respect to one or more of the items outlined
herein.
12389.2. After the issuance or reissuance of a license to act as an
underwritten title company, the holder shall continue to comply with
the requirements as to its business set forth in Section 12389.1 and
in the other applicable sections of this code, and in the other laws
of this state.
12389.3. When there exists a restriction in a stock certificate
requiring the consent of the department prior to the transfer of the
stock, the request for consent to transfer shall be submitted to the
department for approval. Requests for consent to transfer stock
certificates representing less than 10 percent of the outstanding
stock of the company to existing stockholders, the company which
issued the stock, or persons who have been employed by the
underwritten title company for the preceding 12 months, shall be
approved or denied by the department within 60 days of the request
for consent to transfer. If no action is taken by the department
within 60 days, the request for consent to transfer stock
certificates shall be deemed approved. In no event may the 60-day
period be extended or waived by the applicant or the department. The
time limits set forth in this section shall not apply where the
transfer of the stock would result in the transferee, other than the
company which issued the stock, owning 10 percent or more of the
outstanding stock of the company.
12389.4. An underwritten title company shall furnish a quarterly
financial statement to the commissioner on forms prescribed by the
commissioner on or before 30 days after each calendar quarter ending
March 31, June 30, and September 30. Underwritten title companies
that are specifically approved to report on a fiscal year basis shall
file a quarterly financial statement 30 days after the end of each
fiscal quarter. The commissioner is authorized to require an
underwritten title company to provide supplemental accounting and
financial information when the commissioner deems it to be necessary.
12389.5. Every person engaged in the business of preparing title
searches, title examinations, title reports, and certificates of
abstracts of title, upon which a title insurer writes title policies,
is required to be licensed as an underwritten title company in
compliance with the licensing requirements of this article.
12389.6. (a) Prior to the disbursement by an underwritten title
company from any escrow account under Section 12413.1, each
underwriting agreement between the underwritten title company and a
title insurer shall contain one of the following written procedures
reasonably calculated to prevent the misappropriation, disappearance,
or wrongful use of funds deposited in the underwritten title company'
s escrow or subescrow account:
(1) The underwritten title company shall obtain and maintain a
fidelity bond or insurance policy, satisfactory to the title insurer
agreeing to this option that covers losses caused by
misappropriation, disappearance, or other wrongful use of escrow
funds deposited with the underwritten title company. The face amount
of the fidelity bond or insurance policy shall be at least 10 times
the underwritten title company's required minimum net worth under
subdivision (a) of Section 12389. The bond or insurance policy shall
name as an additional insured, co-insured, or joint-loss payee each
of the title insurers agreeing to this option in the underwriting
agreement. The bond or policy may not exclude coverage due to acts or
omissions of any officer, director, employee, or principal of the
underwritten title company. In the event of cancellation or
nonrenewal of the bond or policy, a title insurance company named as
an additional insured, co-insured, or joint-loss payee shall be given
advance written notice by the underwriter of the bond or policy. The
underwritten title company shall submit a copy of the bond or policy
to the title insurer named as an additional insured, co-insured, or
joint-loss payee within 14 days of the effective date of the
underwriting agreement.
(2) Disbursements of escrow funds shall be reviewed and approved
by an employee of the title insurer. Title insurer employees who
review and approve disbursements of escrow funds shall be physically
located at the place of business of the underwritten title company
and shall be on the title insurer's payroll. Before review and
approval of any disbursement, the employee shall sign an affidavit to
be filed with and on a form approved by the commissioner. The
affiant shall attest that the affiant has read, is familiar with, and
agrees to comply with the title insurer's approval procedures for
disbursements.
(3) Account review processes and oversight and internal control
guidelines, in electronic or other medium, drafted by a title
insurance industry advisory organization, as defined in Section
12340.8, and approved by the commissioner.
(4) Written procedures approved by the commissioner that provide
for the protection and control of escrow funds in a manner consistent
with the purposes of this subdivision.
(b) The commissioner shall approve or deny any written procedures
submitted to him or her under this section for approval within 60
days of receiving the request. If no action is taken by the
commissioner within the 60-day period, the request is deemed
approved.
12389. (a) An underwritten title company as defined in Section
12340.5, which shall be a stock corporation, may engage in the
business of preparing title searches, title reports, title
examinations, certificates or abstracts of title, upon the basis of
which a title insurer writes title policies, provided that:
(1) Only domestic corporations may be licensed under this section
and no underwritten title company, as defined in Section 12340.5,
shall become licensed under this section, or change the name under
which it is licensed or operates, unless it has first complied with
Section 881.
(2) Depending upon the county or counties in which the company is
licensed to transact business, it shall maintain required minimum net
worth as follows:
Aggregate number of
documents
recorded and documents
filed in the
offices of the county
recorders in the
preceding calendar year in
all counties
where the company is
licensed to transact
business.
Amount of
required
Number of documents minimum net worth
Less than 50,000 ............... $ 75,000
50,000 to 100,000 .............. 120,000
100,000 to 500,000 ............. 200,000
500,000 to 1,000,000 ........... 300,000
1,000,000 or more .............. 400,000
"Net worth" is defined as the excess of assets over all
liabilities and required reserves. It may carry as an asset the
actual cost of its title plant provided the value ascribed to that
asset shall not exceed the aggregate value of all other assets.
Where a title plant of an underwritten title company is not being
currently maintained, the asset value of the plant shall not exceed
its asset value as determined in the preceding paragraph as of the
date to which that plant is currently maintained, less 1/10th thereof
for each succeeding year or part of the succeeding year that the
plant is not being currently maintained. For the purposes of this
section, a title plant shall be deemed currently maintained so long
as it is used in the normal conduct of the business of title
insurance, and (1) the owner of the plant continues regularly to
obtain and index title record data to the plant or to a continuation
thereof in a format other than that previously used, including, but
not limited to, computerization of the data, or (2) the owner of the
plant is a participant, in an arrangement for joint use of a title
plant system regularly maintained in any format, provided the owner
is contractually entitled to receive a copy of the title record data
contained in the jointly used title plant system during the period of
the owner's participation therein, either periodically or upon
termination of that participation, at a cost not to exceed the actual
cost of duplication of the title record data.
An underwritten title company at all times shall maintain current
assets of at least ten thousand dollars ($10,000) in excess of its
current liabilities, as current assets and liabilities may be defined
pursuant to regulations made by the commissioner. In making the
regulations, the commissioner shall be guided by generally accepted
accounting principles followed by certified public accountants in
this state.
(3) An underwritten title company shall obtain from the
commissioner a license to transact its business. The license shall
not be granted until the applicant conforms to the requirements of
this section and all other provisions of this code specifically
applicable to applicant. After issuance the holder shall continue to
comply with the requirements as to its business set forth in this
code, in the applicable rules and regulations of the commissioner and
in the laws of this state.
Any underwritten title company who possesses, or is required to
possess, a license pursuant to this section shall be subject as if an
insurer to the provisions of Article 8 (commencing with Section 820)
of Chapter 1 of Part 2 of Division 1 of this code and shall be
deemed to be subject to authorization by the Insurance Commissioner
within the meaning of subdivision (e) of Section 25100 of the
Corporations Code.
The license may be obtained by filing an application on a form
prescribed by the commissioner accompanied by a filing fee of three
hundred fifty-four dollars ($354). The license when issued shall be
for an indefinite term and shall expire with the termination of the
existence of the holder, subject to the annual renewal fee imposed
under Sections 12415 and 12416.
An underwritten title company seeking to extend its license to an
additional county shall pay a two hundred seven dollar ($207) fee for
each additional county, and shall furnish to the commissioner
evidence, at least sufficient to meet the minimum net worth
requirements of paragraph (2), of its financial ability to expand its
business operation to include the additional county or counties.
(4) (A) An underwritten title company shall furnish an audit to
the commissioner on the forms provided by the commissioner annually,
either on a calendar year basis on or before March 31st or, if
approved in writing by the commissioner in respect to any individual
company, on a fiscal year basis on or before 90 days after the end of
the fiscal year. The time for furnishing any audit required by this
paragraph may be extended, for good cause shown, on written approval
of the commissioner for a period, not to exceed 60 days. Failure to
submit an audit on time, or within the extended time that the
commissioner may grant, shall be grounds for an order by the
commissioner to accept no new business pursuant to subdivision (d).
The audits shall be private, except that a synopsis of the balance
sheet on a form prescribed by the commissioner may be made available
to the public.
(B) The audits shall be made in accordance with generally accepted
auditing standards by an independent certified public accountant or
independent licensed public accountant whose certification or license
is in good standing at the time of the preparation. The fee for
filing the audit shall be three hundred thirteen dollars ($313).
(C) The commissioner may refuse to accept an audit or order a new
audit for any of the following reasons:
(i) Adverse result in any proceeding before the California Board
of Accountancy affecting the auditor's license.
(ii) The auditor has an affiliation with the underwritten title
company or any of its officers or directors that would prevent his or
her reports on the company from being reasonably objective.
(iii) The auditor has suffered conviction of any misdemeanor or
felony based on his or her activities as an accountant.
(iv) Judgment adverse to the auditor in any civil action finding
him or her guilty of fraud, deceit, or misrepresentation in the
practice of his or her profession.
Any company that fails to file any audit or other report on or
before the date it is due shall pay to the commissioner a penalty fee
of one hundred eighteen dollars ($118) and on failure to pay that or
any other fee or file the audit required by this section shall
forfeit the privilege of accepting new business until the delinquency
is corrected.
(b) An underwritten title company may engage in the escrow
business and act as escrow agent provided that:
(1) It shall maintain record of all receipts and disbursements of
escrow funds.
(2) It shall deposit seven thousand five hundred dollars ($7,500)
for each county in which it transacts business in some form permitted
by Section 12351 with the commissioner who shall immediately make a
special deposit of that amount in the State Treasury and that deposit
shall be subject to Sections 12353, 12356, 12357, and 12358 and as
long as there are no claims against the deposit all interest and
dividends thereon shall be paid to the depositor. The deposit shall
be for the security and protection of persons having lawful claims
against the depositor growing out of escrow transactions with it. The
deposit shall be maintained until four years after all escrows
handled by the depositor have been closed.
(A) The commissioner may release the deposits prior to the passage
of the four-year period upon presentation of evidence satisfactory
to the commissioner of either a statutory merger of the depositor
into a licensee or certificate holder subject to the jurisdiction of
the commissioner, or a valid assumption agreement under which all
liability of the depositor stemming from escrow transactions handled
by it is assumed by a licensee or certificate holder subject to the
jurisdiction of the commissioner.
(B) With the foregoing exceptions, the deposit shall be returned
to the depositor or lawful successor in interest following the
four-year period, upon presentation of evidence satisfactory to the
commissioner that there are no claims against the deposit stemming
from escrow transactions handled by the depositor. If the
commissioner has evidence of one or more claims against the
depositor, and the depositor is not in conservatorship or
liquidation, the commissioner may interplead the deposit by special
endorsement to a court of competent jurisdiction for distribution on
the basis that claims against the depositor stemming from escrow
transactions handled by it have priority in the distribution over
other claims against the depositor.
(c) The commissioner shall, whenever it appears necessary, examine
the business and affairs of a company licensed under this section.
All of these examinations shall be at the expense of the company.
(d) At any time that the commissioner determines, after notice and
hearing, that a company licensed under this section has willfully
failed to comply with any of the provisions of this section, the
commissioner shall make his or her order prohibiting the company from
conducting its business for a period of not more than one year.
Any company violating the commissioner's order is subject to
seizure under Article 14 (commencing with Section 1010) of Chapter 1
of Part 2 of Division 1, is guilty of a misdemeanor, and may have its
license revoked by the commissioner. Any person aiding and abetting
any company in a violation of the commissioner's order is guilty of a
misdemeanor.
The purpose of this section is to maintain the solvency of the
companies subject to this section and to protect the public by
preventing fraud and requiring fair dealing. In order to carry out
these purposes, the commissioner may make reasonable rules and
regulations to govern the conduct of its business of companies
subject to this section.
The name under which each underwritten title company is licensed
shall at all times be an approved name. The fee for filing an
application for a change of name shall be one hundred eighteen
dollars ($118). Each such company shall be subject to the provisions
of Article 14 (commencing with Section 1010) and Article 14.5
(commencing with Section 1065.1) of Chapter 1 of Part 2 of Division
1.
The rules and regulations shall be adopted, amended or repealed in
accordance with the procedure provided in Chapter 3.5 (commencing
with Section 11350) of Part 1 of Division 3 of Title 2 of the
Government Code.
12389.1. Before granting a license or a reissued license to act as
an underwritten title company to any applicant, the commissioner
shall consider the qualifications of the applicant in respect to the
following subjects: (a) minimum net worth and working capital; (b)
reasonableness of its plan of operation; (c) lawfulness and quality
of investments; (d) financial stability; (e) competency, character,
and integrity of management; (f) ownership and control of issued and
outstanding shares; (g) fairness and honesty of methods of doing
business; (h) method by which the applicant was promoted if any of
its promoters remain as stockholders or in management; and (i) hazard
to the public.
Upon consideration of all relevant qualifications, the
commissioner shall issue or reissue a license to act as an
underwritten title company to the applicant, unless the commissioner
shall have made a finding, or findings, that the applicant is
materially deficient in respect to one or more of the items outlined
herein.
12389.2. After the issuance or reissuance of a license to act as an
underwritten title company, the holder shall continue to comply with
the requirements as to its business set forth in Section 12389.1 and
in the other applicable sections of this code, and in the other laws
of this state.
12389.3. When there exists a restriction in a stock certificate
requiring the consent of the department prior to the transfer of the
stock, the request for consent to transfer shall be submitted to the
department for approval. Requests for consent to transfer stock
certificates representing less than 10 percent of the outstanding
stock of the company to existing stockholders, the company which
issued the stock, or persons who have been employed by the
underwritten title company for the preceding 12 months, shall be
approved or denied by the department within 60 days of the request
for consent to transfer. If no action is taken by the department
within 60 days, the request for consent to transfer stock
certificates shall be deemed approved. In no event may the 60-day
period be extended or waived by the applicant or the department. The
time limits set forth in this section shall not apply where the
transfer of the stock would result in the transferee, other than the
company which issued the stock, owning 10 percent or more of the
outstanding stock of the company.
12389.4. An underwritten title company shall furnish a quarterly
financial statement to the commissioner on forms prescribed by the
commissioner on or before 30 days after each calendar quarter ending
March 31, June 30, and September 30. Underwritten title companies
that are specifically approved to report on a fiscal year basis shall
file a quarterly financial statement 30 days after the end of each
fiscal quarter. The commissioner is authorized to require an
underwritten title company to provide supplemental accounting and
financial information when the commissioner deems it to be necessary.
12389.5. Every person engaged in the business of preparing title
searches, title examinations, title reports, and certificates of
abstracts of title, upon which a title insurer writes title policies,
is required to be licensed as an underwritten title company in
compliance with the licensing requirements of this article.
12389.6. (a) Prior to the disbursement by an underwritten title
company from any escrow account under Section 12413.1, each
underwriting agreement between the underwritten title company and a
title insurer shall contain one of the following written procedures
reasonably calculated to prevent the misappropriation, disappearance,
or wrongful use of funds deposited in the underwritten title company'
s escrow or subescrow account:
(1) The underwritten title company shall obtain and maintain a
fidelity bond or insurance policy, satisfactory to the title insurer
agreeing to this option that covers losses caused by
misappropriation, disappearance, or other wrongful use of escrow
funds deposited with the underwritten title company. The face amount
of the fidelity bond or insurance policy shall be at least 10 times
the underwritten title company's required minimum net worth under
subdivision (a) of Section 12389. The bond or insurance policy shall
name as an additional insured, co-insured, or joint-loss payee each
of the title insurers agreeing to this option in the underwriting
agreement. The bond or policy may not exclude coverage due to acts or
omissions of any officer, director, employee, or principal of the
underwritten title company. In the event of cancellation or
nonrenewal of the bond or policy, a title insurance company named as
an additional insured, co-insured, or joint-loss payee shall be given
advance written notice by the underwriter of the bond or policy. The
underwritten title company shall submit a copy of the bond or policy
to the title insurer named as an additional insured, co-insured, or
joint-loss payee within 14 days of the effective date of the
underwriting agreement.
(2) Disbursements of escrow funds shall be reviewed and approved
by an employee of the title insurer. Title insurer employees who
review and approve disbursements of escrow funds shall be physically
located at the place of business of the underwritten title company
and shall be on the title insurer's payroll. Before review and
approval of any disbursement, the employee shall sign an affidavit to
be filed with and on a form approved by the commissioner. The
affiant shall attest that the affiant has read, is familiar with, and
agrees to comply with the title insurer's approval procedures for
disbursements.
(3) Account review processes and oversight and internal control
guidelines, in electronic or other medium, drafted by a title
insurance industry advisory organization, as defined in Section
12340.8, and approved by the commissioner.
(4) Written procedures approved by the commissioner that provide
for the protection and control of escrow funds in a manner consistent
with the purposes of this subdivision.
(b) The commissioner shall approve or deny any written procedures
submitted to him or her under this section for approval within 60
days of receiving the request. If no action is taken by the
commissioner within the 60-day period, the request is deemed
approved.
12389. (a) An underwritten title company as defined in Section
12340.5, which shall be a stock corporation, may engage in the
business of preparing title searches, title reports, title
examinations, certificates or abstracts of title, upon the basis of
which a title insurer writes title policies, provided that:
(1) Only domestic corporations may be licensed under this section
and no underwritten title company, as defined in Section 12340.5,
shall become licensed under this section, or change the name under
which it is licensed or operates, unless it has first complied with
Section 881.
(2) Depending upon the county or counties in which the company is
licensed to transact business, it shall maintain required minimum net
worth as follows:
Aggregate number of
documents
recorded and documents
filed in the
offices of the county
recorders in the
preceding calendar year in
all counties
where the company is
licensed to transact
business.
Amount of
required
Number of documents minimum net worth
Less than 50,000 ............... $ 75,000
50,000 to 100,000 .............. 120,000
100,000 to 500,000 ............. 200,000
500,000 to 1,000,000 ........... 300,000
1,000,000 or more .............. 400,000
"Net worth" is defined as the excess of assets over all
liabilities and required reserves. It may carry as an asset the
actual cost of its title plant provided the value ascribed to that
asset shall not exceed the aggregate value of all other assets.
Where a title plant of an underwritten title company is not being
currently maintained, the asset value of the plant shall not exceed
its asset value as determined in the preceding paragraph as of the
date to which that plant is currently maintained, less 1/10th thereof
for each succeeding year or part of the succeeding year that the
plant is not being currently maintained. For the purposes of this
section, a title plant shall be deemed currently maintained so long
as it is used in the normal conduct of the business of title
insurance, and (1) the owner of the plant continues regularly to
obtain and index title record data to the plant or to a continuation
thereof in a format other than that previously used, including, but
not limited to, computerization of the data, or (2) the owner of the
plant is a participant, in an arrangement for joint use of a title
plant system regularly maintained in any format, provided the owner
is contractually entitled to receive a copy of the title record data
contained in the jointly used title plant system during the period of
the owner's participation therein, either periodically or upon
termination of that participation, at a cost not to exceed the actual
cost of duplication of the title record data.
An underwritten title company at all times shall maintain current
assets of at least ten thousand dollars ($10,000) in excess of its
current liabilities, as current assets and liabilities may be defined
pursuant to regulations made by the commissioner. In making the
regulations, the commissioner shall be guided by generally accepted
accounting principles followed by certified public accountants in
this state.
(3) An underwritten title company shall obtain from the
commissioner a license to transact its business. The license shall
not be granted until the applicant conforms to the requirements of
this section and all other provisions of this code specifically
applicable to applicant. After issuance the holder shall continue to
comply with the requirements as to its business set forth in this
code, in the applicable rules and regulations of the commissioner and
in the laws of this state.
Any underwritten title company who possesses, or is required to
possess, a license pursuant to this section shall be subject as if an
insurer to the provisions of Article 8 (commencing with Section 820)
of Chapter 1 of Part 2 of Division 1 of this code and shall be
deemed to be subject to authorization by the Insurance Commissioner
within the meaning of subdivision (e) of Section 25100 of the
Corporations Code.
The license may be obtained by filing an application on a form
prescribed by the commissioner accompanied by a filing fee of three
hundred fifty-four dollars ($354). The license when issued shall be
for an indefinite term and shall expire with the termination of the
existence of the holder, subject to the annual renewal fee imposed
under Sections 12415 and 12416.
An underwritten title company seeking to extend its license to an
additional county shall pay a two hundred seven dollar ($207) fee for
each additional county, and shall furnish to the commissioner
evidence, at least sufficient to meet the minimum net worth
requirements of paragraph (2), of its financial ability to expand its
business operation to include the additional county or counties.
(4) (A) An underwritten title company shall furnish an audit to
the commissioner on the forms provided by the commissioner annually,
either on a calendar year basis on or before March 31st or, if
approved in writing by the commissioner in respect to any individual
company, on a fiscal year basis on or before 90 days after the end of
the fiscal year. The time for furnishing any audit required by this
paragraph may be extended, for good cause shown, on written approval
of the commissioner for a period, not to exceed 60 days. Failure to
submit an audit on time, or within the extended time that the
commissioner may grant, shall be grounds for an order by the
commissioner to accept no new business pursuant to subdivision (d).
The audits shall be private, except that a synopsis of the balance
sheet on a form prescribed by the commissioner may be made available
to the public.
(B) The audits shall be made in accordance with generally accepted
auditing standards by an independent certified public accountant or
independent licensed public accountant whose certification or license
is in good standing at the time of the preparation. The fee for
filing the audit shall be three hundred thirteen dollars ($313).
(C) The commissioner may refuse to accept an audit or order a new
audit for any of the following reasons:
(i) Adverse result in any proceeding before the California Board
of Accountancy affecting the auditor's license.
(ii) The auditor has an affiliation with the underwritten title
company or any of its officers or directors that would prevent his or
her reports on the company from being reasonably objective.
(iii) The auditor has suffered conviction of any misdemeanor or
felony based on his or her activities as an accountant.
(iv) Judgment adverse to the auditor in any civil action finding
him or her guilty of fraud, deceit, or misrepresentation in the
practice of his or her profession.
Any company that fails to file any audit or other report on or
before the date it is due shall pay to the commissioner a penalty fee
of one hundred eighteen dollars ($118) and on failure to pay that or
any other fee or file the audit required by this section shall
forfeit the privilege of accepting new business until the delinquency
is corrected.
(b) An underwritten title company may engage in the escrow
business and act as escrow agent provided that:
(1) It shall maintain record of all receipts and disbursements of
escrow funds.
(2) It shall deposit seven thousand five hundred dollars ($7,500)
for each county in which it transacts business in some form permitted
by Section 12351 with the commissioner who shall immediately make a
special deposit of that amount in the State Treasury and that deposit
shall be subject to Sections 12353, 12356, 12357, and 12358 and as
long as there are no claims against the deposit all interest and
dividends thereon shall be paid to the depositor. The deposit shall
be for the security and protection of persons having lawful claims
against the depositor growing out of escrow transactions with it. The
deposit shall be maintained until four years after all escrows
handled by the depositor have been closed.
(A) The commissioner may release the deposits prior to the passage
of the four-year period upon presentation of evidence satisfactory
to the commissioner of either a statutory merger of the depositor
into a licensee or certificate holder subject to the jurisdiction of
the commissioner, or a valid assumption agreement under which all
liability of the depositor stemming from escrow transactions handled
by it is assumed by a licensee or certificate holder subject to the
jurisdiction of the commissioner.
(B) With the foregoing exceptions, the deposit shall be returned
to the depositor or lawful successor in interest following the
four-year period, upon presentation of evidence satisfactory to the
commissioner that there are no claims against the deposit stemming
from escrow transactions handled by the depositor. If the
commissioner has evidence of one or more claims against the
depositor, and the depositor is not in conservatorship or
liquidation, the commissioner may interplead the deposit by special
endorsement to a court of competent jurisdiction for distribution on
the basis that claims against the depositor stemming from escrow
transactions handled by it have priority in the distribution over
other claims against the depositor.
(c) The commissioner shall, whenever it appears necessary, examine
the business and affairs of a company licensed under this section.
All of these examinations shall be at the expense of the company.
(d) At any time that the commissioner determines, after notice and
hearing, that a company licensed under this section has willfully
failed to comply with any of the provisions of this section, the
commissioner shall make his or her order prohibiting the company from
conducting its business for a period of not more than one year.
Any company violating the commissioner's order is subject to
seizure under Article 14 (commencing with Section 1010) of Chapter 1
of Part 2 of Division 1, is guilty of a misdemeanor, and may have its
license revoked by the commissioner. Any person aiding and abetting
any company in a violation of the commissioner's order is guilty of a
misdemeanor.
The purpose of this section is to maintain the solvency of the
companies subject to this section and to protect the public by
preventing fraud and requiring fair dealing. In order to carry out
these purposes, the commissioner may make reasonable rules and
regulations to govern the conduct of its business of companies
subject to this section.
The name under which each underwritten title company is licensed
shall at all times be an approved name. The fee for filing an
application for a change of name shall be one hundred eighteen
dollars ($118). Each such company shall be subject to the provisions
of Article 14 (commencing with Section 1010) and Article 14.5
(commencing with Section 1065.1) of Chapter 1 of Part 2 of Division
1.
The rules and regulations shall be adopted, amended or repealed in
accordance with the procedure provided in Chapter 3.5 (commencing
with Section 11350) of Part 1 of Division 3 of Title 2 of the
Government Code.
12389.1. Before granting a license or a reissued license to act as
an underwritten title company to any applicant, the commissioner
shall consider the qualifications of the applicant in respect to the
following subjects: (a) minimum net worth and working capital; (b)
reasonableness of its plan of operation; (c) lawfulness and quality
of investments; (d) financial stability; (e) competency, character,
and integrity of management; (f) ownership and control of issued and
outstanding shares; (g) fairness and honesty of methods of doing
business; (h) method by which the applicant was promoted if any of
its promoters remain as stockholders or in management; and (i) hazard
to the public.
Upon consideration of all relevant qualifications, the
commissioner shall issue or reissue a license to act as an
underwritten title company to the applicant, unless the commissioner
shall have made a finding, or findings, that the applicant is
materially deficient in respect to one or more of the items outlined
herein.
12389.2. After the issuance or reissuance of a license to act as an
underwritten title company, the holder shall continue to comply with
the requirements as to its business set forth in Section 12389.1 and
in the other applicable sections of this code, and in the other laws
of this state.
12389.3. When there exists a restriction in a stock certificate
requiring the consent of the department prior to the transfer of the
stock, the request for consent to transfer shall be submitted to the
department for approval. Requests for consent to transfer stock
certificates representing less than 10 percent of the outstanding
stock of the company to existing stockholders, the company which
issued the stock, or persons who have been employed by the
underwritten title company for the preceding 12 months, shall be
approved or denied by the department within 60 days of the request
for consent to transfer. If no action is taken by the department
within 60 days, the request for consent to transfer stock
certificates shall be deemed approved. In no event may the 60-day
period be extended or waived by the applicant or the department. The
time limits set forth in this section shall not apply where the
transfer of the stock would result in the transferee, other than the
company which issued the stock, owning 10 percent or more of the
outstanding stock of the company.
12389.4. An underwritten title company shall furnish a quarterly
financial statement to the commissioner on forms prescribed by the
commissioner on or before 30 days after each calendar quarter ending
March 31, June 30, and September 30. Underwritten title companies
that are specifically approved to report on a fiscal year basis shall
file a quarterly financial statement 30 days after the end of each
fiscal quarter. The commissioner is authorized to require an
underwritten title company to provide supplemental accounting and
financial information when the commissioner deems it to be necessary.
12389.5. Every person engaged in the business of preparing title
searches, title examinations, title reports, and certificates of
abstracts of title, upon which a title insurer writes title policies,
is required to be licensed as an underwritten title company in
compliance with the licensing requirements of this article.
12389.6. (a) Prior to the disbursement by an underwritten title
company from any escrow account under Section 12413.1, each
underwriting agreement between the underwritten title company and a
title insurer shall contain one of the following written procedures
reasonably calculated to prevent the misappropriation, disappearance,
or wrongful use of funds deposited in the underwritten title company'
s escrow or subescrow account:
(1) The underwritten title company shall obtain and maintain a
fidelity bond or insurance policy, satisfactory to the title insurer
agreeing to this option that covers losses caused by
misappropriation, disappearance, or other wrongful use of escrow
funds deposited with the underwritten title company. The face amount
of the fidelity bond or insurance policy shall be at least 10 times
the underwritten title company's required minimum net worth under
subdivision (a) of Section 12389. The bond or insurance policy shall
name as an additional insured, co-insured, or joint-loss payee each
of the title insurers agreeing to this option in the underwriting
agreement. The bond or policy may not exclude coverage due to acts or
omissions of any officer, director, employee, or principal of the
underwritten title company. In the event of cancellation or
nonrenewal of the bond or policy, a title insurance company named as
an additional insured, co-insured, or joint-loss payee shall be given
advance written notice by the underwriter of the bond or policy. The
underwritten title company shall submit a copy of the bond or policy
to the title insurer named as an additional insured, co-insured, or
joint-loss payee within 14 days of the effective date of the
underwriting agreement.
(2) Disbursements of escrow funds shall be reviewed and approved
by an employee of the title insurer. Title insurer employees who
review and approve disbursements of escrow funds shall be physically
located at the place of business of the underwritten title company
and shall be on the title insurer's payroll. Before review and
approval of any disbursement, the employee shall sign an affidavit to
be filed with and on a form approved by the commissioner. The
affiant shall attest that the affiant has read, is familiar with, and
agrees to comply with the title insurer's approval procedures for
disbursements.
(3) Account review processes and oversight and internal control
guidelines, in electronic or other medium, drafted by a title
insurance industry advisory organization, as defined in Section
12340.8, and approved by the commissioner.
(4) Written procedures approved by the commissioner that provide
for the protection and control of escrow funds in a manner consistent
with the purposes of this subdivision.
(b) The commissioner shall approve or deny any written procedures
submitted to him or her under this section for approval within 60
days of receiving the request. If no action is taken by the
commissioner within the 60-day period, the request is deemed
approved.
