House File 685 - Introduced HOUSE FILE BY COMMITTEE ON COMMERCE (SUCCESSOR TO HSB 137) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act providing for the registration of escrow agents, 2 authorizing fees, and providing an effective date. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 1143HV 83 5 jr/rj/24 PAG LIN 1 1 Section 1. NEW SECTION. 545.1 DEFINITIONS. 1 2 As used in this chapter, unless the context otherwise 1 3 requires: 1 4 1. "Commission" means the real estate commission created 1 5 in section 543B.8. 1 6 2. "Escrow" means a transaction wherein a written 1 7 instrument, money, evidence of title to real or personal 1 8 property, or other thing of value is delivered, for the 1 9 purpose of paying an obligation or effecting the sale, 1 10 transfer, encumbrance, or lease of real property located in 1 11 this state, to a person not otherwise having any right, title, 1 12 or interest therein, to be held by that person until the 1 13 happening of a specified event or the performance of a 1 14 prescribed condition, when it is then to be delivered by such 1 15 person to a grantee, grantor, promisee, promisor, obligee, 1 16 obligor, bailee, bailor, or any agent or employee thereof. 1 17 3. "Escrow agent" means a person engaged in the business 1 18 of administering escrows. 1 19 4. "Registrant" means an escrow agent registered under 1 20 this chapter. 1 21 Sec. 2. NEW SECTION. 545.2 REGISTRATION REQUIRED == 1 22 EXEMPTIONS. 1 23 A person shall not engage in business as an escrow agent 1 24 without first registering pursuant to this chapter. This 1 25 chapter shall not apply to any of the following: 1 26 1. A bank, bank holding company, trust company, savings 1 27 bank, savings and loan association, or credit union that is 1 28 subject to licensing, supervision, or auditing by an agency of 1 29 this state, another state, or the United States, or any 1 30 subsidiary or affiliate thereof. 1 31 2. A mortgage lender or mortgage banker maintaining an 1 32 office in this state whose principal business in this state is 1 33 conducted with or through a mortgage lender or mortgage 1 34 banker, to which this chapter does not otherwise apply and 1 35 which maintains a place of business in this state, including a 2 1 mortgage banker subject to the licensing requirements under 2 2 chapter 535B. 2 3 3. An insurance company organized under the laws of this 2 4 state and subject to regulation by the commissioner of 2 5 insurance, or a wholly owned subsidiary of an insurance 2 6 company with its principal place of business in this state. 2 7 4. A person licensed to practice law in this state 2 8 rendering services in the performance of duties as an attorney 2 9 at law. 2 10 5. A real estate licensee licensed under chapter 543B. 2 11 6. An officer or employee of the federal government, any 2 12 state government, or a political subdivision of the state 2 13 acting in an official capacity. 2 14 7. A person acting under the supervision or order of any 2 15 court. 2 16 8. A qualified intermediary facilitating an exchange under 2 17 section 1031 of the Internal Revenue Code whose role in the 2 18 transaction is limited to acting in such a capacity. 2 19 Sec. 3. NEW SECTION. 545.3 REGISTRATION REQUIREMENTS. 2 20 1. Registration applicants shall submit to the commission 2 21 an application on forms provided by the commission. 2 22 Notification of material changes in the information contained 2 23 in the application must be immediately filed with the 2 24 commission. The application shall be accompanied by a filing 2 25 fee as set by the commission and shall include, at a minimum, 2 26 all of the following: 2 27 a. The applicant's form of business organization and place 2 28 of organization. 2 29 b. If the applicant is a corporation or limited liability 2 30 company, the address of the physical location of its 2 31 headquarters, a list of employees, officers, controlling 2 32 persons, and directors of such corporation or company and 2 33 their residential addresses, telephone numbers, and other 2 34 identifying information as required by rule adopted pursuant 2 35 to this chapter. If the applicant is a sole proprietorship or 3 1 partnership, the address of its business location, a list of 3 2 owners, partners, employees, and controlling persons and their 3 3 residential addresses, telephone numbers, and other 3 4 identifying information as required by rule adopted pursuant 3 5 to this chapter. 3 6 c. The name under which the applicant will conduct 3 7 business. 3 8 d. The name of a natural person to receive service of 3 9 process. 3 10 e. Evidence of compliance with the financial 3 11 responsibility requirements of section 545.7. 3 12 2. A registrant shall be subject to criminal background 3 13 checks. A registration certificate shall not be issued to an 3 14 applicant who has been convicted, including a conviction based 3 15 upon a guilty plea or plea of nolo contendere, of a crime 3 16 which is substantially related to the qualifications, 3 17 functions, and duties of an escrow agent, including, fraud and 3 18 theft. A registrant shall relinquish a registration 3 19 certificate within twenty days of being convicted of such a 3 20 crime. 3 21 3. An applicant who fails to comply with the requirements 3 22 of this section shall not be registered. 3 23 4. A registration certificate issued pursuant to this 3 24 chapter is not transferable. 3 25 Sec. 4. NEW SECTION. 545.4 GRANTING OF REGISTRATION 3 26 CERTIFICATE. 3 27 When the applicant has complied with the requirements as 3 28 set forth in section 545.3, and the commission finds the 3 29 financial responsibility, character, and general fitness of 3 30 the applicant and the members and employees thereof if the 3 31 applicant is a partnership, association, or other organization 3 32 or of the applicant and the officers, directors, and employees 3 33 thereof if the application is a corporation, are such to 3 34 warrant a belief that the applicant's business will be 3 35 operated honestly, soundly, and efficiently in the public 4 1 interest consistent with the purposes of this chapter, the 4 2 commission shall enroll the applicant's name and address in 4 3 the roster of registered escrow agents and issue to the 4 4 applicant a certificate of registration, which certificate 4 5 shall entitle the applicant to practice as an escrow agent in 4 6 this state. 4 7 Sec. 5. NEW SECTION. 545.5 PROHIBITION ON ADMINISTERING 4 8 ESCROWS IN CONJUNCTION WITH MORTGAGE BROKERS == EXCEPTIONS. 4 9 A registrant who is also a mortgage broker subject to 4 10 licensing pursuant to chapter 535B shall not conduct the 4 11 business of administering escrows pursuant to this chapter 4 12 unless the registrant maintains separate escrow accounts, 4 13 books, and records from the registrant's mortgage broker's 4 14 accounts, books, and records, and maintains a mortgage broker 4 15 license under chapter 535B and registers as an escrow agent 4 16 under this chapter. 4 17 Sec. 6. NEW SECTION. 545.6 RENEWALS. 4 18 Certificates of registration shall be valid for a period of 4 19 three years. Registered escrow agents shall renew their 4 20 certificates of registration and pay a renewal fee in the 4 21 manner prescribed by the commission. The commission shall 4 22 prescribe the conditions and reasonable penalties for renewal 4 23 after a certificate's expiration date. 4 24 Sec. 7. NEW SECTION. 545.7 FINANCIAL RESPONSIBILITY. 4 25 1. A registrant shall file with the commission a bond 4 26 furnished by a surety company authorized to do business in 4 27 this state. The bond shall be at a minimum, the amount of one 4 28 hundred thousand dollars. The commission by administrative 4 29 rule may establish an increased bonding requirement amount. A 4 30 registrant shall maintain a bond continuous in nature until 4 31 canceled by the surety with not less than thirty days' notice 4 32 in writing to the escrow agent and to the commission 4 33 indicating the surety's intention to cancel the bond on a 4 34 specific date. The surety bond shall be in a form provided by 4 35 the commission and the applicant or licensee shall be named as 5 1 principal. The bond shall be for the use of this state and 5 2 any persons who may have causes of action against the 5 3 registrant. The bond shall be conditioned upon the 5 4 registrant's faithfully conforming to and abiding by this 5 5 chapter and any rules adopted pursuant to this chapter and 5 6 shall require that the surety pay to this state and to any 5 7 persons all moneys that become due or owing to this state and 5 8 to the persons from the registrant by virtue of this chapter. 5 9 2. A registrant shall maintain a policy of errors and 5 10 omissions insurance executed by an insurer authorized to do 5 11 business in this state in an amount not less than one hundred 5 12 thousand dollars per claim, and two hundred fifty thousand 5 13 dollars in the aggregate. 5 14 3. In lieu of filing a bond, the registrant may pledge an 5 15 alternative form of collateral acceptable to the commission, 5 16 if the alternative collateral provides protection to this 5 17 state and any aggrieved person that is equivalent to that 5 18 provided by a bond. 5 19 4. A bond, errors and omissions policy, or alternative 5 20 form of collateral required by the commission shall be kept in 5 21 full force and effect as a condition precedent to the escrow 5 22 agent's authority to transact escrow business in this state, 5 23 and the escrow agent shall supply the commission with 5 24 satisfactory evidence thereof upon request. 5 25 5. In the event of cancellation of the required bond, 5 26 errors and omissions policy, or alternative form of 5 27 collateral, the commission shall require new evidence of 5 28 financial responsibility. Failure to provide the commission 5 29 with satisfactory evidence shall be considered a violation of 5 30 this chapter. An escrow agent shall inform the commission 5 31 within ten days of any substantial change to a registrant's 5 32 financial responsibility activities, which include bonding and 5 33 insurance carriers and amounts. 5 34 Sec. 8. NEW SECTION. 545.8 CEASE AND DESIST POWERS == 5 35 INJUNCTIVE RELIEF == SUBPOENAS. 6 1 If the commission has reason to believe that a person is 6 2 conducting business in an unsafe and injurious manner or in 6 3 violation of this chapter or rules adopted pursuant to this 6 4 chapter, the commission has the same cease and desist power 6 5 and authority to take any action to enforce this chapter that 6 6 the commission has under chapter 543B. 6 7 Sec. 9. NEW SECTION. 545.9 TRUST OR ESCROW ACCOUNTS. 6 8 1. All moneys deposited in escrow to be delivered upon the 6 9 close of the escrow or upon any other contingency must be 6 10 deposited in a trust account in a financial institution that 6 11 is insured by the federal deposit insurance corporation or 6 12 national credit union share insurance fund unless another 6 13 financial institution has been designated in writing in the 6 14 escrow instructions. 6 15 2. The moneys when deposited must be designated as trust 6 16 funds or escrow accounts or under some other appropriate name 6 17 indicating that the moneys are not the moneys of the 6 18 registrant. 6 19 3. The trust or escrow account must be an interest=bearing 6 20 account. The interest on the account must be transferred 6 21 quarterly to the treasurer of state and transferred to the 6 22 Iowa finance authority for deposit in the housing trust fund 6 23 established in section 16.181 unless there is written 6 24 agreement between the buyer and seller to the contrary. The 6 25 registrant shall not benefit from interest received on funds 6 26 of others in the registrant's possession. 6 27 4. A registrant shall notify the commission of the name of 6 28 each financial institution in which a trust or escrow account 6 29 is maintained and the name of the account on forms acceptable 6 30 to the commission. A registrant may maintain more than one 6 31 trust or escrow account provided the commission is advised of 6 32 the multiple trust or escrow accounts. 6 33 5. A registrant shall only deposit trust or escrow funds 6 34 in a trust or escrow account and shall not commingle the 6 35 registrant's personal funds or other funds in the trust or 7 1 escrow account with the exception that a registrant may 7 2 deposit and keep a sum not to exceed five hundred dollars in 7 3 the trust or escrow account from the registrant's personal 7 4 funds, which sum shall be specifically identified and 7 5 deposited to cover bank service charges relating to the trust 7 6 or escrow account. 7 7 6. Money deposited in escrow is not subject to execution 7 8 or attachment on any claim against the registrant. 7 9 7. A registrant shall not knowingly keep or cause to be 7 10 kept any moneys in any bank, credit union, or other financial 7 11 institution under any name designating the moneys as belonging 7 12 to a client of a registrant, unless the money was actually 7 13 entrusted to the registrant by the client for deposit in 7 14 escrow. 7 15 Sec. 10. NEW SECTION. 545.10 STATUTORY AND COMMON LAW 7 16 RIGHTS UNAFFECTED. 7 17 The provisions of this chapter do not limit any statutory 7 18 or common law right of any person to bring an action in a 7 19 court for an act involved in the transaction of the escrow 7 20 business or the right of the state to punish a person for any 7 21 violation of a law. 7 22 Sec. 11. NEW SECTION. 545.11 TRANSACTIONS BY FOREIGN 7 23 CORPORATIONS. 7 24 A foreign corporation shall not transact an escrow business 7 25 in this state unless the foreign corporation qualifies under 7 26 chapter 490 and otherwise complies with the provisions of this 7 27 chapter. 7 28 Sec. 12. NEW SECTION. 545.12 CONSUMER FRAUD ACT. 7 29 This chapter does not limit the power of the attorney 7 30 general to determine that any practice is unlawful under the 7 31 consumer fraud Act, section 714.16, and to file an action 7 32 under that section. 7 33 Sec. 13. EFFECTIVE DATE. This Act takes effect July 1, 7 34 2010. 7 35 EXPLANATION 8 1 This bill requires escrow agents to register with the real 8 2 estate commission. Escrow agents generally operate as neutral 8 3 third parties on behalf of sellers and buyers in a real estate 8 4 transaction, accepting funds and documents for delivery to the 8 5 parties when the terms of escrow have been completed. 8 6 Registration may be issued either to individuals or 8 7 businesses. Several entities are excluded from the licensure 8 8 requirements, including: Iowa banks, Iowa mortgage or 8 9 insurance companies, lawyers acting within the scope of their 8 10 practice, real estate brokers and salespersons, government 8 11 employees, and persons acting under the direction of a court. 8 12 The real estate commission issues three=year certificates 8 13 of registration, and holds a surety bond from each registrant. 8 14 The commission may also issue cease and desist orders if a 8 15 registrant is conducting business in an unsafe and injurious 8 16 manner or in violation of the law. As set out in Code section 8 17 543B.48, the commission may impose a penalty not to exceed 8 18 $2,500 for violation of this Code chapter, and may suspend or 8 19 revoke a registration under Code section 543B.29. 8 20 Under the bill, all moneys deposited in escrow must be 8 21 deposited in an interest=bearing trust account in a financial 8 22 institution that is insured by the federal deposit insurance 8 23 corporation or national credit union share insurance fund 8 24 unless another financial institution has been designated in 8 25 writing in the escrow instructions. 8 26 The bill takes effect on July 1, 2010. 8 27 LSB 1143HV 83 8 28 jr/rj/24