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FOREWORD

 

With the introduction of the Internet and the centralization of processing, it has almost become mandatory for agents to acquire licensing in as many states as possible. Without a broad state licensing base, an agent can easily miss out on opportunities to work with regional and national lenders. While being licensed throughout the U.S. is desirable, acquiring licensing in all 50 states may appear to be a daunting task. Each of the 50 jurisdictions involves different requirements for licensing. On top of that, the rules and regulations are always subject to change. In order to be of service to clients across a multi-state footprint, an agent must become an expert in the rules and regulations in each of the states, yet the process of becoming an expert can be time-intensive and overwhelming.

“The First Title Agent Licensing Manual” was specifically developed by the Mandrien Consulting Group to guide agents successfully through the complex process of multiple state licensing. The manual was created in cooperation with leading professional experts in the field of title insurance licensing. This comprehensive and easy-to-understand guide will remove the mystery and confusion from getting licensed in multiple states. “The First Title Agent Licensing Manual” will give you all the must-have tools to plan and execute a comprehensive, multi-state licensing strategy. This helpful and essential book explains the basics and particulars of title insurance licensing and clears up many of the common misconceptions about the process. The manual presents a complete guide to effective tactics, from basic strategies to advanced practices. Those who are new to the industry will receive an invaluable education about title insurance licensing, while agents who are seasoned professionals will gain a useful and relevant reference tool about best practices.

 

In this book, you will explore the history of title insurance licensing and gain an in-depth understanding about how the national databases currently work. You will be provided with step-by-step instructions to prepare, plan, and execute an effective expansion plan to acquire title insurance licensing across multiple states.

 

For each state you will learn the rules of basic qualification along with the particulars of each state about auditing, self-reporting violations and escrow requirements. You’ll gain a thorough understanding about title plant requirements, controlled business considerations, naming conventions, license renewal terms, and much more. The quick-reference spreadsheets list licensing requirements for each state, providing an immediate and easy-to-read point of reference. Whether you are new to the title insurance industry or want to expand your current knowledge base, this manual is a must-have addition for every reference library.

 

 

-Evan Grimm, CEO

Bay National Title Company

 

 

 

PREFACE

 

This book was created to help title insurance industry professionals of all types and at all levels. It will give the reader, whether an experienced agent or an industry beginner, a thorough and comprehensive understanding about the ins and outs of title agency insurance licensing. This thorough and exhaustive text will provide an education comparable to that offered by a university course.

 

What This Book Will Do For You

 

In this book, you will learn how to effectively develop a profitable multistate licensing strategy. You will be able to expand your licensing footprint by obtaining licensing in multiple states. You will develop the ability to keep all licenses current, compliant, and up-to-date. To set the stage for what is to follow, the book begins with a complete review of the history of title insurance. We will then examine and clarify the terminology associated with the insurance licensing business. Finally, we will move on to a state-by-state guide that is packed with valuable information about licensing rules and regulations in all 50 states. This section includes handy quick-reference spreadsheets that summarize individual state licensing requirements.

 

Why We Wrote This Book

 

Title insurance licensing is a process that can be difficult to understand. Although there is no lack of information about the subject, compiling and integrating all this information can be a formidable task, even for title veterans. We believe there is a compelling need for a comprehensive guide on the topic that’s also straightforward and lucid. We know of no other book offering such a thorough yet distilled presentation of the voluminous information related to obtaining and maintaining title insurance licensing in all 50 states. We believe our book is a much-needed and one-of-a-kind educational resource. Our goal has been to simplify a huge amount of information and present it in an easy-to-understand format, especially for use as a clear and coherent state-by-state licensing guide.

 

Contributors To This Text

 

In making this book, we have called upon and integrated the knowledge and experience of longtime industry professionals who have between them more than 75 years of experience in the title insurance industry. Our experts have put their heads together to come up with a composite view of how the title insurance licensing industry works over an extended period of time and under a broad range of scenarios.

 

Who Should Read This Book

 

Anyone who is involved in the title insurance licensing industry, regardless of skill level or industry position, can benefit from this text. If you are a title insurance professional, this book will become your go-to source for policy and procedure. Title lawyers and executive managers of title agencies will find this book to be an invaluable resource, an essential reference text, and a handy tool. Compliance professionals who work with national title agents will find this book to be a reliable source of information that can be immensely helpful with ongoing licensing projects. The text provides a convenient way for practicing professionals to take a refresher course in title licensing, whether they are advanced in their careers or just starting out. Even if you are a state-based title agent professional, this book will provide an easy-to-understand resource that can answer questions and clarify procedures about title licensing procedures in your state. If you are a practicing title insurance agent, you are advised to read this book from start to finish. Beginners in the field will find this text comparable to a comprehensive college course on the subject, a wonderful preparation for an effective, rewarding career.

 

 

●      The Mandrien Team

 

Chapter One

 

“An ounce of prevention is worth a pound of cure.”

~ Benjamin Franklin

 

The Insurance Industry

America’s insurance industry is a trillion dollar business that employed over 2.2 million people in 2010, and it continues to grow. However, the industry did not just appear overnight. In fact, the concept of insurance goes as far back as civilization itself. The Code of Hammurabi reveals that the Babylonians realized as early as 2100 B.C. the need to guarantee the safe arrival of goods transferred by caravan. As society progressed, the need for insurance increased as well. The Phoenicians and Greeks began insuring their seaborne commerce, and the Romans were the first to offer burial insurance. In 1688 a group of merchants, ship-owners, and underwriters met in a London coffeehouse to discuss ways to protect sea voyages. Over a cup of coffee, the first organized insurance company, known as Lloyds of London, was started. In 1735 the first American insurance company was formed in Charleston, South Carolina, for the purpose of offering the public fire insurance. However, it was Benjamin Franklin in Philadelphia who founded the first successful insurance company in 1751, the “Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.”

 

Following the success of Franklin’s company, the number of insurance companies throughout the country increased exponentially. Subsequently, state legislatures began to pass insurance laws and departments of insurance were formed for the purpose of monitoring insurance business conducted within the state. States’ insurance laws are designed to ensure that the public receives fair treatment in insurance matters. These laws serve, among other things, to protect consumers from fraudulent activity on the part of insurance professionals. State insurance departments are typically overseen by an insurance commissioner (although the exact title varies from state to state). A commissioner may be appointed or elected, depending on the state. The commissioner is charged with enforcing insurance laws, monitoring the operations and solvency of each insurance company within the state, overseeing insurance rates, regulating insurance marketing practices, and providing consumer protection.

 

Each state determines which lines of authority may be issued within that state. Generally, six major lines of authority are associated with insurance producer licenses, including life; accident and health; property; casualty; personal lines; and variable life/annuity. The five common limited lines include car rental, credit, crop, surety and travel. Title insurance is most often considered a specialty license.

 

Title Insurance

 

The Evolution of Title Insurance

Prior to the second half of the 19th century, real estate purchases came without protection or guarantees concerning the validity or marketability of title. Although it was common practice for conveyancers to determine ownership through a title search or abstract, the buyer (not the conveyancer) ultimately bore sole responsibility in ensuring the title was free and clear of any rights, interests, or other encumbrances. The historic 1868 Pennsylvania Supreme Court case Watson v. Muirhead made the buyer’s responsibility explicit. Muirhead was a conveyancer who was handling the sale of some real estate to Watson. During the course of his research, Muirhead discovered a lien on the property. However, Muirhead erroneously determined that the lien was invalid. After Watson bought the property, the lien was discovered to be valid, and Watson lost his investment. Watson brought a lawsuit against Muirhead but ultimately lost. The court ruled that conveyancers were not liable for mistakes made based on professional opinion.

 

As a result of this ruling, Pennsylvania legislature passed The General Corporation Act in 1874, which included a section allowing the incorporation of title insurance companies. Two year later, in 1876, Joshua H. Morris and several colleagues came together and incorporated the first title insurance company in Philadelphia, Pennsylvania (which was coincidently home of the first successful insurance company). Advertising the opening of a new operation to insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances,” Morris and his colleagues explained to the public that “[t]hrough these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofor.”[1] At the same time that the insurance industry was rapidly expanding as a whole, title insurance companies started to pop up in America’s largest cities, including New York City, Chicago, Minneapolis, San Francisco and Los Angeles.

 

Today, the title insurance industry has evolved from a single, local operation to a national industry. Yet the overall objective remains the same. Just as Morris and his colleagues envisioned and advertised 135 years ago in Philadelphia, title insurance professionals all over the country today continue assisting “the parties in real estate transactions to determine their rights and interests, and assuring that land transfer is expeditious and secure.”[2]

 

The Role of Title Agents and Agencies

Generally, a title insurance company enters into a written agreement or contract with one or more agents or agencies to act on the insurance company’s behalf. A title agent may be a natural person or alternatively an artificial legal entity represented by one or more natural persons who act as a single unit. A title agent or agency sells, negotiates or solicits title insurance policies to the public. The exact terminology used to refer to agents or agencies can vary from state to state, and other common labels include producer, settlement agent, and title closer. Recently the title agent’s role has expanded to include essentially all aspects of the real estate process. Today, title agents often prepare recording instruments and closing forms, coordinate title curative measures when necessary, collect and disburse funds, and record all the necessary documents with the county. Basically, title agents guide both sides of a real estate transaction throughout the entire closing process. However, some states restrict who is permitted to perform certain closing tasks or require an attorney’s supervision. Thus, title agents must stay abreast of the laws and regulations of each state in which they conduct title insurance business.

 

An agent or agency agreement or contract with a title insurance company generally specifies the expectations of each party, including the commission and volume requirements. Additionally, the agreement may identify the hierarchy between and among agents (e.g., general agent, managing agent, DRLP, etc.) and include details concerning specific job functions. Agents and agencies may either be captive or independent. Captive agents sell only one company’s title insurance policies, whereas independent agents may act on behalf of multiple insurers.

 

In some states, insurance companies pay licensees a commission both for selling new policies and for renewals. In most states, an insurance company can only pay commissions to people who are licensed and appointed to act on the company’s behalf. Licensees may also earn override commissions, which can be paid to an agency or other licensee who does not work in an agency. Commission splitting is allowed when two or more licensees participate in a sale. Some states permit commissions based on renewals, and renewal commissions may continue after the licensee who sold the original policy has retired. However, the specific rules of each state concerning the payment of commissions depend on submittal, receipt, or approval by the insurance department. Thus, agents and agencies must stay abreast of the regulations on commissions of each state in which they conduct title insurance business. They must be careful to only pay commissions when it is legal to do so.

 

Title Insurance Agent and Agency Licensing

 

In every state except New York and Kentucky, an individual or agency that seeks to engage in the business of title insurance must obtain a license from the state commissioner of each state in which business will be conducted. While there is a litany of exceptions to this licensing requirement (e.g., licensed attorneys are often exempt), generally a license is required to sell, negotiate or solicit title insurance. Those persons who attempt to sell, negotiate or solicit insurance without a license are subject to harsh penalties imposed by the state. These penalties can include monetary fines, disciplinary action and even criminal charges. Furthermore, in the event that the unlicensed agent was acting on behalf of an insurer, the insurer may also be sanctioned for violating state law.

 

General requirements

Typically, the first state in which an individual is permitted to obtain a title agent license is the applicant’s state of legal residence, also called a “home state.” If the applicant is a business entity, the home state is the state of incorporation or organization. Only a handful of states allow agents to hold more than one resident state license. The increased focus of NAIC and NIPR on reciprocity has resulted in the Uniform Resident Licensing Standards (URLS). The URLS contain guidelines that pertain to licensing qualifications, pre-licensing requirements, application structure, and continuing education, among other topics.

To qualify for a resident title insurance agent license in the majority of states, the applicant must:

 

●      Be at least 18 years old;

●      Be a resident of the state;

●      Not have committed any acts that would be grounds for suspension, revocation or denial of an insurance license;

●      Complete a pre-licensing course of study if required by the state or insurer;

●      Pay all associated fees; and

●      Successfully pass an examination to verify the agent is knowledgeable about the industry, the agent’s responsibilities, and the state’s insurance laws and regulations.

The type of business entities that are eligible for an agency license varies from state to state; however, the vast majority of states will issue a license to corporations, limited liability companies (LLC), partnerships, limited partnerships and sole proprietorships. Generally, an agency will need to obtain approval of its business name if it is an assumed or trade name. State policies vary greatly as to whether approval is required at the time of licensing and whether the name has to be registered with the state’s secretary of state. These naming controls were enacted to ensure that agencies’ names do not confuse or mislead the public. For example, multiple agencies cannot have similar names, and there should be no suggestion that an affiliation or endorsement exists between an agency and a government body or agency. Also, often the name must identify the agency as a title insurance agency, as opposed to an insurance company. As a number of states have specifically detailed naming restrictions, an agency must be sure to stay abreast of any changes as to stay in compliance with state law.

 

In most states, agencies must have a designated responsible licensed producer (DRLP) who is responsible for the agency’s compliance with the state insurance laws, rules, and regulations. Usually the DRLP must be an officer, an owner, a partner, a shareholder, a manager or someone else with financial interest in the agency. Many states allow agencies to designate more than one DRLP, and states may also require that the DRLP be licensed to sell each of the lines that the agency offers. If the agency has more than one office, states often require a DRLP at each branch location.

 

In addition to the above qualifications, states may also require applicants to perform one or more of the following requirements: submit fingerprints and/or information for the purpose of a state and/or national criminal background check; prove past title or escrow work experience; and submit endorsements from title professionals attesting to the agent’s good character and trustworthiness. Some states require the applicant to have access to title or abstract plants and submit proof of bonds and/or insurance for the public’s protection (e.g., a fidelity bond, a surety bond, or an errors or omissions policy).

 

Non-Resident Licensing States: The overwhelming majority of states issue non-

resident title insurance agent and agency licenses and have adopted NAIC’s uniform non-resident licensing qualifications. In NAIC basic qualification states, the non-resident applicant must (1) hold a resident license in his or her home state and be in good standing; (2) submit the proper request for licensure and pay the required fees; (3) submit to the Commissioner either the license application previously submitted to his or her home state or a completed NAIC uniform application; and (4) be from a state that issues non-resident licenses of a similar line of authority on the same basis to this state’s residents. Additionally, most non-resident states do not require non-residents to complete pre-licensing education, examination or continuing education requirements so long as the non-resident is in good standing and compliant in his or her home state. Other than these exceptions, the non-resident agent or agency is subject to the same laws, regulations, and rules as resident agents.

 

Appointments: The vast majority of states require a title agent acting on behalf of an insurer to be appointed by that insurer before conducting title insurance. However, the specific requirements vary from state to state. For example, in most states an agent must simply be appointed before acting on the insurer’s behalf. However, a few states also require agents to submit proof of appointment at the time of the application for a license or within a specified number of days after the license has been approved. The appointment requirements for agencies differ by state to an even larger degree than the requirements for agents do. Some states require that the agency itself be appointed in addition to each individual agent represented by the agency, while other states only require individual agents to be appointed. Because of the variation between the appointment requirements of different states, it is critical for title agents and agencies to be aware of the specific requirements for each state in which they conduct or intend to conduct title insurance business.  

 

Staying Licensed

License Renewal and Continuing Education: The requirements concerning when and how title agents or agencies must renew their licenses differ from state to state. As part of the license renewal process in some states, applicants must submit proof of the completion of the specified credit hours of Continuing Education (CE). Continuing Education is designed to ensure that title insurance agents are keeping current with changes in regulations and industry trends and that agents conduct themselves in a fair and ethical manner at all times. Course formats vary from state to state: some courses can be completed online or through independent self-study, while others must be completed in a classroom or at an insurance company. Agents and agencies must keep abreast of the specific license renewal requirements of each state in which they conduct or intend to conduct title insurance business.

 

Appointment Renewal: Generally, the sponsoring insurance company is responsible for submitting an updated list of appointed producers to the state’s insurance department. Sometimes this list can be submitted electronically via NIPR or SIRCON. However, in a number of states appointments are continuous unless terminated, and these states do not require renewal. An appointment renewal may require fees and additional documentation, so licensees must be aware of these deadlines well in advance to ensure that they remain in compliance and do not allow their appointment to lapse. 

 

Audits and Inspections: The insurance commissioner is responsible for ensuring that all insurance agents, agencies and companies are financially capable of substantiating the promises they have made to their policyholders. To this end, the commissioner will periodically inspect the operations and finances of each each agent, agency, and company. If the commissioner discovers that an agent or agency is not conducting its financial affairs in a responsible manner and is not capable of fulfilling its fiscal obligations, the commissioner can take appropriate action against the agent or agency. This action might include the revocation of the agent or agency’s insurance or business license. Thus, agents and agencies should maintain records of all pertinent insurance transactions at their place of business. These records should typically be kept for seven years after a policy is canceled, seven years after the policyholder becomes deceased, or seven years after the licensee leaves the insurance business or retires. Additionally, agencies should maintain a current file of their articles of incorporation and partnership agreements. Agencies should also keep easily accessible copies of the insurance agency appointment contracts. Finally, agencies must notify the state insurance department of any changes in agency name or address within approximately 30 days of any such change.

 

Consumer Inquiries and Complaints: As insurance laws are intended to protect consumers, insurance departments encourage consumers who feel that an insurance professional (including a title insurance agent or agency) has wronged them to submit a complaint to the insurance commissioner. The insurance commissioner generally serves as the mediator between the agent and consumer. If a complaint is justified, the insurance commissioner will send a written notice to the involved agent or insurance company instructing them to resolve the complaint. If the complaint involves the violation of an insurance law or regulation, the insurance department will investigate and, if necessary, hold a hearing and determine the appropriate sanctions to impose on the agent. 

 

License Termination: Generally, only the licensee or insurance commissioner has the ability to terminate a license. Licensees may terminate their license if they no longer wish to sell insurance. If an agent seeks to voluntarily terminate his or her license, the agent must submit a form or letter to the insurance department. In some states, the agent must also pay a termination fee. Upon the termination of a license, appointments are also terminated. Conversely, insurance departments may terminate an agent’s (or agency’s) licenses “for cause” if the licensee fails to meet the necessary requirements or violates a state law, regulation or rule. In this case the licensee may demand a termination hearing from the commissioner. If a license has been suspended and is therefore temporarily invalid pending a final decision by the state’s insurance department, the agent is not permitted to sell insurance for the duration of the suspension. After the suspension ends or a final decision is made, the commissioner will either reactivate or revoke the agent’s license. In doing so, the commissioner may also enact other sanctions, such as fines. If the agent’s license is revoked or terminated, the agent will no longer be permitted to conduct title insurance business in that state. A license may be suspended and subsequently revoked for any number of reasons, including the following:

 

●      Twisting;

●      Rebating (in some states);

●      Defamation;

●      Misrepresentation;

●      Conversion or misappropriation of funds;

●      Forgery;

●      Coercion;

●      Discounting;

●      Fraudulent claims;

●      Untrustworthiness;

●      Incompetence;

●      Unethical behavior;

●      Selling insurance or receiving commissions without a valid license and appointment;

●      Selling insurance or receiving commissions before the license and/or appointment are in effect;

●      Falsifying information on the license and/or appointment form; or

●      Noncompliance with continuing education requirements.

Appointment Termination: An insurance company may decide to terminate an appointment for a variety of reasons, including the “for cause” reasons described above. Generally, the insurance company will be required to submit a “for cause” termination request along with specified supporting documentation to the insurance commissioner within 30 days of termination. The insurance company will additionally be responsible for submitting any newly discovered relevant information to the insurance department.

 

Conclusion

Historically, title insurance was a local affair. As a result, many of the licensing regulations are state-specific. While the industry’s general trend seems to be that of states moving very slowly toward a more standardized set of licensing requirements, for now each state has a unique set of rules and regulations. Agents or agencies should have an exact understanding of states’ specific requirements as they plan and execute the expansion of their national footprint. This past section provides a general overview of the ways in which licensing requirements can differ from state to state. Read on to find the specific licensing requirements for each state.

 

California

 

Staying true to its reputation as unique, California does not recognize title agents or agencies; rather, California licenses “Underwritten Title Companies” (UTCs), defined as “any corporation engaged in the business of preparing title searches, title examinations, title reports, certificates or abstracts of title upon the basis of which a title insurer writes title policies.” Cal. Ins. Code § 12340.5. UTCs must be licensed by the state. Id. § 12389.5. Additionally, California certifies what it refers to as a “title marketing representative,” which is “a natural person employed by a title insurer, underwritten title company, or controlled escrow company whose primary duty is to market, offer, solicit, negotiate, or sell title insurance.” However, California law makes clear that a title marketing representative does not include “a person whose primary duties directly involve the creation, production, or issuance of the title policy or the performance of escrow services.” Id. § 12418(b); see also id. § 12340.1.

 

California does not license non-resident individuals or business entities to conduct title insurance business within the state. Unlike other residency states, a non-resident cannot bypass California’s residency requirement by hiring a state resident as a title agent. The complexities of California licensing necessitate the retention of specialized boutique law firms who handle the formation of underwritten title companies. This requirement makes the process expensive, time-consuming and onerous. Thus, agents will need a significant amount of money and a substantial volume of prospective business lined up in California in order to justify going through this process, which generally takes over eighteen months to complete. Because of the barriers attendant to receiving an UTC license, many non-residents chose to become California escrow agents instead.

 

Uniform Title Companies (California residents only): To obtain an UTC license, the applicant must submit the appropriate completed application along with the required initial licensing fees to the Commissioner. As part of the application, the applicant is required to furnish information regarding the following: (a) minimum net worth and working capital; (b) reasonableness of the 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. Id. § 12389.1. The licensing fees are per county and the amount is determined by the “number of documents recorded and filed in the offices of the county recorder in the preceding year.” Id. §§ 12389.2, 12340.1.

 

Title plant requirement: Although California law does not explicitly impose title plant requirements, a California court estimated that approximately ninety percent (90%) of UTCs either own or jointly own a title plant. The remaining UTCs, especially those in densely populated areas, have access to title plants. However, this access requires a large monthly outlay of cash for subscription fees. See Coldwell Banker & Co. v. Dept. of Ins., 102 Cal. App. 3d 381 (1980).

 

Net worth and reserves: Each county has a minimum net worth requirement. These requirements vary depending on the number of recorded documents in any particular county, and the amounts can range from $75,000 to $400,000. Cal. Ins. Code § 12389. Essentially, applicants should plan on having $50,000 to $75,000 in the bank per county. For example, if an agent wanted to do business in twenty (20) counties, he or she would need a minimum of $1 million in the bank. Additionally, an applicant must also maintain current assets of at least $10,000 in excess of current liabilities.

 

Fidelity bond and insurance coverage: California also has meticulously detailed requirements for obtaining and maintaining a fidelity bond or insurance policy as protection for any escrow accounts. There are four options, one of which requires the UTC to maintain a bond or policy in the amount of ten (10) times the UTC’s required minimum net worth. Id. § 12389.6.

 

Controlled Business: When completing a UTC licensing application, applicants must demonstrate that their plan of operation and intended course of business conduct will not involve relying on controlled business sources in excess of fifty percent (50%) of title orders. Id. § 12397.

 

Audit and financial reporting: UTCs are required to submit quarterly financial statements to the Commissioner on or within thirty (30) days of March 31, June 30, September 30, and December 31. Id. § 12389.4. Furthermore, UTCs must also submit an annual financial statement on or before March 31 for the previous year. Id. § 12389(a)(4)(A).

 

License renewal terms: UTC licenses must be renewed annually. The license renewal fees are calculated in the same manner as the initial licensing fees. Id. § 12416.

 

Title Marketing Representatives: A California resident individual seeking to become a title marketing representative in the state must obtain a “certificate of registration” from the Commissioner. Id. § 123418(a). To apply for a title marketing representative certification, the applicant must submit the appropriate written application along with the initial registration and filing fee, which can be as high as $200. As part of the application, detailed information demonstrating residency must be submitted. Furthermore, a signed statement from an officer of the UTC with whom the applicant is or will be employed must also be submitted certifying that the applicant will be provided California Insurance Code Article 6 training within sixty (60) days of the hiring date or date of application. Id. § 12418.1(a)-(c).
Pre-licensing education and/or examination: Title marketing representatives are not required to pass a qualifying examination to obtain a certificate of registration and are exempt from pre-licensing education requirements. Id. § 12418.2(a).

 

License renewal terms: Title marketing representative licenses must be renewed every three years from the date of issuance. Id. § 12418.3(a).

 

Continuing education: Title marketing representatives are exempt from continuing education requirements. Id. § 12418.2(a).
Relevant statutory provisions: Title marketing representatives are subject to the following provisions of the California Code: Cal. Ins. Code §§ 1667-1669, 1738, 1738.5, 1743; and Article 6 commencing with Section 12404. Id. § 12418.4.

 

Escrow Agents (Domestic and Foreign Corporations): California defines an “escrow agent” as “a corporation engaged in the business of receiving escrows for deposit or delivery.” Cal. Fin. Code § 17004. Additionally, California identifies “internet escrow agents” as “any person [(natural or entity)] engaged in the business of receiving escrows for deposit or delivery over the Internet.” Internet escrow agents are subject to the same licensing and practice provisions that otherwise apply to escrow agents operating in California. Id. §§ 17004.5, 17005.6.

 

License requirements: An escrow agent license is not a separate requirement for title companies. However, because a foreign corporation is eligible for an escrow agent license, many non-resident title insurance agencies become licensed as escrow agents in California. To obtain an escrow agent license, the corporation must have an owner, officer, or employee who has a minimum of five (5) years of escrow experience. Furthermore, California requires each branch in which the corporation intends to conduct escrow business to have a qualified person with at least four (4) years of escrow experience. Id. § 17200.8. An authorized officer of the applicant must apply for a license by submitting the appropriate completed application along with license and investigation fees. A license fee must be paid for each office: $625 for the first office and $425 for each additional office. The investigation fee is an additional $100 per location. Furthermore, the following information must be submitted at the time of application: (1) the names and addresses of the incorporators and directors; (2) an itemized statement of the estimated receipts and expenditures for the proposed first year of operation; (3) an audited financial statement showing compliance with net worth requirements; (4) the names and addresses of the person or persons meeting the experience requirements (see above) and a statement supporting such person’s qualifications; and (5) a completed questionnaire,  statement of identity and fingerprints for all stockholders, directors, officers, trustees, managers and other persons participating who are both directly or indirectly in the escrow business and also directly or indirectly compensated for such by the escrow agent. Id. §§ 17207(a), 17209.

 

Foreign corporations: In addition to completing the above requirements, a foreign corporation must also submit a written instrument appointing the Corporations Commissioner its agent for service of process. Id. § 17008. Furthermore, a foreign corporation’s application will be rejected if the Commissioner discovers any of the following circumstances: (1) the corporation is being formed for any business other than legitimate escrow agent services or proposes to use a name that is misleading or in conflict with the name of an existing licensee; (2) any incorporator, officer or director of the applicant has, within the last ten years, (a) been convicted of or pleaded nolo contendere to a crime; or (b) committed any act involving dishonesty, fraud or deceit, which crime or act is substantially related to the qualifications, functions, or duties of a person engaged in the business in accordance with the escrow agent provisions; (3) there is no officer or manager possessing a minimum of five years of responsible escrow experience stationed or to be stationed at the main office of the corporation and there is no officer, manager, or employee possessing a minimum of four years of responsible escrow experience stationed or to be stationed at a branch; (4) the proposed licensee’s financial program is unsound; (5) the applicant has made a false statement of a material fact in the application; or (6) the applicant or any officer, director, or incorporator has violated any provision of the escrow law or rule thereunder or any similar regulatory scheme of a foreign jurisdiction. Id. § 17209.3.

 

Surety bond: Applicants for an escrow agent license must submit with the application a bond in an amount not less than $25,000. Id. § 17202. Subsequently, the applicant will be responsible to file the appropriate bond in an amount dependent on the escrow agent’s business in the previous year. The exact minimum bond requirement can be determined by calculating 150% of the previous year’s average trust fund obligations. If the computed figure is $250,000 or less, the minimum bond requirement is $25,000; if the figure is greater than $250,000 but not more than $500,000, the minimum bond requirement is $35,000; and if the figure is greater than $500,000, the minimum bond is $50,000. Id. § 17202. Note that a $5,000 increase for each additional licensed location will be applied. The purpose of the bond is the protection of persons having a claim against the escrow agent. Alternatively, an applicant may request to deposit or obtain a letter of credit of equal amount in lieu of the bond. Id. § 17202(b).

 

Escrow Agents’ Fidelity Corporation (EAFC): In addition to the surety bond described above, escrow agents are required to be members of the Escrow Agents’ Fidelity Corporation ($3,000 membership fee) if the agents engage in one or more of the following types of escrows (among others): (1) real property escrows, including but not limited to the sale, lease, exchange, transfer of title, loans or other obligations to be secured by a lien upon real property; or (2) the sale, transfer of title or refinance escrows for manufactured homes or mobile homes. Id. §§ 17312, 17320.

 

Capital and surplus requirement: Escrow agents are required to maintain a tangible net worth of $50,000, including liquid assets of at least $25,000 in excess of current liabilities. Furthermore, fifty percent (50%) more tangible net worth is required for the first additional branch and twenty-five percent (25%) more for each additional branch. Id. § 17210.

 

Audit and financial reporting: Every licensed escrow agent is required to submit to the Commissioner a report containing audited financial statements covering either the calendar year or the agent’s fiscal year within 105 days following the end of the calendar or fiscal year, respectively. Id. § 17406.

 

For additional information and application instructions and forms, visit California’s Department of Insurance website http://www.insurance.ca.gov/

 

Glossary of Terms

From Our Friends in the Legal Department: This glossary consists of general definitions of terms commonly used in the title insurance industry. They are not legal definitions and should not be considered exhaustive or complete. Title insurance is predominately state-regulated; therefore terminology and definitions vary from state to state, and may even conflict. Where applicable, this handbook makes an effort to point out state-specific distinctions within each state’s section. However, the reader is advised to visit the state’s department of insurance website for the most up-to-date and accurate information, as it is also subject to change.

Abstract: See abstract of title.

Abstracting: The process of compiling and preparing an abstract.

Abstractor: A person who prepares abstracts of title. A minority of states require an attorney or licensed abstractor to determine the status of title; however, the majority of states permit a title agent to prepare an abstract or title report.

Abstract plant: See title plant.

Abstract of title: A statement summarizing the history of ownership of a particular piece of land, including all deeds, mortgages, encumbrances and other instruments affecting the title to the property. – Also termed abstract, title report

Admitted insurance company: An insurance company authorized to do business within a given state. Admitted companies are fully subject to and regulated by the laws of that state. Policyholders whose policy was issued by an admitted company may be protected by the state’s guaranty fund in the event of any problems.

Affidavit: Written statement or declaration sworn to before an officer who has the authority to administer an oath.

Affiliated business: The portion of a title agency’s business that was referred to it by a producer or the associate of a producer who has a financial interest in the title agency.

Agency agreement: A document made by a title insurer and title insurance agent that defines the scope of the agent’s authority and the terms of the agent’s compensation.

Alien entity: An insurance agency that operates in the United States but is incorporated or organized under the laws of another country.

All-inclusive rate: A rate that includes charges for title insurance, search or abstract fees, and examination fees.

American Land Title Association (ALTA): A trade association representing title abstractors, title insurance companies, title insurance agents and associate members to guarantee the safe, efficient transfer of real property. ALTA fosters uniformity in title insurance policies by setting national standards and adopting insurance policy forms to standardize coverage on a national basis. Many states require ALTA standardized title insurance policies.

Appointment: An agreement between producer and insurer. An appointment must be approved by the state(s) in which the producer will conduct business for the insurer. To obtain an appointment, the insurer submits a request to the state, usually electronically. The state then approves or denies the request. If the request is approved, the producer is then authorized to conduct business for the insurer in that state.

Approved attorney: An attorney authorized by a title insurance company to handle closings and whose opinion is acceptable as a basis for issuance of a title insurance policy by the insurer.

Assumed name: A name, other than the legal name of an entity as shown in its articles of incorporation or organization, under which the entity conducts business.Also termed trade name.

Attorney’s opinion: A written statement of an attorney’s belief concerning the condition of a real estate title.

Blanket fidelity bond: See fidelity bond.

Bona fide resident: A person who has stayed in a particular state long enough to be considered a resident by that state’s laws or statutes or a business entity that maintains its principal place of business in a particular state.

Branch: A subordinate or division office of a company; distinct from an affiliate, agent, subsidiary or underwritten firm association with the company.

Bricks and mortar: The requirement that a business have a physical building, store or office used for operation in a state.

Business of title insurance: (1) A person who, as an insurer, guarantor or surety, makes or proposes to make a title insurance policy or its equivalent. (2) A person who transacts or proposes to transact in title insurance, including: soliciting; title examination or title search; closing a real estate transaction; executing a title insurance policy; and insuring and transacting matters arising out of policy after the policy is executed, including reinsurance. (3) A person, other than the person who performs the search or examination, who makes a guaranty or warranty of a title examination, title search, or any component of the title examination or title search. – Also termed title insurance business.

Captive agent: An agent who acts exclusively on behalf of one insurer.

Chain of title: The ownership history of a piece of land, from its first owner to its present owner. Each succeeding deed, will, or other instrument that conveys and transfers the title from the original owner to succeeding owners represents a “link” in the chain of title.

Certificate of authority: A document issued by the secretary of state (or similar state agency) authorizing a foreign entity to do business in the state.

Certificate of title: A written statement as to the status of a property title, prepared by an attorney or title insurance professional. See attorney’s opinion, title opinion.

Clear title: A title that is free of defects, encumbrances and legal questions as to ownership of the property.

Closing: The process of completing a real estate transaction, at which time the title to the property is transferred to the buyer after all the appropriate documents are signed and/or delivered and an accounting between the parties is made.Also termed settlement, closing ceremony, closing of escrow.

Commission: A percentage of the premium of a sold insurance policy or a flat fee paid to an insurance producer upon the sale of an insurance policy.

Commitment: See title commitment.

Controlled business arrangements: A business practice in which a realtor, lender or other related business personnel (referred to as controlled business sources) refer a purchaser to a provider of title policies and escrow services of which the controlled business source owns a controlling interest. 

Conversion: The intentional misappropriation of funds or items held in an escrow account.

Conveyance: A written instrument, such as a deed or deed of trust, used to transfer (convey) title to property from one person to another.

Conveyancer: A person qualified to act in a property transfer.

Corporation: A legal entity whose identity is separate and distinct from its owners and that enjoys many of the same rights as individuals, such as the right to enter contracts, loan money, sue, be sued, own assets and pay taxes. 

Credit score: A three-digit score representing an individual’s creditworthiness. This figure is based on information contained in the individual’s credit report. Each person has several credit scores, the most commonly used being the FICO score. 


[1] American Land Title Association (ALTA), Title Insurance: A Comprehensive Overview, available at http://www.alta.org/about/TitleInsuranceOverview.pdf (last accessed Aug. 11, 2011).

[2] Id.