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California Broker-Owned Escrows Need To Submit Activity Reports

Written by Posted On Monday, 19 February 2018 19:32

It is time again -- but there is not much time left -- for affected California brokers to submit their annual Escrow Activity Report to the Bureau of Real Estate (BRE). This applies to firms that operate a "broker-controlled escrow" that engaged in five or more transactions or whose escrow activities exceeded $1 million in the past calendar year.

Not every California Broker has an escrow division. Many own escrow companies that operate under the Department of Business Oversight (DBO). Many others simply have no ownership interest in any escrow operation. On the other hand, there are those who operate a "broker-controlled escrow", pursuant to their real estate broker's license. These escrows are restricted to transactions in which the relevant brokerage must be a party or an agent in connection with the escrow and performing services requiring a real estate license.

Broker-controlled escrows are significantly restricted as to their potential market when compared to the more common escrow company operating under the DBO. Nonetheless, broker escrows require less capitalization and can still bring a decent profit into a brokerage.

In October of 2011, Senate Bill 53 (Calderon) was signed into law adding section 10141.6 to the Business and Professions Code. It set forth filing requirements for broker-controlled escrows. If such operations conduct escrow activities for five or more transactions in a calendar year, or whose activities equal or exceed one million dollars in a calendar year, it is required that a report be filed within sixty days following the completion of the calendar year. Except for leap years, the deadline is March 1.

The report is submitted on the Bureau's form RE 890. It is neither particularly burdensome nor time-consuming to complete. In addition to asking about the number and dollar volume of escrow transactions, it requests the location of escrow offices and basic information regarding the escrow officers and escrow trust accounts. If anyone has difficulty with the form, they may contact the CalBRE Mortgage Loan Activities section at (916) 263-8941.

It has been a source of particular annoyance to the Bureau and its Commissioner that, so far, there appears to be a serious lack of compliance with Business and Professions Code 10141.6.

In the first year the requirement went into effect, for calendar year 2013, 206 real estate brokers reported broker escrow activities totaling $8.63 billion. Since then, the number of reporting brokers has actually declined.

The Bureau estimates that more than 700 brokerages should be submitting reports. Note that the number is an estimate. There is no special form or requirement for a broker to conduct escrow activity, so the Bureau has never been able to compile a data base of broker-controlled escrows. It would have such a data base if everyone affected by Business and Professions Code 10146.6 complied with the law. (At least it would have a list of those who meet the reporting requirements described in paragraph one, above.) But, because not everyone has complied, the Bureau doesn't even know who the non-compliant ones are.

How then, you ask, does it know that there actually are non-compliant brokers with respect to escrow activities? Because it finds them when conducting audits. Some of those audits are random; others are the result of complaints, not necessarily related to escrow.

Last year, the Bureau conducted 632 audits, of which approximately 15% (95) were related to escrow. Of the audits conducted, 32% revealed major violations of real estate law. 31% had trust account shortages, and 69% of those had shortages greater than $10,000! One company, presumably a large one, had an escrow trust account shortage in the amount of $1.5 million.

Fines for failing to submit a timely report can run up to $10,000. There can also be non-monetary penalties as well as the often-substantial cost of a BRE audit. The Bureau's Audit section is actively pursuing brokers to determine if they have met their reporting requirements, if any. Brokers who have escrows that meet the relevant activity levels are advised to file with the BRE if they have not already done so.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way. His email address is This email address is being protected from spambots. You need JavaScript enabled to view it..

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at scbhunt@aol.com.

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