Broker-owned Escrows Need To Submit Activity Reports

By Sabrina Biehl Published Jun 28, 2016 05:27 am Updated May 31, 2019 07:07 pm

It appears that the California Real Estate Commissioner is more than a tad annoyed with one segment of the real estate community. That portion would be the brokers who (a) operate an escrow company pursuant to their real estate license, and (b) have not timely filed escrow activity reports with the Bureau of Real Estate (BRE).

The annoyance is justified. The numbers would suggest that many brokers that should have been filing have, in fact, not been doing so. Moreover, the Bureau has actively been soliciting them. For at least the past two years, at BRE forums held in conjunction with meetings of the California Association of REALTORS^®(CAR), the Commissioner has made a special point of reminding members about the filing requirement. Now, earlier this month, the Bureau has issued a special alert, through its web presence, to address this issue.

Not every California Broker has an escrow division. Many own escrow companies that operate under the Department of Corporations. Many others simply have no ownership interest in any escrow operation. Then, 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, then, significantly restricted as to their potential market when compared to the more common escrow company operating under the Department of Corporations. 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.

So, how has that been working out? In the first year the requirement went into effect, for calendar year 2013, 206 real estate brokers reported such broker escrow activities totaling $8.63 billion. In the next year, for calendar year 2014, 161 real estate brokers reported broker escrow activities totaling $5.52 billion. For calendar year 2015, 143 brokers reported broker escrow activities totaling $8.45 billion.

That’s right. The number of reporting brokers has declined each year since the reporting began. Moreover, there is little reason to believe that even the highest reporting number represented a majority of those brokers who should have been reporting. In its recent alert, the BRE said this:

“In spite of these reports of very large volumes of escrow activities statewide, the Bureau has reason to believe (based on prior Audits, and complaints received and/or investigated regarding brokers or broker controlled escrows) that hundreds of brokers who are required to report escrow activities have failed to do so. The Bureau’s Audit Section will conduct audits of the activities of some of these brokers to determine if these brokers are in compliance with B&P [Business and Professions Code] §10141.6 and are properly handling and accounting for the escrow trust funds.”

Fines for failing to file a timely report can run up to $10,000. The cost of a BRE audit can also be substantial. Brokers who have escrows that meet the relevant activity levels are advised to file with the BRE if they have not already done so.
Written for Realty Times Staff for www.RealtyTimes.com Copyright © 2016 Realty Times All Rights Reserved by Bob Hunt, a director of the California Association of Realtors^®. He is the author of Real Estate the Ethical Way. His email address is scbhunt@aol.com.