Licensed vs. Unlicensed “Controlled”

 

All escrow companies in California can be categorized into two basic types: Licensed or Controlled. “Licensed” escrow companies are independent businesses licensed by the California Department of Financial Protection and Innovation (DFPI). This license regulates the procedures, practices, and employee qualifications of the companies, and subjects them to stringent requirements designed to protect consumers at the highest possible level.  These protections include, but are not limited to: 

Audited financial stability requirements

  • Certification programs for all employees of the company (not just Escrow officers) which include fingerprinting and background checks by the Department of Justice.

  • A requirement that there is an onsite Escrow Manager with at least 5 years of experience

  • Memberships with the EAF (Escrow Agents’ Fidelity Corporation which provides a 5 million dollar fidelity bond.

  • True neutrality in all escrows performed.

  • Prohibit the employ of convicted criminals, anyone dis barred from the real estate industry, and anyone who cannot pass the background check by the Dept. of Justice.

“Controlled” escrow companies are non-licensed businesses that can be owned by a variety of entities, including mortgage brokers, real estate brokers, and other businesses that consider escrow to be an allied service.  Unlicensed companies fall under the jurisdiction of a variety of supervisory agencies who’s regulations and requirements vary, thus lacking the more strict,  foundational requirements which  offer the appropriate level of protection provided by the regulations imposed by the DFPI.

Protecting you at the highest level

 

Most escrow companies are honest, however, broker or lender operated escrow companies (non licensed) present many conflicts of interest to the consumer.

  • In house services for real estate offices an mortgage brokers (non licensed escrow) cannot truly be a neutral 3rd party to the transaction which creates a conflict of interest.

  • Relatively loose hiring standards and lower management experience requirements for non licensed escrow, when compared to the standards of the DFPL, can result in more mistakes and a higher probability of fraud.

  • A lack of sufficient bonding, insurance, and cyber security is very common in non licensed escrow companies, this puts you at risk.

Licensed escrow companies are consumers’ best bet for safeguarding their funds. All licensed escrow companies are required to be members of the Escrow Agents’ Fidelity Corporation (EAFC), which provides fidelity coverage for member trust accounts.