Additional Remedies Against Brokers/Agents and Escrow Companies

Recovery Under Bureau of Real Estate's Consumer Recovery Account

California's Bureau of Real Estate maintains a Consumer Recovery Account that is funded from a portion of the fees paid by brokers and agents. It enables a person who has been defrauded or had trust funds converted by a real estate licensee in a transaction requiring a license, and who satisfies specified requirements in the California Business and Professions Code, sections 10471, et seq., to recover at least some of the actual loss when the licensee has insufficient assets to satisfy the loss.

In general, the requirements for payment include obtaining a final civil judgment or arbitration award, or a criminal restitution order against a licensee.  The judgment, award or order must be based on intentional fraud or conversion of trust funds in connection with a transaction requiring a real estate license.  The victim must first attempt to recover against the defendant licensee, including a reasonable search for the licensee's assets.

An application for payment must be submitted to the Bureau within 1 year after the judgment, award or order becomes final.  Applications are available on the CalBRE website, or by writing to the Bureau.  A copy of the application and required notice must be served on the judgment debtor/licensee, who has an opportunity to respond to the allegations in the application and object to payment of the claim.

If an application is granted, the limit on a recovery is $50,000 per transaction, with a possible total aggregate maximum of $250,000 per licensee.  If an application is denied, the applicant can refile the claim in court, and the Bureau is represented by the California Attorney General's office. 

An example case is where the buyers were not provided a transfer disclosure statement until after the close of escrow, and it disclosed the true age of the roof, and a garage was constructed without the proper permits.  A judgment was entered against the seller and its agent for $50,000, based upon the court's finding that they intentionally misrepresented the condition of the property, concealed known defects, and failed to provide a disclosure statement.  After the buyers were unsuccessful in collecting the judgment against the sellers and their agent, they filed an application that was granted for $20,000, the maximum amount allowable at the time the application was filed.  The agent's license was indefinitely suspended until the agent reimbursed the Consumer Recovery Account the amount paid, plus 10% interest.  The agent's license was also revoked as a result of a disciplinary enforcement action filed by the Bureau.

Recovery Against Escrow Company's Surety Bond

A typical case may involve the escrow company's handling of earnest money deposits or other errors in the escrow, and a potential remedy is a cause of action for declaratory relief to resolve if the surety defendant is obligated to pay the proceeds of the surety bond equal to the earnest money deposits or financial loss.

Escrow companies and their agents are fiduciaries of the parties to the escrow, and by California law, escrow companies must maintain an Escrow Agent Bond that is a type of license and permit surety bond that protects the parties in cases of incorrect advice, an incorrect or unethical decision, or an error in the client's information.  If the parties suffer financial hardship because of the error, they are protected by the bond and made whole by the surety bond company.  The bond company then obtains reimbursement from the escrow company.

The bond amounts are $25,000, $35,000 or $50,000, depending upon the size of the company. The amount of the premium is a percentage of the total bond amount, and the percentage is based on the personal credit history of the owner of the escrow company, and the companies business financial information.  The bond runs continuously until canceled.

The injured party can make a claim on the bond to recover loss if the escrow company and its agents fail to fulfill their legal obligations, in addition to any other remedy that the injured party may have, but such claim must be brought within 2 years from and after the act or default complained of under Financial Code, section 17205.  Although the limitations period is subject to the delayed discovery rule because of the fiduciary relationship, the application of this rule in particular circumstances is uncertain.  Therefore, the injured party should always consider adding a cause of action against the surety company in the civil complaint against an escrow company, especially in those cases where it appears that the full measure of damages cannot be recovered from the escrow company.