As Amended by House Committee
Session of 1999
HOUSE BILL No. 2096
By Committee on Insurance
1-25
10 AN ACT concerning title insurance and escrow accounts.
11
12 Be it enacted by the Legislature of the State of Kansas:
13 Section 1. The purpose of this act is to provide the state of Kansas
14 with a comprehensive body of law for the effective regulation and super-
15 vision of title insurance agencies engaged in settlement and closing of the
16 sale of an interest in real estate.
17 Sec. 2. As used in this act, unless the context otherwise requires:
18 (a) "Commissioner" means the commissioner of insurance of the
19 state of Kansas.
20 (b) "Escrow" means written instruments, money or other items de-
21 posited by one party with a depository, escrow agent or escrow for deliv-
22 ery to another party upon the performance of a specified condition or the
23 happening of a certain event.
24 (c) "Person" means a natural person, partnership, association, coop-
25 erative, corporation, trust or other legal entity.
26 (d) "Qualified financial institution" means an institution that is:
27 (1) Organized or (in the case of a U.S. branch or agency office of a
28 foreign banking organization) licensed under the laws of the United States
29 or any state and has been granted authority to operate with fiduciary
30 powers;
31 (2) regulated, supervised and examined by federal or state authorities
32 having regulatory authority over banks and trust companies;
33 (3) insured by the appropriate federal entity; and
34 (4) qualified under any additional rules established by the
35 commissioner.
36 (e) "Title insurance agent" or "agent" means an authorized person,
37 other than a bona fide employee of the title insurer who, on behalf of the
38 title insurer, performs the following acts, in conjunction with the issuance
39 of a title insurance report or policy:
40 (1) Determines insurability and issues title insurance reports or pol-
41 icies, or both, based upon the performance or review of a search, or an
42 abstract of title;
43 (2) collects or disburses premiums, escrow or security deposits or
44 other funds;
45 (3) handles escrow, settlements or closings;
46 (4) solicits or negotiates title insurance business; or
47 (5) records closing documents.
48 (f) "Title insurer" or "insurer" means a company organized under
49 laws of this state for the purpose of transacting the business of title in-
50 surance and any foreign or non-U.S. title insurer licensed in this state to
51 transact the business of title insurance.
52 (g) "Title insurance policy" or "policy" means a contract insuring or
53 indemnifying owners of, or other persons lawfully interested in, real or
54 personal property or any interest in real property, against loss or damage
55 arising from any or all of the following conditions existing on or before
56 the policy date and not excepted or excluded:
57 (1) Defects in or liens or encumbrances on the insured title;
58 (2) unmarketability of the insured title;
59 (3) invalidity, lack of priority, or unenforceability of liens or encum-
60 brances on the stated property;
61 (4) lack of legal right of access to the land; or
62 (5) unenforceability of rights in title to the land.
63 Sec. 3. A title insurance agent may operate as an escrow, settlement
64 or closing agent, provided that:
65 (a) All funds deposited with the title insurance agent in connection
66 with an escrow, settlement or closing shall be submitted for collection to,
67 invested in or deposited in a separate fiduciary trust account or accounts
68 in a qualified financial institution no later than the close of the next busi-
69 ness day, in accordance with the following requirements:
70 (1) The funds shall be the property of the person or persons entitled
71 to them under the provisions of the escrow, settlement or closing agree-
72 ment and shall be segregated for each depository by escrow, settlement
73 or closing in the records of the title insurance agent in a manner that
74 permits the funds to be identified on an individual basis;
75 (2) the funds shall be applied only in accordance with the terms of
76 the individual instructions or agreements under which the funds were
77 accepted; and
78 (3) an agent shall not retain any interest on any money held in an
79 interest-bearing account without the written consent of all parties to the
80 transaction.
81 (b) Funds held in an escrow account shall be disbursed only:
82 (1) Pursuant to written authorization of buyer and seller;
83 (2) pursuant to a court order; or
84 (3) when a transaction is closed according to the agreement of the
85 parties.
86 (c) A title insurance agent shall not commingle the escrow agent's
87 personal funds or other moneys with escrow funds. In addition, the es-
88 crow agent shall not use escrow funds to pay or to indemnify against the
89 debts of the escrow agent or of any other party. The escrow funds shall
90 be used only to fulfill the terms of the individual escrow and none of the
91 funds shall be utilized until the necessary conditions of the escrow have
92 been met. All funds deposited for real estate closing closings, including
93 closings involving refinances of existing mortgage loans, which ex-
94 ceed $2,500 shall be in one of the following forms:
95 (1) Lawful money of the United States;
96 (2) wire transfers such that the funds are unconditionally received by
97 the title insurance agent or the agent's depository; and
98 (3) cashier's checks, certified checks or bank money orders issued by
99 a federally insured financial institution and unconditionally held by the
100 title insurance agent.;
101 (4) funds received from governmental entities or drawn on an
102 escrow account of a real estate broker licensed in the state or
103 drawn on an escrow account of a title insurer or title insurance
104 agent licensed to do business in the state; or
105 (5) other negotiable instruments which have been on deposit
106 in the escrow account at least 10 days.
107 (d) Each title insurance agent shall have an audit made of its escrow,
108 settlement and closing deposit accounts, conducted by a certified public
109 accountant or by a title insurer for which the title insurance agent has a
110 licensing agreement, according to the following schedule. Audits shall be
111 considered current if dated within the 12 months prior to submission of
112 the audit as required herein. The title insurance agent shall provide a
113 copy of the audit report to the commissioner and to each title insurance
114 company which it represents within 160 days after the close of the cal-
115 endar year for which an audit is required. Title insurance agents who are
116 attorneys and who issue title insurance policies as part of their legal rep-
117 resentation of clients are exempt from the requirements of this subsec-
118 tion. However, the title insurer, at its expense, may conduct or cause to
119 be conducted an annual audit of the escrow, settlement and closing ac-
120 counts of the attorney. Attorneys who are exclusively in the business of
121 title insurance are not exempt from the requirements of this subsection.
122 Audits shall be required as follows:
123 (1) Annual audit required in counties having a population of 40,001
124 and over;
125 (2) biennial audit required in counties having a population of 20,001
126 - 40,000; and
127 (3) triennial audit required in counties having a population of 20,000
128 or under.
129 (e) The commissioner may promulgate rules and regulations setting
130 forth the standards of the audit and the form of audit report required.
131 (f) If the title insurance agent is appointed by two or more title in-
132 surers and maintains fiduciary trust accounts in connection with providing
133 escrow and closing settlement services, the title insurance agent shall
134 allow each title insurer reasonable access to the accounts and any or all
135 of the supporting account information in order to ascertain the safety and
136 security of the funds held by the title insurance agent.
137 (g) Nothing in this section is intended to amend, alter or supersede
138 other laws of this state or the United States, regarding an escrow holder's
139 duties and obligations.
140 Sec. 4. (a) The title insurance agent shall maintain sufficient records
141 of its escrow operations and escrow trust accounts so that the commis-
142 sioner may adequately ensure that the title insurance agent is in compli-
143 ance with all provisions of this act. The commissioner may prescribe the
144 specific record entries and documents to be kept and the length of time
145 for which the records must be maintained.
146 (b) The title insurance agent shall make available for inspection by
147 the commissioner, or the commissioner's representatives, all records re-
148 lating to the title insurance agent's escrow, settlement and closing busi-
149 ness, and any other fiduciary trust accounts required to be kept by the
150 title insurance agent. Such availability for inspection shall include any
151 records to which subsection (f) of section 3 applies.
152 Sec. 5. (a) The title insurance agent who handles escrow, set-
153 tlement or closing accounts shall file with the commissioner a sur-
154 ety bond or irrevocable letter of credit in a form acceptable to the
155 commissioner, issued by an insurance company or financial insti-
156 tution authorized to conduct business in this state, securing the
157 applicant's or the title insurance agent's faithful performance of
158 all duties and obligations set out in this act.
159 (b) The terms of the bond or irrevocable letter of credit shall
160 be:
161 (1) The surety bond shall provide that such bond may not be
162 terminated without 30 days prior written notice to the
163 commissioner.
164 (2) An irrevocable letter of credit shall be issued by a bank
165 which is insured by the federal deposit insurance corporation or
166 its successor if such letter of credit is initially issued for a term of
167 at least one year and by its terms is automatically renewed at each
168 expiration date for at least an additional one-year term unless at
169 least 30 days prior written notice of intention not to renew is given
170 to the commissioner of insurance.
171 (c) The amount of the surety bond or irrevocable letter of
172 credit for those agents servicing real estate transactions on prop-
173 erty located in counties having a certain population shall be re-
174 quired as follows:
175 (1) $100,000 surety bond or irrevocable letter of credit in
176 counties having a population of 40,001 and over;
177 (2) $50,000 surety bond or irrevocable letter of credit in coun-
178 ties having a population of 20,001 to 40,000; and
179 (3) $25,000 surety bond or irrevocable letter of credit in coun-
180 ties having a population of 20,000 or under.
181 (d) The surety bond or irrevocable letter of credit shall be for
182 the benefit of any person suffering a loss if the title insurance agent
183 converts or misappropriates money received or held in escrow,
184 deposit or trust accounts while acting as a title insurance agent
185 providing any escrow or settlement services.
186 Sec. 5. 6. The commissioner may issue rules, regulations and orders
187 necessary to carry out the provisions of this act.
188 Sec. 6. 7. If the commissioner determines that the title insurance
189 agent or any other person has violated this act, or any rules and regulation
190 or order promulgated thereunder, after notice and opportunity to be
191 heard, the commissioner may order that such person be subject to the
192 penalties provided in K.S.A. 40-2406 et seq and amendments thereto.
193 Sec. 7. 8. This act shall take effect and be in force from and after its
194 publication in the statute book.