California State Escrow Laws and Proposed Amendment

We have received several inquiries about whether SeedTrust initiated or endorsed the State of California’s proposed amendment to the Escrow law, which is currently set for consideration in the State’s next legislative session. To be clear, while SeedTrust is licensed by the California Department of Financial Protection and Innovation (DFPI), we in no way initiated, promoted, or influenced the proposed amendment.

SeedTrust sought and obtained licensure by the DFPI following careful and deliberate consideration that ended in a determination that our clients were best served by pursuing the license. We believe that doing so was the only way to ensure compliance with the State’s standing law and guarantee uninterrupted service to our Surrogacy and Egg Donor clients and Agency partners.

We have also received questions regarding California’s current, unamended escrow laws and how those laws impact the ART industry. In sum, the current California Financial Code provides that it is unlawful for escrow companies and surrogacy/donor agencies who manage escrow in-house to do so without obtaining a California license. Specifically, “it [is] unlawful for any person to engage in business as an escrow agent within this state [unless] licensed by the commissioner as an escrow agent.” Cal. Fin. Code §17200. The word “Person” includes individual people, a company, firm, partnership, corporation, limited liability company, or other legal entity. See §17002.5.

Under the current law, as directly interpreted to us by the DFPI, the only person in the ART industry that is not obligated to obtain an escrow license from the State Commissioner prior to acting as an Escrow Agent for California residents is an attorney licensed to practice law in California that also represents the intended parent or surrogate in a bona fide attorney-client relationship. See §17006.

Accordingly, California attorneys that are not licensed escrow agents by the DFPI are only permitted to hold escrow for clients they represent and with whom they maintain a bona fide attorney-client relationship. California attorneys are not permitted to hold escrow for clients they do not legally represent if the DFPI does not license them. California attorneys who want to serve as escrow agents for non-clients must be licensed and regulated by the California DFPI.

SeedTrust is proud to partner with many attorneys and Agencies who also hold escrow for their clients as part of their service packages. This statement is not intended as an attack on our many friends and colleagues in the ART industry who also hold escrow. Rather, our intent is to inform and contribute to the broader, ongoing conversation regarding the issues facing our industry and how best to address those issues to ensure the best experience for our clients.

The current law has yet to be formally challenged, and the proposed amendment remains just that – proposed. Since no controlling case law exists to clarify these legislative issues, we must continue to adhere to the interpretation held and disseminated by the DFPI. Thus, at present, DFPI has dictated our decision to get licensed.

Should the Court ultimately determine that a California attorney who does not directly represent a client may hold escrow for that client, SeedTrust would certainly consider a different approach, including getting its COO, Roland Salloum, Esq., admitted to The State Bar of California .

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