As Amended by House Commettee

          Session of 1998
By Representatives Wagle and Sawyer, Boston, Farmer, Flaharty, Gilbert,
                Gregory, Horst, Johnston, Landwehr, Mayans, McCreary, Myers, Pal-
                mer, E. Peterson, Pottorff, Powell, Powers, Shriver, Swenson, Thi-
                mesch, Vining and Welshimer
13             AN ACT concerning title insurance and escrow accounts.
15       Be it enacted by the Legislature of the State of Kansas:
16           Section 1. The purpose of this act is to provide the state of Kansas
17       with a comprehensive body of law for the effective regulation and super-
18       vision of title insurance agencies engaged in settlement and closing of the
19       sale of an interest in real estate.
20           Sec. 2. As used in this act, unless the context otherwise requires:
21           (a) ``Escrow'' means written instruments, money or other items de-
22       posited by one party with a depository, escrow agent or escrow for deliv-
23       ery to another party upon the performance of a specified condition or the
24       happening of a certain event.
25           (b) ``Person'' means a natural person, partnership, association, coop-
26       erative, corporation, trust or other legal entity.
27           (c) ``Qualified financial institution'' means an institution that is:
28           (1) Organized or (in the case of a U.S. branch or agency office of a
29       foreign banking organization) licensed under the laws of the United States
30       or any state and has been granted authority to operate with fiduciary
31       powers;
32           (2) regulated, supervised and examined by federal or state authorities
33       having regulatory authority over banks and trust companies;
34           (3) insured by the appropriate federal entity; and
35           (4) qualified under any additional rules established by the commis-
36       sioner of insurance.
37           (d) ``Title insurance producer agent'' or ``producer agent'' means an
38       authorized person, other than a bona fide employee of the title insurer
39       who, on behalf of the title insurer, performs the following acts, in con-
40       junction with the issuance of a title insurance report or policy:
41           (1) Determines insurability and issues title insurance reports or pol-
42       icies, or both, based upon the performance or review of a search, or an
43       abstract of title;

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  1           (2) collects or disburses premiums, escrow or security deposits or
  2       other funds;
  3           (3) handles escrow, settlements or closings;
  4           (4) solicits or negotiates title insurance business; or
  5           (5) records closing documents.
  6           (e) ``Title insurer'' or ``insurer'' means a company organized under
  7       laws of this state for the purpose of transacting the business of title in-
  8       surance and any foreign or non-U.S. title insurer licensed in this state to
  9       transact the business of title insurance.
10           (f) ``Title insurance policy'' or ``policy'' means a contract insuring or
11       indemnifying owners of, or other persons lawfully interested in, real or
12       personal property or any interest in real property, against loss or damage
13       arising from any or all of the following conditions existing on or before
14       the policy date and not excepted or excluded:
15           (1) Defects in or liens or encumbrances on the insured title;
16           (2) unmarketability of the insured title;
17           (3) invalidity, lack of priority, or unenforceability of liens or encum-
18       brances on the stated property;
19           (4) lack of legal right of access to the land; or
20           (5) unenforceability of rights in title to the land.
21           Sec. 3. A title insurance agency agent may operate as an escrow,
22       settlement or closing agent, provided that:
23           (a) All funds deposited with the title insurance agency agent in con-
24       nection with an escrow, settlement or closing shall be submitted for col-
25       lection to, investing in or deposited in a separate fiduciary trust account
26       or accounts in a qualified financial institution no later than the close of
27       the next business day, in accordance with the following requirements:
28           (1) The funds shall be the property of the person or persons entitled
29       to them under the provisions of the escrow, settlement or closing agree-
30       ment and shall be segregated for each depository by escrow, settlement
31       or closing in the records of the title insurance agent in a manner that
32       permits the funds to be identified on an individual basis; and
33           (2) the funds shall be applied only in accordance with the terms of
34       the individual instructions or agreements under which the funds were
35       accepted.; and
36        (3) an agent shall not retain any interest on any money held in
37       an interest-bearing account without the written consent of all par-
38       ties to the transaction.
39           (b) Funds held in an escrow account shall be disbursed only pursuant
40       to a written instruction or agreement specifying how and to whom such
41       funds may be disbursed only:
42           (1) Pursuant to written authorization of buyer and seller;
43           (2) pursuant to a court order; or

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  1           (3) when a transaction is closed according to the agreement of
  2       the parties.
  3           (c) An escrow A title insurance agent shall not commingle the es-
  4       crow agent's personal funds or other moneys with escrow funds. In ad-
  5       dition, the escrow agent shall not use escrow funds to pay or to indemnify
  6       against the debts of the escrow agent or of any other party. The escrow
  7       funds shall be used only to fulfill the terms of the individual escrow and
  8       none of the funds shall be utilized until the necessary conditions of the
  9       escrow have been met.
10           (d) Each title insurance agent shall have an audit made of its escrow,
11       settlement and closing deposit accounts, conducted by a certified public
12       accountant or by a title insurer for which the title insurance agent has a
13       licensing agreement, according to the following schedule. Audits shall be
14       considered current if dated within the 12 months prior to submission of
15       the audit as required herein. The title insurance agent shall provide a
16       copy of the audit report to the commissioner and to each title insurance
17       company which it represents within 160 days after the close of the cal-
18       endar year for which an audit is required. Title insurance agents who are
19       attorneys and who issue title insurance policies as part of their legal rep-
20       resentation of clients are exempt from the requirements of this paragraph.
21       However, the title insurer, at its expense, may conduct or cause to be
22       conducted an annual audit of the escrow, settlement and closing accounts
23       of the attorney. Attorneys who are exclusively in the business of title
24       insurance are not exempt from the requirements of this paragraph. Audits
25       shall be required as follows:
26           (1) Annual audit required in counties having a population of 90,001
27       and over;
28           (2) biennial audit required in counties having a population of 40,001
29       - 90,000;
30           (3) triennial audit required in counties having a population of 20,001
31       - 40,000;
32           (4) quadrennial audit required in counties having a population of
33       20,000 and under.
34           (e) The commissioner may promulgate rules and regulations setting
35       forth the standards of the audit and the form of audit report required.
36           (f) If the title insurance agent is appointed by two or more title in-
37       surers and maintains fiduciary trust accounts in connection with providing
38       escrow and closing settlement services, the title insurance agent shall
39       allow each title insurer reasonable access to the accounts and any or all
40       of the supporting account information in order to ascertain the safety and
41       security of the funds held by the title insurance agent.
42           (g) Nothing in this section is intended to amend, alter or supersede
43       other laws of this state or the United States, regarding an escrow holder's

HB 2966--Am.


  1       duties and obligations.
  2           Sec. 4. The title insurance agent shall maintain sufficient records of
  3       its escrow operations and escrow trust accounts so that the commissioner
  4       may adequately ensure that the title insurance agent is in compliance with
  5       all provisions of this act. The commissioner may prescribe the specific
  6       record entries and documents to be kept and the length of time for which
  7       the records must be maintained.
  8           Sec. 5. The commissioner may issue rules, regulations and orders
  9       necessary to carry out the provisions of this act.
10           Sec. 6. If the commissioner determines that the title insurance agent
11       or any other person has violated this act, or any rules and regulation or
12       order promulgated thereunder, after notice and opportunity to be heard,
13       the commissioner may order that such person be subject to the penalties
14       provided in K.S.A. 40-2406 et seq.
15           Sec. 7. This act shall take effect and be in force from and after its
16       publication in the statute book.