California Escrow Rules & Regulations

The escrow process is an important part of buying, selling and refinancing real estate in California. To ensure these transactions are completed properly, the escrow agent must hold the important items -- for example, money and property deeds -- and disburse them to the appropriate parties. California law includes many rules and regulations on who can perform escrow services.


A state license is necessary to operate as an independent escrow company. Starting in July 2013, the licensing is handled by the Department of Business Oversight -- an agency formed by the merger of the Department of Corporations and Department of Financial Institutions. Only corporations may apply for a license and a statement must be included in their articles of incorporation that their primary purpose is to engage in business as an escrow agent. The stock issued by the corporation to its shareholders must be held in escrow. The Commissioner of Business Oversight must approve the transfer or issuance of additional stock.

Application Requirements

California law has strict rules for obtaining a license as an independent escrow company. A completed license application must be submitted to the Department of Business Oversight, along with audited financial statements showing liquid assets of $25,000 over current liabilities and $50,000 in tangible assets. The company’s stockholders, officers, directors, managers and employees are subject to a thorough background check by the department, including criminal and civil litigation record searches. Two bonds must be filed with the department -- a $125,000 fidelity bond protecting against dishonest acts by employees, and a surety bond of between $25,000 and $50,000 to pay the state or any other person monies owed by the company. The company must be a member of the Escrow Agents' Fidelity Corp., an organization that indemnifies its members against losses from fraud, theft or embezzlement by company owners or personnel. All company offices must be staffed by a manager with at least five years of responsible escrow experience.

Exemptions to Licensing Requirements

California law exempts certain persons and companies from the escrow licensing requirements when they are engaged in a "controlled" escrow -- that is, they have a professional relationship to one of the parties in the transaction. The exempt persons include attorneys and real estate brokers who are acting within the scope of their license. Also included in the exemption are title companies licensed by the Insurance Commissioner, as well as other licensed financial institutions and insurance companies. The exempt persons are not subject to regulation by the Department of Business Oversight, but must comply with the agencies responsible for overseeing and licensing their particular profession.

Other Considerations

The California escrow process is also subject to federal law regarding certain residential transactions. For example, lenders are limited in the amount that can be held in an escrow account for the payment of property taxes, insurance and other expenses. Another aspect of the California escrow process is the different customs between escrows in northern versus southern California, and even between counties. For example, escrows in southern California are typically handled by an independent escrow company, and in northern California the title company for the transaction handles the escrow.