People are sometimes surprised that a lawyer can hold transaction funds without an escrow license. The short answer is that California's Escrow Law licenses escrow businesses, and it exempts attorneys acting for their own clients under specific conditions. This article gives a general overview, not legal advice for any particular transaction.
The Escrow Law
California's Escrow Law (Financial Code section 17000 and following) requires companies that act as escrow agents to be licensed by the Department of Financial Protection and Innovation. Licensed escrow companies act as neutral holders for both sides and follow standard instructions. They are a good fit for many routine transactions.
The attorney exemption
Financial Code section 17006 lists persons the Escrow Law does not apply to. Subdivision (a)(2) covers a person licensed to practice law in California who has a bona fide client relationship with a principal in a real estate or personal property transaction, subject to the conditions stated in the statute, including that the attorney is not actively engaged in the business of an escrow agent.
In practice, that means the attorney holds funds as part of representing a client in the transaction, not as a public escrow business for anyone who walks in.
What governs the attorney instead
An attorney who holds client funds is governed by the State Bar's trust account rules, especially Rule 1.15 of the California Rules of Professional Conduct, which require separate trust accounts, detailed records, prompt accounting and payment of funds to those entitled to them. See IOLTA trust accounts explained.
Other licensing laws
Other laws can apply to businesses that move money for the public, such as the California Money Transmission Act and, for digital assets, the Digital Financial Assets Law. A law firm that holds funds only for its own clients, in U.S. dollars, under written agreements, and does not exchange currency or crypto for the public, keeps its role narrow for this reason. The firm's legal notices describe these limits.
Choosing between the two
For a standard home purchase, a licensed escrow company is usually the natural choice. For unusual, international or commission heavy transactions where a client wants its own lawyer to hold and pay funds, an attorney trust account can fit better. Our comparison, attorney paymaster vs. escrow company, sets out the differences.
Questions about your situation? Contact the attorney.