BILL ANALYSIS                                                                                                                                                                                                    






                        SENATE COMMITTEE ON BANKING, FINANCE,
                                    AND INSURANCE
                           Senator Ronald Calderon, Chair


          AB 1762 (Hayashi)   Hearing Date:  June 16, 2010  

          As Amended: June 2, 2010
          Fiscal:             No
          Urgency:       No

          VOTES:              Asm. Floor(04/08/10)73-0/Pass
                         Asm. B. & P.        (03/23/10)10-0/Pass
          

           SUMMARY    Would clarify and update the definition of an advance  
          fee, as that term is defined under the Real Estate Law.
           
          DIGEST
            
          Existing law
            
           1.  Defines an advance fee as a fee, regardless of the form, which  
              is claimed, demanded, charged, received, or collected by a  
              licensee from a principal before fully completing each and every  
              service the licensee contracted to perform (Business and  
              Professions Code Section 10026);

           2.  Prohibits an advance fee, or the services to be performed by a  
              licensee pursuant to a fee agreement, from being separated or  
              divided into components for the purpose of avoiding the  
              application of Section 10026;

           3.  States that the term "advance fee" includes a fee for a  
              listing, advertisement, or offer to sell or lease property or a  
              business opportunity, other than in a newspaper of general  
              circulation, as specified (Section 10026); 

           4.  States that the term "advance fee" does not include the term  
              security, as that term is used in Section 1950.5 of the Civil  
              Code, or the term screening fee, as that term is used in Section  
              1950.6 of the Civil Code (Section 10026); 

           5.  Requires real estate licensees to submit all materials used in  
              obtaining advance fee agreements, including but not limited to  
              the contract forms, radio and television advertising, and  




                                              AB 1762 (Hayashi), Page 2




              letters or cards used to solicit prospective sellers, to the  
              Commissioner of Real Estate (commissioner) at least 10 days  
              prior to their use, and grants the commissioner the authority to  
              order any of the submitted material not be used, disseminated,  
              or published, based on his/her belief that it would tend to  
              mislead (Section 10085);

           6.  Provides that any person or entity using, disseminating, or  
              publishing any matter which the commissioner has ordered not to  
              be used, published, or disseminated pursuant to Section 10085 is  
              guilty of a misdemeanor punishable by a fine not exceeding  
              $2,500, or by imprisonment in the county jail for up to six  
              months, or both, for each use, dissemination, or publication  
              (Section 10085).

           This bill (changes to existing law are shown in bold type)

            1.  Would define an advance fee as a fee, regardless of its  
              form, which is claimed, demanded, charged, received, or  
              collected by a licensee for services requiring a license, or  
              for a listing, as defined, before fully completing the  
              service the licensee contracted to perform or represented  
              would be performed;

           2.  Would state that neither an advance fee, nor the services  
              to be performed, may be separated or divided into components  
              for the purpose of avoiding the application of any provision  
              of the Real Estate Law;

           3.  Would expressly exclude the following from being defined as  
              an advance fee:

               a.     Security, as that term is used in Section 1950.5 of  
                 the Civil Code;

               b.     Screening fee, as that term is used in Section  
                 1950.6 of the Civil Code;

               c.     A fee claimed, demanded, charged, received, or  
                 collected for the purpose of advertising the sale, lease,  
                 or exchange of real estate, or of a business opportunity,  
                 in a newspaper of general circulation, any other written  
                 publication, or through electronic media comparable to  
                 any type of written publication, provided that the  
                 electronic media or the publication is not under the  
                 control or ownership of the broker;




                                              AB 1762 (Hayashi), Page 3





               d.     A fee earned for a specific service under a "limited  
                 service" contract.  For purposes of the bill, a limited  
                 services contract is a written agreement for real estate  
                 services, which are promoted, advertised, or presented as  
                 stand-alone services, to be performed on a task-by-task  
                 basis, and for which compensation is received as each  
                 separate, contracted-for task is completed.  To qualify  
                 for this exclusion, all services performed pursuant to  
                 the contract must be described in subdivisions (a), (b),  
                 or (c) of Section 10131;

           4.  Would state that a contract between a real estate broker  
              and a principal that requires payment of a commission to the  
              broker after the contract is fully performed does not  
              represent an agreement for an advance fee;

           5.  Would state that the changes made by the bill are intended  
              to supercede the changes made to Section 10026 by SB 94  
              (Calderon), Chapter 630, Statutes of 2009, but are not  
              otherwise intended to alter the obligations or liability of  
              any person pursuant to SB 94 (Calderon), Chapter 630,  
              Statutes of 2009.
           
           


          COMMENTS

          1.  Purpose of the bill   To update and clarify the Department of  
              Real Estate's (DRE's) advance fee statute, and codify DRE's  
              interpretation of that statute.  

           2.  Background   Section 10026 of the Business and Professions  
              Code was enacted in 1955, and has been infrequently changed  
              since that time.  The last change to this section was  
              requested by the California Association of Realtors (CAR) in  
              2009.  That change, which was contained in SB 94 (Calderon),  
              Chapter 630, Statutes of 2009, added language stating that  
              the form of the fee was immaterial, and added the concept  
              that that neither an advance fee, nor the services to be  
              performed pursuant to an advance fee contract, may be  
              separated or divided into components for purposes of  
              avoiding the application of Section 10026.

          The changes proposed by CAR in this bill go beyond those enacted  




                                              AB 1762 (Hayashi), Page 4




              in 2009, and are intended to ensure that two types of fee  
              arrangements, into which DRE licensees may currently enter  
              without an advance fee agreement, are not interpreted as  
              requiring advance fee agreements by DRE at some time in the  
              future.  These two fee arrangements include: 1) entering  
              into a limited services contract (described in more detail  
              below) and 2) entering into a contract in which a commission  
              will be earned by the licensee, after the completion of the  
              contract.  Although neither of these fee arrangements has  
              ever been interpreted by DRE as requiring an advance fee  
              agreement, CAR is concerned that the existing language of  
              Section 10026 does not expressly exclude them from the  
              definition of activities for which an advance fee agreement  
              is necessary.  The changes contained in AB 1762 are intended  
              to ensure that the statute clearly excludes these activities  
              as ones requiring an advance fee agreement.  

          The limited services contracts covered by this bill are a la  
              carte arrangements, and are entered into when an individual  
              might want a little bit of help from a DRE licensee in  
              purchasing or selling a home or performing another real  
              estate-related service, but does not wish to enter into a  
              contract with the licensee for the full range of services  
              typically provided by licensees.  A limited services  
              contract allows the licensee to price the desired services  
              on a piece-by-piece or task-by-task basis, and to receive  
              payment as each piece or task is completed.  The language of  
              this bill would make it clear that these types of  
              arrangements do not require advance fee agreements.

           3.  What does AB 1762 have to do with SB 94?   SB 94 (Calderon),  
              Chapter 630, Statutes of 2009, prohibited anyone, including  
              a real estate licensee, who negotiates, attempts to  
              negotiate, arranges, attempts to arrange, or otherwise  
              offers to perform residential mortgage loan modifications or  
              other forms of mortgage loan forbearance or forgiveness for  
              a fee or other compensation paid by a borrower, from  
              demanding or receiving any preperformance compensation,  
              requiring any security as collateral for final compensation,  
              or taking a power of attorney from a borrower, as specified.  
               Although SB 94 has colloquially been described as a bill  
              that bans advance fees in connection with loan modification  
              agreements, that bill did not base its requirements upon the  
              definition of an advance fee in the Real Estate Law.  The  
              changes made by SB 94 to the definition of an advance fee in  
              the Real Estate Law were unrelated to that bill's  




                                              AB 1762 (Hayashi), Page 5




              requirements relating to mortgage loan  
              modification/forbearance/forgiveness contracts.  

          However, in an attempt to avoid any misunderstanding or  
              misinterpretations about the intent of AB 1762, this bill's  
              author and sponsor have included language, expressly  
              clarifying that the changes made by this bill are only  
              intended to supercede the changes made by SB 94 to the  
              definition of an advance fee in the Real Estate Law.   AB  
              1762 contains express language that its changes are not  
              otherwise intended to alter the obligations or liability of  
              any person pursuant to SB 94.  

           4.  Support  .  CAR is sponsoring this bill for the reasons stated  
              above.  In its letter of support, CAR observes that "the  
              bill is needed to make it clear that so-called 'fee for  
              service' or 'cafeteria' real estate services contracts are  
              not advance fee arrangements requiring advance review."  CAR  
              asserts that the terminology of Section 10026 is important,  
              because advertisements for advance fee contracts, and the  
              contracts themselves, must be submitted in advance to DRE  
              for review.  

           5.  Opposition    None received.

           
          POSITIONS
          
          Support
           
          California Association of Realtors (sponsor)
           
          Oppose
               
          None received

          Consultant:  Eileen Newhall  (916) 651-4102