BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 1762|
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                                 THIRD READING


          Bill No:  AB 1762
          Author:   Hayashi (D)
          Amended:  6/2/10 in Senate
          Vote:     21

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  9-0, 6/16/10
          AYES:  Calderon, Cogdill, Florez, Kehoe, Liu, Lowenthal,  
            Padilla, Price, Runner
          NO VOTE RECORDED:  Correa, Cox

           ASSEMBLY FLOOR  :  73-0, 4/8/10 - See last page for vote


           SUBJECT  :    Real estate

           SOURCE  :     California Association of Realtors


           DIGEST  :    This bill clarifies and updates the definition  
          of an advance fee, as that term is defined under the Real  
          Estate Law.

           ANALYSIS  :    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.

          2. Prohibits an advance fee, or the services to be  
             performed by a licensee pursuant to a fee agreement,  
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             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. 

          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.

          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 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.

          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.

          This bill:

          1. Defines 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. Clarifies 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  







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             of any provision of the Real Estate Law.

          3. Adds the following exclusions from being defined as an  
             advance fee:

             A.   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.

             B.   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. States 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. States 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.

           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.   







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          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 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 this bill 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.

          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  







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

          However, in an attempt to avoid any misunderstanding or  
          misinterpretations about the intent of this bill, 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.   This  
          bill contains express language that its changes are not  
          otherwise intended to alter the obligations or liability of  
          any person pursuant to SB 94.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  6/17/10)

          California Association of Realtors (source)
          Orange County Association of Realtors 


           ASSEMBLY FLOOR  :  
          AYES:  Adams, Ammiano, Anderson, Arambula, Bass, Beall,  
            Bill Berryhill, Tom Berryhill, Blakeslee, Block,  
            Blumenfield, Bradford, Brownley, Buchanan, Caballero,  
            Carter, Chesbro, Conway, Cook, Coto, De La Torre, De  
            Leon, DeVore, Emmerson, Eng, Evans, Feuer, Fletcher,  
            Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,  
            Garrick, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,  
            Huffman, Jeffries, Jones, Knight, Lieu, Bonnie Lowenthal,  
            Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello,  







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            Nielsen, Norby, Portantino, Ruskin, Salas, Saldana,  
            Silva, Skinner, Smyth, Solorio, Audra Strickland,  
            Swanson, Torlakson, Torres, Torrico, Tran, Villines,  
            Yamada, John A. Perez
          NO VOTE RECORDED:  Charles Calderon, Davis, Gilmore, Huber,  
            Logue, V. Manuel Perez 


          JA:nl  6/22/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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