BILL ANALYSIS Ó
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|Hearing Date:June 20, 2011 |Bill No:AB |
| |278 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 278Author:Hill
As Introduced: February 8, 2011Fiscal:Yes
SUBJECT: Department of Real Estate: Administrative fines.
SUMMARY: Authorizes the Real Estate Commissioner to adopt regulations
to establish a system for the issuance of citations and fines of up to
$1,000 to licensees, and to include an order of abatement, if a
licensee of the Department of Real Estate is in violation of the Real
Estate Law.
Existing law Real Estate Law:
1) Establishes in the Business, Transportation and Housing Agency
(BT&H) the Department of Real Estate (DRE), the chief officer
of which is the Real Estate Commissioner (Commissioner) and
specifies that the Commissioner, through the Department, is
responsible for the regulation of real estate transactions and
licensure of real estate agents, brokers and salespersons.
2) Provides that the Commissioner shall enforce the provisions of
the Real Estate Law and has full power to regulate and control
the issuance and revocations, both temporary and permanent, of
all licenses to be issued, and to perform all other acts and
duties provided under the Real Estate Law. (Business and
Professions Code (BPC) § 10071)
3) Provides that the Commissioner may suspend or revoke a real estate
license, or deny the issuance of a license to an applicant, who has
violated any of the provisions of the Real Estate Law as specified,
or other laws as specified, or may suspend or revoke the license of
a corporation, or deny the issuance of a license to a corporation,
if an officer, director or person owning 10 percent or more of the
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corporation's stock has violated any of those provisions as
specified. (BPC § 10177)
4) Makes any person, including officers, directors, agents or
employees of corporations, who willfully violates or knowingly
participates in the violation of the Real Estate Law shall be
guilty of a misdemeanor punishable by a fine not exceeding ten
thousand dollars ($10,000), or by imprisonment in the county
jail not exceeding six months, or by a fine and imprisonment.
(BPC § 10185)
5) Provides that the Attorney General (AG) shall render to the
Commissioner opinions upon all questions of law relating to the
construction or interpretation of the Real Estate Law, or
arising in the administration thereof that may be submitted to
him by the Commissioner. The AG shall also act as the attorney
for the Commission in all actions and proceedings brought by or
against him under or pursuant to any provision of the Real
Estate Law. (BPC § 10079)
6)Provides that any board, bureau, or commission within the DCA may
establish, by regulation, a system for the issuance to a licensee of
a citation which may contain an order of abatement or an order to
pay an administrative fine assessed by the board, bureau, or
commission where the licensee is in violation of the applicable
licensing act or any regulation adopted pursuant thereto. Specifies
the procedures to be followed in both the issuance of the citation
and fine, and appeal of the citation or fine assessment and provides
that the administrative fine assessed may not exceed $5,000 . (This
citation and fine authority, however, does not prevent a board,
bureau, or commission from establishing by statute their own
citation and fine authority, as long as it is consistent with the
aforementioned procedures.) (BPC § 125.9)
7)Provides that any board, bureau, or commission within the DCA may, in
addition to the administrative citation system authorized by Section
125.9 (as against licensees, Item #6, above), also establish, by
regulation, a similar system for issuance of an administrative
citation to an unlicensed person who is acting in the capacity of a
licensee under the jurisdiction of that board, bureau, or
commission. The administrative citation system shall meet the
requirements of Section 125.9 above. However, the establishment of
an administrative citation system for unlicensed activity does not
preclude the use of other enforcement statutes for unlicensed
activities at the discretion of the board, bureau, or commission.
(BPC § 148)
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This bill:
1)Authorizes the Commissioner to adopt regulations that establish a
system for issuing citations to licensees in violation of the Real
Estate Law or any regulation adopted under the law, and to issue
such citations except where violations have resulted in serious
financial loss to the member of the public. A citation may contain
an order of abatement or an order to pay an administrative fine.
2)Requires the system for issuing citations to satisfy the following
conditions:
a) Citations shall be in writing and describe the nature of the
violation, including reference to the provision of law that was
violated;
b) Citations shall, when appropriate, contain an order of
abatement fixing a reasonable time for abatement;
c) Administrative fines must not exceed one thousand dollars
($1,000) for each inspection or each investigation made with
respect to the violation. The Commissioner must consider several
factors in assessing a fine, as specified;
d) Citations or fine assessments must inform licensees of the
appeal process for contested violations, which provides that a
hearing may be requested by written notice to the Commissioner
within 30 days of the date the fine or assessment is issued.
Payment of a fine shall not constitute an admission of the
violation charged and shall not be reported in the DRE real
estate bulletin.
e) The Commissioner may take disciplinary action if a licensee
fails to pay a fine within 30 days of the assessment date, unless
the citation is being appealed. If a citation is not contested
and a fine is not paid, the fine shall be added to the license
renewal fee. A license shall not be renewed without payment of
the renewal fee and fine.
3)Allows the following: citations to be issued without the assessment
of an administrative fine; a fine assessment to be limited to
particular violations of the Real Estate Law; and, notice to be
given to a broker when a citation is issued to a salesperson or
broker associate employed by the broker.
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4)Specifies that, if a fine is paid to satisfy an assessment based on
the finding of a violation, payment of the fine shall be represented
as satisfactory resolution of the matter for purposes of public
disclosure.
5)Requires administrative fines to be credited to the Recovery Account
of the Real Estate Fund and, upon legislative appropriation, to be
available for expenditure under the Real Estate Recovery Program.
6)Specifies that the establishment of an administrative citation
system does not preclude the use of other disciplinary authority of
the Commissioner.
7)Allows the Commissioner to adopt regulations to establish a similar
administrative citation system for unlicensed persons acting in the
capacity of a licensee, as specified.
FISCAL EFFECT: According to the Assembly Appropriations Analysis of
May 18, 2011, the DRE takes approximately 1,000 disciplinary actions
per fiscal year. If 10% of those actions result in a citation and/or
fine at the proposed maximum of $1,000 each it would result in
approximately $100,000 in additional revenue for the Recovery Account
in the Real Estate Fund. The workload associated with promulgating
the required regulations and establishing the new citations process
would be minor and absorbable within existing resources.
COMMENTS:
1. Purpose. The Author is the Sponsor of this measure and states:
"While the Real Estate Commissioner has authority to enforce real
estate law, he or she has a relatively narrow number of options for
imposing discipline and penalties. AB 278 would allow for the
issuance of a citation and a fine for relatively minor violations
that have not resulted in harm to the public. AB 278 would provide
a type of "fix-it ticket" that could be levied without the
necessity of a long drawn out hearing and review process. While
certainly appropriate for more serious violations, such a time
consuming process does not serve either the general public or the
regulated community in the most efficient manner in all cases. AB
278 will allow the Commissioner to discipline minor transgressions
while focusing valuable investigative resources on more serious
violations."
2. Background. In 1986, SB 2335 (Montoya, Chapter 1379, Statutes of
1986) established a uniform citation and fine system for the
Department of Consumer Affairs (DCA), and for all the boards,
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bureaus, committees and the commission under the DCA. The amount
of the fines at that time was limited to $2,500 . (The limitation
on fines was raised to $5,000 in 2004.) According to the DCA at
the time, numerous agencies are required to initiate formal
disciplinary action, which is extremely costly to the agency as
well as the licensee, or issue a letter of warning. Since the
majority of complaints received by most agencies are "minor"
violations which normally would not warrant formal disciplinary
action, the agency is only able to issue a letter of warning.
Although a letter of warning may have some educational value, in
many cases it is ineffectual. According the DRE, the agencies
should have stronger sanctions available to them to more
effectively correct and educate licensees who choose to violate the
law. Typically, these types of sanctions will deter further
violations and avoid the necessity for formal disciplinary expenses
following repeated warnings.
3. Previous Legislation. SB 1737 (Machado, Chapter 286, Statutes of
2008) allowed the DRE to ban from real estate-related employment
for up to three years anyone found guilty of violating the Real
Estate Law or any crime related to the qualification or duties of a
licensee. The bill allowed the DRE to suspend or revoke a license
if the licensee provides an inaccurate opinion of value for a short
sale for specified purposes, and required notice to all parties in
a real estate transaction when the same person arranges financing
and acts as the buyer's agent, seller's agent, or both.
AB 1830 (Lieu, Bass, Nava and Wolk) of 2008, authorized the
Commissioners of the DRE, the Department of Financial Institutions,
and the Department of Corporations to suspend or revoke licenses
for violations of specified federal lending laws or regulations,
and defined the term "higher-priced mortgage loan," as specified.
This bill was vetoed by the Governor.
AB 2454 (Emmerson, Chapter 279, Statutes of 2008) increased the limit
on the amount for which the Recovery Account may be liable and
deleted obsolete provisions relating to a cause of action brought
prior to January 1, 1980.
AB 840 (Emmerson, Chapter 140, Statutes of 2007) authorized the
Commissioner to suspend or revoke the license of a real estate
licensee or a mineral, oil and gas licensee, or deny issuance of
the license to an applicant, if the applicant or licensee has been
found guilty of a felony or a crime substantially related to the
qualification, functions, or duties of the real estate license or
the mineral, oil and gas license.
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4. Related Legislation This Session. SB 53 (Calderon and Vargas)
authorizes the Commissioner to issue citations to unlicensed
persons engaging in activities for which a real estate license is
required or to licensees in violation of any provision of the Real
Estate Law or any rule or order thereunder. The bill allows
citations to include an administrative penalty of up to $2,500 , and
includes a number of additional provisions pertaining to DRE
investigations, escrow disclosures, recording requirements, and
exempted transactions. This measure has been referred to the
Assembly Business, Professions and Consumer Protection Committee
and the Assembly Banking and Finance Committee.
SB 706 (Price) authorizes the DRE and the Office of Real Estate
Appraisers to enter into a settlement with a licensee or applicant,
instead of the issuance of an accusation or statement of issues
against the licensee or applicant, as specified. The bill would
authorize an administrative law judge to order a licensee in a
disciplinary proceeding to pay the reasonable costs of
investigating and prosecuting the disciplinary case against the
licensee, as specified. Costs recovered would be deposited in
either the Real Estate Fund or the Real Estate Appraisers
Regulation Fund, as specified. This measure has been referred to
the Assembly Business, Professions and Consumer Protection
Committee.
5. Why Should the DRE Have Citation and Fine Authority? The DRE
licenses and regulates approximately 463,000 real estate
professionals in California. Current Real Estate Law gives the DRE
the authority to examine the books, accounts, and records of real
estate licensees. The Law also grants the Commissioner with
authority to enforce the Real Estate Law, by granting him or her
full power to regulate and control the issuance and revocation,
both temporary and permanent, of all real estate licenses, and to
perform all other acts and duties necessary to enforce the Real
Estate Law. However, the Real Estate Law lacks any provision that
authorizes the DRE to issue an on-the-spot citation or a fix-it
ticket to a licensee who has been found to have violated a
provision of the Real Estate Law. For that reason, if a the DRE
auditor or investigator identifies a violation during a routine
audit or investigation, the auditor or investigator must return to
the office and write up his/her findings, then send those findings
up the chain of command for review and approval. In all but the
most serious cases, DRE sends a letter to the licensee once the
auditor or investigator's findings have been approved, informing
the licensee of the violation(s), and ordering that corrective
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action be taken.
The Commissioner may suspend or revoke a real estate license or impose
monetary penalties if violations are substantiated through the
hearing process. The Commissioner may also issue a desist and
refrain order in certain circumstances. In practice, for more
serious violations, the DRE files an accusation, which initiates
the disciplinary process that can eventually result in suspension
or revocation of a license. For less serious violations, the DRE
issues a letter of corrective action, but this may not have
sufficient impact on the behavior of the licensee to curtail the
activity for which action is taken.
While lengthy review of audits and investigation of cases and
subsequent disciplinary action may be appropriate in complex and
serious cases, simpler cases could be more efficiently handled by
granting the DRE on-the-spot citation authority which would act as
an intermediate option for the DRE. Licensees would not lose the
ability to appeal, but straightforward findings, about which both
the DRE and licensee agreed, could be handled far more
expeditiously than under existing law. Granting the DRE citation
authority will help both consumers and licensees, by allowing the
DRE enforcement staff to more quickly share the results of their
inquiries with licensees, and by directing licensees to more
quickly correct those items found to be in violation. The
precedent for this proposal already exists within the BPC (Sections
125.9 and 148) for those boards, bureaus, committees and the
commission under the DCA. Initially it was believed that Section
125.9, since a general provision of the BPC, may already apply to
the DRE, but because language within this Section says "within the
department" there was the issue of whether it gave clear authority
to the DRE to adopt a citation and fine system. This measure will
assure that the DRE now how its own authority regarding a citation
and fine system for disciplining its licensees.
6. Arguments in Support. The California Association of Realtors is in
support of this measure and states: "Existing law allows the
Department to order an individual to 'desist and refrain' from
misconduct, and allows the Department to commence an administrative
hearing process to revoke a license. Unfortunately, the Department
does not have an intermediate option to issue a citation and fine
for relatively less serious violations. By giving the Department
the option to cite violations that have not resulted in serious
harm to the public, AB 278 will allow it Ýto] focus prosecutorial
resources on the most serious violators. In addition, the
Department will not be pressured to ignore minor, but none the less
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real, violations while it prioritizes the most serious
Ýviolations]."
7. Recommended Author's Amendment. The Author should amend this
measure to change the limitation on the fine which may be assessed
against the real estate licensee from $1,000 to $2,500, which would
be consistent with the amount of the fine which could be assessed
under SB 53 (Calderon) which passed out of this Committee on May 2,
2011, by a vote of 8 to 1. The current limitation on the
assessment of fines for those licensees under the Department of
Consumer Affairs is $5,000.
SUPPORT AND OPPOSITION:
Support:
California Association of Realtors
Opposition:
None on file as of June 15, 2011.
Consultant: Bill Gage