BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 278| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 278 Author: Hill (D) Amended: 6/23/11 in Senate Vote: 21 SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 9-0, 6/20/11 AYES: Price, Emmerson, Corbett, Correa, Hernandez, Negrete McLeod, Vargas, Walters, Wyland SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 78-0, 5/23/11 - See last page for vote SUBJECT : Department of Real Estate: administrative fines SOURCE : Author DIGEST : This bill 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. ANALYSIS : Existing law, the Real Estate Law: 1. Establishes in the Business, Transportation and Housing CONTINUED AB 278 Page 2 Agency, the Department of Real Estate (DRE), the chief officer of which is the Real Estate Commissioner (Commissioner) and specifies that the Commissioner, through the DRE, 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) Section 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 corporation's stock has violated any of those provisions as specified. (BPC Section 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 $10,000, or by imprisonment in the county jail not exceeding six months, or by a fine and imprisonment. (BPC Section 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 Section 10079) CONTINUED AB 278 Page 3 6. Provides that any board, bureau, or commission within the Department of Consumer Affairs (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 Section 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 Section 148) 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. CONTINUED AB 278 Page 4 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 $2,500 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. 4. Specifies that, if a fine is paid to satisfy an assessment based on the finding of a violation, payment CONTINUED AB 278 Page 5 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. Background In 1986, SB 2335 (Montoya), Chapter 1379, Statutes of 1986, established a uniform citation and fine system for the DCA, and for all the boards, 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. Prior Legislation SB 1737 (Machado), Chapter 286, Statutes of 2008, allowed CONTINUED AB 278 Page 6 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), 2007-08 Session, 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. The 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 7/12/11) California Association of Realtors ARGUMENTS IN SUPPORT : The author 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 CONTINUED AB 278 Page 7 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." ASSEMBLY FLOOR : 78-0, 5/23/11 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Conway, Davis, Dickinson, Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Cook, Gorell JJA:mw 7/12/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED