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: 9/1/11 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 Commissioner of the Department of Real Estate to issue citations to unlicensed persons the Commissioner believes to be engaging in activities for which a real estate license is required or to licensees who are in violation of any provision of the Real Estate Law or any rule or order thereunder. Authorizes citations to include an order to correct the violation or to include an administrative penalty of up to $2,500, and requires any fines collected to be credited to the Recovery Account and made available for specified purposes upon appropriation by the Legislature. CONTINUED AB 278 Page 2 Assembly Amendments revise and recast the bill with a similar intent. ANALYSIS : Existing law, the Real Estate Law: 1. Establishes in the Business, Transportation and Housing 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 CONTINUED AB 278 Page 3 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) 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: CONTINUED AB 278 Page 4 1. Authorizes the Commissioner of DRE (Commissioner) to issue citations, in writing, to unlicensed persons the commissioner believes to be engaging in activities for which a real estate license is required or to licensees who are in violation of any provision of the Real Estate Law or any rule or order thereunder. 2. Authorizes citations to include an order to correct the violation or to include an administrative penalty of up to $2,500, and requires any fines collected to be credited to the Recovery Account and made available for specified purposes upon appropriation by the Legislature. 3. Requires the Commissioner give due consideration to the appropriateness of the amount of the fine with respect to factors such as the gravity of the violation, the good faith of the person cited, and the history of previous violations. 4. Specifies a citation issued and a fine assessed against and paid by a licensee shall be in lieu of other administrative discipline by the Commissioner for the offense or offenses cited. 5. Specifies nothing in the bill prevents the Commissioner from issuing an order to desist and refrain from engaging in a specific business activity or activities or an order to suspend all business operations to a person who is engaged in or has engaged in continued or repeated violations. In any of these circumstances, the sanctions authorized shall be separate from, and in addition to, all other administrative, civil, or criminal penalties. 6. Provides if person cited fails to request a hearing to contest the citation within 30 days from the receipt of the citation, the citation and fine shall be deemed final, but not be reported as disciplinary action taken by the department. 7. Provides that after the exhaustion of the review procedures provided for this bill, the Commissioner may apply to the appropriate superior court for a judgment CONTINUED AB 278 Page 5 in the amount of any administrative penalty imposed and an order compelling the cited person to comply with the order of the Commissioner. Provides the application, which shall include a certified copy of the final order of the Commissioner, constitutes a sufficient showing to warrant the issuance of the judgment and order. 8. Provides that failure of any person to comply with the terms of a citation or pay a fine assessed, within a reasonable period specified by the Commissioner, shall subject that person to disciplinary action by the commissioner. 9. Provides that in no event may a license be renewed if an unpaid fine remains outstanding or the terms of a citation have not been complied with. 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 the DRE to ban from real estate-related employment for up CONTINUED AB 278 Page 6 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 9/2/11) 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 for the issuance of a citation and a fine for relatively CONTINUED AB 278 Page 7 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 9/2/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED