BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:   June 14, 2011

              ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER 
                                     PROTECTION
                                 Mary Hayashi, Chair
             SB 53 (Ron Calderon and Vargas) - As Amended:  May 16, 2011

           SENATE VOTE  :   38-0
           
          SUBJECT  :   Real estate licensees.

           SUMMARY  :   Makes several changes to California's Real Estate Law 
          to give the Department of Real Estate (DRE) more enforcement 
          tools to take action against mortgage fraud and other real 
          estate violations, add safeguards to protect consumers who seek 
          services from real estate licensees, and make technical changes 
          to portions of the Real Estate Law.  Specifically,  this bill  :

          1)Provides that, in a case where a licensee ignores or refuses 
            to obey an order of the court or obey a subpoena, the 
            Commissioner may apply directly to the Superior Court (without 
            the need for the Attorney General to act as the Commissioner's 
            attorney) and the Court may issue an order requiring the 
            licensee to appear before the Commissioner to produce 
            documentary evidence or to give evidence regarding an 
            investigation.  Failure of the licensee to obey the order of 
            the Court may be punished by the Court as contempt. 

          2)Grants authority to DRE to issue citations and/or citations 
            and fines, capped at $2,500 per violation, to licensees found 
            to have violated provisions of the Real Estate Law.  Licensees 
            may appeal the findings of any such citation through an 
            administrative hearing process conducted according to current 
            law governing administrative hearings.  The Commissioner may 
            apply to superior court for an order to comply, as specified.  
            Failure to comply shall be subject to disciplinary action, as 
            specified.  A license may not be renewed if fines are unpaid 
            or citation terms have not been met.  Fines must be deposited 
            into the Real Estate Fund's Recovery Account, to be made 
            available upon legislative appropriation to reimburse 
            consumers for losses resulting from violations of the Real 
            Estate Law.

          3)Specifies that nothing prevents the Commission from also 
            issuing an order to desist and refrain from engaging in a 








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            specific business activity or activities or an order to 
            suspend all business operations to a person who is engaged in 
            continued or repeated violations of the Real Estate Law.

          4)Provides that, after the filing of a desist and refrain order, 
            a bar order, or the commencement of a formal disciplinary 
            action by the Commissioner, and upon a finding by the 
            Commissioner that action is warranted for the protection of 
            the public and that failure to act is likely to result in 
            grievous harm to the public, the Commissioner may make 
            information public confirming the fact of an investigation or 
            proceeding regarding a licensee or unlicensed person believed 
            to be engaging in activities for which a real estate license 
            is required.  Any release that contains the identity of the 
            person or business under investigation shall include language 
            explaining that the person or business is entitled to a public 
            hearing on the merits of the order or accusation.  The release 
            may also clarify the procedural aspects and current status of 
            the investigation or proceeding. 

          5)Requires, beginning July 1, 2012, a real estate broker who 
            engages in escrow activities for five or more transactions 
            within a year, as specified, or whose escrow activities equal 
            or exceed $1 million in a calendar year, to file with DRE a 
            report within 60 days providing certain information, as 
            specified.  The real estate broker may file consolidated 
            reports if the broker is subject to this bill's provisions and 
            specified current-law requirements to report to DRE.  Failure 
            to report incurs a penalty of $50 per day up to the 30th day, 
            after which daily fines increase to $100 up to a total of 
            $10,000.  The Commissioner may suspend or revoke the license 
            of a broker who fails to pay, and may bring court action to 
            collect payment.

          6)Exempts the reports specified above from specified public 
            disclosure.  Pursuant to this exemption, this bill makes 
            findings to demonstrate the interest being protected, stating 
            that in order to allow DRE to fully accomplish its goals, it 
            is imperative to protect the interests of those persons 
            submitting information to DRE to ensure that any personal or 
            sensitive business information that this bill requires those 
            persons to submit is protected as confidential information.

          7)Provides, beginning July 1, 2012, that the Commissioner may 
            delay renewal of a license pursuant to any acts as specified 








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            under current law for which the Commissioner may suspend, 
            revoke or deny the issuance of a license, and that any 
            decision to delay renewal of a license shall toll the 
            expiration of that license until the results of any pending 
            disciplinary actions against the licensee are final, or until 
            the licensee voluntarily surrenders his, her or its license, 
            whichever is earlier.

          8)Specifies that the Commissioner may also delay renewal of a 
            license pursuant to any acts as specified under current law 
            for which the Commissioner may suspend, revoke or deny the 
            issuance of a license, even though the licensee has fulfilled 
            the requirements for licensure pursuant to current law, 
            including fulfilling continuing education requirements.

          9)Requires a real estate broker to submit a copy of information 
            in the real estate broker's transaction file relative to 
            securities qualification, or exemption from securities 
            qualification, pursuant to a transaction involving secured 
            notes on real property, to any investor from whom the real 
            estate broker obtains funds in connection with the transaction 
            or other provision of law pertaining to these types of 
            transactions, within 10 days of receipt of those funds.  
            Recasts and updates certain provisions and clarifies the 
            repeal of specified provisions relative to these transactions.

          10)Provides that DRE may obtain copies of full-face engraved 
            pictures or photos of individuals directly from DMV for 
            purposes of enforcing the Real Estate Law and the Subdivided 
            Lands Law.

          11)Makes clarifying and technical changes to certain enforcement 
            provisions of the Real Estate Law, and contains 
            double-jointing language with SB 6 (Ron Calderon and Vargas).

           EXISTING LAW  

          1)Regulates real estate transactions and licenses real estate 
            agents, brokers and salespersons through the DRE.

          2)Provides that the DRE 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 








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            Estate Law. 

          3)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.  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. 

          4)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 or 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. 

          5)Makes it unlawful for any person to offer or sell any security 
            in an issuer transaction unless the sale has been qualified or 
            the security or transaction is exempted or is not subject to 
            qualification, as specified.  Exempts from qualification a 
            transaction that involves the sale of a series of notes 
            secured directly by an interest in real property or the sale 
            of undivided interest in a note secured directly by real 
            property equivalent to a series transaction.  Requires a real 
            estate broker to indicate in the real estate broker's 
            transaction file the provisions of law pertaining to 
            qualification or exemption from qualifications under which a 
            transaction is being conducted and requires the broker to file 
            certain information with the Commissioner relative to 
            conducting these transactions that are exempt from 
            qualification.

           FISCAL EFFECT  :   Unknown

           COMMENTS  : 








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           Purpose of this bill  .  According to the authors, this bill makes 
          several changes to California's Real Estate Law to give DRE more 
          enforcement tools and add safeguards to protect consumers who 
          seek services from real estate licensees.  This bill also makes 
          technical changes intended to clean up certain portions of the 
          Real Estate Law.

           Background  .  Current law requires real estate brokers to retain 
          copies of all books, accounts, and records related to any 
          transaction for which a real estate broker license is required.  
          Brokers are required to retain these materials for at least 
          three years, and to make them available for examination, 
          inspection, and copying by the Commissioner or his or her 
          designated representative.  

          If, after appropriate notice, a real estate broker refuses to 
          allow access, DRE may seek an administrative subpoena to compel 
          the production of the materials.  If a broker continues to 
          refuse access, DRE may seek to enforce the subpoena in a 
          Superior Court.  However, because the law requires DRE to be 
          represented by the Department of Justice (DOJ) in all civil 
          court matters, DRE must request, and DOJ must agree, to 
          represent DRE in cases where DRE seeks to enforce a subpoena in 
          a Superior Court.  The problem then becomes time sensitive.  
          Often DOJ lacks sufficient resources to expedite these cases, 
          which allows rogue real estate brokers who refuse to produce 
          their records to continue to operate.

          This bill authorizes DRE to go to court directly to enforce an 
          administrative subpoena.  

          Current law allows the DRE Commissioner to enforce the Real 
          Estate Law by granting him or her full power to regulate and 
          control the issuance and revocation 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 DRE to issue an on-the-spot citation, 
          or a "fix-it ticket," to a licensee found to have violated a 
          provision of the Real Estate Law.  If a 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 








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          auditor or investigator's findings have been approved, informing 
          the licensee of the violation(s), and ordering corrective action 
          to be taken.

          While a lengthy review of audit or investigation findings may be 
          appropriate in complex cases, simpler cases could be more 
          efficiently handled by granting DRE on-the-spot citation 
          authority.  Licensees would not lose the ability to appeal, but 
          straightforward findings, about which both DRE and the licensee 
          agree, could be handled far more expeditiously than under 
          existing law.  Granting DRE citation authority will help both 
          consumers and licensees, by allowing 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.

          This bill gives DRE citation and fine authority patterned on 
          current law cite and fine authority for deferred deposit 
          transactions and DCA boards, chiropractors, and osteopathic 
          physicians.  Fines would be capped at $2,500 per violation, and 
          would be imposed in lieu of, rather than in addition to, other 
          discipline.  Fines collected would be deposited into the Real 
          Estate Fund's Recovery Account.  Failure to pay a fine would 
          result in disciplinary action.  

          Existing law provides DRE no mechanism to warn the public if the 
          department knows of one or more licensees who are engaging in 
          activities that pose an immediate risk of grievous harm to the 
          public.  The public must wait for DRE to file a formal action in 
          order to learn which persons or companies may pose a risk.  
          Because the California State Bar has the authority to release 
          the identities of lawyers who are under investigation, it was 
          able to warn the public about several members of the Bar who 
          were engaging in unscrupulous loan modification activities.  The 
          DRE, in contrast, lacked this authority, so was unable to warn 
          the public about specific individuals and businesses who were 
          engaging in unscrupulous loan modification behavior.  Such 
          reporting not only acts as a warning to the public, but also as 
          a deterrent to unscrupulous behavior.

          This bill gives DRE authority to release the identities of those 
          under investigation.  To protect the rights of those who are 
          innocent until proven guilty, DRE's authority would be limited 
          to situations in which failure to disclose the information is 
          likely to lead to grievous harm to the public.  The DRE would 








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          also have to include language in each of its releases explaining 
          that the persons under investigation are innocent until proven 
          guilty, and that they are entitled to a public hearing on the 
          merits of DRE's accusation. 

          Current law authorizes licensed real estate brokers to act as 
          escrow agents without obtaining an Escrow Law license if the 
          brokers are performing acts in the course of, or incidental to, 
          a real estate transaction in which the broker is an agent or a 
          party to the transaction, and in which the broker is performing 
          an act for which a real estate license is required.

          The DRE lacks authority to determine which of its licensed 
          brokers engage in escrow activities pursuant to this exemption, 
          nor does it require these licensees to notify DRE about their 
          volume of escrow business.  Without access to information about 
          the activities of its licensees, DRE is limited to using 
          consumer complaints to help prioritize which of its licensees to 
          examine.  During the last year alone, real estate licensees were 
          found to have mishandled over $2.5 million in trust fund 
          deposits.  It is unknown what volume of mishandled money went 
          undetected.  Providing DRE with specific information about its 
          licensees will help give the department a better sense of the 
          activities in which its licensees are engaging.  This, in turn, 
          will help DRE identify potential problems before they result in 
          harm to consumers. 

          This bill requires any real estate broker who engages in escrow 
          activities for five or more transactions in a calendar year 
          pursuant to current law exemption from the Escrow Law, or whose 
          escrow activities pursuant to that exemption equal or exceed $1 
          million in a calendar year, to file a report with the DRE 
          documenting the number of escrows conducted and the dollar 
          volume escrowed during the calendar year in which the threshold 
          was met.

          Current Real Estate Law authorizes the Commissioner to suspend 
          or revoke the license of a real estate licensee, or deny the 
          issuance of a license to a real estate applicant, who has 
          engaged in one or more of several prohibited acts.  However, the 
          Commissioner lacks the authority to deny the renewal of a 
          license application submitted by a real estate licensee who is 
          under DRE investigation for having engaged in behavior that 
          would warrant a license suspension or revocation.  This creates 
          a situation in which DRE must renew the license of a licensee 








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          that has paid his or her renewal fee and completed his or her 
          continuing education requirements, even when DRE plans to issue 
          an accusation to that individual suspending or revoking his or 
          her license.  

          Recent press accounts have criticized DRE for continuing to 
          license individuals known to be engaging in acts that would 
          disqualify them from licensure.  One way to stop this practice 
          is to allow DRE to deny the renewal of a license to these types 
          of individuals.

          This bill grants DRE the ability to deny a license renewal to an 
          individual known or suspected to have engaged in or to be 
          engaging in acts that would disqualify them from licensure.  
          Individuals denied a renewal pursuant to this provision would 
          have appeal rights, just as they would if the DRE were required 
          to re-issue their license, and then pursue a license suspension 
          or revocation.  This measure also makes a conforming change to 
          ensure that a licensee's license does not automatically renew 
          upon payment of the renewal fee and certification by a licensee 
          that he or she has complied with his or her continuing education 
          requirements.

          Article 6 of Chapter 3 of Part 1 of the Real Estate Law, titled, 
          "Claim of Exemption from Securities Qualification," was added to 
          the codes in 2003, as part of a bill that was intended to 
          replace the formerly existing Articles 6 and 6.5.  A recent 
          review of Article 6 identified a handful of changes that would 
          correct, update, and clarify the operation of the Article, while 
          better informing investors who purchase interests in 
          multi-lender loans about the rules under which the real estate 
          brokers selling those loans operate. 

          This bill makes needed cleanup changes and adds a provision to 
          require real estate licensees that engage in multi-lender loans 
          to provide information to their investors regarding the 
          provisions of law under which they operate.  Licensees are 
          already required to document this information in their files.  
          This bill requires that it be provided to investors.

          For many years, DRE had access to driver's license and vehicle 
          registration information from the DMV.  The DRE used this 
          information to help it identify and locate individuals upon whom 
          it sought to issue subpoenas, desist and refrain orders, and 
          accusations, and when interviewing victims of real estate fraud 








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          or other real estate violations, in order to properly identify 
          the individuals with whom these victims interacted.

          In 2001, DMV changed its policies regarding access to its 
          records by limiting such access to sworn peace officers.  This 
          technically cut the DRE off from the records, because none of 
          the DRE's personnel are sworn peace officers.  Despite the 2001 
          change to DMV's policy, some DRE offices continued receiving 
          access to the DMV records until very recently.  That changed in 
          late 2010, when DMV began more formally enforcing its policies, 
          and terminated all access to its records by DRE employees.  
          Without access to DMV information, DRE lacks access to 
          photographs of persons it needs to investigate, and those on 
          whom the department seeks to serve process.  The DMV's records 
          can also help DRE identify the most recent address of a licensee 
          or individual improperly acting without a license.

          This measure provides statutory authority for DRE to request DMV 
          information, and for DMV to provide the requested information to 
          DRE.

          A number of statutes whose language is codified outside of the 
          Real Estate Law (including the Covered Loan Law and the law 
          prohibiting inappropriate influence of appraisers) contain 
          statements to the effect that, "A violation of this law by a 
          licensed person is a violation of the licensed person's 
          licensing law."  This boilerplate language is intended to allow 
          departments, such as DRE, the Department of Corporations, and 
          the Department of Financial Institutions, to take enforcement 
          actions against any of their licensees that are found to be 
          violating the specified statute.  The DRE legal staff has 
          expressed concern that the boilerplate language in these other 
          statutes is insufficient, on its own, to permit DRE to bring an 
          enforcement action against one of its licensees for violating 
          one of these statutes.

          This measure adds language to the Real Estate Law to ensure that 
          DRE has the authority to pursue enforcement actions against 
          licensees who, while acting within the scope of their license, 
          violate statutes not explicitly contained within the Real Estate 
          Law.

           Support  .  The California Mortgage Association notes, "Coming on 
          the heels of the greatest boom and bust cycles in California 
          real estate history, we have seen unfortunate violations of the 








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          Real Estate law by a small but significant segment of licensees. 
           To uphold consumer confidence in real estate licensees, it is 
          important that the Department of Real Estate be given the tools 
          to effectively and efficiently enforce the law."

          The Escrow Institute of California remarks that this bill "is an 
                                                 important first step for the Department of Real Estate to 
          identify who among their R/E licensees are conducting escrows so 
          as to evaluate and determine if any appropriate regulatory 
          measures and follow up may be required."

           Related Legislation  .  SB 706 (Price) makes numerous enforcement 
          enhancements to DRE and the Office of Real Estate Appraisers 
          (OREA); requires licensing boards to post information about 
          licensees on the Internet, as specified; and, makes updating and 
          conforming changes.  This bill is pending in Assembly Business, 
          Professions and Consumer Protection Committee.
           
          AB 278 (Hill) authorizes the DRE Commissioner to promulgate 
          regulations authorizing the issuance of citations and fines to 
          DRE licensees and unlicensed persons engaging in activities for 
          which a real estate license is required.  This bill is pending 
          in Senate Business, Professions and Economic Development 
          Committee.

           Previous legislation  .  SB 1737 (Machado) Chapter 286, Statutes 
          of 2008, allows 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 allows DRE to suspend or revoke a 
          license if the licensee provides an inaccurate opinion of value 
          for a short sale for specified purposes, and requires 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 authorizes the 
          Commissioners of 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 defines the term "higher-priced mortgage loan," as 
          specified.  This bill was vetoed.

          AB 2454 (Emmerson) Chapter 279, Statutes of 2008, increases the 
          limit on the amount for which the Recovery Account may be liable 








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          and deletes obsolete provisions relating to a cause of action 
          brought prior to January 1, 1980. 

          AB 840 (Emmerson) Chapter 140, Statutes of 2007, authorizes 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.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Association of Realtors
          California Mortgage Association
          Escrow Institute of California
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Angela Mapp / B.,P. & C.P. / (916) 
          319-3301