BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 53| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 53 Author: Calderon (D) and Vargas (D) Amended: 8/29/11 Vote: 21 SENATE BANKING & FINANCIAL INSTITUT. COMM : 6-1, 4/6/11 AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla NOES: Walters SENATE BUSINESS, PROF & ECON DEVELOP COMM : 8-1, 5/2/11 AYES: Price, Emmerson, Corbett, Correa, Hernandez, Negrete McLeod, Vargas, Wyland NOES: Walters SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SENATE FLOOR : 38-0, 05/31/11 AYES: Alquist, Anderson, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner, Simitian, Steinberg, Strickland, Vargas, Wolk, Wright, Wyland, Yee NO VOTE RECORDED: Berryhill, Walters ASSEMBLY FLOOR : Not available SUBJECT : Real estate licensees SOURCE : Author CONTINUED SB 53 Page 2 DIGEST : This bill makes several changes to Californias Real Estate Law, to give the Department of Real Estate (DRE) more enforcement tools with which to crack down against mortgage fraud and other real estate violations, add safeguards to protect consumers who seek out services from real estate licensees, and make technical changes, intended to clean up certain portions of the Real Estate Law. Assembly Amendments clarify that the Real Estate Commissioner must make a noticed motion prior to applying to the Superior Court for an order to compel a license to produce documentary evidence in cases where the licensee refused to obey a subpoena, and specify that, while citations and fines constitute discipline for a violation of the law, they shall be reported as disciplinary action taken by the Commissioner of the Department of Real Estate. ANALYSIS : Existing real estate law: 1.Establishes in the Business, Transportation and Housing Agency (BT&H) the DRE, the chief officer of which is the Real Estate 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. 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 CONTINUED SB 53 Page 3 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. This bill: 1. Provides that in cases where a licensee refuses to, by a noticed motion, obey a subpoena, the Commissioner may apply to the Superior Court, without the need to involve the Attorney General, 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. CONTINUED SB 53 Page 4 2. Grants to the DRE the authority to issue citations and/or citations and fines to licensees found to have violated provisions of the Real Estate Law. Licensees would be authorized to appeal the findings of any such citation through an administrative hearing process. Fines would be capped at $2,500 per violation. Fines collected would be deposited into the Real Estate Fund's Recovery Account, where they would be available to reimburse consumers for losses resulting from violations of the Real Estate Law. Specifies that these fines and citations shall not be reported as disciplinary action taken by the Commissioner. 3. Specifies that nothing prevents the Commission from also 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 continued or repeated violations of the Real Estate Law. 4. Provides that after the filing of a desist and refrain order or 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. Provides that any release of the information shall include language explaining that the person is entitled to a hearing on the matter and 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 under FC 17006 or whose escrow activities exceed $1,000,000 within a year, shall file with the DRE a report within 60 days providing certain information as specified. Provides that the real estate broker may also file CONTINUED SB 53 Page 5 consolidated reports that include all of the information as specified in Section 10232.2. Provides for penalties for failure to submit the report, and for suspension of revocation of the realtor's license for failure to pay penalties imposed. 6. Makes findings pursuant to the information provided to DRE, as specified in Item # 5 above, that in order to allow the DRE to fully accomplish its goals, it is imperative to protect the interests of those persons submitting information to the DRE to ensure that any personal or sensitive business information that this act requires of 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 in Section 10177, 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 in Section 10177, even though the licensee has fulfilled the requirements for licensure pursuant to Section 10156.2; including fulfilling their CE requirement. 9. Would require 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. Recasts and updates certain provisions and clarifies the repeal of specified provisions relative to these transactions. 10. Provides that the DRE may obtain copies of full-face CONTINUED SB 53 Page 6 engraved pictures or photos of individuals directly from the DMV and allows the Commissioner access to records of the 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. 12. Contains double-jointing language with SB 6 (Calderon and Vargas). FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT : (Verified 8/25/11) California Association of Realtors California Mortgage Association Escrow Institute of California ARGUMENTS IN SUPPORT : The California Mortgage Association (CMA) supports the efforts of this bill's Authors to give the DRE the tools the department needs to effectively and efficiently enforce the law. "Fundamentally, SB 53 is a consumer protection measure. The bill is well thought-out and crafted." CMA specifically cites its support for the "cite and fine" provision of this measure, which it views as a way for the DRE to deal with minor violations of the law quickly and conclusively, without having to resort to formal accusations against licensees in each instance. This, in turn, will free up department resources to focus on egregious violations of the law. The California Association of Realtors (CAR) supports the bill as currently amended. The CAR had concerns about disclosure of enforcement action without prior proof but believes the language in the bill now strikes a balance between concern for immediate protection of the public and basic due process for licensees by requiring stringent findings by the DRE and requiring the imposition of preliminary sanctions before releasing information regarding the investigation of a licensee to the public. The CAR also had concerns about the authority granted to CONTINUED SB 53 Page 7 DRE to refuse renewal of a license while a licensee was under investigation by the DRE. Recent language allows more flexibility to DRE to toll the expiration of the license under review and reinstate the license if the licensee is absolved. The CAR is also in support of a limited citation and fine authority and is actually sponsoring a similar bill but the cap is $1,000. They indicate that they will continue to work with the Authors to reconcile the two provisions. The Escrow Institute of California (EIC) is in support of this measure, especially as to the provision which would require DRE licensees who conduct escrows to annually report their number of transactions to the DRE. According to the EIC, under the California Escrow Law real estate and mortgage brokers, title companies, banks and attorneys who engage in escrow activities are exempt from the stringent requirements contained in the Escrow Law. The EIC has advocated for years the elimination of the exemption for unlicensed escrow practitioners and the regulation of all escrow agents under a uniform Escrow Law and Regulations. The EIC believes that this bill is an important first step for the DRE to identify who among their real estate licensees are conduction escrows so as to evaluate and determine if any appropriate regulatory measures and follow up may be required. JJA:nl 9/6/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED