BILL ANALYSIS Ó
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|Hearing Date:April 11, 2011 |Bill No:SB |
| |510 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 510Author:Correa
As Introduced: February 17, 2011 Fiscal: Yes
SUBJECT: Real estate brokers; corporate officers: designating branch
managers.
SUMMARY: Establishes various minimum requirements for an individual
to become a branch manager and authorizes the Commissioner of the
Department of Real Estate (DRE) to discipline a branch manager for
failure to supervise branch operations.
Existing Real Estate Law:
1) Defines real estate broker as a person who, for compensation or in
expectation of compensation, does or negotiates to do the
following:
a) Sells or offers to sell, buys or offers to buy, solicits
prospective sellers or purchasers of, solicits or obtains
listings of, or negotiates the purchase, sale or exchange of real
property or a business opportunity.
b) Leases or rents or offers to lease or rent, or places for
rent, or solicits listings of places for rent, or solicits for
prospective tenants, or negotiates the sale, purchase or exchange
of leases on real property, or on a business opportunity, or
collects rents from real property, or improvements thereon, or
from business opportunities.
c) Assists or offers to assist in filing an application for the
purchase or lease of, or in locating or entering upon, lands
owned by the state or federal government.
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d) Solicits borrowers or lenders for or negotiates loans or
collects payments or performs services for borrowers or lenders
or note owners in connection with loans secured directly or
collaterally by liens on real property or on a business
opportunity.
e) Sells or offers to sell, buys or offers to buy, or exchanges
or offers to exchange a real property sales contract, or a
promissory note secured directly or collaterally by a lien on
real property or on a business opportunity, and performs services
for the holders. (Business and Professions Code (BPC) § 10131)
2)Authorizes the commissioner of the real estate board to suspend or
revoke the license of a real estate licensee for a violation of the
Real Estate Law. (BPC §§ 10160, 10161.8, 10162, 10163.)
3)Authorizes the Commissioner of the DRE to suspend or revoke a
license or deny the issuance of a license where licensee (either a
person or a corporation) commits a number of violations. Included in
these violations is a broker licensee's failure to exercise
reasonable supervision over his or her salespersons or an officer
designated by the corporate broker licensee's failure to exercise
reasonable supervision over the corporation. (BPC § 10177)
4)Requires a corporation that is issued a license to also procure
additional licenses for each branch office. (BPC §§ 10158, 10211)
5)Allows corporate broker licensee to assign to a branch manager
supervisory responsibility over salespersons in branch offices.
(BPC § 10159.2)
This bill:
1) Authorizes an employing broker or corporate officer to appoint a
licensee as a branch manager with the responsibility to oversee the
operation of that branch. Requires this appointment to be made by
written contract.
2) Prohibits a branch manager from holding a restricted license, being
subject to debarment, or having less than two-years of full time
real estate experience.
3) Authorizes the Commissioner of the DRE to suspend or revoke the
license of an appointed branch manager for failure to properly
oversee and supervise operations.
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FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This bill is sponsored by the California Association of
Realtors . The Author argues that there are currently no
disciplinary consequences for a subordinate licensee in a branch
office when supervisorial authority is delegated to him or her. The
Author explains that "existing law does not require a real estate
branch manager to supervise salespersons that report to him or her.
As a result, even though a negligent manager might have to answer
to his or her employing broker, the manager's own license is not at
risk for failure to supervise." The Author asserts that this bill
"will add accountability to mangers of real estate branch offices
by ensuring that managers' licensees can be sanctioned for failure
to supervise."
2. Department of Real Estate Regulations. California Code of
Regulations governing the DRE requires reasonable supervision of
salespersons including establishment of policies, rules, procedures
and systems to review, oversee, inspect and manage. (C.C.R. § 2725)
The form of such policies, procedures, and systems takes into
consideration the numbers of employees and branches. A broker is
required to monitor compliance and may not relinquish overall
responsibility. However, this regulation does not include any kind
of disciplinary action when a broker fails to carry out his or her
supervisorial duties.
In August 2010, the Commissioner of the DRE proposed to adopt
regulations that would implement some portions of this bill.
Specifically, the regulations prohibited a broker from delegating
supervision to a licensee whose license was subject to restriction,
who was not licensed to the employing broker, who had less than two
years of experience during the five years immediately preceding the
delegation and who had been subject to debarment in the past seven
years. Additionally, it required that when a broker designated a
branch manager, that designation must be in writing. However, no
provisions concerning the discipline of branch office managers were
considered in these regulations because that action requires a
statutory change, which this bill hopes to accomplish.
3. Should the Branch Manager be a Broker Rather than a Salesperson?
While the DRE's Task Force considered requiring that a branch
manager must be a licensed broker, it ultimately decided that such
a requirement would be over burdensome and would eliminate
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competent and experienced sales people from filling this role.
Additionally, brokers are required to have at least 2 years of
full-time, licensed salesperson experience before becoming
licensed, which is the same requirement suggested by the bill for
salespeople to become a branch manager.
4. Department of Real Estate's Broker Supervision Task Force. DRE's
Task Force on Broker Supervision published a report in September
2010 that considered current challenges with day to day oversight
of large offices and multiple points of broker supervision. In
that report, DRE suggested legislation that would hold a
subordinate supervisor delegate liable for proper supervision
potentially along with the designated officer or broker of the
corporation. Additionally, the report suggested that legislation
should also include minimum requirements in order for a licensee to
be eligible as a branch manager. The task force also considered
limiting the number of licensees that an office supervisor of
licenses could optimally oversee, but ultimately rejected any such
limitation.
5. The Mortgage Crisis. In the middle of the last decade, what started
out as a nontraditional and subprime mortgage problem evolved into
a global liquidity crisis and an economic downturn that some
labeled the Great Recession because of its severity. In 2008,
nearly a quarter million Californians lost their homes to
foreclosure. Over 96% of those properties reverted to the lender.
When it first began, the problem seemed limited to subprime
borrowers with poorly underwritten and inadequately disclosed
mortgage loans. Yet, as the problem grew and the economy has
weakened, the effects of what was initially labeled "the subprime
mortgage crisis" spread to borrowers among all walks of life and
income levels, and to all types of loans.
On the Federal level, in 2009 Congress created the Financial Crisis
Inquiry Commission (FCIC) to examine the causes of the financial
crisis and to report its findings to the Congress, the President,
and the American people. The FCIC released its final report on the
causes of the financial crisis in January 27, 2011, concluding that
the financial crisis was an "avoidable" disaster caused by
widespread failures in government regulation, corporate
mismanagement and heedless risk-taking by Wall Street. The
commission faulted shoddy mortgage lending, the excessive packaging
and sale of loans to investors and risky securities backed by the
loans.
Throughout the crisis, significant criticism has been focused upon
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real estate practices. Recent reports and articles have criticized
DRE for its lack of action against licensed real estate brokers and
salespersons when necessary. In this year's sunset review of DRE,
this committee recommended that in light of the recent concerns
that have been raised in the past year due to the financial crisis,
DRE should reevaluate its strategic goals and objectives, however,
there were no specific recommendations concerning supervision.
This bill appears to be a response to these criticisms, in that it
allows DRE to hold branch managers accountable for the actions of
the salespeople they directly supervise.
6. Arguments in Support. The California Association of Realtors
states that "SB 510 will add two much needed changes to the law."
Also, they add that "SB 510 does not remove any existing
accountability for the employer broker that is at the head of the
company; he or she is still just as accountable for wrongful acts
as under current law."
NOTE : Double-referral to Banking and Financial Institutions Committee
(second.)
SUPPORT AND OPPOSITION:
Support:
California Association of Realtors (Sponsor)
Opposition:
None on file as of April 6, 2011.
Consultant:Bill Gage/Candace Choe