BILL ANALYSIS Ó
-----------------------------------------------------------------------
|Hearing Date:May 2, 2011 |Bill No:SB |
| |706 |
-----------------------------------------------------------------------
SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 706Author:Price
As Amended:April 25, 2011 Fiscal:Yes
SUBJECT: Business and Professions.
SUMMARY: Makes numerous enforcement enhancements to the Department of
Real Estate (DRE) and the Office of Real Estate Appraisers (OREA);
transfers OREA into DRE; requires DRE to appoint a Real Estate
Advisory Commission; requires licensing boards to post information
about licensees on the Internet, as specified; makes updating and
conforming changes.
Existing law:
1) Provides for the licensure, and regulation of more than 483,000
real estate brokers, real estate salespersons, and more than 22,000
mortgage loan originator license endorsements by the Department of
Real Estate (DRE) in the Business, Transportation and Housing
Agency (BT&H). The Real Estate Commissioner (Commissioner), who
serves as the chief executive of the Department, is appointed by
the Governor, subject to Senate confirmation. The Commissioner is
mandated to enforce the Real Estate Law. (Business and Professions
Code (BPC) commencing with Section 10000).
2) Provides for the licensure and regulation of more than 13,800 real
estate appraisers, and the certification of more than 200 appraisal
management companies (AMCs) by the Office of Real Estate Appraisers
(OREA) within BT&H. The Director of OREA (Director) serves as the
chief executive of OREA, and is appointed by the Governor, subject
to Senate confirmation. The Director is mandated to enforce the
Real Estate Appraisers Licensing and Certification Law. (BPC
commencing with Section 11300)
SB 706
Page 2
3) Requires specified boards within the Department of Consumer Affairs
(DCA) to disclose on the Internet information on their respective
licensees, including information on the status of every license,
suspensions and revocations of licenses issued and other related
enforcement actions. (BPC § 27)
This bill:
1) Transfers OREA to DRE, provides that OREA is under the supervision
and control of the Commissioner; provides that the Director of OREA
shall serve at the pleasure of the Governor and administer the Real
Estate Appraisers Licensing and Certification Law, in consultation
with the Governor and the Commissioner.
2) Requires firewalls to be maintained between DRE and OREA, to
insulate the appraisal regulatory function from the real estate
regulatory function, and to ensure that decisions related to
appraisal license issuance, revocation, and disciplinary actions
are made by the Director of OREA and not by the Real Estate
Commissioner.
3) States that protection of the public shall be the highest priority
for DRE and OREA in exercising their licensing, regulatory, and
disciplinary functions and that whenever the protection of the
public is inconsistent with other interests sought to be promoted,
the protection of the public shall be paramount.
4) Allows DRE and OREA to enter into a settlement with a licensee or
applicant instead of the issuance of an accusation or statement of
issues against that licensee or applicant. Requires the settlement
to identify the factual basis for the action being taken and the
statutes or regulations violated. Specifies that a person who
enters a settlement is not precluded from filing a petition, in the
timeframe permitted by law, to modify the terms of the settlement
or petition for early termination of probation, if probation is
part of the settlement. States that any settlement executed
against a licensee shall be considered discipline, and a public
record to be posted on the Internet Website.
5) Authorizes an administrative law judge to order a licensee in a
disciplinary proceeding to pay, upon request of the Commissioner or
Director, the reasonable costs of investigation and enforcement of
the disciplinary case against the licensee (cost recovery).
6) When a licensee is placed on probation, authorizes the Commissioner
SB 706
Page 3
or Director to, in addition to any other terms and conditions
placed upon the licensee, require the licensee to pay the monetary
costs associated with monitoring the licensee's probation.
7) Requires costs recovered pursuant to these disciplinary proceedings
to be deposited in either the Real Estate Fund or the Real Estate
Appraisers Regulation Fund, as specified, and makes the funds
available upon appropriation by the Legislature.
8) Requires the automatic suspension of any licensee who is
incarcerated after conviction of a felony, regardless of whether
the conviction has been appealed. Requires the DRE or OREA to
notify the licensee in writing of the suspension and of his or her
right to elect to have the issue of penalty heard, as specified
9) Requires a licensee to submit a written report of any of the
following to the DRE or OREA: The bringing of an indictment or
information charging a felony against the licensee; arrest of the
licensee; conviction of the licensee, including any felony or
misdemeanor; and, any disciplinary action taken by another
licensing entity or authority of this state or of another state.
Requires the report to be made in writing within 30 days; and that
failure to make a report is a public offense punishable by a fine
not to exceed $5,000 and shall constitute unprofessional conduct.
10)Requires a licensee to identify himself or herself as a licensee or
registrant of the DRE or the OREA to law enforcement and the court
upon an arrest or being charged with a crime. Requires DRE and
OREA to inform licensees of this requirement.
11)Requires the clerk of the court to do the following:
a) Report to the DRE or OREA any judgment for a crime committed
or for any judgment in excess of $30,000, for which a licensee is
responsible due to negligence, error or omission in practice, or
rendering unauthorized professional services.
b) Transmit any felony preliminary hearing transcript concerning
a defendant licensee of the DRE or OREA.
12)Requires the district attorney, city attorney, other prosecuting
agency, or clerk of the court to notify the DRE or OREA if a
licensee is charged with a felony immediately upon obtaining
information that the defendant is a licensee of the DRE or OREA.
13)Requires the Commissioner to appoint a Real Estate Advisory
SB 706
Page 4
Commission (REAC) comprised of 11 members, five of whom shall be
real estate brokers licensed under this part and six of whom shall
be public members. Two of licensed members shall hold a mortgage
loan originator license endorsement; one public member shall be a
consumer advocate and one public member shall be a local law
enforcement representative.
a) Requires REAC to meet at least 4 times annually, subject to
specified procedures.
b) Provides that the REAC shall consult with and advise the
Commissioner on the DRE's policies and procedures.
c) Requires all REAC meetings to be open to the public and
subject to the Bagley-Keen Open Meeting Act.
14)Requires the Secretary of BT&H, by January 31, 2012, to appoint a
DRE Enforcement Program Monitor (Monitor), whose duties include:
a) Monitor and evaluate DRE's disciplinary system and procedures
and report his or her findings, as specified, to the DRE and the
Legislature no later than August 1, 2012 and every six months
thereafter, as specified.
b) Make his or her reports available to the public and to the
media.
15)Sunsets the provisions relating to the Monitor on January 31, 2014.
16)Provides the following regarding posting information about
licensees on the internet pursuant to BPC § 27:
a) Requires the posted information to include: suspensions,
revocations, and other related enforcement action, including
accusations filed pursuant to the Administrative Procedures Act.
b) Deletes certain healing arts boards within DCA from the
requirements to post licensee information in the Internet
c) Additionally requires the following to post information on the
Internet:
i) The Board of Accountancy.
ii) The Architects Board.
SB 706
Page 5
iii) The State Athletic Commission.
iv) The State Board of Barbering and Cosmetology.
v) The State Board of Guide Dogs for the Blind.
vi) The State Board of Chiropractic Examiners.
vii) The Department of Real Estate.
viii) The Office of Real Estate Appraisers.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. The Author is the Sponsor of this measure. According to
the Author, this bill is necessary to make appropriate changes to
DRE and effectively regulate real estate brokers, real estate
salespersons, and mortgage loan originator license endorsements in
California.
The Author additionally states that this bill is necessary to make
essential changes to the OREA in order to appropriately license and
regulate real estate appraisers in California, and to make other
changes to the Real Estate Appraisers Licensing and Certification
Law.
2. Background. Earlier this year, this Committee conducted oversight
of the Department of Real Estate and the Office of Real Estate
Appraisers. The Committee also conducted oversight hearings to
review 9 boards under the Department of Consumer Affairs. They
included the Board of Registered Nursing, the Board of Vocational
Nursing and Psychiatric Technicians, the Dental Board of
California, the State Athletic Commission, the Board of
Accountancy, Professional Fiduciaries Bureau, the Contractors State
License Board, the Board for Professional Engineers, Land Surveyors
and Geologists, the California Architects Board, the Landscape
Architects Technical Committee. The Committee began its review of
these licensing agencies in March with three days of hearings.
This bill, and the accompanying sunset bills, is intended to
implement legislative changes as recommended in the Committee's
Background Papers for several licensing boards reviewed by the
Committee this year.
SB 706
Page 6
3. Department of Real Estate (DRE). The DRE is responsible for
regulating the practice of real estate brokers and real estate
salespersons in California. DRE currently licenses more than
483,000 persons in California, with over 20,800 new licenses issued
each year, and more than 95,000 licenses renewed each year.
Licensed salespersons (333,330) outnumber licensed brokers
(149,920) at a ratio of more than two to one. The DRE licenses and
regulates real estate salespeople, brokers, and corporations. To
implement mandates established by federal legislation (The Secure
and Fair Enforcement Mortgage Licensing Act, called the SAFE Act),
the California Legislature enacted SB 36 (Calderon, Chapter 160,
Statutes of 2009), which requires that beginning, January 1, 2011,
real estate licensees who wish to act as mortgage loan originators
must apply to DRE and obtain a mortgage loan originator (MLO)
license endorsement. The Department issued over 22,000 MLO license
endorsements prior to the January 1, 2011 deadline.
The Commissioner serves as the chief executive of the DRE and is
appointed by the Governor, subject to confirmation by the Senate
Committee on Rules. The Commissioner is mandated to enforce the
Real Estate Law in a manner which achieves the maximum protection
for the purchasers of real property and those persons dealing with
real estate licensees.
DRE's Enforcement and Audit sections investigate complaints regarding
alleged violations of the Real Estate Law, the Department's
regulations, and other applicable laws. If a complaint is
supported by evidence, the Commissioner may, after providing an
opportunity for an administrative hearing, revoke, suspend, or deny
a real estate license. The Commissioner may also issue desist and
refrain orders to stop activities that are in violation of these
laws.
This is the initial review of the Department of Real Estate by this
Committee. The BP&ED Committee's jurisdiction includes oversight
of the DRE.
4. Mortgage and Financial 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.
Major financial institutions failed; others merged or were acquired
in last-ditch efforts to save themselves. The stock market went
into free fall. California's unemployment rate climbed to more
than 12%. Home equity became a vanishing commodity, eroding even
SB 706
Page 7
more quickly than the retirement savings accounts of aging baby
boomers. Consumer confidence fell to all-time lows. Notices of
default and foreclosures grew to all-time highs.
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 continues
to weaken, 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. For some, the problem
has been mortgage affordability. Either mortgage payments grew to
levels that are no longer sustainable by borrowers, or borrowers'
financial situations have declined to levels that can no longer
accommodate an unchanged mortgage payment.
Affordability, however, was only a symptom of a growing problem. What
once appeared to be solely an affordability problem increasingly
became a negative equity problem. More borrowers left mortgages
they could afford, because home values had fallen below the
mortgage values, and the borrowers would rather walk away from a
bad investment than spend years trying to rebuild home equity.
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. Chaired by former State Treasurer Phil
Angelides, the FCIC focused upon various factors of the financial
meltdown including: fraudulent practices by mortgage lenders,
reckless risk-taking by Wall Street banks and other financial
institutions; the federal oversight of Fannie Mae and Freddie Mac,
the entities that supported the secondary market for mortgages, and
decades of government efforts to encourage homeownership.
The FCIC released its final report on the causes of the financial
crisis on 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 and the excessive packaging and sale of loans to investors
and risky securities backed by the loans.
In September 2010 the Sacramento Bee reported that foreclosure sales
accounted for 43% of all property sales in California, the
SB 706
Page 8
third-highest percentage among all states. In the second quarter
of 2010, the April to June period, 62,492 California properties in
some stage of foreclosure were sold.
Throughout the crisis, significant criticism has been focused upon
real estate practices. Recent reports and articles have criticized
the DRE for its lack of taking action against licensed real estate
brokers and salespersons when necessary.
On November 12, 2010 the Sacramento Bee published the results of a
study in which the newspaper found that of some 260 people charged
with a real estate-related crime or sued by the state in recent
years, at least 45 of those accused or convicted were still listed
as licensed brokers or salespeople by the DRE, and consumers would
have no way of knowing of the accusations. Another dozen had their
real estate licenses suspended or revoked.
In July 2009, the Washington, DC based non-profit Center for Public
Integrity published an investigation of the real estate appraisal
industry in California and Florida that found that since 2005, one
in six appraisers whose licenses were revoked or surrendered kept
their real estate sales or broker's licenses. This allowed them to
continue working in the real estate industry negotiating sales to
homebuyers, who likely know little about their pasts.
Considering the problems that have existed within this industry and
the current mortgage crisis, the DRE should be making a concerted
effort to take any necessary action against their licensees who may
have played a part in both the mortgage and lending crisis and who
may have been involved in unethical activities or violated the law.
5. This Bill Includes the Following Statutory Changes Related to the
DRE Identified by this Committee during the March 2011 Oversight
Hearings:
a. Real Estate Advisory Commission (REAC). Originally
established in 1935, as an advisory body to the Commissioner,
the REAC was repealed in 2005 through a Budget trailer bill (SB
64, Chapter 77, Statutes of 2005). The elimination stemmed from
a recommendation of Governor Schwarzenegger's California
Performance Review. A commission that consistently meets in a
public capacity, subject to the notice requirements of the open
meeting laws, is a valuable forum for input from the public,
including consumers and consumer interest groups, licensee
discussions, and issues raised by public members of that
commission. In addition, such a commission enhances the
SB 706
Page 9
transparency of the overseeing regulatory agency, such as the
DRE. An advisory body such as REAC could be an effective forum
to better inform the DRE, the Administration and the Legislature
on policy decisions which need to be made for welfare of
consumers and the future of the real estate profession in
California. This especially seems to be true in light of the
complex issues that have arisen in the wake of the recent
financial meltdown and home mortgage crisis. This bill
establishes a Real Estate Advisory Commission under the DRE.
b. Protection of the Public. Consumer protection is the
essential purpose of all California's occupational licensing and
regulatory agencies. However, in many instances statutory
schemes do not establish clearly that protecting consumers is
the agency's primary mission. The absence of a clear statutory
mandate can lead to inconsistencies in agency policy over time
and may also contribute to inaccurate judicial interpretations
of the statutes. Even though DRE has responsibility to regulate
the real estate profession, it is important to clarify that the
highest priority of DRE is to protect the public. This bill
establishes that protection of the public shall be the highest
priority for the Department of Real Estate.
c. Enforcement Program Monitor. Significant issues have risen
in the last decade which have evolved into a global crisis and
economic downturn. Home equity has eroded rapidly, and the
focus of real estate activity shifted dramatically. Higher
incidence of fraudulent activity and violations of the Real
Estate Law have been documented by both DRE and by observers in
federal and state governments by consumers and by the news
media. Foreclosures account for nearly half of all property
sales in California, and significant criticism has been focused
upon real estate practices. Reports and articles have
criticized the DRE for its lack of taking action against
licensed real estate brokers and salespersons when necessary.
In recent years, when a significant question has arisen with the
enforcement and regulatory activities of various regulatory
boards within the Department of Consumer Affairs, this Committee
has recommended the appointment of an enforcement monitor.
Enforcement monitors have been appointed for the Contractors
State License Board, the Medical Board of California, the Bureau
of Automotive Repair, and the Bureau for Private Postsecondary
and Vocational Education. The use of an enforcement monitor has
been extremely effective in assisting a regulatory agency in
improving the efficiency of its disciplinary and enforcement
SB 706
Page 10
system. An enforcement monitor would be charged with
investigating and evaluating the agency's discipline system and
procedures, making its highest priority the reform and
reengineering, as necessary, of the enforcement program and
operations, including the agency's complaint, investigation,
accusation, and settlement policies and practices. This bill
requires the appointment of an enforcement program monitor for
the DRE.
6. Office of Real Estate Appraisers (OREA) The OREA is responsible
for regulating the practice of real estate appraisers in
California, by ensuring that only qualified persons are licensed to
conduct appraisals in federally related real estate loan
transactions and that all real estate appraisers licensed by the
state adhere to applicable laws, regulations, and standards.
Originally enacted in 1990, the OREA was established and charged
with developing and implementing a real estate appraiser licensing
program that complied with the federal mandate established by
Congress in 1989 as a result of the savings and loan disaster of
the late 1980's. That mandate, Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act, requires states
to license and certify real estate appraisers who appraise property
for federally related transactions.
OREA currently licenses more than 13,800 licensed appraisers in
California, with some 200 new licenses issued and 6,000 licenses
renewed in FY 2009/2010. There are four levels of appraiser
licensees: appraiser trainee (AT); appraiser licensee (AL);
certified residential (AR); and certified general (AG). Levels of
licensure are distinguished by increasing levels of education,
experience, and scope of practice (property type, transaction value
and supervision level). When a licensee wishes to move to up to a
higher level of licensure, they must meet the qualifications and
apply to "upgrade" the license to a higher license classification.
Beginning January 1, 2010, pursuant to SB 237 (Calderon, Chapter 173,
Statutes of 2009), companies which operate as third-party brokers
of appraisals between clients and appraisers must be registered and
certified by OREA as appraisal management companies (AMCs). To
date, OREA has issued approximately 200 certificates of
registration to AMCs.
OREA is comprised of two core components, licensing and enforcement.
The enforcement unit, operates under a federal mandate, and ensures
adherence to the federally-required Uniform Standards of
Professional Appraisal Practice (USPAP), California law and
SB 706
Page 11
regulations. Both licensing and enforcement functions are required
by the Appraisal Subcommittee (ASC), the federal government
organization which oversees all state real estate appraiser
licensing agencies.
The Director of the Office of Real Estate Appraisers (Director), who
serves as the chief executive of the OREA, is appointed by the
Governor, subject to confirmation by the Senate Committee on Rules.
The Director is mandated to administer and enforce the Real Estate
Appraisers Licensing and Certification Law.
This is the initial review of the Office of Real Estate Appraisers by
this Committee. The BP&ED Committee's jurisdiction includes
oversight of the OREA.
7. Independence and Accuracy of the Appraisal Process. Both
California law and federal regulations (Federal Register Volume 73,
No. 147, July 30, 2008, pp. 44522-44614 - Regulation Z, effective
October 1, 2009; and SB 223, Machado, Chapter 291, Statutes of
2007) were enacted to help prevent the improper influence of
appraisers, and to reduce the chances that appraisers would be
pressured to "hit" certain target property values or return
pre-determined, unsupported valuations when appraising real
property.
The federal Home Valuation Code of Conduct (HVCC) became effective May
1, 2009. It is an agreement between Fannie Mae, Freddie Mac, the
Federal Housing Finance Agency (FHFA), and New York State Attorney
General Anthony Cuomo. The intent of the HVCC is to enhance the
independence and accuracy of the appraisal process, and provide
added protections for homebuyers, mortgage investors and the
housing market. Any lender that sells a mortgage loan to Fannie
Mae or Freddie Mac must adhere to the HVCC.
Due to the increased use of AMCs by lending institutions, a
significant result of the HVCC agreement, the California
Legislature enacted SB 237 (Calderon, Chapter 173, Statutes of
2009) requiring AMCs, as defined, to register with OREA, and
subjects them to the provisions of the Real Estate Appraisers
Licensing and Certification Law. Effective January 21, 2010, OREA
adopted emergency regulations governing the implementation of the
registration process.
The HVCC has no force and effect as of December 27, 2010, the
effective date of the Federal Reserve Board's interim final
regulations, implementing the provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act), signed
SB 706
Page 12
into law on July 21, 2010. Fannie Mae and Freddie Mac adopted
Appraiser Independence Requirements in October 2010 that replaced
the HVCC. The requirements maintain the spirit and intent of the
HVCC, and are intended to support the integrity of the appraisal
process. The Dodd-Frank Act does not directly provide states with
the authority to implement its requirements. Rather, state
regulatory agencies, including OREA, must adopt and maintain
effective laws, regulations and policies aimed at maintaining
appraiser independence as consistent with the Act. The Dodd-Frank
Act contains appraisal independence measures that are similar to
those contained in HVCC and in SB 223 in 2007. In the current
Legislative Session, SB 6 (Calderon) was introduced to update
California's appraiser law to reflect changes made by the
Dodd-Frank Act and the Federal Reserve Board's regulations.
There is some concern as to whether the OREA has been taking
appropriate disciplinary action against appraisers when necessary.
Considering the problems that have existed within this industry and
the current mortgage crisis, the OREA should be making a concerted
effort to take any necessary action against its licensees who may
have played a part in both the mortgage and lending crisis and who
may have been involved in unethical activities or violated the law.
8. This Bill Includes the Following Statutory Changes Related to the
OREA Identified by this Committee during the March 2011 Oversight
Hearings:
a. Transfer of OREA into DRE. In 2009, AB 33 (Nava) proposed
to consolidate the OREA with the DRE. The bill also proposed a
number of other changes, including a complete reorganization of
several Departments in BT&H. During the legislative process,
the provisions of the bill unrelated to the consolidation of
OREA and DRE became problematic and AB 33 was eventually changed
to another subject. According to some familiar with the history
of OREA's creation, California originally intended to create
OREA as an independent division of DRE. Placement of the
Appraisal Law in the Business and Professions Code, in code
adjacent to the Real Estate Law, is one reflection of those
original plans. However, a last-minute decision resulted in the
creation of OREA as a separate body in 1990 when the Real Estate
Appraisers Licensing and Certification Laws were enacted (AB
527, Chapter 491, Statutes of 1990). Periodic efforts have
surfaced to merge OREA with other regulatory agencies including,
SB 1866 (Figueroa) from 2002, a vetoed bill that would have
folded OREA into the Department of Corporations; the Governor's
2005 California Performance Review, which recommended
SB 706
Page 13
consolidating the OREA and the DRE into a Division of Real
Estate Licensing.
OREA's Independence is a federal mandate, and any consolidation of
OREA with DRE must maintain OREA's ability to issue and revoke
licenses and act as the sole administrative (non-judicial)
arbiter of disciplinary actions involving appraiser licensees.
This bill transfers OREA to DRE, and requires firewalls to be
maintained between DRE and OREA, to insulate the appraisal
regulatory function from the real estate regulatory function,
and to ensure appraisal license and enforcement decisions are
made by the Director of OREA and not by the Real Estate
Commissioner .
b. Protection of the Public. Consumer protection is the
essential purpose of all occupational licensing and regulatory
agencies. However, in many instances statutory schemes do not
establish clearly that protecting consumers is the agency's
primary mission. The absence of a clear statutory mandate can
lead to inconsistencies in agency policy over time and may also
contribute to inaccurate judicial interpretations of the
statutes. Even though OREA has responsibility to regulate real
estate appraisers profession, it is important to clarify that
the highest priority of OREA is to protect the public. This
bill establishes that protection of the public shall be the
highest priority for the Office of Real Estate Appraisers.
9. Enforcement Provisions Relating to Both DRE and OREA. A number of
the enforcement recommendations were made for both DRE and OREA due
to concerns about the overall abilities to address enforcement
issues in light of the current financial and mortgage crisis. The
enforcement changes in this bill are an effort to give the DRE and
OREA an array of enforcement tools that are available to other
licensing agencies under this Committee's jurisdiction.
a. Stipulated settlements without filing an accusation. The
Administrative Procedures Act (APA) requires an agency to file
an accusation or statement of issues against a licensee before
the regulatory agency can reach a stipulated settlement with the
licensee. While many licensees will not agree to a stipulated
settlement without the pressure of a formal accusation having
been filed, it is the experience of a number of regulatory
boards that there are instances in which a licensee is willing
to agree to a stipulated settlement earlier on in the
investigation stage of the enforcement process in order to
minimize the cost of an administrative hearing, or in order to
SB 706
Page 14
expedite the resolution of a disciplinary matter. This bill
authorizes DRE and OREA to enter into a stipulated settlement
agreement with a licensee or applicant prior to the issuance of
an accusation or statement of issues against the licensee.
b. Cost Recovery. The ability to recover the costs for the
investigation and enforcement of a disciplinary case in which an
administrative law judge has found a licensee to have committed
violations of the licensing act is an important tool for
licensing and regulatory agencies. This negatively impacts the
industry by laying enforcement costs upon the backs of the
entire licensing population rather than those that are being
disciplined. This bill authorizes an administrative law judge
to order a licensee in a disciplinary proceeding to pay, upon
request of the Commissioner or Director, the reasonable costs of
investigation and enforcement of the disciplinary case against
the licensee .
c. Probation Monitoring Costs. Explicit statutory authority to
recover the costs associated with probation monitoring for a
disciplined licensee that has been placed upon probation is an
important regulatory tool. A number of regulatory boards under
the DCA have explicit statutory authority to recover costs for
probation monitoring. Such statutory authority will give DRE
and OREA greater explicit authority, lead to quicker resolution
of probation terms, and authorize DRE and OREA to refuse to
renew the license of a licensee who has not paid probation
costs. This bill authorizes the Commissioner or Director to
require the licensee to pay the monetary costs associated with
monitoring the licensee's probation .
d. Suspension Upon Incarceration. A sharp criticism in the
November 2010 Sacramento Bee articles was that a number of DRE
licensees who had been convicted of crimes and incarcerated
still held untarnished licenses with DRE. Giving DRE and OREA
the ability to automatically suspend a licensee who is suspended
will close this gap in DRE and OREA's enforcement arsenal, while
maintaining a licensee's due process rights. This bill requires
the automatic suspension of any licensee who is incarcerated
after conviction of a felony, and requires DRE or OREA to give
written notification to the licensee of the suspension and of
his or her right to elect to a hearing on the penalty.
e. Reporting of Indictment. Applicants for original and renewal
licenses are typically required to disclose criminal violations,
prior disciplinary action taken against a professional license,
SB 706
Page 15
or pending criminal charges. In such cases, a license will only
be issued to the applicant after the receipt and review of the
confirming information from the Department of Justice. This
bill requires a licensee to submit a written report of any of
the following to the DRE or OREA upon being indicted or charged
with a felony; arrest or conviction, including any felony or
misdemeanor; and, any disciplinary action taken by another
licensing entity or authority of this state or of another state.
f. Identification of Licensure Upon Arrest. Requiring a
licensee to inform law enforcement or the court that they are
licensed by the DRE or OREA enhances the ability of the
licensing agency to take appropriate enforcement action. This
bill requires a licensee to identify himself or herself as a
licensee or registrant of DRE or OREA to law enforcement and the
court upon an arrest or being charged with a crime.
g. Report by Court Clerk. When a judgment is entered against a
licensee, or when a licensee is charged with a felony, it is
important for DRE or OREA to be notified so action can be taken
against a licensee if the circumstances of the judgment or
charge warrant disciplinary action. Similar provisions already
apply to a number of regulatory boards under DCA. This bill
requires the clerk of the court to report to DRE or OREA any
judgment for a crime committed or for any judgment in excess of
$30,000, for which a licensee is responsible due to negligence,
error or omission in practice, or rendering unauthorized
professional services, and to transmit any felony preliminary
hearing transcript concerning a defendant licensee of DRE or
OREA.
1. General Provisions - Internet Disclosures. Currently, a number of
regulatory boards are required to post the status of every license,
including suspensions and revocations, whether or not the licensee
or former licensee is in good standing, or has been subject to
discipline by the board or by the licensing program of another
state.
For some time, this Committee has taken the position that not
disclosing disciplinary actions is inconsistent with public
protection. The Committee has further urged licensing boards and
bureaus to publicly disclose accusations filed against licensees.
An accusation is a public record under the Public Records Act
(PRA). If a consumer made a PRA request to the DRE about a
particular licensee, DRE would have to disclose any pending
accusation. An accusation means that the complaint has been fully
SB 706
Page 16
investigated, the investigation is complete, and the prosecutor
(DRE's enforcement deputy) believes that there is "clear and
convincing evidence" of a violation that merits disciplinary
action. An accusation is not a naked complaint. The filing of the
accusation is what turns a confidential investigation into a matter
of public record. There is no reason why DRE and OREA should not
disclose accusations that are already public records. Once the
investigation is completed, and accusations are filed, the public
must be made aware of the charges against licensees.
This bill amends BPC § 27 to additionally include the following:
a. Specify that disciplinary actions, including accusations
under the Administrative Procedures Act must be disclosed on the
Internet.
b. Additionally requires the following boards to post
information on the Internet:
The Board of Accountancy.
The Architects Board.
The State Athletic Commission.
The State Board of Barbering and Cosmetology.
The State Board of Guide Dogs for the Blind.
The State Board of Chiropractic Examiners.
a. Includes DRE and OREA with those agencies that are required
to post information on the internet about its licensees.
1. Additional Enforcement Provisions To Be Considered. There are
several additional protections and enforcement provisions which
were considered by the Committee during its Oversight Hearing of
DRE and OREA and may be added to this measure as further
discussions take place with DRE, OREA, consumer groups, industry
and other interested parties. The Author is willing to bring this
bill back to Committee if any of these provisions prove to be
controversial. These items for further discussion and possibly
inclusion in the bill are as follows:
Examination development standards
Mortgage loan originator license endorsement issues
Reverse mortgages
Contracting with collection service to collect
outstanding fees
Investigators with peace officer status
Interim suspension authority under BPC § 494
SB 706
Page 17
Suspension of licenses pursuant to Penal Code § 23
Accepting complaints online
DRE Recovery Account reforms
Modification of OREA continuing education requirements
SUPPORT AND OPPOSITION:
Support: None received as of April 26, 2011
Opposition: None received as of April 26, 2011
Consultant:G. V. Ayers