BILL ANALYSIS Ó SB 706 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 706 (Price) - As Amended: August 15, 2011 Policy Committee: Business and Professions Vote: 6 - 3 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill makes numerous enforcement enhancements to the Department of Real Estate (DRE) and the Office of Real Estate Appraisers (OREA), requires specified licensing boards to post information about licensees on the internet, and makes updating and conforming changes. Specifically, this bill: 1)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. 2)Authorizes DRE to require a restricted licensee to pay the monetary costs associated with monitoring the licensed activities conducted pursuant to the restricted license or restricted mortgage loan originator endorsement license. 3)Requires the automatic suspension of any license or endorsement of a licensee during any time the licensee is incarcerated after conviction of a felony, regardless of whether the conviction has been appealed. 4)Authorizes an administrative law judge (ALJ) to order a licensee in a disciplinary proceeding to pay, upon request of the DRE Commissioner the reasonable costs of investigation and enforcement of the disciplinary case against the licensee 5)Requires the State Auditor to conduct an audit of the DRE to determine if the department is effectively and efficiently carrying out its responsibilities with regard to the laws and regulations related to the department's enforcement and discipline program for its licensees. Authorizes that funding SB 706 Page 2 from the Real Estate Fund be used to pay for the costs of the audit. 6)Requires the Secretary of BTH to review and evaluate OREA and make recommendations to the Legislature by October 1, 2014, regarding whether OREA should be consolidated within DRE. FISCAL EFFECT 1)Costs for the audit will likely be between $250,000 and $300,000 (Real Estate Fund). 2)DRE estimates that they may be able to generate as much as $1 million per year in revenue by having the authority to recoup the investigation and enforcement costs for disciplinary cases against licensees. 3)Workload costs for DRE and OREA are minor and absorbable within existing resources. COMMENTS 1)Purpose . This bill increases the enforcement authority for both DRE and OREA. The author notes this bill is a reaction to the public criticism related to the lack of disciplinary action being taken against licensees during the continuing mortgage crisis. The author argues, "Throughout the crisis, significant criticism has been focused upon real estate practices. Recent reports and articles have criticized the Department of Real Estate as well as the Office of Real Estate Appraisers for a lack of taking action against licensees who have violated the law?(This) bill gives both DRE and OREA a set of tools to enhance their enforcement operations." 2)Department of Real Estate. 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. The Commissioner serves as the chief executive of the DRE and SB 706 Page 3 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. 3)Office of Real Estate Appraisers . 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. The Director of the Office of Real Estate Appraisers, 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. 4)Previous legislation . AB 33 (Nava) of 2009 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 BTH. This bill was amended to address a different subject. SB 706 Page 4 SB 1737 (Machado), Statutes of 2008, allows DRE to ban from real estate-related employment for up to three years anyone 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. Analysis Prepared by : Julie Salley-Gray / APPR. / (916) 319-2081