BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:April 29, 2013 |Bill No:SB | | |676 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Curren D. Price, Jr., Chair Bill No: SB 676Author:Block As Amended: April 22, 2013 Fiscal: Yes SUBJECT: Real estate records: unlawful destruction. SUMMARY: This bill would authorize the Department of Real Estate to suspend or revoke the license of any real estate broker, real estate salesperson, or any director, officer, employee or agent of the corporation licensed as a real estate broker, who knowingly destroys, alters, conceals, mutilates, or falsifies any of the books, papers, writings, documents, or tangible objects that are required to be maintained or that have been sought in connection with an investigation, audit, or examination of a real estate licensee by the Commissioner. This bill would exempt knowingly destroying, altering, concealing, mutilating, or falsifying real estate records that must be retained from the misdemeanor penalty that would be available under BPC § 10185. NOTE : This Committee heard this measure on April 8, 2013. It was voted out of this Committee by a vote of 10 to 0. It was then re-referred to Rules Committee and subsequently referred to the Senate Public Safety Committee. This measure was withdrawn from Public Safety Committee based on Author's amendments which removed the misdemeanor violation and was re-referred back to this Committee on April 24, 2013. Existing law: 1)Requires a real estate broker to retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed or obtained by the broker in connection with any transactions for which a real estate broker license is required. (BPC § 10148) SB 676 Page 2 2)Requires a broker, after receiving notice, to make available for examination, inspection, and copying by the Real Estate Commissioner or the Commissioner's designee, during regular business hours, all requested records the broker is legally required to retain. (BPC § 10148) 3)States that after an initial inspection of retained records, and upon the appearance of sufficient cause, a broker is subject to audit without further notice, so long as the audit is not harassing. (BPC § 10148) 4)States that any person who willfully violates or knowingly participates in the violation of a provision of the Real Estate Division of the Business and Professions Code is guilty of a misdemeanor. (BPC § 10185) 5)Gives the Real Estate Commissioner authority to investigate licensees, bring administrative actions against licensees, and in some circumstances suspend or revoke a real estate licensee. (BPC §§ 10175, 10176) This bill: 1 States that the Department of Real Estate may suspend or revoke the license of any real estate broker, real estate salesperson, or any director, officer, employee, agent, or shareholder of a corporation licensed as a real estate broker, who knowingly destroys, alters, conceals, mutilates, or falsifies any of the books, papers, writings, documents, or tangible objects that are required to be maintained by this section or that have been sought in connection with an investigation, audit, or examination of a real estate licensee by the Commissioner. 2 States that knowingly destroying, altering, concealing, mutilating, or falsifying real estate records that must be retained under BPC § 10148(a) shall not be subject to BPC §10185, which states that willfully violating or knowingly participating in the violation of a provision of the Real Estate Division of the Business and Professions Code is a misdemeanor . FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by Legislative Counsel. COMMENTS: SB 676 Page 3 1. Purpose. In order to thwart investigations and hide wrong doing, some real estate licensees have falsified or destroyed records required to be kept under law. According to the Author, this bill resolves a weakness in current Real Estate Law, by clarifying that the Department of Real Estate may suspend or revoke the license of a real estate licensee, if the licensee, or in the case of a corporate licensee, if the corporation's director, officer, employee, agent, or shareholder, knowingly destroys, alters, conceals, mutilates, or falsifies records required to be kept under law or sought in an investigation. This bill makes the punishment for committing a knowing violation of BPC § 10148 clear and obvious. 2. Background. Currently, a licensee's failure to retain records required under BPC § 10148 may be punished through an administrative action or criminal prosecution. Although BPC § 10148 itself is silent on the penalty for violating the statute, other sections (BPC §§ 10175, 10176, 10185) authorize strong penalties for violating the records retention requirement. Potential discipline includes professional penalties, such as suspension or revocation of the violator's real estate license. To take action against a license, the Real Estate Commissioner must prove in an administrative action that the accused individual's acts constituted fraud or dishonest dealing. Criminal penalties are available pursuant to BPC § 10185, which states that a willful violation or knowing participation in a violation of real estate law may be prosecuted as a misdemeanor. According to the Author, this bill is necessary to create clear rules for real estate professionals, and to authorize the Department of Real Estate to seek administrative disciplinary action against licensees who engage in actions prohibited by BPC § 10148. 3. Staff Comments: a) Who is to be Disciplined? Real estate law already authorizes the Real Estate Commissioner to take administrative action against licensees who engage in fraud or dishonest dealings, and states that it is a misdemeanor to willfully violate or knowingly participate in the violation of real estate law. This bill adds language to BPC § 10148 which states that the Department of Real Estate may suspend or revoke a licensee's real SB 676 Page 4 estate license in this particular instance where the licensee, or in the case of a corporate licensee, where the licensee's director, officer, employee or agent, knowingly destroys, alters, conceals, mutilates, or falsifies records required to be kept under BPC § 10148. It is not clear who is the licensee in this instance, since the director, officer, employee, agent, or shareholder are considered that of the corporate licensee and not as licensee's individually. Suggested Author's Amendment: To clarify whom the Department may discipline, and whose actions may trigger that discipline, the Committee recommends the following technical amendment to the bill: (e) (1) The department may suspend or revoke the license of any real estate broker, real estate salesperson, orany director, officer, employee, agent, or shareholder of anycorporation licensed as a real estate broker,whoif the real estate broker, real estate salesperson, or any director, officer, employee or agent of the corporation licensed as a real estate broker, knowingly destroys, alters, conceals, mutilates, or falsifies any of the books, papers, writings, documents, or tangible objects that are required to be maintained by this section or that have been sought in connection with an investigation, audit, or examination of a real estate licensee by the commissioner. (2) A violation of this subdivision shall not be subject to Section 10185. b) Inconsistency in Applying the Misdemeanor Provision. BPC § 10148(e)(2) only limits criminal liability for violating BPC § 10148(e)(1). This means that as it is currently drafted, this measure would exempt knowingly destroying, altering, concealing, mutilating, or falsifying records required to be kept under BPC § 10148(a) from being prosecuted as a misdemeanor under BPC § 10185. (BPC § 10148(e)(2)) Yet, this measure would still allow willfully or knowingly violating BPC § 10148(a), (willfully or knowingly not retaining the records) to be prosecuted as a misdemeanor under BPC § 10185. Is this the Author's intent; to assign a misdemeanor penalty to willful or knowing failure to maintain records, but to exempt knowing destruction or falsification of records, which is arguably a more reprehensible action? While staff appreciates that the Author and Senate Public Safety SB 676 Page 5 Committee drafted the recent amendments to this bill to avoid creating a new misdemeanor, staff remains concerned about the inconsistent penalties associated with violating this statute. 4. Arguments in Support. The California Association of Realtors, (CAR) supports this bill. CAR states that it hopes that clarifying the linkage between the professional obligations related to record keeping and the potential prosecution for violating those requirements will raise the quality of practice, to the benefit of consumers and other licensees. SUPPORT AND OPPOSITION: Support: California Association of Realtors Opposition: None received as of April 24, 2013 Consultant: Kristin Webb