BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:April 29, 2013        |Bill No:SB                         |
        |                                   |676                                |
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                      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  This measure was withdrawn from Public  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)





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        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:
        





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        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  





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             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, or  any director,  
             officer, employee, agent, or shareholder of any  corporation  
             licensed as a real estate broker,  who   if 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  





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             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