BILL ANALYSIS Ó SB 647 Page 1 Date of Hearing: July 15, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 647 (Morrell) - As Amended June 25, 2015 ----------------------------------------------------------------- |Policy |Banking and Finance |Vote:|12 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill adds land that produces income from crops, timber, and minerals to a category of property for which threshold brokers are authorized to solicit investors, so long as the loan-to-value (LTV) for the property does not exceed 60%. The bill also makes clarifying changes to the investor questionnaires threshold brokers must obtain prior to completing any sale of securities or deeds of trust, and deletes a requirement that persons who rely on a certain securities law exemption when brokering real estate submit information about their offering to the Department of Business Oversight (DBO). SB 647 Page 2 FISCAL EFFECT: Negligible fiscal impact to DBO as a result of eliminating reporting requirement, possible minor increase in enforcement costs to DBO to monitor exempt transactions. COMMENTS: 1)Purpose. According to the author, existing law governing the types of property for which threshold brokers are authorized to solicit investors has not been updated in decades. Currently, it is unclear whether land producing income from crops, timber, or minerals is "commercial income-producing land" subject to a maximum LTV of 65% or "other real property" subject to a maximum LTV of 35%. This bill creates a new category to cover those properties and assigns a maximum LTV of 60%. The bill also deletes a requirement that persons relying on a securities exemption for real estate licensees who sell whole, unfractionalized notes, to a single investor backing a loan, submit information about the offering to DBO. Those transactions are already regulated under Article 5 of the Real Estate Law. 2)Threshold Broking. According to the Bureau of Real Estate, there were 317 threshold brokers operating in 2013, and they arranged approximately $12.4 billion in loans. Threshold brokers can arrange investor financing for real property or act as a lender, and often work with smaller, less sophisticated investors. As a result, threshold brokers are subject to special reporting and disclosure requirements not imposed on other real estate licensees. The clarifications to the investor questionnaire requirements in this bill ensure SB 647 Page 3 brokers receive completed questionnaires at least two days prior to completing any sale, and receive updated questionnaires from their investors on an annual basis. Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081