BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON
          BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
                              Senator Jerry Hill, Chair
                                2015 - 2016  Regular 

          Bill No:            SB 1196         Hearing Date:    April 18,  
          2016
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          |Author:   |Hill                                                  |
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          |Version:  |April 12, 2016                                        |
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          |Urgency:  |No                     |Fiscal:    |Yes              |
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          |Consultant|Mark Mendoza                                          |
          |:         |                                                      |
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               Subject:  Bureau of Real Estate:  Bureau of Real Estate  
                                 Appraisers:  review


          SUMMARY:  Adds a four year sunset date to the Bureau of Real  
          Estate and Bureau of Real Estate Appraisers; provides the Real  
          Estate Commissioner the authority to suspend the license of a  
          real estate licensee who has entered into a guilty plea for a  
          felony or a crime substantially related to the qualifications,  
          functions, or duties of a real estate license; requires an  
          applicant for a Real Estate Appraiser's license to complete a  
          course and examination that tests the applicant's knowledge of  
          state and federal laws relating to the practice of appraising.    
          
          
          Existing law:
          
          1) Establishes the Real Estate Law, administered by the Bureau  
             of Real Estate (CalBRE or Bureau), within the Department of  
             Consumer Affairs (DCA), which licenses and regulates real  
             estate salespersons, brokers, and mortgage loan originators.   
             (BPC  1000 et seq.)  

          2) Provides that the Real Estate Commissioner (Commissioner) may  
             revoke or suspend a real estate license who entered a plea of  
             guilty or nolo contendere to, or was found guilty of, or  
             convicted of, a felony, or a crime substantially related to  
             the qualifications, functions, or duties of a real estate  
             licensee, after the time for appeal has elapsed or the  







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             judgment of conviction has been affirmed on appeal.  
          (BPC  10177(b))

          3) Establishes the Real Estate Appraiser's Law, administered by  
             the Bureau of Real Estate Appraisers (BREA), within the DCA,  
             which licenses and regulates real estate appraisers.  (BPC   
             11300 et seq.)  

          4) Requires the Bureau Chief to adopt regulations governing the  
             process and procedures for renewal of a license to include,  
             but not be limited to, continuing education requirements,  
             which will be reported on the basis of four-year continuing  
             education cycles. (BPC  11360)

          This bill:

          1) Adds a four year sunset date to the Bureau of Real Estate and  
             Bureau of Real Estate Appraisers.

          2) Provides the Real Estate Commissioner the authority to  
             suspend the license of a real estate licensee who has entered  
             into a guilty plea for a felony or a crime substantially  
             related to the qualifications, functions, or duties of a real  
             estate license.

          3) Requires the Bureau to notify person whose license is subject  
             to suspension of his or her right to elect to have the issue  
             of the suspension heard.

          4) Requires that the suspension be rescinded and the license  
             reinstated to its status prior to the suspension if the plea  
             of guilty is withdrawn by the licensee. 

          5) Requires an applicant for a Real Estate Appraiser's license  
             to complete a Bureau approved course and examination that  
             tests the applicant's knowledge of state and federal laws  
             relating to the practice of appraising.   

          6) Makes other technical changes.

          
          FISCAL  
          EFFECT:  Unknown.  This bill is keyed "fiscal" by Legislative  
          Counsel. 








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          COMMENTS:
          
          1. Purpose.  This bill is sponsored by the  Author .  This bill is  
             one of five "sunset review bills" the Author is sponsoring  
             this session.  According to the Author, this bill is  
             necessary to add sunset dates for CalBRE and BREA in order to  
             ensure oversight over the real estate and appraiser  
             profession.  The health, safety, and welfare of consumers are  
             protected by a well-regulated real estate and appraiser  
             profession.  CalBRE and BREA have shown over the years a  
             strong commitment to improve the Bureaus' overall efficiency  
             and effectiveness and has worked cooperatively with the  
             Legislature and this Committee to bring about necessary  
             changes.  While the Bureaus need to review some of its  
             enforcement and licensing practices, CalBRE and BREA should  
             both be given a four-year sunset date so that the Committee  
             may review once again if the issues and recommendations in  
             the background paper and others of the Committee have been  
             addressed.

          2. Oversight Hearings and Sunset Review of Licensing Boards and  
             Programs.  Beginning in 2016, the Senate Business and  
             Professions Committee and the Assembly Business and  
             Professions Committee (Committees) conducted joint oversight  
             hearings to review 12 regulatory entities:  DCA, Acupuncture  
             Board, Board of Behavioral Sciences, California Massage  
             Therapy Association, Court Reporters Board, Board of  
             Pharmacy, Physician Assistant Board, Board of Podiatric  
             Medicine, Bureau of Private Postsecondary Education, Board of  
             Psychology, Bureau of Real Estate, Bureau of Real Estate  
             Appraisers, and Veterinary Medical Board.

             The Committees conducted two hearings in March and joined  
             with the Senate Committee on Education and Assembly Committee  
             on Higher Education to review Bureau of Private Postsecondary  
             Education.  This bill and the accompanying sunset bills are  
             intended to implement legislative changes as recommended by  
             staff of the Committees and which are reflected in the  
             background papers prepared by Committee staff for each agency  
             and program reviewed this year.

          3. Background on CalBRE.  Real estate licensing in California  








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             commenced in 1917.  CalBRE is the state entity currently  
             charged with responsibility to enforce the Real Estate Law,  
             the Subdivided Lands Act, and the Vacation Ownership and  
             Time-share Act of 2004.  CalBRE's programs are in place to  
             satisfy the Bureau's statutorily mandated obligations of  
             licensing and regulating salespersons, brokers, mortgage loan  
             originators, real estate and prepaid listing service  
             licensees, reviewing and approving subdivision and time share  
             offerings, and approving continuing education (CE) and  
             pre-license courses.  Within the framework of requirements of  
             Division 4 of the BPC and the Regulations of the Real Estate  
             Commissioner as contained in the California Code of  
             Regulations, each of CalBRE's programs contribute toward  
             satisfying its mission of protecting and serving the  
             interests of the public in real estate transactions and  
             providing related services to the real estate industry.   
             Specifically, BPC  10050 requires the Real Estate  
             Commissioner to enforce all laws commencing with BPC  10000  
             and BPC  11000 of Part 2 in a manner which achieves the  
             maximum protection for the purchasers of real property and  
             those persons dealing with real estate licensees.
          
          4. Governor's Reorganization Plan No. 2.  In 2012, Governor  
             Brown submitted a reorganization plan to the Legislature.  As  
             a result, on July 1, 2013, CalBRE became a Bureau within the  
             DCA moving from the independent Department of Real Estate  
             (DRE).
          
              AB 1317  (Frazier, Chapter 352, Statutes of 2013) enacted the  
             statutory changes necessary to reflect the changes in law  
             made by the Governor's Reorganization Plan No. 2, including  
             moving the former DRE from under the jurisdiction of the  
             former Business, Transportation, and Housing Agency to become  
             a new CalBRE under DCA within the Business, Consumer  
             Services, and Housing Agency.

             With respect to its core functions, CalBRE currently licenses  
             405,985 persons in California.  Licensed salespersons  
             (265,645) outnumber licensed brokers (136,232) nearly two to  
             one.  Of the 402,000 real estate licensees, over 23,600 have  
             a Mortgage Loan Originator (MLO) endorsement that allows the  
             licensee to originate residential mortgage loans.  Last  
             fiscal year, CalBRE issued over 25,000 new licenses and  
             renewed over 79,000.  CalBRE's enforcement efforts resulted  








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             in 
             185 license denials, 705 licensing disciplinary actions  
             (revocations, surrenders, suspensions and public reprovals)  
             and 62 Desist and Refrain Orders.  Moreover, CalBRE issued  
             over 2,350 final public reports, which translated to 30,641  
             new housing units being offered for sale in California in FY  
             2014/2015.

             The Bureau's mission is "to safeguard and promote the public  
             interests in REAL ESTATE MATTERS through licensure,  
             regulation, education and enforcement."

          5. Review of CalBRE - Issues Identified and Recommended Changes.  
              The following are some of the major issues pertaining to  
             CalBRE along with background information concerning the  
             particular issue.  Recommendations were made by Committee  
             staff regarding the particular issue areas which needed to be  
             addressed. 

              a)   Issue:  Licensee Suspension
                
               Background:   Currently, BPC  10177 (b) is written in such  
               a way that it requires "the time for appeal" to elapse on a  
               guilty plea before CalBRE can use it for disciplinary  
               action.  The full language for BPC  10177(b) reads:
               
               BPC  10177.  "The commissioner may suspend or revoke the  
               license of a real estate licensee, delay the renewal of a  
               license of a real estate licensee, or deny the issuance of  
               a license to an applicant, who has done any of the  
               following, or may suspend or revoke the license of a  
               corporation, delay the renewal of a license of a  
               corporation, or deny the issuance of a license to a  
               corporation, if an officer, director, or person owning or  
               controlling 10 percent or more of the corporation's stock  
               has done any of the following:

               (b) Entered a plea of guilty or nolo contendere to, or been  
               found guilty of, or been convicted of, a felony, or a crime  
               substantially related to the qualifications, functions, or  
               duties of a real estate licensee, and the time for appeal  
               has elapsed or the judgment of conviction has been affirmed  
               on appeal, irrespective of an order granting probation  
               following that conviction, suspending the imposition of  








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               sentence, or of a subsequent order under Section 1203.4 of  
               the Penal Code allowing that licensee to withdraw his or  
               her plea of guilty and to enter a plea of not guilty, or  
               dismissing the accusation or information."

               CalBRE has seen instances where major criminal cases  
               involving real estate fraud have taken years to work their  
               way through federal and state criminal courts.  In these  
               cases, CalBRE has seen licensees who were defendants plead  
               guilty relatively early in the process as part of a plea  
               bargain that furthers the prosecution of other defendants.   
               Those guilty pleas may not result in a conviction for  
               months, if not years, as the case against the other  
               defendants proceeds.  As presently written in statute, that  
               guilty licensee (who has entered his or her own voluntary  
               and knowing plea) may continue to practice real estate.

               The ability for the Bureau to take swift action against a  
               licensee and promote public health and safety appears to be  
               limited by this section of statute.  Without the authority  
               to suspend a license from a real estate licensee who  
               voluntarily enters a guilty plea to a felony or  
               substantially related crime, real estate licensees are able  
               to continue to practice real estate.

                Recommendation and Proposed Statutory Change  : The Committee  
               may wish to grant the Commissioner authority to suspend the  
               license of a real estate licensee who has entered into a  
               guilty plea for a felony or a crime substantially related  
               to the qualifications, functions, or duties of a real  
               estate license.

               This bill makes the following changes to the Real Estate  
               Law related to licensee suspension:

               Provides the Commissioner authority to suspend the license  
               of a real estate licensee who has entered into a guilty  
               plea for a felony or a crime substantially related to the  
               qualifications, functions, or duties of a real estate  
               license.  The language would be added onto BPC  10177(b).   
               The language reads:

               "Notwithstanding the above, and with the recognition that  
               sentencing may not occur for months or years following the  








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               entry of a guilty plea, the commissioner may suspend the  
               license of a real estate licensee upon the entry by the  
               licensee of a guilty plea to the crimes mentioned above. If  
               the plea of guilty is withdrawn, the suspension shall be  
               rescinded and the license reinstated to its status prior to  
               the suspension. The Bureau shall the notify person whose  
               license is subject to suspension of his or her right to  
               elect to have the issue of the suspension heard in  
               accordance with Section 10100 of the Business and  
               Professions Code."
          
          6. Background on the BREA.  In 1989, Title XI of the federal  
             Financial Institutions Reform, Recovery and Enforcement Act  
             was adopted by congress mandating states to license and  
             certify real estate appraisers who appraise property for  
             federally related transactions.  The federal law was enacted  
             as a result of the savings and loan crisis. 
             
             In response to the federal mandate, the California  
             Legislature enacted the Real Estate Appraisers Licensing and  
             Certification Law in 1990 (  AB 527,  Chapter 491, Statutes of  
             1990).  The Office of Real Estate Appraisers (OREA) was  
             established within the Business, Transportation and Housing  
             Agency, and charged with developing and implementing a real  
             estate appraiser licensing and certification program  
             compliant with the federal mandate.  In 2012, Governor Brown  
             submitted a reorganization plan to the Legislature. As a  
             result, on July 1, 2013, OREA became the BREA within DCA.

             BREA, which is entirely funded by licensing fees, is a single  
             program comprised of two core components, licensing and  
             enforcement.

             The Licensing Division implements the minimum requirements  
             for licensure, according to criteria established by the  
             federal government and California law, to ensure that only  
             qualified persons are licensed to conduct appraisals in  
             federally related real estate transactions.  Applicants must  
             meet minimum education and experience requirements and  
             successfully complete a nationally approved examination.  The  
             Licensing Division also registers Appraisal Management  
             Companies (AMC) in compliance with California law.

             The Enforcement Division investigates the background of  








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             applicants, licensees, and AMC registrants to ensure they  
             meet the standards for licensure. The Enforcement Division  
             also investigates complaints of violations of California law  
             and national appraisal standards filed against licensed  
             appraisers and registered AMCs.

             BREA is responsible for the accreditation of educational  
             courses and providers for real estate appraisers. BREA has  
             reviewed and approved over 1,800 pre-licensing and continuing  
             education courses. In addition to the real estate appraisal  
             related 3 courses offered by California's community colleges  
             and universities, over 70 proprietary schools provide  
             appraisal education.

          7. Federal Oversight of BREA.  The following entities are not  
             part of BREA, but they have influence over BREA and its  
             operations at the federal level. 
          
             a)   Appraisal Subcommittee:  The Appraisal Subcommittee  
               (ASC) was created in 1989 pursuant to Title XI of the  
               Financial Institutions Reform, Recovery, and Enforcement  
               Act of 1989.  The ASC's role as an independent federal  
               institution is to generally oversee the real estate  
               appraisal process as it relates to federally regulated  
               transactions.  More specifically, the ASC reviews each  
               state's compliance with federal requirements for licensed  
               appraisers and appraisal management companies and can take  
               action in the case of non-compliance; maintains a national  
               registry of approved appraisers; and oversees the Appraisal  
               Foundation.
          
             b)   Appraisal Foundation:  The Appraisal Foundation  
               (Foundation) is a non-profit organization that works to  
               advance professionalism for appraisers through the  
               promulgation of standards, appraiser qualifications, and  
               guidance regarding appraisal methods and techniques.  The  
               Appraisal Standards Board within the Foundation determines  
               and maintains the Uniform Standards of Professional  
               Appraisal Practice (USPAP) which all states must enforce to  
               be compliant with federal requirements and allow state  
               licensed appraisers to participate in federally regulated  
               transactions.  The Appraisal Qualifications Board within  
               the Foundation establishes the minimum education and  
               experience requirements as well as the examination  








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               requirements.  The Appraisal Practices Board within the  
               Foundation is charged with providing guidance and issuing  
               opinions on recognized valuation methods and techniques.

          8. Review of the BREA - Issues Identified and Recommended  
             Changes.    The following are some of the major issues  
             pertaining to BREA along with background information  
             concerning the particular issue.  Recommendations were made  
             by Committee staff regarding the particular issue areas which  
             needed to be addressed.
             
              a)   Issue  : Licensee Education

                Background:  Prior to licensure, applicants are not required  
               take a course or pass an exam to show fluency in federal  
               and state laws and regulations.  Only upon renewal of the  
               licensure must real estate appraisers demonstrate their  
               knowledge of federal and state laws and regulations.
               
               Real estate appraiser licenses must be renewed every two  
               years.  However, there are two separate continuing  
               education (CE) requirements in order to renew a license.   
               All licensed appraisers must meet minimum CE requirements  
               before renewing their license.  A total of 56 hours of CE  
               is required during the four-year continuing education  
               cycle, including the following mandatory courses for all  
               license categories:
          
                       7-hour National USPAP course-required every two  
                  years.


                       4-hour Bureau approved course entitled "Federal  
                  and State Laws and Regulations"- required every four  
                  years.  (BPC  11360(a)). 



               In practical terms, this requires a renewal of the 7-hour  
               USPAP course every two years on its own, and a full CE (56  
               hours) renewal every four years.  Generally the requirement  
               is a full CE 56 hour renewal every other two year cycle,  
               with a reduced 7 hour CE renewal cycle in between.









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               Continuing education courses or seminars must cover  
               appraisal related topics including subjects such as land  
               use planning, appraisal computer applications, cost  
               estimating, and green building appraisals.



                Recommendation and Proposed Statutory Change  : To ensure  
               adequate public protection and curtail unnecessary  
               complaint investigations, the Committee may wish to require  
               applicants for a real estate appraiser license to initially  
               demonstrate their knowledge of the federal and state laws  
               regulating the appraisal profession.  The most effective  
               way to accomplish this would be to require applicants,  
               prior to licensure, to complete a course and pass an  
               examination that would include questions regarding federal  
               and state laws and regulations. 



               This bill makes the following changes to the Appraisers Law  
               related to licensee education:

               Requires an applicant for a real estate appraiser's license  
               to complete a Bureau-approved course and examination  
               testing the applicant on federal and state laws regulating  
               the appraisal profession.

          1. Prior Legislation.  SB 706  (Price, Chapter 712, Statutes of  
             2011) made numerous enforcement enhancements to the former  
             Department of Real Estate and the former Office of Real  
             Estate Appraisers; required licensing boards to post  
             information about licensees on the Internet, as specified;  
             and made updating and conforming changes.
          

          SUPPORT AND OPPOSITION:
          
           Support:   None on file as of April 12, 2016.

           Opposition:  None on file as of April 12, 2016. 









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