BILL ANALYSIS                                                                                                                                                                                                    

                                                                    SB 1196

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          Date of Hearing:  June 28, 2016


                                  Rudy Salas, Chair

                      SB 1196(Hill) - As Amended June 20, 2016

          SENATE VOTE:  38-0

          SUBJECT:  Bureau of Real Estate:  Bureau of Real Estate  

          SUMMARY:  Adds a sunset review date for the Bureau of Real  
          Estate (CalBRE) and Bureau of Real Estate Appraisers (BREA);  
          authorizes the Real Estate Commissioner (Commissioner) to  
          suspend the license of a real estate licensee for specified  
          reasons; requires the CalBRE to notify a person whose license is  
          subject to suspension of his or her right to elect to have the  
          issue of the suspension heard; 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          rescinded and the license reinstated to its status prior to the  
          suspension if the plea of guilty is withdrawn by the licensee;  
          requires an applicant for a Real Estate Appraiser's license to  
          complete a BREA-approved course and examination that tests the  
          applicant's knowledge of state and federal laws relating to the  
          practice of appraising; and makes other technical changes.  

          EXISTING LAW:   

          1)Establishes the Real Estate Law, administered by the CalBRE,  
            within the Department of Consumer Affairs (DCA), to license  


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            and regulate real estate salespersons, brokers, and mortgage  
            loan originators.  (BPC Section 10000, 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  
            judgment of conviction has been affirmed on appeal.  (BPC  
            Section 10177(b))
          3)Establishes the Real Estate Appraiser's Law, administered by  
            the BREA within the DCA, to licenses and regulates real estate  
            appraisers.  (BPC Section 11300, et seq.)  

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

          THIS BILL: 

          5)Adds a four year sunset review date to the CalBRE and BREA.

          6)Provides the 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  

          7)Requires the CalBRE to notify person whose license is subject  
            to suspension of his or her right to elect to have the issue  


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            of the suspension heard.

          8)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. 

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

          10)Makes other technical changes.

          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          Purpose.  This bill is sponsored by the author.  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."


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          Background.  Joint Oversight Hearings and Sunset Review of the  
          DCA Licensing Boards.  In March of 2016, the Assembly Business  
          and Professions Committee and the Senate Business, Professions  
          and Economic Development Committee (Committees) conducted  
          multiple joint oversight hearings to review 11 regulatory boards  
          within the DCA and one regulatory entity outside of the DCA.   
          The sunset bills are intended to implement legislative changes  
          recommended in the respective background reports drafted by the  
          Committee staff for the agencies reviewed this year.

          The Sunset Review Process.  The sunset review process provides a  
          formal mechanism for the DCA; the Legislature; the regulatory  
          boards, bureaus and committees; interested parties; and  
          stakeholders to make recommendations for improvements to the  
          authority of consumer protection boards and bureaus.  This is  
          performed on a standard four-year cycle and was mandated by SB  
          2036 (McCorquodale), Chapter 908, Statutes of 1994.  Each  
          eligible agency is required to submit to the Committees a report  
          covering the entire period since last reviewed that includes,  
          among other things, the purpose and necessity of the agency and  
          any recommendations of the agency for changes or reorganization  
          in order to better fulfill its purpose.  During the sunset  
          review hearings, the Committees take public testimony and  
          evaluate the eligible agency prior to the date the agency is  
          scheduled to be repealed.  An eligible agency is allowed to  
          sunset unless the Legislature enacts a law to extend,  
          consolidate, or reorganize the eligible agency. With respect to  
          the CalBRE and the BREA, the provisions governing these bureaus  
          would not be repealed if the sunset date is not extended;  
          rather, the sunset date serves to subject the bureaus to review  
          by the appropriate policy committees on a regular basis.

          Background on the CalBRE.  Real estate licensing in California  
          commenced in 1917.  CalBRE is the state entity currently charged  
          with responsibility to enforce the Real Estate Law, the  


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          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 CE  
          and pre-license courses.  Within the framework of requirements  
          of Division 4 of the BPC and the regulations of the 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 Section 10050 requires the  
          Commissioner to enforce all laws commencing with BPC Section  
          10000 and BPC Section 11000 in a manner which achieves the  
          maximum protection for the purchasers of real property and those  
          persons dealing with real estate licensees.

          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 the  
          current CalBRE under the 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.   


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          CalBRE's enforcement efforts resulted 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 CalBRE's mission is: "to safeguard and promote the public  
          interests in real estate matters through licensure, regulation,  
          education and enforcement."

          CalBRE Licensee Suspension.  Currently, BPC Section 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.  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 CalBRE 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.  This bill 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  


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          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.

          The 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 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.


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          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 CE courses.  In addition  
          to the real estate appraisal related courses offered by  
          California's community colleges and universities, over 70  
          proprietary schools provide appraisal education.

          Federal Oversight of the BREA.  The following entities are not  
          part of BREA, but they have influence over BREA and its  
          operations at the federal level: 

          1)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.
          2)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 requirements.  The Appraisal  
            Practices Board within the Foundation is charged with  
            providing guidance and issuing opinions on recognized  


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            valuation methods and techniques.

          The following are some of the major issues pertaining to the  
          BREA along with background information concerning the particular  

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

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

          Current Related Legislation.  SB 710 (Galgiani) of the current  
          Legislative Session, corrects a drafting error that requires the  
          listing of a company name and a responsible broker's license  
          number on all "team" advertising and instead requires only one  
          or the other to be listed.  STATUS: This bill is pending in the  


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          Assembly Committee on Business and Professions.

          Prior Related Legislation.  SB 706 (Price), Chapter 712,  
          Statutes of 2011, made numerous enforcement enhancements to the  
          former DRE 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  


          None on file.


          None on file.

          Analysis Prepared by:Gabby Nepomuceno / B. & P. / (916) 319-3301