BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1196


                                                                    Page  1





          SENATE THIRD READING


          SB  
          1196 (Hill)


          As Amended  June 20, 2016


          Majority vote


          SENATE VOTE:  38-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Business &      |16-0 |Salas, Brough, Baker, |                    |
          |Professions     |     |Bloom, Campos,        |                    |
          |                |     |Chávez, Dahle, Dodd,  |                    |
          |                |     |Eggman, Gatto, Gomez, |                    |
          |                |     |Holden, Jones,        |                    |
          |                |     |Mullin, Ting, Wood    |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |20-0 |Gonzalez, Bigelow,    |                    |
          |                |     |Bloom, Bonilla,       |                    |
          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |Gallagher, Eduardo    |                    |
          |                |     |Garcia, Holden,       |                    |
          |                |     |Jones, Obernolte,     |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Wagner, Weber, Wood,  |                    |








                                                                    SB 1196


                                                                    Page  2





          |                |     |Chau                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          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.   
          Specifically, this bill: 
          1)Adds a four year sunset review date to the CalBRE and BREA.
          2)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  
            licensee.


          3)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.


          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  








                                                                    SB 1196


                                                                    Page  3





            complete a BREA-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:  According to the Assembly Appropriations  
          Committee, this bill will result in:


          1)Minor and absorbable costs to CalBRE to handle the additional  
            requirements for suspended licenses.


          2)Minor and absorbable costs to BREA to update the application  
            for a real estate appraiser and the applicant's packet.


          COMMENTS:  


          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."









                                                                    SB 1196


                                                                    Page  4






          Background.  Joint Oversight Hearings and Sunset Review of the  
          Department of Consumer Affairs (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  








                                                                    SB 1196


                                                                    Page  5





          Subdivided Lands Act, and the Vacation Ownership and Time-share  
          Act of 2004.  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.


          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 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.  Last fiscal year, CalBRE issued  
          over 25,000 new licenses and renewed over 79,000.  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 fiscal year 2014/2015.


          CalBRE Licensee Suspension.  Currently, CalBRE is required to  
          wait for "the time for appeal" to elapse on a guilty plea before  
          the plea can be used 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  








                                                                    SB 1196


                                                                    Page  6





          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.  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 licensee.


          Background on the BREA.  In 1989, Title XI of the federal  
          Financial Institutions Reform, Recovery and Enforcement Act  
          (FIRREA) 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 (Polanco), 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.  The Licensing  
          Division also registers Appraisal Management Companies (AMC) in  
          compliance with California law.  The Enforcement Division  








                                                                    SB 1196


                                                                    Page  7





          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.


          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 (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)The Appraisal Subcommittee (ASC) was created in 1989 pursuant  
            to Title XI of the FIRREA.  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 AMCs and can take action in the case of non-compliance;  
            maintains a national registry of approved appraisers; and  
            oversees the Appraisal Foundation.
          2)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  








                                                                    SB 1196


                                                                    Page  8





            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 valuation methods and techniques.


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


          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 and  
          all licensed appraisers must meet minimum CE requirements before  
          renewing their license.  In practical terms, this requires a  
          renewal of the seven-hour USPAP course every two years on its  
          own, and a full CE (56 hours) renewal every four years.  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.


          Analysis Prepared by:                                             
                          Gabby Nepomuceno / B. & P. / (916) 319-3301  FN:  
          0003883








                                                                    SB 1196


                                                                    Page  9