Senate Bill No. 1253

Introduced by Senator Moorlach

February 18, 2016

An act to amend Sections 10006, 10085.5, 10085.6, 10106, 10133.1, 10139, 10147.6, 10148, 10152, 10153, 10158, 10159, 10159.2, 10164, 10167.12, 10171.5, 10177, 10180, 10185, 10211, 10231.2, 10232.25, 10238, and 10451 of, and to add Section 10157.5 to, the Business and Professions Code, relating to real estate and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

SB 1253, as introduced, Moorlach. Real estate brokers: limited liability companies.

Existing law, the California Revised Uniform Limited Liability Company Act, authorizes a limited liability company to have any lawful purpose, except as specified. A limited liability company is an entity distinct from its members. Existing law authorizes a limited liability company to render services that may be lawfully rendered only pursuant to a license, certificate, or registration authorized by the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if those provisions authorize a limited liability company to hold that license, certificate, or registration. Existing law prohibits the act from being construed to permit a limited liability company to render professional services, as defined. Under existing law, a limited liability company is a member-managed limited liability company unless the articles of organization. Under existing law, the operating agreement governs, among other things, relations among the members as members and between the members and the limited liability company and the activities of the limited liability company. Existing law authorizes a written operating agreement to provide for the appointment of officers.

Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner, the chief officer of the Bureau of Real Estate. Existing law authorizes a real estate broker license to be issued to an individual or a corporation. Under existing law, when a real estate license is issued to a corporation, if it desires any of its officers other than the specified designated officer to act under its license as a real estate broker, it is required to obtain an additional license to employ each of those additional officers. Under existing law, each officer of a corporation through whom it is licensed to act as a real estate broker is, while so employed under that license, a licensed real estate broker, but licensed only to act as such for and on behalf of the corporation as an officer. Existing law requires applicants for licensure as a real estate broker and real estate broker licensees to pay application, licensure, and renewal fees, which are deposited in the Real Estate Fund, a continuously appropriated fund. Existing law also authorizes the commissioner to take disciplinary action against a real estate licensee, including the imposition of a monetary penalty, which is also deposited in the Real Estate Fund. A willful violation of the law and other related real estate provisions is a crime.

This bill would authorize a limited liability company to be licensed as a real estate broker. When a real estate license is issued to a limited liability company that desires any of its members, managers, or officers other than the designated member, manager, or officer to act under its license as a real estate broker, the bill would require the limited liability company to obtain an additional license to employ each additional member, manager, or officer. The bill would provide that each member, manager, or officer of a limited liability company through whom the company is licensed to act as a real estate broker is, while employed under license, a licensed real estate broker, but licensed only to act as such for and on behalf of the limited liability company as a member, manager, or officer. The bill would make various other conforming changes in this regard.

Because new application, licensure, and renewal fees for limited liability companies would be deposited in the Real Estate Fund, a contiguously appropriated fund, the bill would make an appropriation. However, the bill would exclude money in the Real Estate Fund attributable to administrative fines, civil penalties, and criminal penalties imposed by the bureau against a limited liability company broker, or attributable to cost recovery in actions or settlements, from being continuously appropriated, and would instead make that money subject to appropriation by the Legislature. Because a willful violation of the law and other related real estate provisions by a limited liability company would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 10006 of the Business and Professions
Code is amended to read:

10006.  

“Person” includes corporation, begin delete company end delete begin insert company,
limited liability company, end insert and firm.

SEC. 2.  

Section 10085.5 of the Business and Professions Code
is amended to read:

10085.5.  

(a) It shall be unlawful for any person to claim,
demand, charge, receive, collect, or contract for an advance fee
(1) for soliciting lenders on behalf of borrowers or performing
services for borrowers in connection with loans to be secured
directly or collaterally by a lien on real property, before the
borrower becomes obligated to complete the loan or, (2) for
performing any other activities for which a license is required,
unless the person is a licensed real estate broker and has complied
with the provisions of this part.

(b) This section does not prohibit the acceptance or receipt of
an advance fee by any bank, savings association, credit union,
industrial loan company, or person acting within the scope of a
license issued to that person pursuant to Division 9 (commencing
with Section 22000) of the Financial Code, in connection with
loans to be secured directly or collaterally by a lien on real
property. This section does not apply to charges made by title
insurers and controlled escrow companies pursuant to Chapter 1
(commencing with Section 12340) of Part 6 of Division 2 of the
Insurance Code.

(c) A violation of this section is a public offense punishable by
a fine not exceeding ten thousand dollars ($10,000), by
imprisonment in the county jail for a term not to exceed six months,
or by both that fine and imprisonment, or if by a corporation begin insert or
limited liability company end insert , the violation is punishable by a fine not
exceeding fifty thousand dollars ($50,000).

SEC. 3.  

Section 10085.6 of the Business and Professions Code
is amended to read:

10085.6.  

(a) Notwithstanding any other provision of law, it
shall be unlawful for any licensee who negotiates, attempts to
negotiate, arranges, attempts to arrange, or otherwise offers to
perform a mortgage loan modification or other form of mortgage
loan forbearance for a fee or other compensation paid by the
borrower, to do any of the following:

(1) Claim, demand, charge, collect, or receive any compensation
until after the licensee has fully performed each and every service
the licensee contracted to perform or represented that he, she, or
it would perform.

(2) Take any wage assignment, any lien of any type on real or
personal property, or other security to secure the payment of
compensation.

(3) Take any power of attorney from the borrower for any
purpose.

(b) A violation of this section by a natural person who is a
licensee is a public offense punishable by a fine not exceeding ten
thousand dollars ($10,000), by imprisonment in the county jail for
a term not to exceed one year, or by both that fine and
imprisonment, or if by a corporation begin insert or limited liability
corporation end insert , the violation is punishable by a fine not exceeding
fifty thousand dollars ($50,000). These penalties are cumulative
to any other remedies or penalties provided by law.

(c) This section shall apply only to mortgages and deeds of trust
secured by residential real property containing four or fewer
dwelling units.

SEC. 4.  

Section 10106 of the Business and Professions Code
is amended to read:

10106.  

(a) Except as otherwise provided by law, in any order
issued in resolution of a disciplinary proceeding before the
department, the commissioner may request the administrative law
judge to direct a licensee found to have committed a violation of
this part to pay a sum not to exceed the reasonable costs of the
investigation and enforcement of the case.

(b) In the case of a disciplined licensee that is a begin delete corporation end delete
begin insert corporation, a limited liability company, end insert or a partnership, the
order may be made against the licensed corporate begin delete entity end delete begin insert entity,
licensed limited liability company, end insert or licensed partnership.

(c) A certified copy of the actual costs, or a good faith estimate
of costs where actual costs are not available, signed by the
commissioner or the commissioner’s designated representative,
shall be prima facie evidence of reasonable costs of investigation
and prosecution of the case. The costs shall include the amount of
investigative and enforcement costs up to the date of the hearing,
including, but not limited to, charges imposed by the Attorney
General.

(d) The administrative law judge shall make a proposed finding
of the amount of reasonable costs of investigation and prosecution
of the case when requested pursuant to subdivision (a). The finding
of the administrative law judge with regard to costs shall not be
reviewable by the commissioner to increase the cost award. The
commissioner may reduce or eliminate the cost award, or remand
to the administrative law judge where the proposed decision fails
to make a finding on costs requested pursuant to subdivision (a).

(e) Where an order for recovery of costs is made and timely
payment is not made as directed in the commissioner’s decision,
the commissioner may enforce the order for repayment in any
appropriate court. This right of enforcement shall be in addition
to any other rights the commissioner may have as to any licentiate
to pay costs.

(f) In any action for recovery of costs, proof of the
commissioner’s decision shall be conclusive proof of the validity
of the order of payment and the terms for payment.

(g) (1) Except as provided in paragraph (2), the department
shall not renew or reinstate the license of any licensee who has
failed to pay all of the costs ordered under this section.

(2) The department may, in its discretion, conditionally renew
or reinstate for a maximum of one year the license of any licensee
who demonstrates financial hardship and who enters into a formal
agreement with the department to reimburse the department within
that one-year period for the unpaid costs.

(h) All costs recovered under this section shall be considered a
reimbursement for costs incurred and shall be deposited in the
Real Estate Fund to be available, notwithstanding Section 10451,
upon appropriation by the Legislature.

(i) Nothing in this section shall preclude the department from
including the recovery of the costs of investigation and enforcement
of a case in any stipulated settlement.

SEC. 5.  

Section 10133.1 of the Business and Professions Code
is amended to read:

10133.1.  

(a) Subdivisions (d) and (e) of Section 10131, Section
10131.1, Article 5 (commencing with Section 10230), and Article
7 (commencing with Section 10240) of this code and Section
1695.13 of the Civil Code do not apply to any of the following:

(1) Any person or employee thereof doing business under any
law of this state, any other state, or the United States relating to
banks, trust companies, savings and loan associations, industrial
loan companies, pension trusts, credit unions, or insurance
companies.

(2) Any nonprofit cooperative association organized under
Chapter 1 (commencing with Section 54001) of Division 20 of the
Food and Agricultural Code, in loaning or advancing money in
connection with any activity mentioned therein.

(3) Any corporation, association, syndicate, joint stock company,
or partnership engaged exclusively in the business of marketing
agricultural, horticultural, viticultural, dairy, livestock, poultry, or
bee products on a cooperative nonprofit basis, in loaning or
advancing money to the members thereof or in connection with
any business of that type.

(4) Any corporation securing money or credit from any federal
intermediate credit bank organized and existing pursuant to the
provisions of an act of Congress entitled the “Agricultural Credits
Act of 1923,” in loaning or advancing money or credit so secured.

(5) Any person licensed to practice law in this state, not actively
and principally engaged in the business of negotiating loans secured
by real property, when that person renders services in the course
of his or her practice as an attorney at law, and the disbursements
of that person, whether paid by the borrower or other person, are
not charges or costs and expenses regulated by or subject to the
limitations of Article 7 (commencing with Section 10240), and
the fees and disbursements are not shared, directly or indirectly,
with the person negotiating the loan or the lender.

(6) Any person licensed as a finance lender when acting under
the authority of that license.

(7) Any cemetery authority as defined by Section 7018 of the
Health and Safety Code, that is authorized to do business in this
state or its authorized agent.

(8) Any person authorized in writing by a savings institution to
act as an agent of that institution, as authorized by Section 6520
of the Financial Code or comparable authority of the Office of
Thrift Supervision of the United States Department of the Treasury
by its regulations, when acting under the authority of that written
authorization.

(9) Any person who is licensed as a securities broker or
securities dealer under any law of this state, or of the United States,
or any employee, officer, or agent of that person, if that person,
employee, officer, or agent is acting within the scope of authority
granted by that license in connection with a transaction involving
the offer, sale, purchase, or exchange of a security representing an
ownership interest in a pool of promissory notes secured directly
or indirectly by liens on real property, which transaction is subject
to any law of this state or the United States regulating the offer or
sale of securities.

(10) Any person licensed as a residential mortgage lender or
servicer when acting under the authority of that license.

(11) Any organization that has been approved by the United
States Department of Housing and Urban Development pursuant
to Section 106(a)(1)(iii) of the federal Housing and Urban
Development Act of 1968 (12 U.S.C. Sec. 1701x), to provide
counseling services, or an employee of such an organization, when
those services are provided at no cost to the borrower and are in
connection with the modification of the terms of a loan secured
directly or collaterally by a lien on residential real property
containing four or fewer dwelling units.

(b) Persons described in paragraph (1), (2), or (3), as follows,
are exempt from the provisions of subdivisions (d) and (e) of
Section 10131 or Section 10131.1 with respect to the collection
of payments or performance of services for lenders or on notes of
owners in connection with loans secured directly or collaterally
by liens on real property:

(1) The person makes collections on 10 or less of those loans,
or in amounts of forty thousand dollars ($40,000) or less, in any
calendar year.

(2) The person is a corporation licensed as an escrow agent
under Division 6 (commencing with Section 17000) of the
Financial Code and the payments are deposited and maintained in
the escrow agent’s trust account.

(3) An employee of a real estate broker who is acting as the
agent of a person described in paragraph (4) of subdivision (b) of
Section 10232.4.

For purposes of this subdivision, performance of services does
not include soliciting borrowers, lenders, or purchasers for, or
negotiating, loans secured directly or collaterally by a lien on real
property.

(c) (1) Subdivision (d) of Section 10131 does not apply to an
employee of a real estate broker who, on behalf of the broker,
assists the broker in meeting the broker’s obligations to its
customers in residential mortgage loan transactions, as defined in
Section 50003 of the Financial Code, where the lender is an
institutional lender, as defined in Section 50003 of the Financial
Code, provided the employee does not participate in any
negotiations occurring between the principals.

(2) A broker shall exercise reasonable supervision and control
over the activities of nonlicensed employees acting under this
subdivision, and shall comply with Section 10163 for each location
where the nonlicensed persons are employed.

This section does not restrict the ability of the commissioner to
discipline a broker or corporate broker licensee or its designated
officer, or both the corporate broker licensee and its designated
officer, begin insert or a limited liability broker licensee or its designated
member, officer, or manager, or both the limited liability broker
licensee and its designated member, officer, or manager, end insert for
misconduct of a nonlicensed employee acting under this
subdivision, or, pursuant to Section 10080, to adopt, amend, or
repeal rules or regulations governing the employment or
supervision of an employee who is a nonlicensed person as
described in this subdivision.

SEC. 6.  

Section 10139 of the Business and Professions Code
is amended to read:

10139.  

Any person acting as a real estate broker, real estate
salesperson, or mortgage loan originator without a license or license
endorsement, or who advertises using words indicating that he or
she is a real estate broker, real estate salesperson, or mortgage loan
originator without being so licensed or without having obtained a
license endorsement, shall be guilty of a public offense punishable
by a fine not exceeding twenty thousand dollars ($20,000), or by
imprisonment in the county jail for a term not to exceed six months,
or by both fine and imprisonment; or if a corporation begin insert or limited
liability company end insert , be punished by a fine not exceeding sixty
thousand dollars ($60,000). If a Real Estate Fraud Prosecution
Trust Fund, as described in Section 27388 of the Government
Code, exists in the county where a begin delete person or corporation end delete begin insert person,
corporation, or limited liability company end insert is convicted, any fine
collected from the person in excess of ten thousand dollars
($10,000) or any fine collected from the corporation begin insert or limited
liability company end insert in excess of fifty thousand dollars ($50,000)
shall be deposited in that Real Estate Fraud Prosecution Trust
Fund.

SEC. 7.  

Section 10147.6 of the Business and Professions Code
is amended to read:

10147.6.  

(a) Any licensee who negotiates, attempts to
negotiate, arranges, attempts to arrange, or otherwise offers to
perform a mortgage loan modification or other form of mortgage
loan forbearance for a fee or other form of compensation paid by
the borrower, shall provide the following to the borrower, as a
separate statement, in not less than 14-point bold type, prior to
entering into any fee agreement with the borrower:

begin insert end insert

It is not necessary to pay a third party to arrange for a loan
modification or other form of forbearance from your mortgage
lender or servicer. You may call your lender directly to ask for a
change in your loan terms. Nonprofit housing counseling agencies
also offer these and other forms of borrower assistance free of
charge. A list of nonprofit housing counseling agencies approved
by the United States Department of

begin insert end insert

Housing and Urban Development (HUD) is available from your
local HUD office or by visiting www.hud.gov.

(b) If loan modification or other mortgage loan forbearance
services are offered or negotiated in one of the languages set forth
in Section 1632 of the Civil Code, a translated copy of the
statement in subdivision (a) shall be provided to the borrower in
that foreign language.

(c) A violation of this section by a natural person who is a
licensee is a public offense punishable by a fine not exceeding ten
thousand dollars ($10,000), by imprisonment in the county jail for
a term not to exceed one year, or by both that fine and
imprisonment, or if by a corporation begin insert or limited liability company end insert ,
the violation is punishable by a fine not exceeding fifty thousand
dollars ($50,000). These penalties are cumulative to any other
remedies or penalties provided by law.

(d) This section shall apply only to mortgages and deeds of trust
secured by residential real property containing four or fewer
dwelling units.

SEC. 8.  

Section 10148 of the Business and Professions Code
is amended to read:

10148.  

(a) A licensed real estate broker shall retain for three
years copies of all listings, deposit receipts, canceled checks, trust
records, and other documents executed by him or her or obtained
by him or her in connection with any transactions for which a real
estate broker license is required. The retention period shall run
from the date of the closing of the transaction or from the date of
the listing if the transaction is not consummated. After notice, the
books, accounts, and records shall be made available for
examination, inspection, and copying by the commissioner or his
or her designated representative during regular business hours;
and shall, upon the appearance of sufficient cause, be subject to
audit without further notice, except that the audit shall not be
harassing in nature. This subdivision shall not be construed to
require a licensed real estate broker to retain electronic messages
of an ephemeral nature, as described in subdivision (d) of Section
1624 of the Civil Code.

(b) The commissioner shall charge a real estate broker for the
cost of any audit, if the commissioner has found, in a final desist
and refrain order issued under Section 10086 or in a final decision
following a disciplinary hearing held in accordance with Chapter
5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code that the broker has violated Section
10145 or a regulation or rule of the commissioner interpreting
Section 10145.

(c) If a broker fails to pay for the cost of an audit as described
in subdivision (b) within 60 days of mailing a notice of billing,
the commissioner may suspend or revoke the broker’s license or
deny renewal of the broker’s license. The suspension or denial
shall remain in effect until the cost is paid or until the broker’s
right to renew a license has expired.

(d) The commissioner may maintain an action for the recovery
of the cost of an audit in any court of competent jurisdiction. In
determining the cost incurred by the commissioner for an audit,
the commissioner may use the estimated average hourly cost for
all persons performing audits of real estate brokers.

(e) The bureau may suspend or revoke the license of any real
estate broker, real estate salesperson, begin insert limited liability company, end insert or
corporation licensed as a real estate broker, if the real estate broker,
real estate salesperson, or any director, officer, employee, begin insert member,
manager, end insert or agent of the begin insert limited liability company or end insert 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.

SEC. 9.  

Section 10152 of the Business and Professions Code
is amended to read:

10152.  

(a) The commissioner may require any other proof he
or she may deem advisable concerning the honesty and truthfulness
of an applicant for a real estate license or license examination, or
of the begin insert members, managers, end insert officers, directors, or persons owning
10 percent or more of the stock, of a corporation begin insert or limited liability
company end insert making application therefor, before authorizing the
issuance of a real estate license. For this purpose the commissioner
may call a hearing in accordance with this part relating to hearings.
To assist in his or her determination the commissioner shall require
every original applicant to be fingerprinted prior to issuing a
license. The commissioner may require the fingerprints to be
submitted either with the application to take the license
examination or with the application for a real estate license.

(b) The commissioner shall require a person who submits a
petition for reinstatement of his or her license or reduction of a
penalty pursuant to Section 11522 of the Government Code, in
addition to meeting any other requirements imposed for purposes
of the reinstatement or penalty reduction, to submit his or her
fingerprints with the petition.

SEC. 10.  

Section 10153 of the Business and Professions Code
is amended to read:

10153.  

In addition to the proof of honesty and truthfulness
required of any applicant for a real estate license, the commissioner
shall ascertain by written examination that the applicant, and in
case of a corporation begin insert or limited liability company end insert applicant for a
real estate broker’s license that each officer, begin insert member, manager, end insert
or agent thereof through whom it proposes to act as a real estate
licensee, has all of the following:

(a) An appropriate knowledge of the English language, including
reading, writing, and spelling and of arithmetical computations
common to real estate and business opportunity practices.

(b) An understanding of the principles of real estate and business
opportunity conveyancing, the general purposes and general legal
effect of agency contracts, deposit receipts, deeds, mortgages,
deeds of trust, chattel mortgages, bills of sale, land contracts of
sale and leases, and of the principles of business and land
economics and appraisals.

(c) A general and fair understanding of the obligations between
principal and agent, of the principles of real estate and business
opportunity practice and the canons of business ethics pertaining
thereto, of the provisions of this part, of Chapter 1 (commencing
with Section 11000) of Part 2, and of the regulations of the Real
Estate Commissioner as contained in Title 10 of the California
Administrative Code.

SEC. 11.  

Section 10157.5 is added to the Business and
Professions Code, to read:

10157.5.  

Notwithstanding any other law, a limited liability
company may be licensed as a real estate broker.

SEC. 12.  

Section 10158 of the Business and Professions Code
is amended to read:

10158.  

begin insert (a) end insert begin insert   end insert When a real estate license is issued to a
corporation, if it desires any of its officers other than the officer
designated by it pursuant to Section 10211, to act under its license
as a real estate broker, it shall procure an additional license to so
employ each of such additional officers.

begin insert

(b) When a real estate license is issued to a limited liability
company, if it desires any of its members, managers, or officers
other than the member, manager, or officer designated by it
pursuant to Section 10211 to act under its license as a real estate
broker, it shall procure an additional license to employ each
additional member, manager, or officer.

end insert

SEC. 13.  

Section 10159 of the Business and Professions Code
is amended to read:

10159.  

begin insert (a) end insert begin insert   end insert Each officer of a corporation through whom it is
licensed to act as a real estate broker is, while so employed under
such license, a licensed real estate broker, but licensed only to act
as such for and on behalf of the corporation as an officer.

begin insert

(b) Each member, manager, or officer of a limited liability
company through whom that company is licensed to act as a real
estate broker is, while employed under that license, a licensed real
estate broker, but licensed only to act as such for and on behalf
of the limited liability company as a member, manager, or officer.

end insert

SEC. 14.  

Section 10159.2 of the Business and Professions
Code is amended to read:

10159.2.  

(a)  begin insert (1) end insert begin insert   end insert The officer designated by a corporate broker
licensee pursuant to Section 10211 shall be responsible for the
supervision and control of the activities conducted on behalf of
the corporation by its officers and employees as necessary to secure
full compliance with the provisions of this division, including the
supervision of salespersons licensed to the corporation in the
performance of acts for which a real estate license is required.

begin insert

(2) The member, manager, or officer designated by a limited
liability company broker licensee pursuant to Section 10211 shall
be responsible for the supervision and control of the activities
conducted on behalf of the limited liability company by its
managers, members, officers, and employees as necessary to secure
full compliance with the provisions of this division, including the
supervision of salespersons licensed to the limited liability company
in the performance of acts for which a real estate license is
required.

end insert

(b)  begin insert (1) end insert begin insert   end insert A corporate broker licensee that has procured additional
licenses in accordance with Section 10158 through officers other
than the officer designated pursuant to Section 10211 may, by
appropriate resolution of its board of directors, assign supervisory
responsibility over salespersons licensed to the corporation to its
broker-officers.

begin insert

(2) A limited liability company broker licensee that has procured
additional licenses in accordance with Section 10158 through
members, managers, or officers other than the member, manager,
or officer designated pursuant to Section 10211 may, by
appropriate resolution of the members, assign supervisory
responsibility over salespersons licensed to the limited liability
company to its broker members, managers, or officers.

end insert

(c)  begin insert (1) end insert begin insert   end insert A certified copy of any resolution of the board of
directors assigning supervisory responsibility over real estate
salespersons licensed to the corporation shall be filed with the begin delete Real
Estate Commissioner end delete begin insert commissioner end insert within five days after the
adoption or modification thereof.

begin insert

(2) A certified copy of any resolution of the members assigning
supervisory responsibility over real estate salespersons licensed
to the limited liability company shall be filed with the commissioner
within five days after the adoption or modification thereof.

end insert

SEC. 15.  

Section 10164 of the Business and Professions Code
is amended to read:

10164.  

(a) An employing begin delete broker end delete begin insert broker, limited liability
company designated broker member, manager, or officer, end insert or
corporate designated broker officer may appoint a licensee as a
manager of a branch office or division of the employing begin delete broker’s end delete
begin insert broker’s, employing limited liability company designated member,
manager, or officer’s, end insert or employing corporate designated broker
officer’s real estate business and delegate to the appointed manager
the responsibility to oversee day-to-day operations, supervise the
licensed activities of licensees, and supervise clerical staff
employed in the branch office or division.

(b) Notwithstanding subdivision (a), nothing in this section shall
be construed to limit the responsibilities of an employing begin delete broker end delete
begin insert broker, limited liability company designated broker member,
manager, or officer, end insert or a corporate designated broker officer
pursuant to subdivision (h) of Section 10177. A licensee accepting
appointment as a manager shall be subject to disciplinary action
pursuant to Section 10165 for failure to properly supervise licensed
activity pursuant to subdivision (a).

(c) Appointment of a manager shall only be made by means of
a written contract in which the manager accepts the delegated
responsibility. The appointing employing begin delete broker end delete begin insert broker, limited
liability company designated broker member, manager, or officer, end insert
or corporate designated broker officer shall retain a copy of the
contract and send a notice to the begin delete department, end delete begin insert bureau, end insert in a form
approved by the commissioner, identifying the appointed manager
and the branch office or division the manager is appointed to
supervise.

(d) A licensee shall not be appointed as a manager if any of the
following apply:

(1) The licensee holds a restricted license.

(2) The licensee is or has been subject to an order of debarment.

(3) The licensee is a salesperson with less than two years of
full-time real estate experience within five years preceding the
appointment.

(e) Whenever an appointment of a branch manager is terminated
or changed, the employing begin delete broker end delete begin insert broker, limited liability company
designated broker member, manager, or officer, end insert or corporate
designated broker officer shall immediately notify the
commissioner thereof in writing.

begin delete

(f) This section shall become operative on July 1, 2012.

end delete

SEC. 16.  

Section 10167.12 of the Business and Professions
Code is amended to read:

10167.12.  

(a) The commissioner may suspend, deny, or revoke
the license of a licensee or the license of the licensee to operate at
one or more locations for either of the following:

(1) A violation of this article by a licensee or by an employee
or agent, including a designated agent, of the licensee.

(2) A conviction of a licensee, or a designated agent, or of begin delete an end delete
begin insert a member, manager, end insert officer, director, or owner of 25 percent or
more of the shares of a begin insert limited liability company or end insert corporate
licensee for a crime which is substantially related to the
qualifications, functions, or duties of a prepaid rental listing service
licensee.

(b) For the purpose of determining whether grounds exist for
suspending, denying, or revoking the license of a licensee, the
commissioner shall hold a hearing in accordance with Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title
2 of the Government Code.

SEC. 17.  

Section 10171.5 of the Business and Professions
Code is amended to read:

10171.5.  

A person who is licensed as a real estate broker only
as begin delete an end delete begin insert a member, manager, or end insert officer of a begin insert limited liability company
or end insert corporate broker pursuant to Section 10158 or 10211 shall not
be eligible for the renewal of such license nor for the issuance of
a license in an individual capacity or as begin delete an end delete begin insert a member, manager,
or end insert officer of a begin insert limited liability company or end insert corporate broker
licensed pursuant to Section 10158 or 10211, unless and until such
person has completed the continuing education requirements of
this article.

SEC. 18.  

Section 10177 of the Business and Professions Code
is amended to read:

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 begin insert or limited liability company end insert , delay the
renewal of a license of a corporation begin insert or limited liability company end insert ,
or deny the issuance of a license to a corporation begin insert or limited liability
company end insert , if begin delete an end delete begin insert a member, manager, end insert officer, director, or person
owning or controlling 10 percent or more of the corporation’s stock
has done any of the following:

(a) Procured, or attempted to procure, a real estate license or
license renewal, for himself or herself or a salesperson, by fraud,
misrepresentation, or deceit, or by making a material misstatement
of fact in an application for a real estate license, license renewal,
or reinstatement.

(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 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.

(c) Knowingly authorized, directed, connived at, or aided in the
publication, advertisement, distribution, or circulation of a material
false statement or representation concerning his or her designation
or certification of special education, credential, trade organization
membership, or business, or concerning a business opportunity or
a land or subdivision, as defined in Chapter 1 (commencing with
Section 11000) of Part 2, offered for sale.

(d) Willfully disregarded or violated the Real Estate Law (Part
1 (commencing with Section 10000)) or Chapter 1 (commencing
with Section 11000) of Part 2 or the rules and regulations of the
commissioner for the administration and enforcement of the Real
Estate Law and Chapter 1 (commencing with Section 11000) of
Part 2.

(e) Willfully used the term “realtor” or a trade name or insignia
of membership in a real estate organization of which the licensee
is not a member.

(f) Acted or conducted himself or herself in a manner that would
have warranted the denial of his or her application for a real estate
license, or either had a license denied or had a license issued by
another agency of this state, another state, or the federal
government revoked or suspended for acts that, if done by a real
estate licensee, would be grounds for the suspension or revocation
of a California real estate license, if the action of denial, revocation,
or suspension by the other agency or entity was taken only after
giving the licensee or applicant fair notice of the charges, an
opportunity for a hearing, and other due process protections
comparable to the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340), Chapter 4 (commencing with
Section 11370), and Chapter 5 (commencing with Section 11500)
of Part 1 of Division 3 of Title 2 of the Government Code), and
only upon an express finding of a violation of law by the agency
or entity.

(g) Demonstrated negligence or incompetence in performing
an act for which he or she is required to hold a license.

(h) As a broker licensee, failed to exercise reasonable
supervision over the activities of his or her salespersons, or, as the
officer designated by a corporate broker licensee, begin insert or, as the
member, manager, or officer designated by a limited liability
company broker licensee, end insert failed to exercise reasonable supervision
and control of the activities of the corporation begin insert or limited liability
company end insert for which a real estate license is required.

(i) Used his or her employment by a governmental agency in a
capacity giving access to records, other than public records, in a
manner that violates the confidential nature of the records.

(j) Engaged in any other conduct, whether of the same or a
different character than specified in this section, that constitutes
fraud or dishonest dealing.

(k) Violated any of the terms, conditions, restrictions, and
limitations contained in an order granting a restricted license.

(l) (1) Solicited or induced the sale, lease, or listing for sale or
lease of residential property on the ground, wholly or in part, of
loss of value, increase in crime, or decline of the quality of the
schools due to the present or prospective entry into the
neighborhood of a person or persons having a characteristic listed
in subdivision (a) or (d) of Section 12955 of the Government Code,
as those characteristics are defined in Sections 12926 and 12926.1,
subdivision (m) and paragraph (1) of subdivision (p) of Section
12955, and Section 12955.2 of the Government Code.

(2) Notwithstanding paragraph (1), with respect to familial
status, paragraph (1) shall not be construed to apply to housing for
older persons, as defined in Section 12955.9 of the Government
Code. With respect to familial status, nothing in paragraph (1)
shall be construed to affect Sections 51.2, 51.3, 51.4, 51.10, 51.11,
and 799.5 of the Civil Code, relating to housing for senior citizens.
Subdivision (d) of Section 51 and Section 4760 of the Civil Code
and subdivisions (n), (o), and (p) of Section 12955 of the
Government Code shall apply to paragraph (1).

(m) Violated the Franchise Investment Law (Division 5
(commencing with Section 31000) of Title 4 of the Corporations
Code) or regulations of the Commissioner of Corporations
pertaining thereto.

(n) Violated the Corporate Securities Law of 1968 (Division 1
(commencing with Section 25000) of Title 4 of the Corporations
Code) or the regulations of the Commissioner of Corporations
pertaining thereto.

(o) Failed to disclose to the buyer of real property, in a
transaction in which the licensee is an agent for the buyer, the
nature and extent of a licensee’s direct or indirect ownership
interest in that real property. The direct or indirect ownership
interest in the property by a person related to the licensee by blood
or marriage, by an entity in which the licensee has an ownership
interest, or by any other person with whom the licensee has a
special relationship shall be disclosed to the buyer.

(p) Violated Article 6 (commencing with Section 10237).

(q) Violated or failed to comply with Chapter 2 (commencing
with Section 2920) of Title 14 of Part 4 of Division 3 of the Civil
Code, related to mortgages.

If a real estate broker that is a corporation begin insert or limited liability
company end insert has not done any of the foregoing acts, either directly or
through its begin insert members, managers, end insert employees, agents, officers,
directors, or persons owning or controlling 10 percent or more of
the corporation’s stock, the commissioner may not deny the
issuance or delay the renewal of a real estate license to, or suspend
or revoke the real estate license of, the corporation begin insert or limited
liability company end insert , provided that any offending officer, director,
or stockholder, who has done any of the foregoing acts individually
and not on behalf of the corporation begin insert or limited liability company end insert ,
has been completely disassociated from any affiliation or ownership
in the corporation begin insert or limited liability company end insert . A decision by the
commissioner to delay the renewal of a real estate license shall
toll the expiration of that license until the results of any pending
disciplinary actions against that licensee are final, or until the
licensee voluntarily surrenders his, her, or its license, whichever
is earlier.

begin delete

This section shall become operative on July 1, 2012.

end delete

SEC. 19.  

Section 10180 of the Business and Professions Code
is amended to read:

10180.  

The commissioner may deny, suspend or revoke the
real estate license of a corporation begin insert or limited liability company end insert as
to any begin delete officer or agent end delete begin insert , member, manager, officer, or agent end insert acting
under its license without revoking the license of the corporation
begin insert or limited liability company end insert .

SEC. 20.  

Section 10185 of the Business and Professions Code
is amended to read:

10185.  

Any person, including begin insert members, managers, end insert officers,
directors, agents or employees of corporations begin insert or limited liability
companies end insert , who willfully violates or knowingly participates in the
violation of this division shall be guilty of a misdemeanor
punishable by a fine not exceeding ten thousand dollars ($10,000),
or by imprisonment in the county jail not exceeding six months,
or by a fine and imprisonment.

SEC. 21.  

Section 10211 of the Business and Professions Code
is amended to read:

10211.  

begin insert (a) end insert begin insert   end insert If the licensee is a corporation, the license issued
to it entitles one officer thereof, on behalf of the corporation, to
engage in the business of real estate broker without the payment
of any further fee, such officer to be designated in the application
of the corporation for a license. For each officer other than the
officer so designated, through whom it engages in the business of
real estate broker, the appropriate original or renewal fee is to be
paid in addition to the fee paid by the corporation.

begin insert

(b) If the licensee is a limited liability company, the license
issued to it entitles one member, manager, or officer thereof, on
behalf of the limited liability company, to engage in the business
of real estate broker without the payment of any further fee, such
member, manager, or officer to be designated in the application
of the limited liability company for a license. For each member,
manager, or officer other than the member, manager, or officer
so designated, through whom it engages in the business of real
estate broker, the appropriate original or renewal fee is to be paid
in addition to the fee paid by the limited liability company.

end insert

SEC. 22.  

Section 10231.2 of the Business and Professions
Code is amended to read:

10231.2.  

(a) A real estate broker who, through express or
implied representations that the broker or any salesperson acting
on the broker’s behalf is engaging in acts for which a real estate
license is required by subdivision (d) or (e) of Section 10131,
proposes to solicit and accept funds, or to cause the solicitation
and acceptance of funds, to be applied to a purchase or loan
transaction in which the broker will directly or indirectly obtain
the use or benefit of the funds other than for commissions, fees,
and costs and expenses as provided by law for the broker’s services
as an agent, shall, prior to the making of any representation,
solicitation, or presentation of the statement described in
subdivision (b), submit the following to the Bureau of Real Estate:

(1) A true copy of the statement described in subdivision (b)
complete except for the signature of the prospective lender or
purchaser.

(2) A statement that the submittal is being made to the bureau
pursuant to Section 10231.2.

(b) A broker making a solicitation pursuant to subdivision (a)
shall deliver, or cause to be delivered, to the person solicited, the
applicable completed statement described in Section 10232.5 not
less than 24 hours before the earlier of the acceptance of any funds
from that person by or on behalf of the broker or the execution of
any instrument obligating the person to make the loan or purchase.
The statement shall be signed by the prospective lender or
purchaser and by the real estate broker or, on the broker’s behalf,
by a real estate salesperson licensed to the broker. When so
executed, an exact copy of the executed statement shall be given
to the prospective lender or purchaser, and the broker shall retain
a true copy of the executed statement for a period of four years.

(c) None of the provisions of subdivision (a) or (b) shall apply
in the case of an offering of a security authorized pursuant to
applicable provisions of the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code).

(d)  begin insert (1) end insert begin insert   end insert In the case of a solicitation by a corporate real estate
broker, the provisions of subdivisions (a) and (b) shall apply if the
funds solicited are intended for the direct or indirect use or benefit
of an officer or director of the corporation or of a person with a
10-percent or greater ownership interest in the corporation.

begin insert

(2) In the case of a solicitation by a limited liability company
real estate broker, subdivisions (a) and (b) shall apply if the funds
solicited are intended for the direct or indirect use or benefit of a
member, manager, or officer of the limited liability company or
of a person with a 10-percent or greater ownership interest in the
limited liability company.

end insert

SEC. 23.  

Section 10232.25 of the Business and Professions
Code is amended to read:

10232.25.  

(a) A real estate broker who meets the criteria of
subdivision (a) of Section 10232 shall, within 30 days after the
end of each of the first three fiscal quarters of the broker’s fiscal
year, or within any additional time as the Real Estate Commissioner
may allow for good cause, file with the commissioner a trust funds
status report as of the last day of the fiscal quarter which shall
include the following:

(1) A representation that the form and content of the trust
account records of the broker are in compliance with the regulations
of the commissioner.

(2) A representation that the broker’s trust fund bank account
is maintained in compliance with the regulations of the
commissioner.

(3) A statement of the broker’s aggregate accountability for
trust funds.

(4) A report of trust funds in the broker’s custody consisting of
the trust account bank statements as of the bank’s accounting date
immediately preceding the end of the fiscal quarter and a schedule
of withdrawals and deposits adjusting the account to its true balance
as of the end of the fiscal quarter.

(5) A statement explaining any difference in amount between
the broker’s total accountability under paragraph (3) above and
the adjusted trust account bank balance under paragraph (4) above.

(b) Each report made pursuant to subdivision (a) shall include
the following:

(1) The name, address, and position or capacity of the person
who prepared the report.

(2) A declaration under penalty of perjury by the broker that
the information and representations in the report are true, complete,
and correct to the best of the broker’s knowledge and belief. The
declaration in a report submitted on behalf of a corporate broker
shall be signed by a broker-officer through whom the corporation
is licensed as a real estate broker and by the chief executive officer
of the corporation if he or she is not the signing broker-officer.
begin insert The declaration in a report submitted on behalf of a limited liability
company broker shall be signed by a broker member, manager,
or officer through whom the limited liability company is licensed
as a real estate broker and by the chief executive officer, if any,
of the limited liability company if he or she is not the signing broker
member, manager, or officer. end insert

(c) If a broker fails to file a report required under subdivision
(a) within the time permitted, the commissioner may cause an
examination and report to be made and may charge the broker one
and one-half times the cost of making the examination and report.
In determining the hourly cost incurred by the commissioner for
conducting an examination and preparing the report, the
commissioner may use the estimated average hourly cost for all
department audit staff performing audits of real estate brokers. If
a broker fails to pay the above amount within 60 days of the
mailing of a notice of billing, the commissioner may suspend the
broker’s license or deny renewal of the broker’s license. The
suspension or denial shall remain in effect until the above amount
is paid or the broker’s right to renew a license has expired. The
commissioner may maintain an action for the recovery of the above
amount in any court of competent jurisdiction.

(d) A broker who meets the criteria of Section 10232, but who,
in carrying on the activities described in subdivisions (d) and (e)
of Section 10131, did not during a fiscal quarter, accept for the
benefit of a person to whom the broker is trustee, any payment or
remittance in a form convertible to cash by the broker, need not
comply with the provisions of subdivision (a). In lieu thereof, the
broker shall submit to the commissioner within 30 days after the
end of the fiscal quarter or within any additional time as the
commissioner may allow for good cause, a statement under penalty
of perjury on a form provided by the department attesting to the
fact that the broker did not receive any trust funds in cash or
convertible to cash during the fiscal quarter.

(e) Any real estate broker who engages in any of the activities
specified in subdivision (d) or (e) of Section 10131, but who is not
required by this section to file trust funds status reports with the
commissioner and who is not exempt therefrom under subdivision
(d), shall complete trust funds status reports in accordance with
either (1) the requirements of subdivisions (a) and (b) applicable
to trust funds status reports filed with the commissioner, or (2) the
requirements established by the lender or note owner, if the lender
or note owner does all of the following: (i) requires monthly
reconciliations of trust account balances; (ii) requires annual,
CPA-audited financial statements; and (iii) maintains a contractual
right to audit the trust accounts held by the broker on behalf of the
lender or note owner.

The broker shall retain all trust funds status reports prepared
under this subdivision on file at the broker’s offices, where they
shall be subject to inspection by representatives of the
commissioner upon 24 hours’ notice.

SEC. 24.  

Section 10238 of the Business and Professions Code
is amended to read:

10238.  

(a) A notice in the following form and containing the
following information shall be filed with the commissioner within
30 days after the first transaction and within 30 days of any material
change in the information required in the notice:

 

TO:	Real Estate Commissioner Mortgage Loan Section 1651 Exposition Boulevard Sacramento, CA 95815
This notice is filed pursuant to Sections 10237 and 10238 of the Business and Professions Code.
( ) Original Notice    ( ) Amended Notice
1.	Name of Broker conducting transaction under Section 10237:
2.	Broker license identification number:
3.	List the month the fiscal year ends:
4.	Broker’s telephone number:
5.	Firm name (if different from “1”):
6.	Street address (main location):
	# and Street     City     State     ZIP Code
7.	Mailing address (if different from “6”):
8.	Servicing agent: Identify by name, address, and telephone number the person or entity who will act as the servicing agent in transactions pursuant to Section 10237 (including the undersigned Broker if that is the case):
9.	Total number of multilender notes arranged:
10.	Total number of interests sold to investors on the   multilender’s notes:   ______
11.	Inspection of trust account (before answering this question, review the provisions of paragraph (3) of subdivision (k) of Section 10238).
CHECK ONLY ONE OF THE FOLLOWING:
( )	The undersigned Broker is (or expects to be) required to file reports of inspection of its trust account(s) with the Real Estate Commissioner pursuant to paragraph (3) of subdivision (k) of Section 10238.
Amount of Multilender Payments Collected Last Fiscal Quarter:
Total Number of Investors Due Payments Last Fiscal Quarter:
( )	The undersigned Broker is NOT (or does NOT expect to be) required to file reports of inspection of its trust account(s) with the Real Estate Commissioner pursuant to paragraph (3) of subdivision (k) of Section 10238.
12.	Signature. The contents of this notice are true and correct.
	Date	Type Name of Broker
		Signature of begin delete Broker end delete begin insert Broker, Designated Member, Manager, or Officer of Limited Liability Broker, end insert or of Designated Officer of Corporate Broker
		Type Name of Person(s) Signing This Notice

 

NOTE: AN AMENDED NOTICE MUST BE FILED BY THE
BROKER WITHIN 30 DAYS OF ANY MATERIAL CHANGE
IN THE INFORMATION REQUIRED TO BE SET FORTH
HEREIN.

(b) A broker or person who becomes the servicing agent for
notes or interests sold pursuant to this article, upon which payments
due during any period of three consecutive months in the aggregate
exceed one hundred twenty-five thousand dollars ($125,000) or
the number of persons entitled to the payments exceeds 120, shall
file the notice required by subdivision (a) with the commissioner
within 30 days after becoming the servicing agent.

(c) All advertising employed for transactions under this article
shall show the name of the broker and comply with Section 10235
of this code and Sections 260.302 and 2848 of Title 10 of the
California Code of Regulations. Brokers and their agents are
cautioned that a reference to a prospective investor that a
transaction is conducted under this article may be deemed
misleading or deceptive if this representation may reasonably be
construed by the investor as an implication of merit or approval
of the transaction.

(d) Each parcel of real property directly securing the notes or
interests shall be located in this state, the note or notes shall not
by their terms be subject to subordination to any subsequently
created deed of trust upon the real property, and the note or notes
shall not be promotional notes secured by liens on separate parcels
of real property in one subdivision or in contiguous subdivisions.
For purposes of this subdivision, a promotional note means a
promissory note secured by a trust deed, executed on unimproved
real property or executed after construction of an improvement of
the property but before the first purchase of the property as so
improved, or executed as a means of financing the first purchase
of the property as so improved, that is subordinate, or by its terms
may become subordinate, to any other trust deed on the property.
However, the term “promotional note” does not include either of
the following:

(1) A note that was executed in excess of three years prior to
being offered for sale.

(2) A note secured by a first trust deed on real property in a
subdivision that evidences a bona fide loan made in connection
with the financing of the usual cost of the development in a
residential, commercial, or industrial building or buildings on the
property under a written agreement providing for the disbursement
of the loan funds as costs are incurred or in relation to the progress
of the work and providing for title insurance insuring the priority
of the security as against mechanic’s and materialmen’s liens or
for the final disbursement of at least 10 percent of the loan funds
after the expiration of the period for the filing of mechanic’s and
materialmen’s liens.

(e) The notes or interests shall be sold by or through a real estate
broker, as principal or agent. At the time the notes or interests are
originally sold or assigned, neither the broker nor an affiliate of
the broker shall have an interest as owner, lessor, or developer of
the property securing the loan, or any contractual right to acquire,
lease, or develop the property securing the loan. This provision
does not prohibit a broker from conducting the following
transactions if, in either case, the disclosure statement furnished
by the broker pursuant to subdivision (l) discloses the interest of
the broker or affiliate in the transaction and the circumstances
under which the broker or affiliate acquired the interest:

(1) A transaction in which the broker or an affiliate of the broker
is acquiring the property pursuant to a foreclosure under, or sale
pursuant to, a deed of trust securing a note for which the broker is
the servicing agent or that the broker sold to the holder or holders.

(2) A transaction in which the broker or an affiliate of the broker
is reselling from inventory property acquired by the broker pursuant
to a foreclosure under, or sale pursuant to, a deed of trust securing
a note for which the broker is the servicing agent or that the broker
sold to the holder or holders.

(f) (1) The notes or interests shall not be sold to more than 10
persons, each of whom meets one or both of the qualifications of
income or net worth set forth below and signs a statement, which
shall be retained by the broker for four years, conforming to the
following:

 

Transaction Identifier:
Name of Purchaser:     Date:  ______
Check either one of the following, if true:
( )	My investment in the transaction does not exceed 10% of my net worth, exclusive of home, furnishings, and automobiles.
( )	My investment in the transaction does not exceed 10% of my adjusted gross income for federal income tax purposes for my last tax year or, in the alternative, as estimated for the current year.
Signature

 

(2) The number of offerees shall not be considered for the
purposes of this section.

(3) Spouses and their dependents, and an individual and his or
her dependents, shall be counted as one person.

(4) A retirement plan, trust, business trust, corporation, or other
entity that is wholly owned by an individual and the individual’s
spouse or the individual’s dependents, or any combination thereof,
shall not be counted separately from the individual, but the
investments of these entities shall be aggregated with those of the
individual for the purposes of the statement required by paragraph
(1). If the investments of any entities are required to be aggregated
under this subdivision, the adjusted gross income or net worth of
these entities may also be aggregated with the net worth, income,
or both, of the individual.

(5) The “institutional investors” enumerated in subdivision (i)
of Section 25102 or subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted pursuant thereto, shall not
be counted.

(6) A partnership, limited liability company, corporation, or
other organization that was not specifically formed for the purpose
of purchasing the security offered in reliance upon this exemption
from securities qualification is counted as one person.

(g) The notes or interests of the purchasers shall be identical in
their underlying terms, including the right to direct or require
foreclosure, rights to and rate of interest, and other incidents of
being a lender, and the sale to each purchaser pursuant to this
section shall be upon the same terms, subject to adjustment for the
face or principal amount or percentage interest purchased and for
interest earned or accrued. This subdivision does not preclude
different selling prices for interests to the extent that these
differences are reasonably related to changes in the market value
of the loan occurring between the sales of these interests. The
interest of each purchaser shall be recorded pursuant to
subdivisions (a) to (c), inclusive, of Section 10234.

(h) (1) Except as provided in paragraph (2), the aggregate
principal amount of the notes or interests sold, together with the
unpaid principal amount of any encumbrances upon the real
property senior thereto, shall not exceed the following percentages
of the current market value of each parcel of the real property, as
determined in writing by the broker or appraiser pursuant to Section
10232.6, plus the amount for which the payment of principal and
interest in excess of the percentage of current market value is
insured for the benefit of the holders of the notes or interests by
an insurer admitted to do business in this state by the Insurance
Commissioner:

 

(A)	Single-family residence, owner occupied	80%
(B)	Single-family residence, not owner occupied	75%
(C)	Commercial properties and income-producing properties not described in (B) or (E)	65%
(D)	Single-family residentially zoned lot or parcel that has installed offsite improvements including drainage, curbs, gutters, sidewalks, paved roads, and utilities as mandated by the political subdivision having jurisdiction over the lot or parcel	65%
(E)	Land that produces income from crops, timber, or minerals	60%
(F)	Land that is not income producing but has been zoned for (and if required, approved for subdivision as) commercial or residential development	50%
(G)	Other real property	35%

 

(2) The percentage amounts specified in paragraph (1) may be
exceeded when and to the extent that the broker determines that
the encumbrance of the property in excess of these percentages is
reasonable and prudent considering all relevant factors pertaining
to the real property. However, in no event shall the aggregate
principal amount of the notes or interests sold, together with the
unpaid principal amount of any encumbrances upon the property
senior thereto, exceed 80 percent of the current fair market value
of improved real property or 50 percent of the current fair market
value of unimproved real property, except in the case of a
single-family zoned lot or parcel as defined in paragraph (1), which
shall not exceed 65 percent of the current fair market value of that
lot or parcel, plus the amount insured as specified in paragraph
(1). A written statement shall be prepared by the broker that sets
forth the material considerations and facts that the broker relies
upon for his or her determination, which shall be retained as a part
of the broker’s record of the transaction. Either a copy of the
statement or the information contained therein shall be included
in the disclosures required pursuant to subdivision (l).

(3) A copy of the appraisal or the broker’s evaluation, for each
parcel of real property securing the notes or interests, shall be
delivered to each purchaser. The broker shall advise purchasers
of their right to receive a copy. For purposes of this paragraph,
“appraisal” means a written estimate of value based upon the
assembling, analyzing, and reconciling of facts and value indicators
for the real property in question. A broker shall not purport to make
an appraisal unless the person so employed is qualified on the basis
of special training, preparation, or experience.

(4) For construction or rehabilitation loans, the term “current
market value” may be deemed to be the value of the completed
project if the following safeguards are met:

(A) An independent neutral third-party escrow holder is used
for all deposits and disbursements.

(B) The loan is fully funded, with the entire loan amount to be
deposited in escrow prior to recording of the deed or deeds of trust.

(C) A comprehensive, detailed draw schedule is used to ensure
proper and timely disbursements to allow for completion of the
project.

(D) The disbursement draws from the escrow account are based
on verification from an independent qualified person who certifies
that the work completed to date meets the related codes and
standards and that the draws were made in accordance with the
construction contract and draw schedule. For purposes of this
subparagraph, “independent qualified person” means a person who
is not an employee, agent, or affiliate of the broker and who is a
licensed architect, general contractor, structural engineer, or active
local government building inspector acting in his or her official
capacity.

(E) An appraisal is completed by a qualified and licensed
appraiser in accordance with the Uniform Standards of Professional
Appraisal Practice (USPAP).

(F) In addition to the transaction documentation required by
subdivision (i), the documentation shall include a detailed
description of actions that may be taken in the event of a failure
to complete the project, whether that failure is due to default,
insufficiency of funds, or other causes.

(G) The entire amount of the loan does not exceed two million
five hundred thousand dollars ($2,500,000).

(5) If a note or an interest will be secured by more than one
parcel of real property, for the purpose of determining the
maximum amount of the note or interest, each security property
shall be assigned a portion of the note or interest that shall not
exceed the percentage of current market value determined by, and
in accordance with, the provisions of paragraphs (1) and (2).

(i) The documentation of the transaction shall require that (1)
a default upon any note or interest is a default upon all notes or
interests and (2) the holders of more than 50 percent of the recorded
beneficial interests of the notes or interests may govern the actions
to be taken on behalf of all holders in accordance with Section
2941.9 of the Civil Code in the event of default or foreclosure for
matters that require direction or approval of the holders, including
designation of the broker, servicing agent, or other person acting
on their behalf, and the sale, encumbrance, or lease of real property
owned by the holders resulting from foreclosure or receipt of a
deed in lieu of foreclosure. The terms called for by this subdivision
may be included in the deed of trust, in the assignment of interests,
or in any other documentation as is necessary or appropriate to
make them binding on the parties.

(j) (1) The broker shall not accept any purchase or loan funds
or other consideration from a prospective lender or purchaser, or
directly or indirectly cause the funds or other consideration to be
deposited in an escrow or trust account, except as to a specific loan
or note secured by a deed of trust that the broker owns, is
authorized to negotiate, or is unconditionally obligated to buy.

(2) All funds received by the broker from the purchasers or
lenders shall be handled in accordance with Section 10145 for
disbursement to the persons thereto entitled upon recordation of
the interests of the purchasers or lenders in the note and deed of
trust. No provision of this article shall be construed as modifying
or superseding applicable law regulating the escrow holder in any
transaction or the handling of the escrow account.

(3) The books and records of the broker or servicing agent, or
both, shall be maintained in a manner that readily identifies
transactions under this article and the receipt and disbursement of
funds in connection with these transactions.

(4) If required by paragraph (3) of subdivision (k), the review
by the independent certified public accountant shall include a
sample of transactions, as reflected in the records of the trust
account required pursuant to paragraph (1) of subdivision (k), and
the bank statements and supporting documents. These documents
shall be reviewed for compliance with this article with respect to
the handling and distribution of funds. The sample shall be selected
at random by the accountant from all these transactions and shall
consist of the following: (A) three sales made or 5 percent of the
sales made pursuant to this article during the period for which the
examination is conducted, whichever is greater, and (B) 10
payments processed or 2 percent of payments processed under this
article during the period for which the examination is conducted,
whichever is greater.

(5) For the purposes of this subdivision, the transaction that
constitutes a “sale” is the series of transactions by which a series
of notes of a maker, or the interests in the note of a maker, are sold
or issued to their various purchasers under this article, including
all receipts and disbursements in that process of funds received
from the purchasers or lenders. The transaction that constitutes a
“payment,” for the purposes of this subdivision, is the receipt of
a payment from the person obligated on the note or from some
other person on behalf of the person so obligated, including the
broker or servicing agent, and the distribution of that payment to
the persons entitled thereto. If a payment involves an advance paid
by the broker or servicing agent as the result of a dishonored check,
the inspection shall identify the source of funds from which the
payment was made or, in the alternative, the steps that are
reasonably necessary to determine that there was not a
disbursement of trust funds. The accountant shall inspect for
compliance with the following specific provisions of this section:
paragraphs (1), (2), and (3) of subdivision (j) and paragraphs (1)
and (2) of subdivision (k).

(6) Within 30 days of the close of the period for which the report
is made, or within any additional time as the commissioner may
in writing allow in a particular case, the accountant shall forward
to the broker or servicing agent, as the case may be, and to the
commissioner, the report of the accountant, stating that the
inspection was performed in accordance with this section, listing
the sales and the payments examined, specifying the nature of the
deficiencies, if any, noted by the accountant with respect to each
sale or payment, together with any further information as the
accountant may wish to include, such as corrective steps taken
with respect to any deficiency so noted, or stating that no
deficiencies were observed. If the broker meets the threshold
criteria of Section 10232, the report of the accountant shall be
submitted as part of the quarterly reports required under Section
10232.25.

(k) The notes or interests shall be sold subject to a written
agreement that obligates a licensed real estate broker, or a person
exempted from the licensing requirement for real estate brokers
under this chapter, to act as agent for the purchasers or lenders to
service the note or notes and deed of trust, including the receipt
and transmission of payments and the institution of foreclosure
proceedings in the event of a default. A copy of this servicing
agreement shall be delivered to each purchaser. The broker shall
offer to the lenders or purchasers the services of the broker or one
or more affiliates of the broker, or both, as servicing agent for each
transaction conducted pursuant to this article. The agreement shall
require all of the following:

(1) (A) That payments received on the note or notes be
deposited immediately to a trust account maintained in accordance
with this section and with the provisions for trust accounts of
licensed real estate brokers contained in Section 10145 and Article
15 (commencing with Section 2830.1) of Chapter 6 of Title 10 of
the California Code of Regulations.

(B) That payments deposited pursuant to subparagraph (A) shall
not be commingled with the assets of the servicing agent or used
for any transaction other than the transaction for which the funds
are received.

(2) That payments received on the note or notes shall be
transmitted to the purchasers or lenders pro rata according to their
respective interests within 25 days after receipt thereof by the
agent. If the source for the payment is not the maker of the note,
the agent shall inform the purchasers or lenders in writing of the
source for payment. A broker or servicing agent who transmits to
the purchaser or lenders the broker’s or servicing agent’s own
funds to cover payments due from the borrower but unpaid as a
result of a dishonored check may recover the amount of the
advances from the trust fund when the past due payment is
received. However, this article does not authorize the broker,
servicing agent, or any other person to issue, or to engage in any
practice constituting, any guarantee or to engage in the practice of
advancing payments on behalf of the borrower.

(3) If the broker or person who is or becomes the servicing agent
for notes or interests sold pursuant to this article upon which the
payments due during any period of three consecutive months in
the aggregate exceed one hundred twenty-five thousand dollars
($125,000) or the number of persons entitled to the payments
exceeds 120, the trust account or accounts of that broker or affiliate
shall be inspected by an independent certified public accountant
at no less than three-month intervals during the time the volume
is maintained. Within 30 days after the close of the period for
which the review is made, the report of the accountant shall be
forwarded as provided in paragraph (6) of subdivision (j). If the
broker is required to file an annual report pursuant to subdivision
(o) or pursuant to Section 10232.2, the quarterly report pursuant
to this subdivision need not be filed for the last quarter of the year
for which the annual report is made. For the purposes of this
subdivision, an affiliate of a broker is any person controlled by,
controlling, or under common control with the broker.

(4) Unless the servicing agent will receive notice pursuant to
Section 2924b of the Civil Code, the servicing agent shall file a
written request for notice of default upon any prior encumbrances
and promptly notify the purchasers or lenders of any default on
the prior encumbrances or on the note or notes subject to the
servicing agreement.

(5) The servicing agent shall promptly forward copies of the
following to each purchaser or lender:

(A) Any notice of trustee sale filed on behalf of the purchasers
or lenders.

(B) Any request for reconveyance of the deed of trust received
on behalf of the purchasers or lenders.

(l) The broker shall disclose in writing to each purchaser or
lender the material facts concerning the transaction on a disclosure
form adopted or approved by the commissioner pursuant to Section
10232.5, subject to the following:

(1) The disclosure form shall include a description of the terms
upon which the note and deed of trust are being sold, including
the terms of the undivided interests being offered therein, including
the following:

(A) In the case of the sale of an existing note:

(i) The aggregate sale price of the note.

(ii) The percent of the premium over or discount from the
principal balance plus accrued but unpaid interest.

(iii) The effective rate of return to the purchasers if the note is
paid according to its terms.

(iv) The name and address of the escrow holder for the
transaction.

(v) A description of, and the estimated amount of, each cost
payable by the seller in connection with the sale and a description
of, and the estimated amount of, each cost payable by the
purchasers in connection with the sale.

(B) In the case of the origination of a note:

(i) The name and address of the escrow holder for the
transaction.

(ii) The anticipated closing date.

(iii) A description of, and the estimated amount of, each cost
payable by the borrower in connection with the loan and a
description of, and the estimated amount of, each cost payable by
the lenders in connection with the loan.

(C) In the case of a transaction involving a note or interest
secured by more than one parcel of real property, in addition to
the requirements of subparagraphs (A) and (B):

(i) The address, description, and estimated fair market value of
each property securing the loan.

(ii) The amount of the available equity in each property securing
the loan after the loan amount to be apportioned to each property
is assigned.

(iii) The loan to value percentage for each property after the
loan amount to be apportioned to each property is assigned pursuant
to subdivision (h).

(2) A copy of the written statement or information contained
therein, as required by paragraph (2) of subdivision (h), shall be
included in the disclosure form.

(3) Any interest of the broker or affiliate in the transaction, as
described in subdivision (e), shall be included with the disclosure
form.

(4) When the particular circumstances of a transaction make
information not specified in the disclosure form material or
essential to keep the information provided in the form from being
misleading, and the other information is known to the broker, the
other information shall also be provided by the broker.

(5) If more than one parcel of real property secures the notes or
interests, the disclosure form shall also fully disclose any risks to
investors associated with securing the notes or interests with
multiple parcels of real property.

(m) The broker or servicing agent shall furnish any purchaser
of a note or interest, upon request, with the names and addresses
of the purchasers of the other notes or interests in the loan.

(n) No agreement in connection with a transaction covered by
this article shall grant to the real estate broker, the servicing agent,
or any affiliate of the broker or agent the option or election to
acquire the interests of the purchasers or lenders or to acquire the
real property securing the interests. This subdivision shall not
prohibit the broker or affiliate from acquiring the interests, with
the consent of the purchasers or lenders whose interests are being
purchased, or the property, with the written consent of the
purchasers or lenders, if the consent is given at the time of the
acquisition.

(o) Each broker who conducts transactions under this article,
or broker or person who becomes the servicing agent for notes or
interests sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner
an annual report of a review of its trust account. The report shall
be prepared and filed in accordance with subdivision (a) of Section
10232.2 and the rules and procedures thereunder of the
commissioner. That report shall cover the broker’s transactions
under this article and, if the broker also meets the threshold criteria
set forth in Section 10232, the broker’s transactions subject to that
section shall be included as well.

(p) Each broker conducting transactions pursuant to this article,
or broker or person who becomes the servicing agent for notes or
interests sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner
a report of the transactions that is prepared in accordance with
subdivision (c) of Section 10232.2. If the broker also meets the
threshold criteria of Section 10232, the report shall also include
the transactions subject to that section. This report shall be
confidential pursuant to subdivision (f) of Section 10232.2.

SEC. 25.  

Section 10451 of the Business and Professions Code
is amended to read:

10451.  

begin delete All end delete begin insert (a) end insert begin insert   end insert begin insert Except as provided in subdivision (b), all end insert money
paid into the State Treasury and credited to the Real Estate Fund
is hereby appropriated to be used by the commissioner in carrying
out the provisions of this part and Chapter 1 of Part 2, including
the payment of the salaries of the commissioner and his deputies,
clerks and assistants. The money credited to the fund shall remain
therein.

begin insert

(b) (1) Notwithstanding any other law, the money in the Real
Estate Fund that is attributable to administrative fines, civil
penalties, and criminal penalties imposed by the bureau against
a limited liability company broker, or to cost recovery by the
bureau from enforcement actions and case settlements relating to
a limited liability company broker, shall not be continuously
appropriated.

end insert begin insert

(2) The money in the Real Estate Fund that is not continuously
appropriated pursuant to paragraph (1) shall be available for
expenditure as provided in this part only upon appropriation by
the Legislature.

end insert

SEC. 26.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.