BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1762 (Hayashi) Hearing Date: June 16, 2010
As Amended: June 2, 2010
Fiscal: No
Urgency: No
VOTES: Asm. Floor(04/08/10)73-0/Pass
Asm. B. & P. (03/23/10)10-0/Pass
SUMMARY Would clarify and update the definition of an advance
fee, as that term is defined under the Real Estate Law.
DIGEST
Existing law
1. Defines an advance fee as a fee, regardless of the form, which
is claimed, demanded, charged, received, or collected by a
licensee from a principal before fully completing each and every
service the licensee contracted to perform (Business and
Professions Code Section 10026);
2. Prohibits an advance fee, or the services to be performed by a
licensee pursuant to a fee agreement, from being separated or
divided into components for the purpose of avoiding the
application of Section 10026;
3. States that the term "advance fee" includes a fee for a
listing, advertisement, or offer to sell or lease property or a
business opportunity, other than in a newspaper of general
circulation, as specified (Section 10026);
4. States that the term "advance fee" does not include the term
security, as that term is used in Section 1950.5 of the Civil
Code, or the term screening fee, as that term is used in Section
1950.6 of the Civil Code (Section 10026);
5. Requires real estate licensees to submit all materials used in
obtaining advance fee agreements, including but not limited to
the contract forms, radio and television advertising, and
AB 1762 (Hayashi), Page 2
letters or cards used to solicit prospective sellers, to the
Commissioner of Real Estate (commissioner) at least 10 days
prior to their use, and grants the commissioner the authority to
order any of the submitted material not be used, disseminated,
or published, based on his/her belief that it would tend to
mislead (Section 10085);
6. Provides that any person or entity using, disseminating, or
publishing any matter which the commissioner has ordered not to
be used, published, or disseminated pursuant to Section 10085 is
guilty of a misdemeanor punishable by a fine not exceeding
$2,500, or by imprisonment in the county jail for up to six
months, or both, for each use, dissemination, or publication
(Section 10085).
This bill (changes to existing law are shown in bold type)
1. Would define an advance fee as a fee, regardless of its
form, which is claimed, demanded, charged, received, or
collected by a licensee for services requiring a license, or
for a listing, as defined, before fully completing the
service the licensee contracted to perform or represented
would be performed;
2. Would state that neither an advance fee, nor the services
to be performed, may be separated or divided into components
for the purpose of avoiding the application of any provision
of the Real Estate Law;
3. Would expressly exclude the following from being defined as
an advance fee:
a. Security, as that term is used in Section 1950.5 of
the Civil Code;
b. Screening fee, as that term is used in Section
1950.6 of the Civil Code;
c. A fee claimed, demanded, charged, received, or
collected for the purpose of advertising the sale, lease,
or exchange of real estate, or of a business opportunity,
in a newspaper of general circulation, any other written
publication, or through electronic media comparable to
any type of written publication, provided that the
electronic media or the publication is not under the
control or ownership of the broker;
AB 1762 (Hayashi), Page 3
d. A fee earned for a specific service under a "limited
service" contract. For purposes of the bill, a limited
services contract is a written agreement for real estate
services, which are promoted, advertised, or presented as
stand-alone services, to be performed on a task-by-task
basis, and for which compensation is received as each
separate, contracted-for task is completed. To qualify
for this exclusion, all services performed pursuant to
the contract must be described in subdivisions (a), (b),
or (c) of Section 10131;
4. Would state that a contract between a real estate broker
and a principal that requires payment of a commission to the
broker after the contract is fully performed does not
represent an agreement for an advance fee;
5. Would state that the changes made by the bill are intended
to supercede the changes made to Section 10026 by SB 94
(Calderon), Chapter 630, Statutes of 2009, but are not
otherwise intended to alter the obligations or liability of
any person pursuant to SB 94 (Calderon), Chapter 630,
Statutes of 2009.
COMMENTS
1. Purpose of the bill To update and clarify the Department of
Real Estate's (DRE's) advance fee statute, and codify DRE's
interpretation of that statute.
2. Background Section 10026 of the Business and Professions
Code was enacted in 1955, and has been infrequently changed
since that time. The last change to this section was
requested by the California Association of Realtors (CAR) in
2009. That change, which was contained in SB 94 (Calderon),
Chapter 630, Statutes of 2009, added language stating that
the form of the fee was immaterial, and added the concept
that that neither an advance fee, nor the services to be
performed pursuant to an advance fee contract, may be
separated or divided into components for purposes of
avoiding the application of Section 10026.
The changes proposed by CAR in this bill go beyond those enacted
AB 1762 (Hayashi), Page 4
in 2009, and are intended to ensure that two types of fee
arrangements, into which DRE licensees may currently enter
without an advance fee agreement, are not interpreted as
requiring advance fee agreements by DRE at some time in the
future. These two fee arrangements include: 1) entering
into a limited services contract (described in more detail
below) and 2) entering into a contract in which a commission
will be earned by the licensee, after the completion of the
contract. Although neither of these fee arrangements has
ever been interpreted by DRE as requiring an advance fee
agreement, CAR is concerned that the existing language of
Section 10026 does not expressly exclude them from the
definition of activities for which an advance fee agreement
is necessary. The changes contained in AB 1762 are intended
to ensure that the statute clearly excludes these activities
as ones requiring an advance fee agreement.
The limited services contracts covered by this bill are a la
carte arrangements, and are entered into when an individual
might want a little bit of help from a DRE licensee in
purchasing or selling a home or performing another real
estate-related service, but does not wish to enter into a
contract with the licensee for the full range of services
typically provided by licensees. A limited services
contract allows the licensee to price the desired services
on a piece-by-piece or task-by-task basis, and to receive
payment as each piece or task is completed. The language of
this bill would make it clear that these types of
arrangements do not require advance fee agreements.
3. What does AB 1762 have to do with SB 94? SB 94 (Calderon),
Chapter 630, Statutes of 2009, prohibited anyone, including
a real estate licensee, who negotiates, attempts to
negotiate, arranges, attempts to arrange, or otherwise
offers to perform residential mortgage loan modifications or
other forms of mortgage loan forbearance or forgiveness for
a fee or other compensation paid by a borrower, from
demanding or receiving any preperformance compensation,
requiring any security as collateral for final compensation,
or taking a power of attorney from a borrower, as specified.
Although SB 94 has colloquially been described as a bill
that bans advance fees in connection with loan modification
agreements, that bill did not base its requirements upon the
definition of an advance fee in the Real Estate Law. The
changes made by SB 94 to the definition of an advance fee in
the Real Estate Law were unrelated to that bill's
AB 1762 (Hayashi), Page 5
requirements relating to mortgage loan
modification/forbearance/forgiveness contracts.
However, in an attempt to avoid any misunderstanding or
misinterpretations about the intent of AB 1762, this bill's
author and sponsor have included language, expressly
clarifying that the changes made by this bill are only
intended to supercede the changes made by SB 94 to the
definition of an advance fee in the Real Estate Law. AB
1762 contains express language that its changes are not
otherwise intended to alter the obligations or liability of
any person pursuant to SB 94.
4. Support . CAR is sponsoring this bill for the reasons stated
above. In its letter of support, CAR observes that "the
bill is needed to make it clear that so-called 'fee for
service' or 'cafeteria' real estate services contracts are
not advance fee arrangements requiring advance review." CAR
asserts that the terminology of Section 10026 is important,
because advertisements for advance fee contracts, and the
contracts themselves, must be submitted in advance to DRE
for review.
5. Opposition None received.
POSITIONS
Support
California Association of Realtors (sponsor)
Oppose
None received
Consultant: Eileen Newhall (916) 651-4102