BILL ANALYSIS �
SB 53
Page 1
Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 53 (Calderon & Vargas) - As Amended: June 15, 2011
SENATE VOTE : 38-0
SUBJECT : Real Estate Licensees
SUMMARY : Makes several changes to California's Real Estate Law
to give the Department of Real Estate (DRE) more enforcement
tools to take action against mortgage fraud and other real
estate violations, add safeguards to protect consumers who seek
services from real estate licensees, and make technical changes
to portions of the Real Estate Law. Specifically, this bill :
1)Provides that, in a case where a licensee ignores or refuses
to obey an order of the court or obey a subpoena, the
Commissioner of DRE may apply directly to the Superior Court
(without the need for the Attorney General to act as the
Commissioner's attorney) and the Court may issue an order
requiring the licensee to appear before the Commissioner to
produce documentary evidence or to give evidence regarding an
investigation. Failure of the licensee to obey the order of
the Court may be punished by the Court as contempt.
2)Grants authority to DRE to issue citations and/or citations
and fines, capped at $2,500 per violation, to licensees found
to have violated provisions of the Real Estate Law. Licensees
may appeal the findings of any such citation through an
administrative hearing process conducted according to current
law governing administrative hearings. The Commissioner may
apply to superior court for an order to comply, as specified.
Failure to comply shall be subject to disciplinary action, as
specified. A license may not be renewed if fines are unpaid
or citation terms have not been met. Fines must be deposited
into the Real Estate Fund's Recovery Account, to be made
available upon legislative appropriation to reimburse
consumers for losses resulting from violations of the Real
Estate Law.
3)Specifies that nothing prevents the Commission from also
issuing an order to desist and refrain from engaging in a
specific business activity or activities or an order to
suspend all business operations to a person who is engaged in
continued or repeated violations of the Real Estate Law.
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4)Provides that, after the filing of a desist and refrain order,
a bar order, or the commencement of a formal disciplinary
action by the Commissioner, and upon a finding by the
Commissioner that action is warranted for the protection of
the public and that failure to act is likely to result in
grievous harm to the public, the Commissioner may make
information public confirming the fact of an investigation or
proceeding regarding a licensee or unlicensed person believed
to be engaging in activities for which a real estate license
is required. Any release that contains the identity of the
person or business under investigation shall include language
explaining that the person or business is entitled to a public
hearing on the merits of the order or accusation. The release
may also clarify the procedural aspects and current status of
the investigation or proceeding.
5)Requires, beginning July 1, 2012, a real estate broker who
engages in escrow activities for five or more transactions
within a year, as specified, or whose escrow activities equal
or exceed $1 million in a calendar year, to file with DRE a
report within 60 days providing certain information, as
specified. The real estate broker may file consolidated
reports if the broker is subject to this bill's provisions and
specified current-law requirements to report to DRE. Failure
to report incurs a penalty of $50 per day up to the 30th day,
after which daily fines increase to $100 up to a total of
$10,000. The Commissioner may suspend or revoke the license
of a broker who fails to pay, and may bring court action to
collect payment.
6)Exempts the reports specified above from specified public
disclosure. Pursuant to this exemption, this bill makes
findings to demonstrate the interest being protected, stating
that in order to allow DRE to fully accomplish its goals, it
is imperative to protect the interests of those persons
submitting information to DRE to ensure that any personal or
sensitive business information that this bill requires those
persons to submit is protected as confidential information.
7)Provides, beginning July 1, 2012, that the Commissioner may
delay renewal of a license pursuant to any acts as specified
under current law for which the Commissioner may suspend,
revoke or deny the issuance of a license, and that any
decision to delay renewal of a license shall toll the
expiration of that license until the results of any pending
disciplinary actions against the licensee are final, or until
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the licensee voluntarily surrenders his, her or its license,
whichever is earlier.
8)Specifies that the Commissioner may also delay renewal of a
license pursuant to any acts as specified under current law
for which the Commissioner may suspend, revoke or deny the
issuance of a license, even though the licensee has fulfilled
the requirements for licensure pursuant to current law,
including fulfilling continuing education requirements.
9)Requires a real estate broker to submit a copy of information
in the real estate broker's transaction file relative to
securities qualification, or exemption from securities
qualification, pursuant to a transaction involving secured
notes on real property, to any investor from whom the real
estate broker obtains funds in connection with the transaction
or other provision of law pertaining to these types of
transactions, within 10 days of receipt of those funds.
Recasts and updates certain provisions and clarifies the
repeal of specified provisions relative to these transactions.
10)Provides that DRE may obtain copies of full-face engraved
pictures or photos of individuals directly from DMV for
purposes of enforcing the Real Estate Law and the Subdivided
Lands Law.
11)Makes clarifying and technical changes to certain enforcement
provisions of the Real Estate Law, and contains
double-jointing language with SB 6 (Ron Calderon and Vargas).
EXISTING LAW
1) Establishes in the Business, Transportation and Housing
Agency (BT&H) the Department of Real Estate (DRE), the
chief officer of which is the Real Estate Commissioner
(Commissioner) and specifies that the Commissioner,
through the Department, is responsible for the
regulation of real estate transactions and licensure of
real estate agents, brokers and salespersons.
2) Provides that the Commissioner shall enforce the
provisions of the Real Estate Law and has full power to
regulate and control the issuance and revocations, both
temporary and permanent, of all licenses to be issued,
and to perform all other acts and duties provided under
the Real Estate Law. (Business and Professions Code
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(BPC) � 10071)
3) Makes any person, including officers, directors, agents
or employees of corporations, who willfully violates or
knowingly participates in the violation of the Real
Estate Law 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. (BPC � 10185)
4) Provides that the Attorney General (AG) shall render to
the Commissioner opinions upon all questions of law
relating to the construction or interpretation of the
Real Estate Law, or arising in the administration
thereof that may be submitted to him by the
Commissioner. The AG shall also act as the attorney for
the Commission in all actions and proceedings brought by
or against him under or pursuant to any provision of the
Real Estate Law. (BPC � 10079)
5)Provides that any board, bureau, or commission within the DCA
may establish, by regulation, a system for the issuance to a
licensee of a citation which may contain an order of abatement
or an order to pay an administrative fine assessed by the
board, bureau, or commission where the licensee is in
violation of the applicable licensing act or any regulation
adopted pursuant thereto. Specifies the procedures to be
followed in both the issuance of the citation and fine, and
appeal of the citation or fine assessment. This citation and
fine authority, however, does not prevent a board, bureau, or
commission from establishing by statute their own citation and
fine authority, as long as it is consistent with the
aforementioned procedures. (BPC � 125.9)
6)Provides that any board, bureau, or commission within the DCA
may in addition to the administrative citation system
authorized by Section 125.9 (as against licensees, Item #5,
above), may also be established by regulation for issuance of
an administrative citation to an unlicensed person who is
acting in the capacity of a licensee under the jurisdiction of
that board, bureau, or commission. The administrative
citation system shall meet the requirements of Section 125.9
above. However, the establishment of an administrative
citation system for unlicensed activity does not preclude the
use of other enforcement statutes for unlicensed activities at
the discretion of the board, bureau, or commission. (BPC �
148)
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7) Requires a real estate broker who intends or reasonably
expects in a successive 12 month period to negotiate a
combination of 10 or more transactions, as specified, in an
aggregate amount of more than $1,000,000, shall file reports
as specified to DRE within 90 days after the end of the
broker's fiscal year or any additional time as the
Commissioner may allow for filing for good cause. (BPC �
10232.2)
8) Provides that the Commissioner may suspend or revoke a real
estate license, or deny the issuance of a license to an
applicant, who has violated any or the provisions of the Real
Estate Law as specified, or other laws as specified, or may
suspend or revoke the license of a corporation, or deny the
issuance of a license to a corporation, if an officer,
director or
person owning 10 percent or more of the corporation's stock
has violated any of those provisions as specified. (BPC �
10177)
9) Entitles the applicant for a real estate license to continue
operating under his or her existing license after its
expiration date, if not previously suspended or revoked, and
they have complied with other requirements as specified.
Provides that if the Commissioner determines that the
applicant has not complied with continuing education (CE)
then the Commissioner may allow for an extended period of
time for compliance, or advise the licensee that their
license may expire for noncompliance and of their right to a
hearing. (BPC � 10156.2)
10)Makes it unlawful for any person to offer or sell any
security in an issuer transaction unless the sale has been
qualified or the security or transaction is exempted or is
not subject to qualification, as specified. Exempts from
qualification a transaction that involves the sale of a
series of notes secured directly by an interest in real
property or the sale of undivided interest in a note secured
directly by real property equivalent to a series transaction.
Requires a real estate broker to indicate in the real estate
broker's transaction file the provisions of law pertaining to
qualification or exemption from qualifications under which a
transaction is being conducted and requires the broker to
file certain information with the Commissioner relative to
conducting these transactions that are exempt from
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qualification. (BPC �� 10237-10239.4)
FISCAL EFFECT : Unknown.
COMMENTS :
Purpose of this bill . According to the authors, this bill makes
several changes to California's Real Estate Law to give DRE more
enforcement tools and add safeguards to protect consumers who
seek services from real estate licensees. This bill also makes
technical changes intended to clean up certain portions of the
Real Estate Law.
Background . Current law requires real estate brokers to retain
copies of all books, accounts, and records related to any
transaction for which a real estate broker license is required.
Brokers are required to retain these materials for at least
three years, and to make them available for examination,
inspection, and copying by the Commissioner or his or her
designated representative.
If, after appropriate notice, a real estate broker refuses to
allow access, DRE may seek an administrative subpoena to compel
the production of the materials. If a broker continues to
refuse access, DRE may seek to enforce the subpoena in a
Superior Court. However, because the law requires DRE to be
represented by the Department of Justice (DOJ) in all civil
court matters, DRE must request, and DOJ must agree, to
represent DRE in cases where DRE seeks to enforce a subpoena in
a Superior Court. The problem then becomes time sensitive.
Often DOJ lacks sufficient resources to expedite these cases,
which allows rogue real estate brokers who refuse to produce
their records to continue to operate.
This bill authorizes DRE to go to court directly to enforce an
administrative subpoena.
Current law allows the DRE Commissioner to enforce the Real
Estate Law by granting him or her full power to regulate and
control the issuance and revocation of all real estate licenses,
and to perform all other acts and duties necessary to enforce
the Real Estate Law. However, the Real Estate Law lacks any
provision that authorizes DRE to issue an on-the-spot citation,
or a "fix-it ticket," to a licensee found to have violated a
provision of the Real Estate Law. If a DRE auditor or
investigator identifies a violation during a routine audit or
investigation, the auditor or investigator must return to the
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office and write up his/her findings, then send those findings
up the chain of command for review and approval. In all but the
most serious cases, DRE sends a letter to the licensee once the
auditor or investigator's findings have been approved, informing
the licensee of the violation(s), and ordering corrective action
to be taken.
This bill gives DRE citation and fine authority patterned on
current law cite and fine authority for deferred deposit
transactions and DCA boards, chiropractors, and osteopathic
physicians. Fines would be capped at $2,500 per violation, and
would be imposed in lieu of, rather than in addition to, other
discipline. Fines collected would be deposited into the Real
Estate Fund's Recovery Account. Failure to pay a fine would
result in disciplinary action.
This bill gives DRE authority to release the identities of those
under investigation. To protect the rights of those who are
innocent until proven guilty, DRE's authority would be limited
to situations in which failure to disclose the information is
likely to lead to grievous harm to the public. The DRE would
also have to include language in each of its releases explaining
that the persons under investigation are innocent until proven
guilty, and that they are entitled to a public hearing on the
merits of DRE's accusation.
The DRE lacks authority to determine which of its licensed
brokers engage in escrow activities pursuant to this exemption,
nor does it require these licensees to notify DRE about their
volume of escrow business. Without access to information about
the activities of its licensees, DRE is limited to using
consumer complaints to help prioritize which of its licensees to
examine. During the last year alone, real estate licensees were
found to have mishandled over $2.5 million in trust fund
deposits. It is unknown what volume of mishandled money went
undetected. Providing DRE with specific information about its
licensees will help give the department a better sense of the
activities in which its licensees are engaging. This, in turn,
will help DRE identify potential problems before they result in
harm to consumers.
This bill requires any real estate broker who engages in escrow
activities for five or more transactions in a calendar year
pursuant to current law exemption from the Escrow Law, or whose
escrow activities pursuant to that exemption equal or exceed $1
million in a calendar year, to file a report with the DRE
documenting the number of escrows conducted and the dollar
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volume escrowed during the calendar year in which the threshold
was met.
Current Real Estate Law authorizes the Commissioner to suspend
or revoke the license of a real estate licensee, or deny the
issuance of a license to a real estate applicant, who has
engaged in one or more of several prohibited acts. However, the
Commissioner lacks the authority to deny the renewal of a
license application submitted by a real estate licensee who is
under DRE investigation for having engaged in behavior that
would warrant a license suspension or revocation. This creates
a situation in which DRE must renew the license of a licensee
that has paid his or her renewal fee and completed his or her
continuing education requirements, even when DRE plans to issue
an accusation to that individual suspending or revoking his or
her license.
Recent press accounts have criticized DRE for continuing to
license individuals known to be engaging in acts that would
disqualify them from licensure.
This bill grants DRE the ability to deny a license renewal to an
individual known or suspected to have engaged in or to be
engaging in acts that would disqualify them from licensure.
Individuals denied a renewal pursuant to this provision would
have appeal rights, just as they would if the DRE were required
to re-issue their license, and then pursue a license suspension
or revocation. This measure also makes a conforming change to
ensure that a licensee's license does not automatically renew
upon payment of the renewal fee and certification by a licensee
that he or she has complied with his or her continuing education
requirements.
Article 6 of Chapter 3 of Part 1 of the Real Estate Law, titled,
"Claim of Exemption from Securities Qualification," was added to
the codes in 2003, as part of a bill that was intended to
replace the formerly existing Articles 6 and 6.5. A recent
review of Article 6 identified a handful of changes that would
correct, update, and clarify the operation of the Article, while
better informing investors who purchase interests in
multi-lender loans about the rules under which the real estate
brokers selling those loans operate.
This bill makes needed cleanup changes and adds a provision to
require real estate licensees that engage in multi-lender loans
to provide information to their investors regarding the
provisions of law under which they operate. Licensees are
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already required to document this information in their files.
This bill requires that it be provided to investors.
For many years, DRE had access to driver's license and vehicle
registration information from the DMV. The DRE used this
information to help it identify and locate individuals upon whom
it sought to issue subpoenas, desist and refrain orders, and
accusations, and when interviewing victims of real estate fraud
or other real estate violations, in order to properly identify
the individuals with whom these victims interacted.
In 2001, DMV changed its policies regarding access to its
records by limiting such access to sworn peace officers. This
technically cut the DRE off from the records, because none of
the DRE's personnel are sworn peace officers. Despite the 2001
change to DMV's policy, some DRE offices continued receiving
access to the DMV records until very recently. That changed in
late 2010, when DMV began more formally enforcing its policies,
and terminated all access to its records by DRE employees.
Without access to DMV information, DRE lacks access to
photographs of persons it needs to investigate, and those on
whom the department seeks to serve process. The DMV's records
can also help DRE identify the most recent address of a licensee
or individual improperly acting without a license.
This measure provides statutory authority for DRE to request DMV
information, and for DMV to provide the requested information to
DRE.
Support . The California Mortgage Association notes, "Coming on
the heels of the greatest boom and bust cycles in California
real estate history, we have seen unfortunate violations of the
Real Estate law by a small but significant segment of licensees.
To uphold consumer confidence in real estate licensees, it is
important that the DRE be given the tools to effectively and
efficiently enforce the law."
The Escrow Institute of California remarks that this bill "is an
important first step for the DRE to identify who among their R/E
licensees are conducting escrows so as to evaluate and determine
if any appropriate regulatory measures and follow up may be
required."
Related Legislation . SB 706 (Price) makes numerous enforcement
enhancements to DRE and the Office of Real Estate Appraisers
(OREA); requires licensing boards to post information about
licensees on the Internet, as specified; and, makes updating and
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conforming changes. This bill is pending in Assembly Business,
Professions and Consumer Protection Committee.
AB 278 (Hill) authorizes the DRE Commissioner to promulgate
regulations authorizing the issuance of citations and fines to
DRE licensees and unlicensed persons engaging in activities for
which a real estate license is required. This bill is pending
in Senate Business, Professions and Economic Development
Committee.
Previous legislation . SB 1737 (Machado) Chapter 286, Statutes
of 2008, allows DRE to ban from real estate-related employment
for up to three years anyone found guilty of violating the Real
Estate Law or any crime related to the qualification or duties
of a licensee. The bill allows DRE to suspend or revoke a
license if the licensee provides an inaccurate opinion of value
for a short sale for specified purposes, and requires notice to
all parties in a real estate transaction when the same person
arranges financing and acts as the buyer's agent, seller's agent
or both.
AB 1830 (Lieu, Bass, Nava and Wolk) of 2008 authorizes the
Commissioners of DRE, the Department of Financial Institutions,
and the Department of Corporations to suspend or revoke licenses
for violations of specified federal lending laws or regulations,
and defines the term "higher-priced mortgage loan," as
specified. This bill was vetoed.
AB 2454 (Emmerson) Chapter 279, Statutes of 2008, increases the
limit on the amount for which the Recovery Account may be liable
and deletes obsolete provisions relating to a cause of action
brought prior to January 1, 1980.
AB 840 (Emmerson) Chapter 140, Statutes of 2007, authorizes the
Commissioner to suspend or revoke the license of a real estate
licensee or a mineral, oil and gas licensee, or deny issuance of
the license to an applicant, if the applicant or licensee has
been found guilty of a felony or a crime substantially related
to the qualification, functions, or duties of the real estate
license or the mineral, oil and gas license.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors
California Mortgage Association (CMA)
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Escrow Institute of California
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081