Bill Text: CA AB687 | 2019-2020 | Regular Session | Amended

California Assembly Bill 687 (Prior Session Legislation)

Bill Title: Real estate brokers: limited liability companies.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Engrossed - Dead) 2020-06-23 - Referred to Com. on B., P. & E.D. [AB687 Detail]

Download: California-2019-AB687-Amended.html

Amended IN Assembly January 07, 2020

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill

No. 687

Introduced by Assembly Member Daly

February 15, 2019

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, 10176, 10177, 10180, 10185, 10211, 10231.2, 10232.25, 10238, and 10451 of, and to add ~~Section~~ Sections 10156.9 and 10157.5 to, the Business and Professions Code, relating to real estate, and making an appropriation therefor.

LEGISLATIVE COUNSEL'S DIGEST

AB 687, as amended, Daly. 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 contain a statement that the limited liability company is to be manager managed. 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 Department of Real Estate within the Business, Consumer Services, and Housing Agency. Existing law authorizes a real estate broker license to be issued to an individual or a corporation. Existing law authorizes one officer, designated in the license application of a corporation, to engage in the business of real estate broker on behalf of the corporation. Existing law requires a licensed corporation to obtain an additional license to retain each additional officer to act under the corporation’s license as a real estate broker. Existing law authorizes a corporation, in the event of death or incapacity of a sole designated broker-officer, to operate as a licensee without interruption under its existing license if notice and an application is provided to the department within a specified period of time of the death or incapacity. Under existing law, an officer through whom the corporation is licensed and who is not a licensed real estate broker, is authorized only to act as real estate broker for and on behalf of the corporation as an officer. Existing law does not preclude a designated corporate officer who has a separate individual license from conducting licensed activity for another entity if the entity for which they act is clearly disclosed and apparent to any member of the public using their services outside the corporation. Existing law requires a corporation to be licensed by the department through qualified broker-officers, as provided, to act as a real estate broker. Under existing law, an officer through whom the corporation is licensed need not maintain an individual broker’s license, but is otherwise subject to all duties and responsibilities of a licensed real estate broker. 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 is a crime.

This bill would authorize a limited liability company to be licensed as a real estate broker. The bill would require the limited liability company to obtain an additional license to retain each additional member, manager, or officer to act under the company’s license as a real estate broker. The bill would, in the event of death or incapacity of a sole designated broker-member, broker-manager, or broker-officer, authorize a limited liability company to operate as a licensee without interruption under its existing license if notice and an application is filed with the department within a specified time of the event. Under the bill, a member, manager, or officer through whom the limited liability company is licensed and who is not a licensed real estate broker, is authorized only to act as a real estate broker for and on behalf of the company as a member, manager, or officer. The bill would not preclude a designated member, manager, or officer who has a separate individual license from conducting licensed activity for another entity if the entity for which they act is clearly disclosed and apparent to any member of the public using their services outside the limited liability company. The bill would require the limited liability company to be licensed by the department through qualified broker-officers, as provided, to act as a real estate broker. The bill would provide that a member, manager, or officer of a limited liability company through whom the limited liability company is licenced to act need not maintain an individual broker’s license, but is otherwise subject to all duties and responsibilities of a licensed broker. 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 continuously 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 department 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~~

Existing law, the Real Estate Recovery Program, authorizes an aggrieved person, who obtains a final judgment, including a criminal restitution order, or an arbitration award based on a defendant’s acts for which a real estate license was required, to apply to the bureau for payment from the Consumer Recovery Account, as specified. Existing law requires the license of a broker or salesperson to be automatically suspended when the commissioner pays from the Consumer Recovery Account any amount in the settlement of a claim or toward the satisfaction of a judgment against that broker or salesperson. Existing law requires a licensed broker, a licensed salesperson, or a person holding a prepaid rental listing service license to pay fees in addition to certain fees for obtaining or renewing their respective license, as specified, when, on June 30 of any year, the balance remaining in the Consumer Recovery Account, a continuously appropriated account in the Real Estate Fund, is less than $200,000.
This bill would require, as a condition of the issuance, reinstatement, reactivation, or continued valid use of a real estate broker license, a limited liability company to maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims based upon acts, errors, or omissions arising out of conduct subject to licensure under the Real Estate Law, as specified. The bill would provide that this insurance requirement does not in any way supersede or mitigate the requirements of the Real Estate Recovery Program described above. The bill would require, upon the dissolution and winding up of a limited liability company licensed as a real estate broker, the company to maintain or obtain an extended reporting period endorsement or equivalent provision, as specified, for a minimum of 3 years. The bill would require the limited liability company real estate broker applicant or licensee, and the limited liability company’s insurer or surplus line broker, as specified, to submit to the commissioner certain information and documentation related to these insurance requirements. The bill would authorize the commissioner to post to the limited liability company licensee’s license record on the internet specified information about the licensee’s insurance. The bill would authorize the commissioner to temporarily suspend or permanently revoke the license of a licensee for failing to maintain the insurance required by the above-described provisions.

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 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, company, limited liability company, 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 or limited liability company, 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 they 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 or limited liability company, 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 corporation, a limited liability company, or a partnership, the order may be made against the licensed corporate entity, licensed limited liability company, 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 their 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 the Comptroller of the Currency 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.

(12) Any person licensed as a PACE program administrator when acting under the authority of that license.

(13) A PACE solicitor, when enrolled by a person licensed as a program administrator and acting pursuant to an agreement with that program administrator licensee.

(14) A PACE solicitor agent, when enrolled by a person licensed as a program administrator and acting pursuant to an agreement between a PACE solicitor and that program administrator licensee.

(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.

(d) 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, 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, 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.

(e) This section shall become operative on January 1, 2019.

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 they are 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 or limited liability company, 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 person, corporation, or limited liability company is convicted, any fine collected from the person in excess of ten thousand dollars ($10,000) or any fine collected from the corporation or limited liability company 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:

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 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 or limited liability company, 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 them or obtained by them 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 their 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 department may suspend or revoke the license of any real estate broker, real estate salesperson, limited liability company, or corporation licensed as a real estate broker, if the real estate broker, real estate salesperson, or any director, officer, employee, member, manager, or agent of the limited liability company or 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 they may deem advisable concerning the honesty and truthfulness of an applicant for a real estate license or license examination, or of the members, managers, officers, directors, or persons owning 10 percent or more of the stock, of a corporation or limited liability company 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 their 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 their 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 their 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 or limited liability company applicant for a real estate broker’s license that each officer, member, manager, 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 10156.9 is added to the Business and Professions Code, to read:

10156.9.
(a) As a condition of the issuance, reinstatement, reactivation, or continued valid use of a real estate broker license under this part, a limited liability company shall, in accordance with this section, maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims based upon acts, errors, or omissions arising out of conduct subject to licensure under this chapter. This insurance requirement is in addition to, and does not in any way supersede or mitigate the requirements of, Chapter 6.5 (commencing with Section 10470).
(b) The total aggregate limit of liability under the policy or policies of insurance required under this section shall be as follows:
(1) For a limited liability company licensee with five or fewer natural person licensees under its control or supervision, the aggregate limit shall not be less than one million dollars ($1,000,000) in any one designated period.
(2) For a limited liability company licensee with more than five natural person licensees under its control or supervision, an additional one hundred thousand dollars ($100,000) of insurance shall be obtained for each such person except that the maximum amount of insurance is not required to exceed five million dollars ($5,000,000) in any one designated period, less amounts paid in defending, settling, or discharging claims as set forth under this section.
(c) The policy or policies required by this section may be issued on a claims-made or occurrence basis, and shall cover: (1) in the case of a claims-made policy, claims initially asserted in the designated period, and (2) in the case of an occurrence policy, occurrences during the designated period. For purposes of this section, “designated period” means a policy year or any other period designated in the policy that is not greater than 12 months. Any policy or policies secured to satisfy the requirements of this section shall be written by an insurer or insurers duly licensed by this state or an eligible surplus line insurer, with the insurance procured pursuant to Section 1765.1 of the Insurance Code, and may be in a form reasonably available in the commercial insurance market and may be subject to those terms, conditions, exclusions, and endorsements that are typically contained in those policies. A policy or policies of insurance maintained pursuant to this section may be subject to a commercially reasonable deductible or self-insured retention.
(d) The impairment or exhaustion of the aggregate limit of liability by amounts paid under any policy in connection with the settlement, discharge, or defense of claims applicable to a designated period shall not require the limited liability company licensee to acquire additional insurance coverage for that designated period. However, the coverage limit required by this section shall be reinstated by not later than the commencement date of the next designated period, and the license of any limited liability licensee that fails to comply with this provision shall be suspended by operation of law until the date that the limited liability licensee complies with the coverage limit requirements of this section. In addition, the amount to which any coverage limit is depleted may be reported on the license record. For purposes of this section, coverage limit means the aggregate limit of liability coverage.
(e) Upon the dissolution and winding up of the limited liability company, the company shall, with respect to any insurance policy or policies then maintained pursuant to this section, maintain or obtain an extended reporting period endorsement or equivalent provision in the maximum total aggregate limit of liability required to comply with this section for a minimum of three years.
(f) Prior to the issuance, reinstatement, or reactivation of a limited liability company’s real estate broker license as provided under this part, and annually thereafter, the applicant or licensee shall, in the manner prescribed by the commissioner, submit to the commissioner the information and documentation required by this section and requested by the commissioner, demonstrating compliance with the financial security requirements specified by this section.
(g) For any insurance policy secured by a limited liability company licensee in satisfaction of this section, a Certificate of Liability Insurance, signed by an authorized agent or employee of the insurer, shall be submitted electronically or otherwise to the commissioner. The insurer issuing the certificate, or, in the case of a surplus line policy, the surplus line broker, shall report to the commissioner the following information for any policy required under this section:
(1) Name.
(2) License number.
(3) Policy number.
(4) Dates that coverage is scheduled to commence and lapse.
(5) The date and amount of any payment of claims.
(6) Cancellation date if applicable.
(h) Upon the issuance, reinstatement, or reactivation of a license under this section, the commissioner may post the following information to the licensee’s license record on the internet:
(1) The name of the insurer or insurers providing the liability policy or policies submitted by the licensee for the most recent designated period.
(2) Any policy numbers and the sum of the aggregate limit of liability provided by each.

SEC. 11.SEC. 12.

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.SEC. 13.

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

10158.

(a) 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 retain each of those additional officers. In the event of death or incapacity of a sole designated broker-officer, a corporation may operate as a licensee without interruption under its existing license if notice of the death or incapacity and an application for a new designated officer is filed with the department before midnight of the 10th business day after the event.

(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 retain each of those additional members, managers, or officers. In the event of death or incapacity of a sole designated broker-member, broker-manager, or broker-officer, a limited liability company may operate as a licensee without interruption under its existing license if notice of the death or incapacity and an application for a new designated member, manager, or officer is filed with the department before midnight of the 10th business day after the event.

SEC. 13.SEC. 14.

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

10159.

(a) Each officer of a corporation through whom it is licensed to act as a real estate broker need not be a licensed real estate broker, but if not, is authorized only to act as such for and on behalf of the corporation as an officer. This does not preclude a designated corporate officer who has a separate individual license from conducting licensed activity for another entity if the entity for which they act is clearly disclosed and apparent to any member of the public using their services outside the corporation.

(b) When a corporation wishes to act as a real estate broker, the corporation shall be licensed by the department through qualified broker-officers, who have either passed the broker license examination and are now qualified to obtain a broker license, or who are currently licensed as real estate brokers. An officer of a corporation through whom it is licensed to act need not maintain an individual broker’s license, but is otherwise subject to all duties and responsibilities of a licensed broker.

(c) Each member, manager, or officer of a limited liability company through whom that company is licensed to act as a real estate broker need not be a licensed real estate broker, but if the member, manager, or officer is not, the member, manager, or officer is authorized only to act as such for and on behalf of the limited liability company as a member, manager, or officer. This does not preclude a designated member, manager, or officer who has a separate individual license from conducting licensed activity for another entity if the entity for which they act is clearly disclosed and apparent to any member of the public using their services outside the limited liability company.

(d) When a limited liability company wishes to act as a real estate broker, the limited liability company shall be licensed by the department through qualified broker-officers, who have either passed the broker license examination and are now qualified to obtain a broker license, or who are currently licensed as real estate brokers. A member, manager, or officer of a limited liability company through whom the limited liability company is licensed to act need not maintain an individual broker’s license, but is otherwise subject to all duties and responsibilities of a licensed broker.

SEC. 14.SEC. 15.

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

10159.2.

(a) (1) 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.

(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.

(b) (1) 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.

(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.

(c) (1) 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 commissioner within five days after the adoption or modification thereof.

(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.

SEC. 15.SEC. 16.

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

10164.

(a) A responsible broker, limited liability company designated broker member, manager, or officer, or corporate designated broker officer may appoint a licensee as a manager of a branch office or division of the real estate business of the responsible broker, limited liability company designated broker member, limited liability company designated broker manager, limited liability company designated broker officer’s, or corporate designated broker officer 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 a responsible broker, limited liability company designated broker member, manager, or officer, 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 responsible broker, limited liability company designated broker member, manager, or officer, or corporate designated broker officer shall retain a copy of the contract and send a notice to the department, 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 responsible broker, limited liability company designated broker member, manager, or officer, or corporate designated broker officer shall immediately notify the commissioner thereof in writing.

SEC. 16.SEC. 17.

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 a member, manager, officer, director, or owner of 25 percent or more of the shares of a limited liability company or 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.SEC. 18.

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 a member, manager, or officer of a limited liability company or 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 a member, manager, or officer of a limited liability company or 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 or limited liability company, delay the renewal of a license of a corporation or limited liability company, or deny the issuance of a license to a corporation or limited liability company, if a member, manager, 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 themself 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)(1)Entered a plea of guilty or no contest 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 their plea of guilty and to enter a plea of not guilty, or dismissing the accusation or information.
(2)Notwithstanding paragraph (1), and with the recognition that sentencing may not occur for months or years following the entry of a guilty plea, the commissioner may suspend the license of a real estate licensee upon the entry by the licensee of a guilty plea to any of the crimes described in paragraph (1). If the guilty plea is withdrawn, the suspension shall be rescinded and the license reinstated to its status prior to the suspension. The department shall notify a person whose license is subject to suspension pursuant to this paragraph of their right to have the issue of the suspension heard in accordance with Section 10100.
(c)Knowingly authorized, directed, connived at, or aided in the publication, advertisement, distribution, or circulation of a material false statement or representation concerning their 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 themself in a manner that would have warranted the denial of their 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, surrendered, 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, surrender, 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 they are required to hold a license.~~
(h)As a broker licensee, failed to exercise reasonable supervision over the activities of their salespersons, or, as the officer designated by a corporate broker licensee, or, as the member, manager, or officer designated by a limited liability company broker licensee, failed to exercise reasonable supervision and control of the activities of the corporation or limited liability company for which a real estate license is required.
~~(i)Used their 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 of 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 grounds, 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 of, subdivision (m) and paragraph (1) of subdivision (p) of Section 12955 of, 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, relating to mortgages.~~
If a real estate broker that is a corporation or limited liability company has not done any of the foregoing acts, either directly or through its members, managers, 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 or limited liability company, provided that any offending member, manager, officer, director, or stockholder, who has done any of the foregoing acts individually and not on behalf of the corporation or limited liability company, has been completely disassociated from any affiliation or ownership in the corporation or limited liability company. 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 their or its license, whichever is earlier.

SEC. 19.

Section 10176 of the Business and Professions Code is amended to read:

10176.

The commissioner may, upon ~~his or her~~ their own motion, and shall, upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a real estate licensee within this state, and ~~he or she~~ they may temporarily suspend or permanently revoke a real estate license at any time where the licensee, while a real estate licensee, in performing or attempting to perform any of the acts within the scope of this ~~chapter~~ chapter, has been guilty of any of the following:

(a) Making any substantial misrepresentation.

(b) Making any false promises of a character likely to influence, persuade, or induce.

(d) Acting for more than one party in a transaction without the knowledge or consent of all parties thereto.

(e) Commingling with ~~his or her~~ their own money or property the money or other property of others ~~which~~ that is received and held by ~~him or her.~~ them.

(f) Claiming, demanding, or receiving a fee, compensation, or commission under any exclusive agreement authorizing a licensee to perform any acts set forth in Section 10131 for compensation or commission where the agreement does not contain a definite, specified date of final and complete termination.

(g) The claiming or taking by a licensee of any secret or undisclosed amount of compensation, commission, or profit or the failure of a licensee to reveal to the buyer or seller contracting with the licensee the full amount of the licensee’s compensation, commission, or profit under any agreement authorizing the licensee to do any acts for which a license is required under this chapter for compensation or commission prior to or coincident with the signing of an agreement evidencing the meeting of the minds of the contracting parties, regardless of the form of the agreement, whether evidenced by documents in an escrow or by any other or different procedure.

(h) The use by a licensee of any provision, which allows the licensee an option to purchase, in an agreement with a buyer or seller that authorizes the licensee to sell, buy, or exchange real estate or a business opportunity for compensation or commission, except when the licensee, prior to or coincident with election to exercise the option to purchase, reveals in writing to the buyer or seller the full amount of the licensee’s profit and obtains the written consent of the buyer or seller approving the amount of the profit.

(i) Any other conduct, whether of the same or of a different character than specified in this section, which constitutes fraud or dishonest dealing.

(j) Obtaining the signature of a prospective buyer to an agreement which provides that the prospective buyer shall either transact the purchasing, leasing, renting, or exchanging of a business opportunity property through the broker obtaining the signature, or pay a compensation to the broker if the property is purchased, leased, rented, or exchanged without the broker first having obtained the written authorization of the owner of the property concerned to offer the property for sale, lease, exchange, or rent.

(k) Failing to disburse funds in accordance with a commitment to make a mortgage loan that is accepted by the applicant when the real estate broker represents to the applicant that the broker is either of the following:

(1) The lender.

(2) Authorized to issue the commitment on behalf of the lender or lenders in the mortgage loan transaction.

(l) Intentionally delaying the closing of a mortgage loan for the sole purpose of increasing interest, costs, fees, or charges payable by the borrower.

(m) Violating any section, division, or article of law which provides that a violation of that section, division, or article of law by a licensed person is a violation of that person’s licensing law, if it occurs within the scope of that person’s duties as a licensee.

(n) Failing to maintain the insurance required under Section 10156.9.

SEC. 20.

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,~~ corporation or limited liability company, delay the renewal of a license of a ~~corporation,~~ corporation or limited liability company, or deny the issuance of a license to a ~~corporation, if an~~ corporation or limited liability company, if a member, manager, 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 themself 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) (1) Entered a plea of guilty or no contest 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 that licensee’s plea of guilty and to enter a plea of not guilty, or dismissing the accusation or information.

(2) Notwithstanding paragraph (1), and with the recognition that sentencing may not occur for months or years following the entry of a guilty plea, the commissioner may suspend the license of a real estate licensee upon the entry by the licensee of a guilty plea to any of the crimes described in paragraph (1). If the guilty plea is withdrawn, the suspension shall be rescinded and the license reinstated to its status prior to the suspension. The department shall notify a person whose license is subject to suspension pursuant to this paragraph of that person’s right to have the issue of the suspension heard in accordance with Section 10100.

(c) Knowingly authorized, directed, connived at, or aided in the publication, advertisement, distribution, or circulation of a material false statement or representation concerning their 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 themself in a manner that would have warranted the denial of their 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, surrendered, 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, surrender, 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 the member, manager, officer, director, or person is required to hold a license.

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

(i) Used their 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 of 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 grounds, 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 of, subdivision (m) and paragraph (1) of subdivision (p) of Section 12955 of, 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 Business Oversight 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 Business Oversight 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, relating to mortgages.

If a real estate broker that is a corporation or limited liability company has not done any of the foregoing acts, either directly or through its members, managers, 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,~~ corporation or limited liability company, provided that any offending member, manager, officer, director, or stockholder, who has done any of the foregoing acts individually and not on behalf of the ~~corporation,~~ corporation or limited liability company, has been completely disassociated from any affiliation or ownership in the ~~corporation.~~ corporation or limited liability company. 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 the licensee’s license, whichever is earlier.

SEC. 19.SEC. 21.

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 or limited liability company as to any member, manager, officer, or agent acting under its license without revoking the license of the corporation or limited liability company.

SEC. 20.SEC. 22.

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

10185.

Any person, including members, managers, officers, directors, agents or employees of corporations or limited liability companies, 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.SEC. 23.

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

10211.

(a) 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.

(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 application and original or renewal fee is to be paid in addition to the fee paid by the limited liability company.

SEC. 22.SEC. 24.

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 Department 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 department 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) (1) 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.

(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.

SEC. 23.SEC. 25.

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 they are not the signing broker-officer. 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 they are not the signing broker member, manager, or officer.

(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.SEC. 26.

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 the 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 StreetCityStateZIP 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 Broker, Designated Member, Manager, or Officer of Limited Liability Broker, 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 used 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 their 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 their 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. 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 broker 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 the 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 their 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 both of the following:

(1) A default upon any note or interest is a default upon all notes or interests.

(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 both 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.

(B) Ten 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 this subdivision 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 both 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.SEC. 27.

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

10451.

(a) Except as provided in subdivision (b), all 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 their deputies, clerks, and assistants. The money credited to the fund shall remain therein.

(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 department against a limited liability company broker, or to cost recovery by the department from enforcement actions and case settlements relating to a limited liability company broker, shall not be continuously appropriated.

(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.

SEC. 26.SEC. 28.

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.

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