Bill Text: CA SB1253 | 2015-2016 | Regular Session | Introduced
Bill Title: Real estate brokers: limited liability companies.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Failed) 2016-11-30 - From committee without further action. [SB1253 Detail]
Download: California-2015-SB1253-Introduced.html
BILL NUMBER: SB 1253 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Moorlach
FEBRUARY 18, 2016
An act to amend Sections 10006, 10085.5, 10085.6, 10106, 10133.1,
10139, 10147.6, 10148, 10152, 10153, 10158, 10159, 10159.2, 10164,
10167.12, 10171.5, 10177, 10180, 10185, 10211, 10231.2, 10232.25,
10238, and 10451 of, and to add Section 10157.5 to, the Business and
Professions Code, relating to real estate and making an appropriation
therefor.
LEGISLATIVE COUNSEL'S DIGEST
SB 1253, as introduced, Moorlach. Real estate brokers: limited
liability companies.
Existing law, the California Revised Uniform Limited Liability
Company Act, authorizes a limited liability company to have any
lawful purpose, except as specified. A limited liability company is
an entity distinct from its members. Existing law authorizes a
limited liability company to render services that may be lawfully
rendered only pursuant to a license, certificate, or registration
authorized by the Business and Professions Code, the Chiropractic
Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if those
provisions authorize a limited liability company to hold that
license, certificate, or registration. Existing law prohibits the act
from being construed to permit a limited liability company to render
professional services, as defined. Under existing law, a limited
liability company is a member-managed limited liability company
unless the articles of organization. Under existing law, the
operating agreement governs, among other things, relations among the
members as members and between the members and the limited liability
company and the activities of the limited liability company. Existing
law authorizes a written operating agreement to provide for the
appointment of officers.
Existing law, the Real Estate Law, provides for the licensure and
regulation of real estate brokers by the Real Estate Commissioner,
the chief officer of the Bureau of Real Estate. Existing law
authorizes a real estate broker license to be issued to an individual
or a corporation. Under existing law, when a real estate license is
issued to a corporation, if it desires any of its officers other than
the specified designated officer to act under its license as a real
estate broker, it is required to obtain an additional license to
employ each of those additional officers. Under existing law, each
officer of a corporation through whom it is licensed to act as a real
estate broker is, while so employed under that license, a licensed
real estate broker, but licensed only to act as such for and on
behalf of the corporation as an officer. Existing law requires
applicants for licensure as a real estate broker and real estate
broker licensees to pay application, licensure, and renewal fees,
which are deposited in the Real Estate Fund, a continuously
appropriated fund. Existing law also authorizes the commissioner to
take disciplinary action against a real estate licensee, including
the imposition of a monetary penalty, which is also deposited in the
Real Estate Fund. A willful violation of the law and other related
real estate provisions is a crime.
This bill would authorize a limited liability company to be
licensed as a real estate broker. When a real estate license is
issued to a limited liability company that desires any of its
members, managers, or officers other than the designated member,
manager, or officer to act under its license as a real estate broker,
the bill would require the limited liability company to obtain an
additional license to employ each additional member, manager, or
officer. The bill would provide that each member, manager, or officer
of a limited liability company through whom the company is licensed
to act as a real estate broker is, while employed under license, a
licensed real estate broker, but licensed only to act as such for and
on behalf of the limited liability company as a member, manager, or
officer. The bill would make various other conforming changes in this
regard.
Because new application, licensure, and renewal fees for limited
liability companies would be deposited in the Real Estate Fund, a
contiguously appropriated fund, the bill would make an appropriation.
However, the bill would exclude money in the Real Estate Fund
attributable to administrative fines, civil penalties, and criminal
penalties imposed by the bureau against a limited liability company
broker, or attributable to cost recovery in actions or settlements,
from being continuously appropriated, and would instead make that
money subject to appropriation by the Legislature. Because a willful
violation of the law and other related real estate provisions by a
limited liability company would be a crime, the bill would impose a
state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10006 of the Business and Professions Code is
amended to read:
10006. "Person" includes corporation, company
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 he, she, or it
would perform.
(2) Take any wage assignment, any lien of any type on real or
personal property, or other security to secure the payment of
compensation.
(3) Take any power of attorney from the borrower for any purpose.
(b) A violation of this section by a natural person who is a
licensee is a public offense punishable by a fine not exceeding ten
thousand dollars ($10,000), by imprisonment in the county jail for a
term not to exceed one year, or by both that fine and imprisonment,
or if by a corporation or limited liability corporation ,
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 corporation, a limited liability company,
or a partnership, the order may be made against the licensed
corporate entity 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 his or her practice as an attorney at law, and the
disbursements of that person, whether paid by the borrower or other
person, are not charges or costs and expenses regulated by or subject
to the limitations of Article 7 (commencing with Section 10240), and
the fees and disbursements are not shared, directly or indirectly,
with the person negotiating the loan or the lender.
(6) Any person licensed as a finance lender when acting under the
authority of that license.
(7) Any cemetery authority as defined by Section 7018 of the
Health and Safety Code, that is authorized to do business in this
state or its authorized agent.
(8) Any person authorized in writing by a savings institution to
act as an agent of that institution, as authorized by Section 6520 of
the Financial Code or comparable authority of the Office of Thrift
Supervision of the United States Department of the Treasury by its
regulations, when acting under the authority of that written
authorization.
(9) Any person who is licensed as a securities broker or
securities dealer under any law of this state, or of the United
States, or any employee, officer, or agent of that person, if that
person, employee, officer, or agent is acting within the scope of
authority granted by that license in connection with a transaction
involving the offer, sale, purchase, or exchange of a security
representing an ownership interest in a pool of promissory notes
secured directly or indirectly by liens on real property, which
transaction is subject to any law of this state or the United States
regulating the offer or sale of securities.
(10) Any person licensed as a residential mortgage lender or
servicer when acting under the authority of that license.
(11) Any organization that has been approved by the United States
Department of Housing and Urban Development pursuant to Section 106
(a)(1)(iii) of the federal Housing and Urban Development Act of 1968
(12 U.S.C. Sec. 1701x), to provide counseling services, or an
employee of such an organization, when those services are provided at
no cost to the borrower and are in connection with the modification
of the terms of a loan secured directly or collaterally by a lien on
residential real property containing four or fewer dwelling units.
(b) Persons described in paragraph (1), (2), or (3), as follows,
are exempt from the provisions of subdivisions (d) and (e) of Section
10131 or Section 10131.1 with respect to the collection of payments
or performance of services for lenders or on notes of owners in
connection with loans secured directly or collaterally by liens on
real property:
(1) The person makes collections on 10 or less of those loans, or
in amounts of forty thousand dollars ($40,000) or less, in any
calendar year.
(2) The person is a corporation licensed as an escrow agent under
Division 6 (commencing with Section 17000) of the Financial Code and
the payments are deposited and maintained in the escrow agent's trust
account.
(3) An employee of a real estate broker who is acting as the agent
of a person described in paragraph (4) of subdivision (b) of Section
10232.4.
For purposes of this subdivision, performance of services does not
include soliciting borrowers, lenders, or purchasers for, or
negotiating, loans secured directly or collaterally by a lien on real
property.
(c) (1) Subdivision (d) of Section 10131 does not apply to an
employee of a real estate broker who, on behalf of the broker,
assists the broker in meeting the broker's obligations to its
customers in residential mortgage loan transactions, as defined in
Section 50003 of the Financial Code, where the lender is an
institutional lender, as defined in Section 50003 of the Financial
Code, provided the employee does not participate in any negotiations
occurring between the principals.
(2) A broker shall exercise reasonable supervision and control
over the activities of nonlicensed employees acting under this
subdivision, and shall comply with Section 10163 for each location
where the nonlicensed persons are employed.
This section does not restrict the ability of the commissioner to
discipline a broker or corporate broker licensee or its designated
officer, or both the corporate broker licensee and its designated
officer, or a limited liability br oker 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.
SEC. 6. Section 10139 of the Business and Professions Code is
amended to read:
10139. Any person acting as a real estate broker, real estate
salesperson, or mortgage loan originator without a license or license
endorsement, or who advertises using words indicating that he or she
is a real estate broker, real estate salesperson, or mortgage loan
originator without being so licensed or without having obtained a
license endorsement, shall be guilty of a public offense punishable
by a fine not exceeding twenty thousand dollars ($20,000), or by
imprisonment in the county jail for a term not to exceed six months,
or by both fine and imprisonment; or if a corporation 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 or corporation
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 him or her or obtained
by him or her in connection with any transactions for which a real
estate broker license is required. The retention period shall run
from the date of the closing of the transaction or from the date of
the listing if the transaction is not consummated. After notice, the
books, accounts, and records shall be made available for examination,
inspection, and copying by the commissioner or his or her designated
representative during regular business hours; and shall, upon the
appearance of sufficient cause, be subject to audit without further
notice, except that the audit shall not be harassing in nature. This
subdivision shall not be construed to require a licensed real estate
broker to retain electronic messages of an ephemeral nature, as
described in subdivision (d) of Section 1624 of the Civil Code.
(b) The commissioner shall charge a real estate broker for the
cost of any audit, if the commissioner has found, in a final desist
and refrain order issued under Section 10086 or in a final decision
following a disciplinary hearing held in accordance with Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code that the broker has violated Section 10145 or a
regulation or rule of the commissioner interpreting Section 10145.
(c) If a broker fails to pay for the cost of an audit as described
in subdivision (b) within 60 days of mailing a notice of billing,
the commissioner may suspend or revoke the broker's license or deny
renewal of the broker's license. The suspension or denial shall
remain in effect until the cost is paid or until the broker's right
to renew a license has expired.
(d) The commissioner may maintain an action for the recovery of
the cost of an audit in any court of competent jurisdiction. In
determining the cost incurred by the commissioner for an audit, the
commissioner may use the estimated average hourly cost for all
persons performing audits of real estate brokers.
(e) The bureau may suspend or revoke the license of any real
estate broker, real estate salesperson, 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 he or she
may deem advisable concerning the honesty and truthfulness of an
applicant for a real estate license or license examination, or of the
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 his or her determination the
commissioner shall require every original applicant to be
fingerprinted prior to issuing a license. The commissioner may
require the fingerprints to be submitted either with the application
to take the license examination or with the application for a real
estate license.
(b) The commissioner shall require a person who submits a petition
for reinstatement of his or her license or reduction of a penalty
pursuant to Section 11522 of the Government Code, in addition to
meeting any other requirements imposed for purposes of the
reinstatement or penalty reduction, to submit his or her fingerprints
with the petition.
SEC. 10. Section 10153 of the Business and Professions Code is
amended to read:
10153. In addition to the proof of honesty and truthfulness
required of any applicant for a real estate license, the commissioner
shall ascertain by written examination that the applicant, and in
case of a corporation 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 10157.5 is added to the Business and Professions
Code, to read:
10157.5. Notwithstanding any other law, a limited liability
company may be licensed as a real estate broker.
SEC. 12. Section 10158 of the Business and Professions Code is
amended to read:
10158. (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 so employ each of such additional officers.
(b) When a real estate license is issued to a limited liability
company, if it desires any of its members, managers, or officers
other than the member, manager, or officer designated by it pursuant
to Section 10211 to act under its license as a real estate broker, it
shall procure an additional license to employ each additional
member, manager, or officer.
SEC. 13. 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 is, while
so employed under such license, a licensed real estate broker, but
licensed only to act as such for and on behalf of the corporation as
an officer.
(b) Each member, manager, or officer of a limited liability
company through whom that company is licensed to act as a real estate
broker is, while employed under that license, a licensed real
estate broker, but licensed only to act as such for and on behalf of
the limited liability company as a member, manager, or officer.
SEC. 14. 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 Real Estate Commissioner
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. Section 10164 of the Business and Professions Code is
amended to read:
10164. (a) An employing broker 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 employing
broker's broker's, employing limited
liability company designated member, manager, or officer's, or
employing corporate designated broker officer's real estate business
and delegate to the appointed manager the responsibility to oversee
day-to-day operations, supervise the licensed activities of
licensees, and supervise clerical staff employed
in the branch office or division.
(b) Notwithstanding subdivision (a), nothing in this section shall
be construed to limit the responsibilities of an employing
broker 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 employing broker
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, bureau, in a form approved by the
commissioner, identifying the appointed manager and the branch office
or division the manager is appointed to supervise.
(d) A licensee shall not be appointed as a manager if any of the
following apply:
(1) The licensee holds a restricted license.
(2) The licensee is or has been subject to an order of debarment.
(3) The licensee is a salesperson with less than two years of
full-time real estate experience within five years preceding the
appointment.
(e) Whenever an appointment of a branch manager is terminated or
changed, the employing broker broker, limited
liability company designated broker member, manager, or officer,
or corporate designated broker officer shall immediately notify
the commissioner thereof in writing.
(f) This section shall become operative on July 1, 2012.
SEC. 16. Section 10167.12 of the Business and Professions Code is
amended to read:
10167.12. (a) The commissioner may suspend, deny, or revoke the
license of a licensee or the license of the licensee to operate at
one or more locations for either of the following:
(1) A violation of this article by a licensee or by an employee or
agent, including a designated agent, of the licensee.
(2) A conviction of a licensee, or a designated agent, or of
an 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. 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
an 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 an 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 an
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 himself or herself or a salesperson, by fraud,
misrepresentation, or deceit, or by making a material misstatement of
fact in an application for a real estate license, license renewal,
or reinstatement.
(b) Entered a plea of guilty or nolo contendere to, or been found
guilty of, or been convicted of, a felony, or a crime substantially
related to the qualifications, functions, or duties of a real estate
licensee, and the time for appeal has elapsed or the judgment of
conviction has been affirmed on appeal, irrespective of an order
granting probation following that conviction, suspending the
imposition of sentence, or of a subsequent order under Section 1203.4
of the Penal Code allowing that licensee to withdraw his or her plea
of guilty and to enter a plea of not guilty, or dismissing the
accusation or information.
(c) Knowingly authorized, directed, connived at, or aided in the
publication, advertisement, distribution, or circulation of a
material false statement or representation concerning his or her
designation or certification of special education, credential, trade
organization membership, or business, or concerning a business
opportunity or a land or subdivision, as defined in Chapter 1
(commencing with Section 11000) of Part 2, offered for sale.
(d) Willfully disregarded or violated the Real Estate Law (Part 1
(commencing with Section 10000)) or Chapter 1 (commencing with
Section 11000) of Part 2 or the rules and regulations of the
commissioner for the administration and enforcement of the Real
Estate Law and Chapter 1 (commencing with Section 11000) of Part 2.
(e) Willfully used the term "realtor" or a trade name or insignia
of membership in a real estate organization of which the licensee is
not a member.
(f) Acted or conducted himself or herself in a manner that would
have warranted the denial of his or her application for a real estate
license, or either had a license denied or had a license issued by
another agency of this state, another state, or the federal
government revoked or suspended for acts that, if done by a real
estate licensee, would be grounds for the suspension or revocation of
a California real estate license, if the action of denial,
revocation, or suspension by the other agency or entity was taken
only after giving the licensee or applicant fair notice of the
charges, an opportunity for a hearing, and other due process
protections comparable to the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340), Chapter 4 (commencing with
Section 11370), and Chapter 5 (commencing with Section 11500) of Part
1 of Division 3 of Title 2 of the Government Code), and only upon an
express finding of a violation of law by the agency or entity.
(g) Demonstrated negligence or incompetence in performing an act
for which he or she is required to hold a license.
(h) As a broker licensee, failed to exercise reasonable
supervision over the activities of his or her salespersons, or, as
the officer designated by a corporate broker licensee, 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 his or her employment by a governmental agency in a
capacity giving access to records, other than public records, in a
manner that violates the confidential nature of the records.
(j) Engaged in any other conduct, whether of the same or a
different character than specified in this section, that constitutes
fraud or dishonest dealing.
(k) Violated any of the terms, conditions, restrictions, and
limitations contained in an order granting a restricted license.
(l) (1) Solicited or induced the sale, lease, or listing for sale
or lease of residential property on the ground, wholly or in part, of
loss of value, increase in crime, or decline of the quality of the
schools due to the present or prospective entry into the neighborhood
of a person or persons having a characteristic listed in subdivision
(a) or (d) of Section 12955 of the Government Code, as those
characteristics are defined in Sections 12926 and 12926.1,
subdivision (m) and paragraph (1) of subdivision (p) of Section
12955, and Section 12955.2 of the Government Code.
(2) Notwithstanding paragraph (1), with respect to familial
status, paragraph (1) shall not be construed to apply to housing for
older persons, as defined in Section 12955.9 of the Government Code.
With respect to familial status, nothing in paragraph (1) shall be
construed to affect Sections 51.2, 51.3, 51.4, 51.10, 51.11, and
799.5 of the Civil Code, relating to housing for senior citizens.
Subdivision (d) of Section 51 and Section 4760 of the Civil Code and
subdivisions (n), (o), and (p) of Section 12955 of the Government
Code shall apply to paragraph (1).
(m) Violated the Franchise Investment Law (Division 5 (commencing
with Section 31000) of Title 4 of the Corporations Code) or
regulations of the Commissioner of Corporations pertaining thereto.
(n) Violated the Corporate Securities Law of 1968 (Division 1
(commencing with Section 25000) of Title 4 of the Corporations Code)
or the regulations of the Commissioner of Corporations pertaining
thereto.
(o) Failed to disclose to the buyer of real property, in a
transaction in which the licensee is an agent for the buyer, the
nature and extent of a licensee's direct or indirect ownership
interest in that real property. The direct or indirect ownership
interest in the property by a person related to the licensee by blood
or marriage, by an entity in which the licensee has an ownership
interest, or by any other person with whom the licensee has a special
relationship shall be disclosed to the buyer.
(p) Violated Article 6 (commencing with Section 10237).
(q) Violated or failed to comply with Chapter 2 (commencing with
Section 2920) of Title 14 of Part 4 of Division 3 of the Civil Code,
related to mortgages.
If a real estate broker that is a corporation 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 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 his, her, or its license, whichever
is earlier.
This section shall become operative on July 1, 2012.
SEC. 19. Section 10180 of the Business and Professions Code is
amended to read:
10180. The commissioner may deny, suspend or revoke the real
estate license of a corporation or limited liability company
as to any officer or agent , member,
manager, officer, or agent acting under its license without
revoking the license of the corporation or limited liability
company .
SEC. 20. 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 compan ies , who willfully
violates or knowingly participates in the violation of this division
shall be guilty of a misdemeanor punishable by a fine not exceeding
ten thousand dollars ($10,000), or by imprisonment in the county jail
not exceeding six months, or by a fine and imprisonment.
SEC. 21. Section 10211 of the Business and Professions Code is
amended to read:
10211. (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 original or renewal fee is to be paid in
addition to the fee paid by the limited liability company.
SEC. 22. Section 10231.2 of the Business and Professions Code is
amended to read:
10231.2. (a) A real estate broker who, through express or implied
representations that the broker or any salesperson acting on the
broker's behalf is engaging in acts for which a real estate license
is required by subdivision (d) or (e) of Section 10131, proposes to
solicit and accept funds, or to cause the solicitation and acceptance
of funds, to be applied to a purchase or loan transaction in which
the broker will directly or indirectly obtain the use or benefit of
the funds other than for commissions, fees, and costs and expenses as
provided by law for the broker's services as an agent, shall, prior
to the making of any representation, solicitation, or presentation of
the statement described in subdivision (b), submit the following to
the Bureau of Real Estate:
(1) A true copy of the statement described in subdivision (b)
complete except for the signature of the prospective lender or
purchaser.
(2) A statement that the submittal is being made to the bureau
pursuant to Section 10231.2.
(b) A broker making a solicitation pursuant to subdivision (a)
shall deliver, or cause to be delivered, to the person solicited, the
applicable completed statement described in Section 10232.5 not less
than 24 hours before the earlier of the acceptance of any funds from
that person by or on behalf of the broker or the execution of any
instrument obligating the person to make the loan or purchase. The
statement shall be signed by the prospective lender or purchaser and
by the real estate broker or, on the broker's behalf, by a real
estate salesperson licensed to the broker. When so executed, an exact
copy of the executed statement shall be given to the prospective
lender or purchaser, and the broker shall retain a true copy of the
executed statement for a period of four years.
(c) None of the provisions of subdivision (a) or (b) shall apply
in the case of an offering of a security authorized pursuant to
applicable provisions of the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code).
(d) (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. Section 10232.25 of the Business and Professions Code is
amended to read:
10232.25. (a) A real estate broker who meets the criteria of
subdivision (a) of Section 10232 shall, within 30 days after the end
of each of the first three fiscal quarters of the broker's fiscal
year, or within any additional time as the Real Estate Commissioner
may allow for good cause, file with the commissioner a trust funds
status report as of the last day of the fiscal quarter which shall
include the following:
(1) A representation that the form and content of the trust
account records of the broker are in compliance with the regulations
of the commissioner.
(2) A representation that the broker's trust fund bank account is
maintained in compliance with the regulations of the commissioner.
(3) A statement of the broker's aggregate accountability for trust
funds.
(4) A report of trust funds in the broker's custody consisting of
the trust account bank statements as of the bank's accounting date
immediately preceding the end of the fiscal quarter and a schedule of
withdrawals and deposits adjusting the account to its true balance
as of the end of the fiscal quarter.
(5) A statement explaining any difference in amount between the
broker's total accountability under paragraph (3) above and the
adjusted trust account bank balance under paragraph (4) above.
(b) Each report made pursuant to subdivision (a) shall include the
following:
(1) The name, address, and position or capacity of the person who
prepared the report.
(2) A declaration under penalty of perjury by the broker that the
information and representations in the report are true, complete, and
correct to the best of the broker's knowledge and belief. The
declaration in a report submitted on behalf of a corporate broker
shall be signed by a broker-officer through whom the corporation is
licensed as a real estate broker and by the chief executive officer
of the corporation if he or she is not the signing broker-officer.
The declaration in a report submitted on behalf of a limited
liability company broker shall be signed by a broker member, manager,
or officer through whom the limited liability company is licensed as
a real estate broker and by the chief executive officer, if any, of
the limited liability company if he or she is not the signing
broker member, manager, or officer.
(c) If a broker fails to file a report required under subdivision
(a) within the time permitted, the commissioner may cause an
examination and report to be made and may charge the broker one and
one-half times the cost of making the examination and report. In
determining the hourly cost incurred by the commissioner for
conducting an examination and preparing the report, the commissioner
may use the estimated average hourly cost for all department audit
staff performing audits of real estate brokers. If a broker fails to
pay the above amount within 60 days of the mailing of a notice of
billing, the commissioner may suspend the broker's license or deny
renewal of the broker's license. The suspension or denial shall
remain in effect until the above amount is paid or the broker's right
to renew a license has expired. The commissioner may maintain an
action for the recovery of the above amount in any court of competent
jurisdiction.
(d) A broker who meets the criteria of Section 10232, but who, in
carrying on the activities described in subdivisions (d) and (e) of
Section 10131, did not during a fiscal quarter, accept for the
benefit of a person to whom the broker is trustee, any payment or
remittance in a form convertible to cash by the broker, need not
comply with the provisions of subdivision (a). In lieu thereof, the
broker shall submit to the commissioner within 30 days after the end
of the fiscal quarter or within any additional time as the
commissioner may allow for good cause, a statement under penalty of
perjury on a form provided by the department attesting to the fact
that the broker did not receive any trust funds in cash or
convertible to cash during the fiscal quarter.
(e) Any real estate broker who engages in any of the activities
specified in subdivision (d) or (e) of Section 10131, but who is not
required by this section to file trust funds status reports with the
commissioner and who is not exempt therefrom under subdivision (d),
shall complete trust funds status reports in accordance with either
(1) the requirements of subdivisions (a) and (b) applicable to trust
funds status reports filed with the commissioner, or (2) the
requirements established by the lender or note owner, if the lender
or note owner does all of the following: (i) requires monthly
reconciliations of trust account balances; (ii) requires annual,
CPA-audited financial statements; and (iii) maintains a contractual
right to audit the trust accounts held by the broker on behalf of the
lender or note owner.
The broker shall retain all trust funds status reports prepared
under this subdivision on file at the broker's offices, where they
shall be subject to inspection by representatives of the commissioner
upon 24 hours' notice.
SEC. 24. Section 10238 of the Business and Professions Code is
amended to read:
10238. (a) A notice in the following form and containing the
following information shall be filed with the commissioner within 30
days after the first transaction and within 30 days of any material
change in the information required in the notice:
TO: Real Estate
Commissioner
Mortgage Loan
Section
1651 Exposition Boulevard
Sacramento, CA 95815
This notice is filed pursuant to Sections 10237
and 10238 of the Business and Professions Code.
( ) Original Notice ( ) Amended Notice
1. Name of Broker conducting transaction under
Section 10237:
_______________________________________________
2. Broker license identification number: _________
3. List the month the fiscal year ends: __________
4. Broker's telephone number: ____________________
5. Firm name (if different from ""1''):
_______________________________________________
6. Street address (main location):
_____________________________________________
# and Street City State ZIP Code
7. Mailing address (if different from ""6''):
_______________________________________________
8. Servicing agent: Identify by name, address,
and telephone number the person or
entity who will act as the servicing agent in
transactions pursuant to Section 10237
(including the undersigned Broker if that is
the case):
_______________________________________________
_______________________________________________
9. Total number of multilender notes arranged: ___
10. Total number of interests sold to investors on
the
multilender's notes: ______
11. Inspection of trust account (before answering
this question, review the provisions of
paragraph (3) of subdivision (k) of Section
10238).
CHECK ONLY ONE OF THE FOLLOWING:
( ) The undersigned Broker is (or expects to be)
required to file reports of inspection of its
trust account(s) with the Real Estate
Commissioner pursuant to paragraph (3) of
subdivision (k) of Section 10238.
Amount of Multilender Payments Collected Last
Fiscal Quarter: ___________________________________
Total Number of Investors Due Payments Last Fiscal
Quarter: __________________________________________
( ) The undersigned Broker is NOT (or does NOT
expect to be) required to file reports of
inspection of its trust account(s) with the
Real Estate Commissioner pursuant to paragraph
(3) of subdivision (k) of Section 10238.
12. Signature. The contents of this notice are
true and correct.
____________ __________________________________
Date Type Name of Broker
__________________________________
Signature of Brokeror of
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 employed for transactions under this article
shall show the name of the broker and comply with Section 10235 of
this code and Sections 260.302 and 2848 of Title 10 of the California
Code of Regulations. Brokers and their agents are cautioned that a
reference to a prospective investor that a transaction is conducted
under this article may be deemed misleading or deceptive if this
representation may reasonably be construed by the investor as an
implication of merit or approval of the transaction.
(d) Each parcel of real property directly securing the notes or
interests shall be located in this state, the note or notes shall not
by their terms be subject to subordination to any subsequently
created deed of trust upon the real property, and the note or notes
shall not be promotional notes secured by liens on separate parcels
of real property in one subdivision or in contiguous subdivisions.
For purposes of this subdivision, a promotional note means a
promissory note secured by a trust deed, executed on
unimproved real property or executed
after construction of an improvement of the property but before the
first purchase of the property as so improved, or executed as a means
of financing the first purchase of the property as so improved, that
is subordinate, or by its terms may become subordinate, to any other
trust deed on the property. However, the term "promotional note"
does not include either of the following:
(1) A note that was executed in excess of three years prior to
being offered for sale.
(2) A note secured by a first trust deed on real property in a
subdivision that evidences a bona fide loan made in connection with
the financing of the usual cost of the development in a residential,
commercial, or industrial building or buildings on the property under
a written agreement providing for the disbursement of the loan funds
as costs are incurred or in relation to the progress of the work and
providing for title insurance insuring the priority of the security
as against mechanic's and materialmen's liens or for the final
disbursement of at least 10 percent of the loan funds after the
expiration of the period for the filing of mechanic's and materialmen'
s liens.
(e) The notes or interests shall be sold by or through a real
estate broker, as principal or agent. At the time the notes or
interests are originally sold or assigned, neither the broker nor an
affiliate of the broker shall have an interest as owner, lessor, or
developer of the property securing the loan, or any contractual right
to acquire, lease, or develop the property securing the loan. This
provision does not prohibit a broker from conducting the following
transactions if, in either case, the disclosure statement furnished
by the broker pursuant to subdivision ( l ) discloses the
interest of the broker or affiliate in the transaction and the
circumstances under which the broker or affiliate acquired the
interest:
(1) A transaction in which the broker or an affiliate of the
broker is acquiring the property pursuant to a foreclosure under, or
sale pursuant to, a deed of trust securing a note for which the
broker is the servicing agent or that the broker sold to the holder
or holders.
(2) A transaction in which the broker or an affiliate of the
broker is reselling from inventory property acquired by the broker
pursuant to a foreclosure under, or sale pursuant to, a deed of trust
securing a note for which the broker is the servicing agent or that
the broker sold to the holder or holders.
(f) (1) The notes or interests shall not be sold to more than 10
persons, each of whom meets one or both of the qualifications of
income or net worth set forth below and signs a statement, which
shall be retained by the broker for four years, conforming to the
following:
Transaction Identifier:__________________________
Name of Purchaser:_____________________ Date:____
Check either one of the following, if true:
( ) My investment in the transaction does not
exceed 10% of my net worth, exclusive of
home, furnishings, and automobiles.
( ) My investment in the transaction does not
exceed 10% of my adjusted gross income for
federal income tax purposes for my last tax
year or, in the alternative, as estimated
for the current year.
_________________
Signature
(2) The number of offerees shall not be considered for the
purposes of this section.
(3) Spouses and their dependents, and an individual and his or her
dependents, shall be counted as one person.
(4) A retirement plan, trust, business trust, corporation, or
other entity that is wholly owned by an individual and the individual'
s spouse or the individual's dependents, or any combination thereof,
shall not be counted separately from the individual, but the
investments of these entities shall be aggregated with those of the
individual for the purposes of the statement required by paragraph
(1). If the investments of any entities are required to be aggregated
under this subdivision, the adjusted gross income or net worth of
these entities may also be aggregated with the net worth, income, or
both, of the individual.
(5) The "institutional investors" enumerated in subdivision (i) of
Section 25102 or subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted pursuant thereto, shall not
be counted.
(6) A partnership, limited liability company, corporation, or
other organization that was not specifically formed for the purpose
of purchasing the security offered in reliance upon this exemption
from securities qualification is counted as one person.
(g) The notes or interests of the purchasers shall be identical in
their underlying terms, including the right to direct or require
foreclosure, rights to and rate of interest, and other incidents of
being a lender, and the sale to each purchaser pursuant to this
section shall be upon the same terms, subject to adjustment for the
face or principal amount or percentage interest purchased and for
interest earned or accrued. This subdivision does not preclude
different selling prices for interests to the extent that these
differences are reasonably related to changes in the market value of
the loan occurring between the sales of these interests. The interest
of each purchaser shall be recorded pursuant to subdivisions (a) to
(c), inclusive, of Section 10234.
(h) (1) Except as provided in paragraph (2), the aggregate
principal amount of the notes or interests sold, together with the
unpaid principal amount of any encumbrances upon the real property
senior thereto, shall not exceed the following percentages of the
current market value of each parcel of the real property, as
determined in writing by the broker or appraiser pursuant to Section
10232.6, plus the amount for which the payment of principal and
interest in excess of the percentage of current market value is
insured for the benefit of the holders of the notes or interests by
an insurer admitted to do business in this state by the Insurance
Commissioner:
(A) Single-family residence, owner occupied
........................................ 80%
(B) Single-family residence, not owner
occupied ............................... 75%
(C) Commercial properties and income-
producing properties not described in
(B) or (E).............................. 65%
(D) Single-family residentially zoned lot
or parcel that has installed offsite
improvements including drainage, curbs,
gutters, sidewalks, paved roads, and
utilities as mandated by the political
subdivision having jurisdiction over
the lot or parcel ...................... 65%
(E) Land that produces income from crops,
timber, or minerals..................... 60%
(F) Land that is not income producing but
has been zoned for (and if required,
approved for subdivision as) commercial
or residential development ............. 50%
(G) Other real property .................... 35%
(2) The percentage amounts specified in paragraph (1) may be
exceeded when and to the extent that the broker determines that the
encumbrance of the property in excess of these percentages is
reasonable and prudent considering all relevant factors pertaining to
the real property. However, in no event shall the aggregate
principal amount of the notes or interests sold, together with the
unpaid principal amount of any encumbrances upon the property senior
thereto, exceed 80 percent of the current fair market value of
improved real property or 50 percent of the current fair market value
of unimproved real property, except in the case of a single-family
zoned lot or parcel as defined in paragraph (1), which shall not
exceed 65 percent of the current fair market value of that lot or
parcel, plus the amount insured as specified in paragraph (1). A
written statement shall be prepared by the broker that sets forth the
material considerations and facts that the broker relies upon for
his or her determination, which shall be retained as a part of the
broker's record of the transaction. Either a copy of the statement or
the information contained therein shall be included in the
disclosures required pursuant to subdivision (l).
(3) A copy of the appraisal or the broker's evaluation, for each
parcel of real property securing the notes or interests, shall be
delivered to each purchaser. The broker shall advise purchasers of
their right to receive a copy. For purposes of this paragraph,
"appraisal" means a written estimate of value based upon the
assembling, analyzing, and reconciling of facts and value indicators
for the real property in question. A broker shall not purport to make
an appraisal unless the person so employed is qualified on the basis
of special training, preparation, or experience.
(4) For construction or rehabilitation loans, the term "current
market value" may be deemed to be the value of the completed project
if the following safeguards are met:
(A) An independent neutral third-party escrow holder is used for
all deposits and disbursements.
(B) The loan is fully funded, with the entire loan amount to be
deposited in escrow prior to recording of the deed or deeds of trust.
(C) A comprehensive, detailed draw schedule is used to ensure
proper and timely disbursements to allow for completion of the
project.
(D) The disbursement draws from the escrow account are based on
verification from an independent qualified person who certifies that
the work completed to date meets the related codes and standards and
that the draws were made in accordance with the construction contract
and draw schedule. For purposes of this subparagraph, "independent
qualified person" means a person who is not an employee, agent, or
affiliate of the broker and who is a licensed architect, general
contractor, structural engineer, or active local government building
inspector acting in his or her official capacity.
(E) An appraisal is completed by a qualified and licensed
appraiser in accordance with the Uniform Standards of Professional
Appraisal Practice (USPAP).
(F) In addition to the transaction documentation required by
subdivision (i), the documentation shall include a detailed
description of actions that may be taken in the event of a failure to
complete the project, whether that failure is due to default,
insufficiency of funds, or other causes.
(G) The entire amount of the loan does not exceed two million five
hundred thousand dollars ($2,500,000).
(5) If a note or an interest will be secured by more than one
parcel of real property, for the purpose of determining the maximum
amount of the note or interest, each security property shall be
assigned a portion of the note or interest that shall not exceed the
percentage of current market value determined by, and in accordance
with, the provisions of paragraphs (1) and (2).
(i) The documentation of the transaction shall require that (1) a
default upon any note or interest is a default upon all notes or
interests and (2) the holders of more than 50 percent of the recorded
beneficial interests of the notes or interests may govern the
actions to be taken on behalf of all holders in accordance with
Section 2941.9 of the Civil Code in the event of default or
foreclosure for matters that require direction or approval of the
holders, including designation of the broker, servicing agent, or
other person acting on their behalf, and the sale, encumbrance, or
lease of real property owned by the holders resulting from
foreclosure or receipt of a deed in lieu of foreclosure. The terms
called for by this subdivision may be included in the deed of trust,
in the assignment of interests, or in any other documentation as is
necessary or appropriate to make them binding on the parties.
(j) (1) The broker shall not accept any purchase or loan funds or
other consideration from a prospective lender or purchaser, or
directly or indirectly cause the funds or other consideration to be
deposited in an escrow or trust account, except as to a specific loan
or note secured by a deed of trust that the broker owns, is
authorized to negotiate, or is unconditionally obligated to buy.
(2) All funds received by the broker from the purchasers or
lenders shall be handled in accordance with Section 10145 for
disbursement to the persons thereto entitled upon recordation of the
interests of the purchasers or lenders in the note and deed of trust.
No provision of this article shall be construed as modifying or
superseding applicable law regulating the escrow holder in any
transaction or the handling of the escrow account.
(3) The books and records of the broker or servicing agent, or
both, shall be maintained in a manner that readily identifies
transactions under this article and the receipt and disbursement of
funds in connection with these transactions.
(4) If required by paragraph (3) of subdivision (k), the review by
the independent certified public accountant shall include a sample
of transactions, as reflected in the records of the trust account
required pursuant to paragraph (1) of subdivision (k), and the bank
statements and supporting documents. These documents shall be
reviewed for compliance with this article with respect to the
handling and distribution of funds. The sample shall be selected at
random by the accountant from all these transactions and shall
consist of the following: (A) three sales made or 5 percent of the
sales made pursuant to this article during the period for which the
examination is conducted, whichever is greater, and (B) 10 payments
processed or 2 percent of payments processed under this article
during the period for which the examination is conducted, whichever
is greater.
(5) For the purposes of this subdivision, the transaction that
constitutes a "sale" is the series of transactions by which a series
of notes of a maker, or the interests in the note of a maker, are
sold or issued to their various purchasers under this article,
including all receipts and disbursements in that process of funds
received from the purchasers or lenders. The transaction that
constitutes a "payment," for the purposes of this subdivision, is the
receipt of a payment from the person obligated on the note or from
some other person on behalf of the person so obligated, including the
broker or servicing agent, and the distribution of that payment to
the persons entitled thereto. If a payment involves an advance paid
by the broker or servicing agent as the result of a dishonored check,
the inspection shall identify the source of funds from which the
payment was made or, in the alternative, the steps that are
reasonably necessary to determine that there was not a disbursement
of trust funds. The accountant shall inspect for compliance with the
following specific provisions of this section: paragraphs (1), (2),
and (3) of subdivision (j) and paragraphs (1) and (2) of subdivision
(k).
(6) Within 30 days of the close of the period for which the report
is made, or within any additional time as the commissioner may in
writing allow in a particular case, the accountant shall forward to
the broker or servicing agent, as the case may be, and to the
commissioner, the report of the accountant, stating that the
inspection was performed in accordance with this section, listing the
sales and the payments examined, specifying the nature of the
deficiencies, if any, noted by the accountant with respect to each
sale or payment, together with any further information as the
accountant may wish to include, such as corrective steps taken with
respect to any deficiency so noted, or stating that no deficiencies
were observed. If the broker meets the threshold criteria of Section
10232, the report of the accountant shall be submitted as part of the
quarterly reports required under Section 10232.25.
(k) The notes or interests shall be sold subject to a written
agreement that obligates a licensed real estate broker, or a person
exempted from the licensing requirement for real estate brokers under
this chapter, to act as agent for the purchasers or lenders to
service the note or notes and deed of trust, including the receipt
and transmission of payments and the institution of foreclosure
proceedings in the event of a default. A copy of this servicing
agreement shall be delivered to each purchaser. The broker shall
offer to the lenders or purchasers the services of the broker or one
or more affiliates of the broker, or both, as servicing agent for
each transaction conducted pursuant to this article. The agreement
shall require all of the following:
(1) (A) That payments received on the note or notes be deposited
immediately to a trust account maintained in accordance with this
section and with the provisions for trust accounts of licensed real
estate brokers contained in Section 10145 and Article 15 (commencing
with Section 2830.1) of Chapter 6 of Title 10 of the California Code
of Regulations.
(B) That payments deposited pursuant to subparagraph (A) shall not
be commingled with the assets of the servicing agent or used for any
transaction other than the transaction for which the funds are
received.
(2) That payments received on the note or notes shall be
transmitted to the purchasers or lenders pro rata according to their
respective interests within 25 days after receipt thereof by the
agent. If the source for the payment is not the maker of the note,
the agent shall inform the purchasers or lenders in writing of the
source for payment. A broker or servicing agent who transmits to the
purchaser or lenders the broker's or servicing agent's own funds to
cover payments due from the borrower but unpaid as a result of a
dishonored check may recover the amount of the advances from the
trust fund when the past due payment is received. However, this
article does not authorize the broker, servicing agent, or any other
person to issue, or to engage in any practice constituting, any
guarantee or to engage in the practice of advancing payments on
behalf of the borrower.
(3) If the broker or person who is or becomes the servicing agent
for notes or interests sold pursuant to this article upon which the
payments due during any period of three consecutive months in the
aggregate exceed one hundred twenty-five thousand dollars ($125,000)
or the number of persons entitled to the payments exceeds 120, the
trust account or accounts of that broker or affiliate shall be
inspected by an independent certified public accountant at no less
than three-month intervals during the time the volume is maintained.
Within 30 days after the close of the period for which the review is
made, the report of the accountant shall be forwarded as provided in
paragraph (6) of subdivision (j). If the broker is required to file
an annual report pursuant to subdivision (o) or pursuant to Section
10232.2, the quarterly report pursuant to this subdivision need not
be filed for the last quarter of the year for which the annual report
is made. For the purposes of this subdivision, an affiliate of a
broker is any person controlled by, controlling, or under common
control with the broker.
(4) Unless the servicing agent will receive notice pursuant to
Section 2924b of the Civil Code, the servicing agent shall file a
written request for notice of default upon any prior encumbrances and
promptly notify the purchasers or lenders of any default on the
prior encumbrances or on the note or notes subject to the servicing
agreement.
(5) The servicing agent shall promptly forward copies of the
following to each purchaser or lender:
(A) Any notice of trustee sale filed on behalf of the purchasers
or lenders.
(B) Any request for reconveyance of the deed of trust received on
behalf of the purchasers or lenders.
(l) The broker shall disclose in writing to each purchaser or
lender the material facts concerning the transaction on a disclosure
form adopted or approved by the commissioner pursuant to Section
10232.5, subject to the following:
(1) The disclosure form shall include a description of the terms
upon which the note and deed of trust are being sold, including the
terms of the undivided interests being offered therein, including the
following:
(A) In the case of the sale of an existing note:
(i) The aggregate sale price of the note.
(ii) The percent of the premium over or discount from the
principal balance plus accrued but unpaid interest.
(iii) The effective rate of return to the purchasers if the note
is paid according to its terms.
(iv) The name and address of the escrow holder for the
transaction.
(v) A description of, and the estimated amount of, each cost
payable by the seller in connection with the sale and a description
of, and the estimated amount of, each cost payable by the purchasers
in connection with the sale.
(B) In the case of the origination of a note:
(i) The name and address of the escrow holder for the transaction.
(ii) The anticipated closing date.
(iii) A description of, and the estimated amount of, each cost
payable by the borrower in connection with the loan and a description
of, and the estimated amount of, each cost payable by the lenders in
connection with the loan.
(C) In the case of a transaction involving a note or interest
secured by more than one parcel of real property, in addition to the
requirements of subparagraphs (A) and (B):
(i) The address, description, and estimated fair market value of
each property securing the loan.
(ii) The amount of the available equity in each property securing
the loan after the loan amount to be apportioned to each property is
assigned.
(iii) The loan to value percentage for each property after the
loan amount to be apportioned to each property is assigned pursuant
to subdivision (h).
(2) A copy of the written statement or information contained
therein, as required by paragraph (2) of subdivision (h), shall be
included in the disclosure form.
(3) Any interest of the broker or affiliate in the transaction, as
described in subdivision (e), shall be included with the disclosure
form.
(4) When the particular circumstances of a transaction make
information not specified in the disclosure form material or
essential to keep the information provided in the form from being
misleading, and the other information is known to the broker, the
other information shall also be provided by the broker.
(5) If more than one parcel of real property secures the notes or
interests, the disclosure form shall also fully disclose any risks to
investors associated with securing the notes or interests with
multiple parcels of real property.
(m) The broker or servicing agent shall furnish any purchaser of a
note or interest, upon request, with the names and addresses of the
purchasers of the other notes or interests in the loan.
(n) No agreement in connection with a transaction covered by this
article shall grant to the real estate broker, the servicing agent,
or any affiliate of the broker or agent the option or election to
acquire the interests of the purchasers or lenders or to acquire the
real property securing the interests. This subdivision shall not
prohibit the broker or affiliate from acquiring the interests, with
the consent of the purchasers or lenders whose interests are being
purchased, or the property, with the written consent of the
purchasers or lenders, if the consent is given at the time of the
acquisition.
(o) Each broker who conducts transactions under this article, or
broker or person who becomes the servicing agent for notes or
interests sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner an
annual report of a review of its trust account. The report shall be
prepared and filed in accordance with subdivision (a) of Section
10232.2 and the rules and procedures thereunder of the commissioner.
That report shall cover the broker's transactions under this article
and, if the broker also meets the threshold criteria set forth in
Section 10232, the broker's transactions subject to that section
shall be included as well.
(p) Each broker conducting transactions pursuant to this article,
or broker or person who becomes the servicing agent for notes or
interests sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner a
report of the transactions that is prepared in accordance with
subdivision (c) of Section 10232.2. If the broker also meets the
threshold criteria of Section 10232, the report shall also include
the transactions subject to that section. This report shall be
confidential pursuant to subdivision (f) of Section 10232.2.
SEC. 25. Section 10451 of the Business and Professions Code is
amended to read:
10451. All (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 his 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 bureau against a
limited liability company broker, or to cost recovery by the bureau
from enforcement actions and case settlements relating to a limited
liability company broker, shall not be continuously appropriated.
(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. 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.
