Thursday, October 16, 2008
1:00 p.m.- 5:00 p.m.
Sacramento, California

Presiding:
Bill Jansen, Chair
Heath Hilgenberg, Vice Chair
Patricia O'Neill, Vice Chair
Malcolm Bennett, Executive Committee Liaison
Jeanette Way, Executive Committee Liaison

C.A.R. Staff:
Alex Creel
Stan Wieg

I. Welcome and Opening Remarks - Bill Jansen, Chair

II. Overview of the Legislative Climate
- Member mobilization report - DeAnn Kerr
- Extraordinary legislative sessions - Budget, Health Care, Water - Oral update from staff on the status of special sessions of the legislature that ran concurrently with the regular session.
- Evaluating Proposals for Sponsored Legislation* - This Issues Briefing Paper reviews that ought to be taken into account when making the decision to sponsor a proposal as C.A.R. legislation.

III. C.A.R. Sponsored Legislation
A. SB 1737/1054 Machado, Mortgage Loan Broker Disclosure - As the lending function has become increasingly complicated and the subject of disputes, calls for more supervision or separation of the lending function from the rest of the real estate license have increased. Legislative pressure for reform continues to increase, aggravated by fears of increased defaults among non-traditional mortgages. Upon recommendation of the Mortgage Broker Task Force, C.A.R. sponsored a provision of SB 1054 that would have required a prominent disclosure to all parties whenever a licensee represents a buyer and originates a loan in a "1-4" transaction. This legislation would have helped to alleviate the perceived conflict created by the loan originator's obligation to ensure that the loan application is accurate and adequately underwritten, and his or her natural inclination to press for closure of the transaction. In June, C.A.R.'s Board of Director's adopted an oppose unless amended position to SB 1054 in order to eliminate a provision that would have precluded an individual licensee from taking a listing if they had provided a broker price opinion on the parcel for a short sale within the last 12 months. C.A.R. obtained amendments that removed this language. As amended, the bill contained a provision to authorize the DRE commissioner to suspend or revoke a real estate license if the licensee generated an inaccurate broker price opinion for a short sale with the intent of manipulating the lienholder into rejecting the proposed sale so that the licensee could acquire a business advantage.

B. AB 1356, Houston, Agents of Equity Purchasers - AB 1356 (Houston) Agents of Equity Purchasers - Existing law, prior to the decision in Schweitzer vs. Westminster Inv., effectively (and inappropriately) precluded legitimate agents from representing investor purchasers of properties in foreclosure because buyers' agents were required to purchase a bond, that is not available, for twice the value of the property. As introduced, this bill would have allowed an alternate means of demonstrating financial responsibility that included maintenance E&O insurance, with coverage up to $1 million, and a certification that the licensee was in good standing with the DRE. In early 2007, Schweitzer vs. Westminster Inv. which has overturned the bond requirement became final, thus making this bill unnecessary. C.A.R. requested that the author not move the bill forward.

C. AB 1366, Portantino, Housing Impact Statement Requirement for Local Land Use Decisions - AB 1366 (Portantino) Housing Element Requirements for Local Land Use Decisions - This bill will strengthen the annual housing element reporting process that governs local housing actions and provide a reporting structure that will help local governments' to focus on the regional impact of their housing decisions. HCD is promulgating a form that is currently available on a voluntary basis until it is fully approved. The form is intended to facilitate submission of the housing element portion of the annual general plan status report. As amended, AB 1366 will create an incentive program to encourage timely filing of the annual housing element portion of the general plan report by conditioning the receipt of funding from the CalHome, BEGIN, and the Infill Incentive Grant programs on both the adoption of an HCD - approved housing element and submittal of the annual progress report to HCD within the previous 12 months. The measure encourages local agencies to include more specific planning descriptions designed to meet the localities’ share of its regional housing need and help identify those jurisdictions that meet or exceed regional housing goals. AB 1366 has a delayed effective date tied to the first April 1 reporting date following final approval of the HCD Form for the annual report.

D. AB 2259, Mullin, CID Preservation of Right to Rent - Over the last few years, C.A.R. members noticed a trend among some homeowner associations to adopt restrictions that limit the ability of unit owners to rent their dwellings in CIDs. The imposition of rental restrictions diminishes an owner's property rights. C.A.R. argues that property owners should enjoy the right to rent or lease their unit as it existed at the time the CID unit was purchased. C.A.R. sponsored AB 2259 to protect this right, if it existed at the time the owner purchased the unit.

E. AB 2363 (Ma) Megan’s Law - "Just Cause Evictions" under Megan's Law - Municipalities with eviction controls only permit landlords to terminate a tenancy for a "just cause." Under these ordinances, the landlord must state, and potentially prove in court, a valid reason for terminating a tenancy which generally includes: non-payment of rent, illegal activity or holdovers, property damage, owner move-in, or the removal of units from the rental market. In February, C.A.R. sponsored legislation to require local jurisdictions with a "just cause eviction" ordinance to permit landlords to terminate a tenancy of a registered sex offender if necessary to protect a person at risk. With aggressive opposition in Assembly Judiciary Committee, C.A.R. chose to amend AB 2363 to require the Sex Offender Management Board to conduct a study on the availability of rental housing for sex offenders and to analyze what impact making registration as a sex offender a basis upon which to terminate a tenancy would have on public safety.

IV. Reports of Standing Committees and Task Forces
A. REALTORS® Commercial Alliance Commercial Investment - George Monte
B. Common Interest Development - Susan Tilling
C. Equal Opportunity-Cultural Diversity - Raymond Rodriguez
D. Housing Opportunity - Le Francis Arnold
E. Land Use and Environmental - Liz Fitzgerald
F. Local Governmental Relations - Leslie McBride
G. Manufactured Housing - David Hale
H. Property Management - Kevin Brown
I. Real Estate Finance - Patricia Bouie-Hinds
J. Taxation - Skip Zeleny
K. Tax Basis Portability Task Force - Deborah Ritchey
L. Public Policy Committee Reorganization Task Force - Annette Graw
M. Private Transfer Tax Task Force - Heath Hilgenberg

V. HR 3221 - California Implementation of Loan Originator License * Preemptive federal legislation has passed as part of the new federal housing bill that will require the states to individually license or register mortgage loan originators. This paper explores the policy options potentially raised by California efforts to comply.

VI. Ballot Propositions for November 2008 -UPDATED* The November 2008 general election ballot will contain 12 propositions for a vote of the people. C.A.R. has taken a position on only a few of the propositions, but all of the propositions will be presented in order with updated descriptions.

VII. Unconstitutional Covenants in Title Records * The included Issues Briefing Paper raises the question of whether C.A.R. should sponsor legislation attempting to mask or remove unconstitutional restrictions in title records. This issue was the subject of AB 2204, De La Torre, and has inspired multiple point of sale proposals.

VIII. State Pre-emption of Foreclosure Property Maintenance* The included Issues Briefing Paper explores the background of state and local regulation of REO properties. New state law speaks to the upkeep of foreclosed properties, but some local jurisdictions are imposing or considering different or even stricter regulations. At issue is whether C.A.R. should involve itself in legislative efforts to pre-empt the local rules.

IX. Consolidation of Statutory Disclosures in the TDS* The included Issues Briefing Paper explores whether C.A.R. should consider sponsored legislation to amend the TDS so as to allow it to serve as the disclosure or certification that property safety rules (like water heater strapping) have been complied with prior to sale.

X. Point of Sale Legislation

A. SB 1386, Lowenthal; Carbon monoxide detectors - SB 1386 would require ALL existing homes to install a carbon monoxide (CO) detector by July 1, 2010, and new homes built after June 1, 2009 to have a CO detector. The measure would have originally required the recording of a separate disclosure of compliance, a point-of-sale mandate and would have effectively forced home sellers and their agents to certify CO alarm installation. C.A.R. has recently obtained amendments that removed the specified point-of-sale mandate. As amended, the bill provides for a statewide, date-certain mandate for CO detectors in all housing (not just those that transfer), and will allow the CO detector to be noted in a (TDS). The amendments also added CO detectors to the TDS, thus eliminating the need for separate certifications. The amendments also broadened the statutory protections for these disclosures providing better seller protection and increased liability protections for agents.

B. AB 2678, Nunez; Energy audits and retrofit "investments" As introduced, AB 2678 required the California Energy Commission to develop a program that would have required ALL homes and commercial properties in California to have an energy audit and mandatory energy efficiency upgrades when properties were sold. While C.A.R. appreciated the goal of AB 2678, C.A.R. strongly opposed the point-of-sale requirements in the bill because not only would a point-of-sale mandate have failed to achieve the state's greenhouse gas reduction objectives, it would have further weakened the housing market by adding thousands of dollars to the cost of purchasing a home. C.A.R. obtained amendments that removed the point-of-sale requirement for energy audits and added language to ensure that the audits or improvements were not required as a condition of sale. With these amendments, C.A.R. removed its opposition and supported AB 2678 because it would have created a comprehensive statewide campaign of flexible cost-effective energy efficiency improvements for existing buildings.

C. AB 2881 (Wolk) Right to Farm - As introduced, AB 2881 would have required real estate licensees to include a disclosure on the right to farm in a real property sales contract for all properties located within a 1 - mile radius of an agricultural area. C.A.R. opposed the bill until it was amended to remove the mandatory disclosure provision. The bill now places the Right to Farm disclosure in both the subdivision reports for new homes and Natural Hazard Disclosure reports for resale homes, and contains a more workable definition of "agricultural area."

D. AB 2050 (Garcia) Point-of-Sale Mandate on Manufactured Homes - This bill proposes to modify current law that requires one smoke detector per mobilehome. AB 2050 would require all existing manufactured homes have an operable smoke detector in each sleeping room and to have water heaters strapped. As introduced, AB 2050 required that the verification of compliance with this statute be confirmed by the occupant of the mobilehome within 45 days prior to the sale of the mobilehome. C.A.R. opposed AB 2050 because it imposed a pre-point-of-sale mandate that did not include liability protection for real estate agents representing the seller of a mobilehome. A similar retrofit requirement is in current law for "stick-built" housing, and contains a safe-harbor provision for real estate licensees. Real estate agents should not be required to be "de facto" compliance inspectors. C.A.R achieved amendments that provide real estate agents the same liability immunities and limitations on duties to the client as currently exist in the sale of "stick-built" housing.

E. AB 2733, Brownley; Environmental Hazard Report - This measure would have required sellers or their agents to purchase a new disclosure report that identified all environmental hazard sites located within a one-quarter mile radius of a home's zip code or city upon transfer of the property. C.A.R. opposed AB 2733 because it would have required the purchase of an additional, and unnecessary, disclosure report and resulted in a dilution in the value of existing disclosures. The bill would have also added unknown costs to the transaction. C.A.R. achieved amendments that removed its opposition. As amended, AB 2733 no longer requires a new separate report but requires a developer or professional natural hazard report provider to, in its existing report, disclose environmental hazard sites located within a one-quarter mile radius of the property to prospective buyers.

XI. Department of Real Estate

A. SB 1240/1053, Machado; Mortgage broker enforcement program - SB 1053 failed to pass the Assembly Banking and Finance Committee due to a political dispute between the Assembly and Senate Banking Committees. SB 1240 was selected as an alternate vehicle and was "gutted and amended" in August 2008 to move the concepts in SB 1053 forward. As amended, SB 1240 requires real estate licensees acting as mortgage brokers to notify The Department of Real Estate (DRE), in writing, upon commencing or discontinuing that activity. Brokers will be required to file reports annually with the DRE that include a review of compliance and a review of trust fund financial statements by a licensed independent public accountant. Finally, SB 1240 will require brokers to keep all documents and records related to a loan transaction for 3 years. C.A.R. supports SB 1240 because it seeks to improve the supervision of mortgage brokers, without creating a special license.

B. SB 1448, Scott; Unlicensed Real Estate Practice - As introduced, SB 1448 would have authorized the Department of Real Estate (DRE) to issue citations containing a maximum fine of $5,000 or an order of abatement to unlicensed individuals acting as a real estate licensee. As amended, C.A.R. supports SB 1448 with the adopted amendments that increase the existing penalties and fines to be sought by district attorneys when unlicensed practice occurs.

C. SB 1461, Negrete McLeod; License number on contact materials - SB 1461 requires a real estate licensee to display his or her license number on real property purchase agreements and "consumer first contact materials" which include: business cards, stationary, advertising fliers, and other materials designed to solicit a professional relationship; however, the bill does not apply to classified rental advertisements. This bill would become effective on July 1, 2009. C.A.R. amendments that exempt "for sale" signs and advertisements that appear either in print or electronic media from the definition of "consumer first contact materials."

D. AB 2454, Emmerson; Real Estate Recovery Fund - The Real Estate Recovery Account is funded through fees imposed on real estate licensees and made available to individuals seeking to recover the unpaid portion of a fraud judgment against a real estate licensee. Currently, payments from the Recovery Account may not exceed $20,000 for any one transaction and $100,000 for any one licensee. AB 2454 would increase the amount that individuals may recover to $50,000 for any one transaction and $250,000 for any one licensee. C.A.R. supports AB 2454 because it will adjust homeowner protections to keep pace with inflation.

E. Status of budget "raids" from DRE reserves - Staff update on the status of attempts to "borrow" DRE reserve funds as part of efforts to balance the state budget. As of press time, the effort seems to have been abandoned.

F. Proposed license fee increases - Update on DRE task force examining whether, or how much, license and other fees may have to be increased to keep pace with the declining numbers of licensees.

G. DRE Task Force to review exam questions - Update on the DRE task force that is reviewing the license exam to ensure that its questions are valid and related to real estate practice.

XII. Mortgage Brokerage Legislation

A. SB 1137, Perata; Changing the foreclosure process - This legislation, passed on an urgency basis and already effective, was originally opposed by C.A.R. as part of a business and lending coalition. The bill was amended to moderate its restrictions on foreclosure and opposition was withdrawn. Its net effect is to add a month to the required foreclosure timeline to allow better “work out” opportunities for borrowers contacted by lenders, and to protect tenants in foreclosed properties against eviction for 60 days.

B. AB 1830, Lieu; Restrictions on mortgage loan brokers - AB 1830 would impose new interest rate tests and definitions for "higher priced" loans in an effort to be consistent with the new federal "Reg. Z" law on subprime loans. The bill also allows California regulators to punish violations of federal lending law. C.A.R. opposed a previous version of the bill which would have attempted to create a codified set of fiduciary duties for real estate licensees that would have caused needless compliance burdens, inappropriately restricted mortgage refinances, and worsened the current liquidity crisis that is making home loans so difficult to obtain. As amended in the Senate, C.A.R. renewed its opposition to AB 1830 because it restored previously opposed language and would create a new one-sided attorney fee rule that would only allow successful plaintiffs to collect attorney fees. AB 1830 will also create a double standard that does not hold ALL loan officers to the same rules and restrictions by only imposing new restrictions on mortgage brokers originating loans and not on residential mortgage lenders like Countrywide when they originate loans. The bill would restrict loans which will further restrict credit liquidity in California making home loans more difficult to obtain for legitimate, qualified, borrowers.

C. AB 2880, Wolk; Bond requirement for mortgage activity - This bill would have required a bond for a real estate licensee to engage in mortgage brokerage. C.A.R. opposed as tantamount to a license endorsement requirement and the bond was eventually eliminated.

D. HR 3221, Federal mandate to license mortgage loan originators (see also item V, above) - The new federal housing bill (among other things) requires states to regulate mortgage loan originators by creating a new registration or licensing program. The included Issues Briefing Paper explores the ramifications of the bill for DRE licensees.

XIII. Bills of Others
Note: For a complete listing of bills on which C.A.R. has taken active positions please see the Legislative Program Report at the new CAR.org, under "Government Affairs, 2008 Legislative Program."

SB 127, Kuehl; Timing of disclosures - As introduced, this bill would have required all transactional disclosure documents to be delivered within three days of the "execution" of an offer to purchase. As amended, this measure would have required all transactional disclosure documents to be delivered within ten days of the "execution" (acceptance) of an offer to purchase. C.A.R. originally opposed SB 127 because it would have imposed a 'one size fits all" time frame which would have made compliance difficult for many transactions, and would not have allowed time frames to be negotiated. C.A.R. successfully obtained amendments that would have allowed both parties to the transaction to agree, in writing, to change the time period for delivering transaction disclosures. With this amendment, C.A.R. had removed its opposition. Later amendments, however, forced C.A.R. to renew its opposition. As amended, SB 127 required a separate document when both parties to the real estate contract negotiate for a disclosure delivery time longer than ten days and would not have allowed the agreement to be contained within a single contract or deposit receipt. C.A.R. opposed the bill because it would have created unnecessary compliance burdens. In the final weeks of session, C.A.R. obtained amendments that removed the separate document requirement, thus removing C.A.R.’s opposition to SB 127.

SB 1007, Machado; IRC 1031 Exchange Accommodator regulation - This bill was supported by C.A.R. as it put minimum practice standards for exchange accommodators. C.A.R. will consider at these meetings whether to seek further regulation in the form of a legal opinion characterizing accommodators as escrows, or to impose other regulation.

SB 1065, Machado; Partial conformity to federal safe harbor for debt forgiveness - Federal law has created a special exception to the rule that makes the amount of debt forgiven in a short sale taxable as ordinary income. The federal rule protects tax years 2008-2010. This bill protects years 2008-2009; C.A.R. sought amendments to match the federal period.

SB 1608, Corbett; ADA lawsuits - This bill creates a process by which a business owner can get a certificate of compliance with ADA rules, and requires plaintiffs to actually have been personally inconvenienced by a violation.

SB 1775, Calderon; Dog fighting forfeitures - C.A.R. sought and received amendments to protect innocent landowners and landlords from forfeiture of property used in illegal dog fighting. The bill was eventually defeated in Senate Judiciary Committee for other reasons.

AB 2020, Fuentes; Liquidated damages in high-rise condos - The bill changes the percentage amount for agreed upon liquidated damages in transactions involving high value ($1,000,000+) high-rise multiunit developments. The bill is designed to help construction financing by allowing the liquidated damages to be counted as builder capital, but the buyer is protected by provisions requiring a refund of amounts that exceed actual damages for failure to complete a purchase.

AB 2052 (Lieu), Residential Tenancies, Domestic violence - The bill allows a victim of domestic violence to escape a lease in order to get away from an abuser. C.A.R. sought and received amendments that sunset the new rule after a pilot period and which preserve the ability of property managers to terminate the abuser.

AB 2105, DeSaulnier; Elder abuse mandatory reporting - The Elder Abuse and Dependent Adult Civil Protection Act established procedures for the reporting, investigation, and prosecution of elder and dependent adult abuse. These procedures require persons, defined as "mandated reporters," to report known or suspected instances of elder or dependent adult abuse. Under current law, only care custodians of dependent adults, local law enforcement agencies and some financial institutions are classified as mandated reporters. As introduced, AB 2105 would have expanded the category of mandated reporters for financial abuse to include both real estate brokers and residential mortgage lenders. C.A.R. opposed AB 2105 because real estate licensees engage in a broad array of customer services within the scope of their licensed activities and it would have been impossible for them to reasonably comply with the mandates of the bill without massive over reporting. C.A.R. obtained amendments that exclude real estate brokers from the requirements of this bill. As amended, the bill only pertains to Real Estate Mortgage Lenders (RMLs) and California Finance Lenders (CFLs).

AB 2204, De La Torre; Unconstitutional covenants in title record (see VII, above) - This bill would have imposed a time of sale requirement to search out and review for removal unconstitutional restrictions in the title record of residential property. Bill died in Senate Appropriations committee, where one recorded estimated a 3-year cost in excess of $191 million.

XIV. Other

XV. Adjournment

Note: “*” denotes an item with accompanying written materials