On January 5, 2012, Governor Brown delivered to the legislature a proposed budget that included sweeping changes in regulatory agencies, including the Department of Real Estate (DRE), and dramatic cuts to various state programs in order to respond to California’s on-going budget deficit.

The proposed “consolidation” of state agencies, if passed in its current form, would result in the Department of Real Estate becoming a bureau within the existing Department of Consumer Affairs. Similar treatment is proposed for the Office of Real Estate Appraisers (OREA). The Governor’s rationale is that the Department of Consumer Affairs licenses and regulates most professions, ranging from doctors, architects and accountants to auto repair and contractors through more than thirty boards and commissions. The Governor suggests that it is the appropriate place to house regulatory functions for real estate licensees.

In addition, mortgage loan originators not affiliated with banks would be regulated within a new Department of Business Oversight which will oversee all financial and corporate entities. It appears that Mortgage Loan Originators now licensed by DRE will be transferred there, along with the attendant costs of their regulation, the DRE’s largest single enforcement cost area.

C.A.R. has in the past had to defend the budget reserves of DRE against “raids” proposed in previous administration budgets, and will be equally vigorous in resisting any transfer of financial reserves from the DRE under this proposed budget. It remains to be seen if the new budget would have the effect of transferring the reserves from license fees paid by real estate licensees out of the DRE “Special Fund” and into the General Fund of the state. The proposal is not yet specific as to its effect on the enforcement staff and capabilities of the DRE, however, concern has been raised that a “bureau” may not have the enforcement capabilities of a full “department.”

Again, the proposed budget is just that – a proposal, and has not yet been enacted by the Legislature.

C.A.R. Directors will consider the proposal at their winter meeting in Indian Wells later this month.