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REAL ESTATE LAW AND SUBDIVIDED LANDS LAW


As amended and in effect January 1, 2010
From the Business and Professions Code

DIVISION 4. REAL ESTATE under the direction of, and within the scope of,
his or her employment with that person in
PART 1. LICENSING OF PERSONS
connection with the transaction.
CHAPTER 1. GENERAL PROVISIONS
As used in this section, “any transaction
Definitions involving the sale, lease, or exchange of a
10000. This part may be cited as the Real Estate business opportunity” does not include any of
Law. the acts described in Section 10131 or Section
10001. The definitions in this chapter apply to 10131.2 if the substance of the transaction is to
the provisions of this part only and do not affect transfer, sell, lease, or exchange an interest in
any other provisions of this code. real property for the purpose of evading this
part.
10003. “Commissioner” refers to the Real Estate
Commissioner. 10009.5. “Provisions of this part relating to
mineral, oil and gas brokerage” refers to the
10004. “Department” means the Department of provisions of Chapters 1, 2, 6 and 7, of Part 1.
Real Estate in the Business and Transportation
Agency. 10010. “Provisions of this part relating to
hearings” refers to the provisions of Article 3 of
10005. Whenever the terms “division,” “State Chapter 2 of Part 1.
Real Estate Division,” or “Real Estate Division”
are used in this division, they mean the 10011. “Licensee,” when used without
Department of Real Estate. modification, refers to a person, whether broker
or salesman, licensed under any of the
Whenever the terms “State Real Estate provisions of this part.
Division” or “Real Estate Division” are used in
any other law, they mean the Department of 10012. “Broker,” when used without
Real Estate. modification, refers to a person licensed as a
broker under any of the provisions of this part.
10006. “Person” includes corporation, company
and firm. 10013. “Salesman,” when used without
modification, refers to a person licensed as a
10007. “Provisions of this part relating to real salesman under any of the provisions of this
estate” refers to the provisions of Chapters 1, 2, part.
3 and 6 of Part 1.
10014. “Real estate licensee” refers to a person,
10008. “Provisions of this part relating to whether broker or salesman, licensed under
business opportunity regulation” refers to the Chapter 3 of this part.
provisions of Chapters 1, 2, and 6 of Part 1.
10015. “Real estate broker” refers to a person
10008.5. Solely with regard to any transaction licensed as a broker under Chapter 3 of this part.
involving the sale, lease, or exchange of a
business opportunity occurring before, on, or 10016. “Real estate salesman” refers to a person
after the effective date of this section, this licensed as a salesman under Chapter 3 of this
division shall not apply to any person licensed at part.
the time of the transaction as a securities broker 10017. Whenever the word salesman is used in
or securities dealer under any law of this state or this division, or in the rules and regulations of
of the United States, or by any employee, the commissioner, it means salesperson. A
officer, or agent of that person while acting licensee, however, may elect to refer to the
14 BUSINESS AND PROFESSIONS CODE

licensed status as real estate salesman, real estate interest in property, offered for rent, sale, lease,
saleswoman, or real estate salesperson. or exchange.
10023. “Mineral, oil and gas licensee” refers to a (b) The name, or a list of the names, or the
person licensed under Chapter 7 (commencing location or locations at which prospective or
with Section 10500) of this part. potential purchasers, buyers, lessees, tenants or
exchangers of property may be found or
10024. “Mineral, oil and gas broker” refers to a
contacted.
person licensed as a broker under Chapter 7 of
this part. (c) An agreement by which a person who is
engaged in the business of promoting the sale or
“Advance Fee”
lease of business opportunities or real estate
10026. The term "advance fee" as used in agrees to render to an owner or lessee of such
this part is a fee, regardless of the form, property any services, to promote the sale or
claimed, demanded, charged, received, or lease of said property.
collected by a licensee from a principal
(d) An agreement by which a person who is
before fully completing each and every
engaged in the business of finding, locating or
service the licensee contracted to perform,
promoting the sale or lease of business
or represented would be performed. Neither opportunities or real estate, agrees to circularize,
an advance fee nor the services to be notify or refer real estate brokers or salesmen to
performed shall be separated or divided into said property which is offered for sale or lease.
components for the purpose of avoiding the
“Trust Deed”
application of this section. The term applies
10028. “Trust deed” or “deed of trust” as used in
to a fee for a listing, advertisement or offer this part includes “mortgage.”
to sell or lease property, other than in a
newspaper of general circulation, issued “Real Property Sales Contract”
primarily for the purpose of promoting the 10029. “Real property sales contract” as used in
this part is an agreement wherein one party
sale or lease of business opportunities or real
agrees to convey title to real property to another
estate or for referral to real estate brokers or party upon the satisfaction of specified
salesmen, or soliciting borrowers or lenders conditions set forth in the contract and which
for, or to negotiate loans on, business does not require conveyance of title within one
opportunities or real estate. As used in this year from the date of formation of the contract.
section, "advance fee" does not include
“Business Opportunity”
"security" as that term is used in Section 10030. As used in this part, the words “business
1950.5 of the Civil Code, or a "screening opportunity” shall include the sale or lease of the
fee" as that term is used in Section 1950.6 of business and goodwill of an existing business
the Civil Code. This section does not exempt enterprise or opportunity.
from regulation the charging or collecting of
Broker-Salesperson Relationship –
a fee under Section 1950.5 or 1950.6 of the Independent Contractor or Employee – No
Civil Code, but instead regulates fees that Effect on Obligations to Public
are not subject to those sections. 10032. (a) All obligations created under Section
“Listing” 10000, and following, all regulations issued by
10027. The term “listing” as used in this part the commissioner relating to real estate
includes, but is not limited to: salespersons, and all other obligations of brokers
and real estate salespersons to members of the
(a) The name or a list of the names, of the public shall apply regardless of whether the real
owners, landlords, exchangers, or lessors, or the estate salesperson and the broker to whom he or
location or locations, of property, or of an she is licensed have characterized their
BUSINESS AND PROFESSIONS CODE 15

relationship as one of “independent contractor” five years a real estate broker actively engaged
or of “employer and employee.” in business as such in California, or shall
possess related experience associated with real
(b) A real estate broker and a real estate
estate activity in California for five years within
salesperson licensed under that broker may
the last 10 years.
contract between themselves as independent
contractors or as employer and employee, for Commissioner’s Salary
purposes of their legal relationship with and 10053. The commissioner shall receive an
obligations to each other. Characterization of a annual salary as provided in Chapter 6
relationship as either “employer and employee” (commencing with Section 11550) of Part 1 of
or “independent contractor” for statutory Division 3 of Title 2 of the Government Code, to
purposes, including, but not limited to, be paid monthly out of the State Treasury upon a
withholding taxes on wages and for purposes of warrant of the Controller, and shall be allowed
unemployment compensation, shall be governed his actual and necessary expenses in the
by Section 650 and Sections 13000 to 13054, discharge of his duties.
inclusive, of the Unemployment Insurance Code.
Article 2. The Real Estate Commissioner
For purposes of workers compensation the
characterization of the relationship shall be (continued)
governed by Section 3200, and following, of the Enforcement
Labor Code. 10071. The commissioner shall enforce the
Criminal Provisions provisions of this part and of Chapter 1 of Part 2.
10035. Neither Section 10185 nor any other He has full power to regulate and control the
provision of this part which makes violation of issuance and revocation, both temporary and
this part a crime shall be construed to preclude permanent, of all licenses to be issued under the
application of any other criminal provision of provisions of this part, and to perform all other
the law of this state to an act or omission which acts and duties provided in this part and Chapter
constitutes a violation of this part. 1 of Part 2 and necessary for their enforcement.
Personnel
CHAPTER 2. ADMINISTRATION
10073. The commissioner shall employ such
Article 1. The Real Estate Commissioner deputies, clerks and employees as he may need
to discharge in proper manner the duties
Chief Officer of Department of Real Estate
imposed upon him by law.
10050. There is in the Business and
Transportation Agency a Department of Real Vocations Restricted
Estate, the chief officer of which department is 10074. After qualifying as such neither the
named the Real Estate Commissioner. commissioner nor any of the deputies, clerks or
employees of the department shall be interested
It shall be the principal responsibility of the
in any mineral, oil or gas business, mineral, oil
commissioner to enforce all laws in this part
or gas brokerage firm, real estate company or
(commencing with Section 10000) and Chapter
any real estate brokerage firm, as director,
1 (commencing with Section 11000) of Part 2 of
stockholder, officer, member, agent or
this division in a manner which achieves the
employee, or act as a broker or salesman, or act
maximum protection for the purchasers of real
as a copartner or agent for any broker or brokers,
property and those persons dealing with real
salesman or salesmen.
estate licensees.
Duties and Compensation
Appointment of Real Estate Commissioner
10075. Deputies, clerks and employees shall
10051. The commissioner shall be appointed by
perform such duties as the commissioner shall
the Governor.
assign to them.
Commissioner’s Qualifications
Subject to the powers of the State Personnel
10052. The commissioner shall have been for
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Board and the Director of Finance, the of this part and of Chapter 1 (commencing with
commissioner shall fix the compensation of such Section 11000) of Part 2 of this division. The
deputies, clerks and employees, which rules and regulations shall be adopted, amended,
compensation shall be paid monthly on a or repealed in accordance with the provisions of
certificate of the commissioner, and on the the Administrative Procedure Act.
warrant of the Controller out of the State
Credit Reports
Treasury.
10080.5. In the event the commissioner employs
Oaths the services of an agency engaged in the
10076. Each deputy shall, after his appointment, business of furnishing credit reports, such
take and subscribe to the constitutional oath of agency shall have been engaged in such business
office and file the same in the office of the continuously in this State for a period of not less
Secretary of State. than five years prior to the time of such
employment.
Main and Branch Offices
10077. The commissioner shall have his Commissioner’s Power to Enjoin
principal office in the City of Sacramento, and 10081. (a) Whenever the commissioner believes
may establish branch offices in the City and from evidence satisfactory to him that any
County of San Francisco, the City of Los person has violated or is about to violate any of
Angeles and in such other cities as the the provisions of this part or of Chapter 1
commissioner may deem necessary, subject to (commencing with Section 11000) of Part 2 or
the approval of the Department of Finance. any order, license, permit, decision, demand or
requirement, or any part or provision thereof, he
Seal
or she may bring an action in the name of the
10078. The commissioner shall adopt a seal with
people of the State of California in the superior
the words “Real Estate Commissioner State of
court of the State of California against that
California” and such other device as the
person to enjoin him or her from continuing the
commissioner may desire engraved thereon, by
violation or engaging therein or doing any act or
which he shall authenticate the proceedings of
acts in furtherance thereof.
his office.
In this action an order or judgment may be
Copies of all records and papers in the office of
entered awarding such preliminary or final
the commissioner certified under the hand and
injunction as may be proper, but no preliminary
seal of the commissioner shall be received in
injunction or temporary restraining order shall
evidence in all cases equally and with like effect
be granted without at least five days’ notice to
as the originals.
the defendant.
Legal Advisor
If the commissioner makes a showing
10079. The Attorney General shall render to the
satisfactory to the court that the violations or
commissioner opinions upon all questions of law
threatened violations jeopardize funds and
relating to the construction or interpretation of
properties of others in the custody or under the
this part or Chapter 1 of Part 2 or arising in the
control of the defendant, the court may appoint a
administration thereof that may be submitted to
receiver for management of the business of the
him by the commissioner. The Attorney General
defendant, including, but not limited to, the
shall act as the attorney for the commissioner in
funds and properties of others in his or her
all actions and proceedings brought by or against
possession or may make any other order as it
him under or pursuant to any of the provisions of
deems appropriate to protect and preserve those
this part or of Chapter 1 of Part 2.
funds and properties.
Rules and Regulations
The order appointing the receiver shall specify
10080. The commissioner may adopt, amend, or
the source of the funds for payment of the fees
repeal rules and regulations that are reasonably
of the receiver and the costs attributable to
necessary for the enforcement of the provisions
BUSINESS AND PROFESSIONS CODE 17

administering the receivership. Unless provided bankruptcy of the licensee.


for in the order, the commissioner shall not be
Directory
liable for payment of the fees or costs.
10082. The commissioner may publish or cause
(b) The commissioner may include in any action to be published at appropriate intervals a
authorized by subdivision (a), a claim for directory or list of licensed brokers and salesmen
restitution on behalf of the persons injured by and may publish therewith such matter as he
the act or practice constituting the subject matter may deem pertinent to this part and Chapter 1
of the action, and the court shall have (commencing with Section 11000) of Part 2. He
jurisdiction to award appropriate relief to such shall furnish one copy of such directory to each
persons. licensed broker upon his request and the
payment of an appropriate charge based upon
Injunction – Appointment of Receiver
cost of publication. Such directory may contain
10081.5. Whenever the commissioner believes
copies of the Real Estate Law, Chapter 1
from evidence satisfactory to him or her that any
(commencing with Section 11000) of Part 2 of
real estate licensee has violated or is about to
Division 4 of the Business and Professions
violate, the provisions of Section 10145, the
Code, and the Rules and Regulations of the Real
commissioner may bring an action in the name
Estate Commissioner.
of the people of the State of California, in the
superior court of the State of California, to Bulletin
enjoin the licensee from continuing the violation 10083. The commissioner may periodically
or engaging therein or doing any act or acts in issue a bulletin containing matter relating to the
furtherance thereof. department, and to the provisions of this part and
of Chapter 1 (commencing with Section 11000)
In the event the commissioner has conducted an
of Part 2, and the administration thereof, and
audit which reflects commingling or conversion
may publish the same character of matter in any
of trust funds in excess of ten thousand dollars
established periodical published in the state
($10,000), the court may enter an order
which in his opinion would be most likely to
restraining the licensee from doing any act or
disseminate such matter and information to
acts in furtherance thereof, and from further
licensees under this part.
exercising the privileges of his or her license
pending further order of the court, provided that Information Brochures
a hearing shall be held on the order within five 10084. The commissioner may prepare a
days after the date thereof. pamphlet or brochure dealing with disclosures of
information in residential real estate
After such hearing in the manner provided by
transactions. The costs of preparation and
law, an order may be entered appointing a
distribution may be paid from such moneys as
receiver, or such other order as the court may
may from time to time be appropriated from the
deem proper. The order appointing the receiver
Real Estate Fund for education and research.
shall specify the source of the funds from which
The commissioner shall make copies of the
the fees of the receiver and the costs of
pamphlet or brochure available upon request to
administering the receivership are to be paid.
sellers, buyers, and real estate licensees for a fee
Unless provided for in the order, the
commensurate with the cost of preparation and
commissioner shall not be liable for payment of
distribution. Such fees as are collected shall be
the fees or costs.
paid into the education and research account of
A receiver appointed by the court pursuant to the Real Estate Fund.
this section may, with the approval of the court,
Environmental Hazards Booklet
exercise all of the powers of the licensee or its
10084.1. (a) Notwithstanding Section 10450.6,
officers, directors, partners, trustees, or persons
on or before January 1, 1991, the department,
who exercise similar powers and perform similar
using funds appropriated from the Education and
duties, including the filing of a petition for
Research Account in the Real Estate Fund, shall
18 BUSINESS AND PROFESSIONS CODE

develop a booklet to educate and inform used in soliciting prospective owners and sellers
consumers on all of the following: shall be used in the form and manner which he
or she determines is necessary to carry out the
(1) Common environmental hazards that are
purposes and intent of this part.
located on, and affect, real property. The
types of common environmental hazards Any violation of any of the provisions of this
shall include, but not be limited to, asbestos, part or of the rules, regulations, orders or
radon gas, lead-based paint, formaldehyde, requirements of the commissioner thereunder
fuel and chemical storage tanks, and water shall constitute grounds for disciplinary action
and soil contamination. against a licensee, or for proceedings under
Section 10081 of this code, or both. These
(2) The significance of common
sanctions are in addition to the criminal
environmental hazards and what can be done
proceedings hereinbefore provided.
to mitigate these hazards.
Payment of Advance Fee – Loan Secured by
(3) What sources can provide more
Lien on Real Property
information on common environmental
10085.5. (a) It shall be unlawful for any person
hazards for the consumer.
to claim, demand, charge, receive, collect, or
(b) The department shall seek the advice of the contract for an advance fee (1) for soliciting
Office of Environmental Health Hazard lenders on behalf of borrowers or performing
Assessment to assist it in determining the services for borrowers in connection with loans
contents of the booklet prepared pursuant to this to be secured directly or collaterally by a lien on
section, and shall seek the assistance of the real property, before the borrower becomes
Office of Environmental Health Hazard obligated to complete the loan or, (2) for
Assessment in the writing of the booklet. performing any other activities for which a
Advance Fee Agreements and Materials license is required, unless the person is a
10085. The commissioner may require that any licensed real estate broker and has complied
or all materials used in obtaining advance fee with the provisions of this part.
agreements, including but not limited to the (b) This section does not prohibit the acceptance
contract forms, letters or cards used to solicit or receipt of an advance fee by any bank,
prospective sellers, and radio and television savings association, credit union, industrial loan
advertising be submitted to him or her at least 10 company, or person acting within the scope of a
calendar days before they are used. Should the license issued to that person pursuant to Division
commissioner determine that any such matter, 9 (commencing with Section 22000) of the
when used alone or with any other matter, would Financial Code, in connection with loans to be
tend to mislead he or she may, within 10 secured directly or collaterally by a lien on real
calendar days of the date he or she receives property. This section does not apply to charges
same, order that it not be used, disseminated, nor made by title insurers and controlled escrow
published. Any person or entity using, companies pursuant to Chapter 1 (commencing
disseminating, or publishing any matter which with Section 12340) of Part 6 of Division 2 of
the commissioner has ordered, pursuant to this the Insurance Code.
section, not to be used, published, or
(c) A violation of this section is a public offense
disseminated shall be guilty of a misdemeanor
punishable by a fine not exceeding ten thousand
punishable by a fine not exceeding two thousand
dollars ($10,000), by imprisonment in the
five hundred dollars ($2,500) or by
county jail for a term not to exceed six months,
imprisonment in the county jail not exceeding
or by both that fine and imprisonment, or if by a
six months, or both, for each such use,
corporation, the violation is punishable by a fine
dissemination, or publication.
not exceeding fifty thousand dollars ($50,000).
The commissioner may determine the form of
the advance fee agreements, and all material
BUSINESS AND PROFESSIONS CODE 19

10085.6. (a) Notwithstanding any other adopted for the purpose of implementing any
provision of law, it shall be unlawful for any provision of this part, other than a regulation
licensee who negotiates, attempts to negotiate, adopted pursuant to a provision of Article 8
arranges, attempts to arrange, or otherwise offers (commencing with Section 10249) of Chapter 3,
to perform a mortgage loan modification or or (2) a real estate broker has engaged in or is
other form of mortgage loan forbearance for a engaging in an activity which is a violation of a
fee or other compensation paid by the borrower, provision of Division 6 (commencing with
to do any of the following: Section 17000) of the Financial Code, and which
(1) Claim, demand, charge, collect, or is not exempt pursuant to paragraph (4) of
receive any compensation until after the subdivision (a) of Section 17006, the
licensee has fully performed each and every commissioner may direct the person to desist
service the licensee contracted to perform or and refrain from such activity by issuance of an
represented that he, she, or it would perform. order specifying the nature of the activity and
the factual and legal basis for his or her
(2) Take any wage assignment, any lien of determination. The respondent to whom the
any type on real or personal property, or order is directed shall immediately, upon receipt
other security to secure the payment of of the order, cease the activity described in the
compensation. order.
(3) Take any power of attorney from the (b) The respondent may, within 30 days after
borrower for any purpose. service of the order to desist and refrain, file a
(b) A violation of this section by a natural request for a hearing. If, with the request for
person who is a licensee is a public offense hearing, the respondent also files a written
punishable by a fine not exceeding ten thousand verification that the order of the commissioner
dollars ($10,000), by imprisonment in the precludes him or her from further engaging in a
county jail for a term not to exceed one year, or substantial proportion of his or her business, the
by both that fine and imprisonment, or if by a commissioner shall, within 10 days thereafter,
corporation, the violation is punishable by a fine file an action in superior court to restrain the
not exceeding fifty thousand dollars ($50,000). respondent from continuing the activity or doing
These penalties are cumulative to any other any act in furtherance thereof pending the
remedies or penalties provided by law. completion of a hearing pursuant to Chapter 5
(commencing with Section 11500) of Part 1 of
(c) This section shall apply only to mortgages Division 3 of Title 2 of the Government Code.
and deeds of trust secured by residential real
property containing four or fewer dwelling units. If the commissioner fails to bring the action in
superior court within the time prescribed by this
(d) This section shall remain in effect only until section, or if the court refuses to restrain the
January 1, 2013, and as of that date is repealed, respondent pending the decision of the
unless a later enacted statute, that is enacted commissioner following the administrative
before January 1, 2013, deletes or extends that hearing, the respondent may resume the
date. activities in question pending the rendering of
Engaging in Prohibited Activity – Order to the decision of the commissioner following the
Desist and Refrain administrative hearing.
10086. (a) If the commissioner determines (c) The administrative hearing shall be
through an investigation that (1) a person has commenced by the commissioner within 30 days
engaged or is engaging in an activity which is a after receipt of respondent’s request unless the
violation of a provision of this part, other than a respondent agrees to a postponement. If the
provision of Article 8 (commencing with hearing is not commenced within 30 days after
Section 10249) of Chapter 3, or which is a receipt of respondent’s request or on the date to
violation of a regulation of the commissioner which continued with respondent’s consent, or if
20 BUSINESS AND PROFESSIONS CODE

the commissioner does not render a decision (Chapter 4.5 (commencing with Section 11400)
within 15 days after receipt of the proposed of Division 3 of Title 2 of the Government
decision following the hearing, the order shall be Code). If no hearing is requested within 15 days
deemed rescinded. after the mailing or service of that notice and
none is ordered by the commissioner, the failure
(d) The provisions of Section 11019, and not the
to request a hearing shall constitute a waiver of
provisions of this section, shall apply in the case
the right to a hearing.
of an activity which the commissioner
determines to be in violation of Article 8 (c) Upon receipt of a notice of intention to issue
(commencing with Section 10249) of Chapter 3 an order pursuant to this section, the person who
or of a regulation of the commissioner for is the subject of the proposed order is
implementation of any provision of that article. immediately prohibited from engaging in any
business activity involving real estate that is
Debarment
subject to regulation under this division.
10087. (a) In addition to acting pursuant to the
authority provided under Sections 10086, 10176, (d) Persons suspended or barred under this
and 10177, the commissioner may, after section are prohibited from participating in any
appropriate notice and opportunity for a hearing, business activity of a real estate salesperson or a
by order, suspend, or bar from any position of real estate broker and from engaging in any real
employment, management, or control, for a estate-related business activity on the premises
period not exceeding 36 months, a real estate where a real estate salesperson or real estate
salesperson or real estate broker, or an broker is conducting business. Persons
unlicensed person issued an order under Section suspended or barred under this section are also
10086, if the commissioner finds either of the prohibited from participating in any real estate-
following: related business activity of a finance lender,
residential mortgage lender, bank, credit union,
(1) That the suspension or bar is in the
escrow company, title company, or underwritten
public interest and that the person has
title company.
committed or caused a violation of this
division or rule or order of the Article 3. Hearings
commissioner, which violation was either
Disciplinary Procedure
known or should have been known by the
10100. Before denying, suspending or revoking
person committing or causing it or has
any license or license endorsement issuable or
caused material damage to the public.
issued under the provisions of this part, the
(2) That the person has been convicted of or department shall proceed as prescribed by
pleaded nolo contendere to any crime, or has Chapter 5 (commencing with Section 11500) of
been held liable in any civil action by final Part 1 of Division 3 of Title 2 of the
judgment, or any administrative judgment Government Code, and the department shall
by any public agency, if that crime or civil have all the powers granted therein.
or administrative judgment involved any
Voluntary Surrender of License
offense involving dishonesty, fraud, or
10100.2. A licensee against whom an
deceit, or any other offense reasonably
investigation is pending or an accusation has
related to the qualifications, functions, or
been filed pursuant to Section 11503 of the
duties of a person engaged in the real estate
Government Code may petition the
business in accordance with the provisions
commissioner to voluntarily surrender his or her
of this division.
license. The surrender of a license shall become
(b) Within 15 days from the date of a notice of effective upon acceptance by the commissioner
intention to issue an order pursuant to and thereafter, a surrendered licensee may be
subdivision (a), the person may request a relicensed only by petitioning for reinstatement
hearing under the Administrative Procedure Act pursuant to Section 11522 of the Government
BUSINESS AND PROFESSIONS CODE 21

Code. When deciding a petition for county in this state to prosecute all violations of
reinstatement, the commissioner may consider this section in their respective counties in which
all relevant evidence, including affidavits. the violations occur.
Statute of Limitations – Real Estate Licensees Broker Defined
10101. The accusation provided for by Section 10131. A real estate broker within the meaning
11503 of the Government Code shall be filed not of this part is a person who, for a compensation
later than three years from the occurrence of the or in expectation of a compensation, regardless
alleged grounds for disciplinary action unless of the form or time of payment, does or
the acts or omissions with which the licensee is negotiates to do one or more of the following
charged involves fraud, misrepresentation or a acts for another or others:
false promise in which case the accusation shall
(a) Sells or offers to sell, buys or offers to buy,
be filed within one year after the date of
solicits prospective sellers or purchasers of,
discovery by the aggrieved party of the fraud,
solicits or obtains listings of, or negotiates the
misrepresentation or false promise or within
purchase, sale or exchange of real property or a
three years after the occurrence thereof,
business opportunity.
whichever is later, except that in no case shall an
accusation be filed later than 10 years from the (b) Leases or rents or offers to lease or rent, or
occurrence of the alleged grounds for places for rent, or solicits listings of places for
disciplinary action. rent, or solicits for prospective tenants, or
negotiates the sale, purchase or exchanges of
Jurisdiction Over a Lapsed or Suspended
leases on real property, or on a business
License
opportunity, or collects rents from real property,
10103. The lapsing or suspension of a license by
or improvements thereon, or from business
operation of law or by order or decision of the
opportunities.
department or a court of law, or the voluntary
surrender of a license by a licensee shall not (c) Assists or offers to assist in filing an
deprive the department of jurisdiction to proceed application for the purchase or lease of, or in
with any investigation of or action or locating or entering upon, lands owned by the
disciplinary proceeding against such licensee, or state or federal government.
to render a decision suspending or revoking such (d) Solicits borrowers or lenders for or
license. negotiates loans or collects payments or
CHAPTER 3. REAL ESTATE REGULATIONS performs services for borrowers or lenders or
note owners in connection with loans secured
Article 1. Scope of Regulation directly or collaterally by liens on real property
License Required or on a business opportunity.
10130. It is unlawful for any person to engage in (e) Sells or offers to sell, buys or offers to buy,
the business, act in the capacity of, advertise or or exchanges or offers to exchange a real
assume to act as a real estate broker or a real property sales contract, or a promissory note
estate salesman within this state without first secured directly or collaterally by a lien on real
obtaining a real estate license from the property or on a business opportunity, and
department. performs services for the holders thereof.
The commissioner may prefer a complaint for Some Managers and Employees Exempt
violation of this section before any court of 10131.01. (a) Subdivision (b) of Section 10131
competent jurisdiction, and the commissioner does not apply to (1) the manager of a hotel,
and his counsel, deputies or assistants may assist motel, auto and trailer park, to the resident
in presenting the law or facts at the trial. manager of an apartment building, apartment
Prosecution of Violations complex, or court, or to the employees of that
It is the duty of the district attorney of each manager, or (2) any person or entity, including a
22 BUSINESS AND PROFESSIONS CODE

person employed by a real estate broker, who, nonlicensed persons are employed.
on behalf of another or others, solicits or
Broker Definition Continued – Buying/Selling
arranges, or accepts reservations or money, or
Notes, etc.
both, for transient occupancies described in
10131.1. (a) A real estate broker within the
paragraphs (1) and (2) of subdivision (b) of
meaning of this part is also a person who
Section 1940 of the Civil Code, in a dwelling
engages as a principal in the business of making
unit in a common interest development, as
loans or buying from, selling to, or exchanging
defined in Section 1351 of the Civil Code, in a
with the public, real property sales contracts or
dwelling unit in an apartment building or
promissory notes secured directly or collaterally
complex, or in a single-family home, or (3) any
by liens on real property, or who makes
person other than the resident manager or
agreements with the public for the collection of
employees of that manager, performing the
payments or for the performance of services in
following functions who is the employee of the
connection with real property sales contracts or
property management firm retained to manage a
promissory notes secured directly or collaterally
residential apartment building or complex or
by liens on real property.
court and who is performing under the
supervision and control of a broker of record (b) As used in this section:
who is an employee of that property (1) "In the business" means any of the
management firm or a salesperson licensed to following:
the broker who meets certain minimum
requirements as specified in a regulation issued (A) The acquisition for resale to the
by the commissioner: public, and not as an investment, of
eight or more real property sales
(A) Showing rental units and common contracts or promissory notes secured
areas to prospective tenants. directly or collaterally by liens on real
(B) Providing or accepting preprinted property during a calendar year.
rental applications, or responding to (B) The sale to or exchange with the
inquiries from a prospective tenant public of eight or more real property
concerning the completion of the sales contracts or promissory notes
application. secured directly or collaterally by liens
(C) Accepting deposits or fees for credit on real property during a calendar year.
checks or administrative costs and However, no transaction negotiated
accepting security deposits and rents. through a real estate licensee shall be
considered in determining whether a
(D) Providing information about rental
person is a real estate broker within the
rates and other terms and provisions of a
meaning of this section.
lease or rental agreement, as set out in a
schedule provided by an employer. (C) The making of eight or more loans
in a calendar year from the person's own
(E) Accepting signed leases and rental
funds to the public when those loans are
agreements from prospective tenants.
held or resold and are secured directly or
(b) A broker or salesperson shall exercise collaterally by a lien on residential real
reasonable supervision and control over the property consisting of a single dwelling
activities of nonlicensed persons acting under unit in a condominium or cooperative or
paragraph (3) of subdivision (a). on any parcel containing only residential
buildings if the total number of units on
(c) A broker employing nonlicensed persons to
the parcel is four or less. However, no
act under paragraph (3) of subdivision (a) shall
transaction negotiated through a real
comply with Section 10163 for each apartment
estate broker who meets the criteria of
building or complex or court where the
subdivision (a) or (b) of Section 10232
BUSINESS AND PROFESSIONS CODE 23

shall be considered in determining Broker Definition Continued – Securities


whether a person is a real estate broker 10131.3. A real estate broker within the meaning
within the meaning of this section. of this part is also a person who, for another or
others, for compensation or in expectation of
(2) "Sale," "resale," and "exchange" include
compensation, issues or sells, solicits
every disposition of any interest in a real
prospective sellers or purchasers of, solicits or
property sales contract or promissory note
obtains listings of, or negotiates the purchase,
secured directly or collaterally by a lien on
sale, or exchange of securities as specified in
real property, except the original issuance of
Section 25206 of the Corporations Code.
a promissory note by a borrower or a real
property sales contract by a vendor, either of The provisions of this section do not apply to a
which is to be secured directly by a lien on broker-dealer or agent of a broker-dealer
real property owned by the borrower or licensed by the Commissioner of Corporations
vendor. under the provisions of the Corporate Securities
Law of 1968.
(3) "Own funds" means either of the
following: Broker Definition Continued – Mineral, Oil, or
Gas Property
(A) Cash, corporate capital, or
10131.4. A real estate broker within the meaning
warehouse credit lines at commercial
of this part is also a person who acts for another
banks, savings banks, savings and loan
or others for compensation or in expectation of
associations, industrial loan companies,
compensation, to do one or more of the
or other sources that are liability items
following acts:
on the person's financial statements,
whether secured or unsecured. (a) To sell or offer for sale, buy or offer to buy,
solicit prospective sellers or purchasers, solicit
(B) Cash, corporate capital, or
or obtain listings, or negotiate the purchase, sale,
warehouse credit lines at commercial
or exchange of mineral, oil, or gas property.
banks, savings banks, savings and loan
associations, industrial loan companies, (b) To solicit borrowers or lenders for or
or other sources that are liability items negotiate loans on mineral, oil, or gas property,
on the financial statement of an affiliate or collect payments for lenders in connection
of the person, whether secured or with these loans.
unsecured.
(c) To lease or offer to lease or negotiate the
(4) "Own funds" does not include funds sale, purchase, or exchange of leases on mineral,
provided by a third party to fund a loan on oil, or gas property.
condition that the third party will
(d) To rent or place for rent, mineral, oil, or gas
subsequently purchase or accept an
property or to collect rent or royalties from
assignment of the loan.
mineral, oil, or gas property or improvements
Broker Definition Continued – Advance Fees thereon.
10131.2. A real estate broker within the meaning
(e) Other than as an officer or employee of the
of this part is also a person who engages in the
state or federal government, to assist or offer to
business of claiming, demanding, charging,
assist another or others in filing an application
receiving, collecting or contracting for the
for the purchase or lease of, or to locate or enter
collection of an advance fee in connection with
upon mineral, oil, or gas property owned by the
any employment undertaken to promote the sale
state or federal government.
or lease of real property or of a business
opportunity by advance fee listing, MOG Property – License Required as Principal
advertisement or other offering to sell, lease, 10131.45. A real estate broker within the
exchange or rent property or a business meaning of this part is also a person who
opportunity, or to obtain a loan or loans thereon.
24 BUSINESS AND PROFESSIONS CODE

engages in the following businesses as a and Community Development, methods and


principal: procedures to assure compliance with
requirements of the Health and Safety Code
(a) Except as provided in subdivision (d) of
pertaining to mobilehome registration, collection
Section 10133.35, buying or leasing, or taking
of sales and use taxes, and transaction
an option on mineral, oil, or gas property for the
documentation.
purpose of sale, exchange, lease, sublease, or
assignment of a lease of the property or any part (e) Nothing in this section increases or
of the property. decreases, or in any way preempts, consumer
notice requirements of the National
(b) Offering mining claims or any interest
Manufactured Housing Construction and Safety
therein for sale or assignment.
Standards Act of 1974 and related regulations
Nonresident Licensees which are set forth in Section 5414 of Title 42 of
10131.5. A nonresident of California may the United States Code and Section 3282.255 of
become a real estate broker by conforming to all Title 24 of the Code of Federal Regulations.
of the provisions of this part.
Mobilehome Advertising
Broker Definition Continued – Mobilehomes 10131.7. It is unlawful for any real estate
10131.6. (a) Notwithstanding any other licensee acting under authority of Section
provision of law, a person licensed as a real 10131.6 to do any of the following:
estate broker may sell or offer to sell, buy or
(a) To advertise or offer for sale in any manner
offer to buy, solicit prospective purchasers of,
any mobilehome, unless it is either in place on a
solicit or obtain listings of, or negotiate the
lot rented or leased for human habitation within
purchase, sale, or exchange of any mobilehome
an established mobilehome park as defined in
only if the mobilehome has been registered
Section 18214 of the Health and Safety Code
under Part 2 (commencing with Section 18000)
and the advertising or offering for sale is not
of Division 13 of the Health and Safety Code.
contrary to any terms of a contract between the
(b) No real estate broker who engages in the seller of the mobilehome and the owner of the
activities authorized by this section shall mobilehome park, or is otherwise located,
maintain any place of business where two or pursuant to a local zoning ordinance or permit,
more mobilehomes are displayed and offered for on a lot where its presence has been authorized
sale by the person, unless the broker is also or its continued presence and that use would be
licensed as a mobilehome dealer as provided for authorized for a total and uninterrupted period of
by Part 2 (commencing with Section 18000) of at least one year.
Division 13 of the Health and Safety Code.
(b) To fail to withdraw any advertisement of a
(c) As used in this chapter, “mobilehome” mobilehome for sale, lease, or exchange within
means a structure transportable in one or more 48 hours after the real estate licensee’s receipt of
sections, designed and equipped to contain not notice that the mobilehome is no longer
more than two dwelling units to be used with or available for sale, lease, or exchange.
without a foundation system. “Mobilehome”
(c) To advertise or represent a mobilehome as a
does not include a recreational vehicle, as
new mobilehome.
defined in Section 18010 of the Health and
Safety Code, a commercial coach, as defined in (d) To include as an added cost to the selling
Section 18001.8 of the Health and Safety Code, price of a mobilehome, an amount for licensing,
or factory-built housing, as defined in Section as prescribed by Section 10751 of the Revenue
19971 of the Health and Safety Code. and Taxation Code, except where the buyer and
seller agree to the proration of the license fees
(d) In order to carry out this section, the
for the applicable license period, or transfer of
commissioner shall prescribe by regulation, after
title of the mobilehome as a vehicle, which
consultation with the Department of Housing
amount is not due to the state unless, prior to the
BUSINESS AND PROFESSIONS CODE 25

sale, the amount has been paid by the licensee to 10131.3, 10131.4, and 10131.6.
the state in order to avoid penalties that would
Exemptions from License Requirements
have accrued because of late payment of the
10133. (a) The acts described in Section 10131
fees.
are not acts for which a real estate license is
(e) To make any representation that a required if performed by:
mobilehome is capable of being transported on
(1) A regular officer of a corporation or a
California highways if the mobilehome does not
general partner of a partnership with respect
meet all of the equipment requirements
to real property owned or leased by the
applicable to mobilehomes of Division 12
corporation or partnership, respectively, or
(commencing with Section 24000) of the
in connection with the proposed purchase or
Vehicle Code, or to fail to disclose any material
leasing of real property by the corporation or
fact respecting those equipment requirements.
partnership, respectively, if the acts are not
(f) To advertise or otherwise represent, or performed by the officer or partner in
knowingly to allow to be advertised or expectation of special compensation.
represented on the real estate licensee’s behalf or
(2) A person holding a duly executed power
at the real estate licensee’s place of business,
of attorney from the owner of the real
that no downpayment is required in connection
property with respect to which the acts are
with the sale of a mobilehome when
performed.
downpayment is in fact required and the buyer is
advised or induced to finance the downpayment (3) An attorney at law in rendering legal
by a loan in addition to any other loan financing services to a client.
the remainder of the purchase price of the (4) A receiver, trustee in bankruptcy or other
mobilehome. person acting under order of a court of
(g) To fail or neglect properly to cause the competent jurisdiction.
endorsement, dating, and delivery (or fail to (5) A trustee for the beneficiary of a deed of
endorse, date, and deliver) of the certificate of trust when selling under authority of that
ownership or certificate of title of the deed of trust.
mobilehome, and, when having possession, to
fail to deliver the registration card to a transferee (b) The exemptions in subdivision (a) are not
who is lawfully entitled to a transfer of applicable to a person who uses or attempts to
registration. Except when the certificate of use them for the purpose of evading the
ownership or certificate of title is demanded in provisions of this part.
writing by a purchaser, the licensee shall satisfy Brokers – Lenders – Exemptions from License
the delivery requirement of this subdivision by 10133.1. (a) Subdivisions (d) and (e) of Section
submitting appropriate documents and fees to 10131, Section 10131.1, Article 5 (commencing
the Department of Housing and Community with Section 10230), and Article 7 (commencing
Development for transfer of registration in with Section 10240) of this code and Section
accordance with Chapter 8 (commencing with 1695.13 of the Civil Code do not apply to any of
Section 18075) of Part 2 of Division 13 of the the following:
Health and Safety Code and rules and
regulations promulgated thereunder. (1) Any person or employee thereof doing
business under any law of this state, any
Salesman Defined other state, or the United States relating to
10132. A real estate salesman within the banks, trust companies, savings and loan
meaning of this part is a natural person who, for associations, industrial loan companies,
a compensation or in expectation of a pension trusts, credit unions, or insurance
compensation, is employed by a licensed real companies.
estate broker to do one or more of the acts set
forth in Sections 10131, 10131.1, 10131.2,
26 BUSINESS AND PROFESSIONS CODE

(2) Any nonprofit cooperative association United States Department of the Treasury by
organized under Chapter 1 (commencing its regulations, when acting under the
with Section 54001) of Division 20 of the authority of that written authorization.
Food and Agricultural Code, in loaning or
(9) Any person who is licensed as a
advancing money in connection with any
securities broker or securities dealer under
activity mentioned therein.
any law of this state, or of the United States,
(3) Any corporation, association, syndicate, or any employee, officer, or agent of that
joint stock company, or partnership engaged person, if that person, employee, officer, or
exclusively in the business of marketing agent is acting within the scope of authority
agricultural, horticultural, viticultural, dairy, granted by that license in connection with a
livestock, poultry, or bee products on a transaction involving the offer, sale,
cooperative nonprofit basis, in loaning or purchase, or exchange of a security
advancing money to the members thereof or representing an ownership interest in a pool
in connection with any business of that type. of promissory notes secured directly or
indirectly by liens on real property, which
(4) Any corporation securing money or
transaction is subject to any law of this state
credit from any federal intermediate credit
or the United States regulating the offer or
bank organized and existing pursuant to the
sale of securities.
provisions of an act of Congress entitled the
"Agricultural Credits Act of 1923," in (10) Any person licensed as a residential
loaning or advancing money or credit so mortgage lender or servicer when acting
secured. under the authority of that license.
(5) Any person licensed to practice law in (11) Any organization that has been
this state, not actively and principally approved by the United States Department
engaged in the business of negotiating loans of Housing and Urban Development
secured by real property, when that person pursuant to Section 106 (a)(1)(iii) of the
renders services in the course of his or her federal Housing and Urban Development
practice as an attorney at law, and the Act of 1968 (12 U.S.C. Sec. 1701x), to
disbursements of that person, whether paid provide counseling services, or an employee
by the borrower or other person, are not of such an organization, when those services
charges or costs and expenses regulated by are provided at no cost to the borrower and
or subject to the limitations of Article 7 are in connection with the modification of
(commencing with Section 10240), and the the terms of a loan secured directly or
fees and disbursements are not shared, collaterally by a lien on residential real
directly or indirectly, with the person property containing four or fewer dwelling
negotiating the loan or the lender. units.
(6) Any person licensed as a finance lender (b) Persons described in paragraph (1), (2), or
when acting under the authority of that (3), as follows, are exempt from the provisions
license. of subdivisions (d) and (e) of Section 10131 or
Section 10131.1 with respect to the collection of
(7) Any cemetery authority as defined by
payments or performance of services for lenders
Section 7018 of the Health and Safety Code,
or on notes of owners in connection with loans
that is authorized to do business in this state
secured directly or collaterally by liens on real
or its authorized agent.
property:
(8) Any person authorized in writing by a
(1) The person makes collections on 10 or
savings institution to act as an agent of that
less of those loans, or in amounts of forty
institution, as authorized by Section 6520 of
thousand dollars ($40,000) or less, in any
the Financial Code or comparable authority
calendar year.
of the Office of Thrift Supervision of the
BUSINESS AND PROFESSIONS CODE 27

(2) The person is a corporation licensed as Other Exemptions


an escrow agent under Division 6 10133.15. The provisions of Article 5
(commencing with Section 17000) of the (commencing with Section 10230) and Article 7
Financial Code and the payments are (commencing with Section 10240) do not apply
deposited and maintained in the escrow to any person whose business is that of acting as
agent's trust account. an authorized representative, agent, or loan
correspondent of any person or employee
(3) An employee of a real estate broker who
thereof doing business under any law of this
is acting as the agent of a person described
state, any other state, or the United States
in paragraph (4) of subdivision (b) of
relating to banks, trust companies, savings and
Section 10232.4.
loan associations, industrial loan companies,
For purposes of this subdivision, pension trusts, credit unions, or insurance
performance of services does not include companies or when making loans qualified for
soliciting borrowers, lenders, or purchasers sale to any of the foregoing insofar as that
for, or negotiating, loans secured directly or business is concerned.
collaterally by a lien on real property.
Clerical Exemptions
(c) (1) Subdivision (d) of Section 10131 does 10133.2. The provisions of Sections 10131,
not apply to an employee of a real estate 10131.1, 10131.2, and 10132 do not apply to
broker who, on behalf of the broker, assists any stenographer, bookkeeper, receptionist,
the broker in meeting the broker's telephone operator, or other clerical help in
obligations to its customers in residential carrying out their functions as such.
mortgage loan transactions, as defined in Transactions Involving FCC-Regulated
Section 50003 of the Financial Code, where Enterprises
the lender is an institutional lender, as 10133.3. The provisions of Sections 10131 and
defined in Section 50003 of the Financial 10131.2 relating to business opportunities do not
Code, provided the employee does not apply to any person, partnership, corporation, or
participate in any negotiations occurring other legal entity which for another or others
between the principals. sells or offers to sell, solicits prospective sellers
(2) A broker shall exercise reasonable or purchasers of, solicits or obtains listings of,
supervision and control over the activities of advertises for sale, buys or offers to buy, or
nonlicensed employees acting under this negotiates the purchase, sale, or exchange of
subdivision, and shall comply with Section radio, television, or cable enterprises which are
10163 for each location where the licensed and regulated by the Federal
nonlicensed persons are employed. Communications Commission, or any successor
agency, pursuant to the Communications Act of
This section does not restrict the ability of 1934, as amended and which purchase, sale, or
the commissioner to discipline a broker or exchange is not in substance a transfer of real
corporate broker licensee or its designated property.
officer, or both the corporate broker licensee
and its designated officer, for misconduct of MOG Property – Activities Not Requiring a
a nonlicensed employee acting under this License
subdivision, or, pursuant to Section 10080, 10133.35. A real estate broker’s license shall not
to adopt, amend, or repeal rules or be required to engage in any of the following
regulations governing the employment or activities with respect to a mineral, oil, or gas
supervision of an employee who is a property:
nonlicensed person as described in this (a) To act as a depository under an oil lease, gas
subdivision. lease, or oil and gas lease other than for purpose
of sale.
28 BUSINESS AND PROFESSIONS CODE

(b) To engage in any transaction subject to an insurance carrier authorized to sell such
order of a court of competent jurisdiction. insurance in California.
(c) To engage in the business of drilling for or Exemption from Article 5 – Certain
producing oil or gas or mining for or producing Institutional Loans
minerals. 10133.5. The provisions of Article 5
(commencing with Section 10230) do not apply
(d) To negotiate leases or agreements between
to any person who is an approved lender,
an owner of mineral, oil, or gas lands, leases, or
mortgagee, seller, or servicer for the Federal
mineral rights, and a person organized for or
Housing Administration, United States
engaging in oil or gas or mineral or metal
Department of Veterans Affairs, Farmers Home
production, or to enter into leases or agreements
Administration, Government National Mortgage
with an owner of mineral, oil, or gas lands,
Association, Federal National Mortgage
leases, or mineral rights on behalf of a disclosed
Association, or Federal Home Loan Mortgage
or undisclosed person organized for or engaging
Corporation, when making loans to be sold to, or
in oil or gas or mineral or metal production.
when servicing loans on behalf of and subject to
(e) To deal with mineral rights or land, other audit by, any of the foregoing with respect to
than oil or gas rights or land, as the owner of the those loans.
rights or land.
Leasing
Exemption – Film Location Representative 10135. When a lease or leasing is referred to in
10133.4. (a) The provisions of subdivision (b) of this article, it includes any lease, whether such
Section 10131 do not apply to persons acting in lease is the sole transaction involved, or the
the capacity of a film location representative in principal or an incidental part of the transaction
connection with a transaction which complies involved.
with the requirements of subdivision (c).
Action for Compensation
(b) As used in this section: 10136. No person engaged in the business or
(1) “Film location representative” means an acting in the capacity of a real estate broker or a
employee of a principal arranging for the real estate salesman within this State shall bring
use of real property for photographic or maintain any action in the courts of this State
purposes. for the collection of compensation for the
performance of any of the acts mentioned in this
(2) “Principal” means the person who will article without alleging and proving that he was
use the real property for photographic a duly licensed real estate broker or real estate
purposes. salesman at the time the alleged cause of action
(c) In every transaction arranged by a film arose.
location representative, the principal shall Unlawful Employment or Payment of
maintain liability insurance insuring both that Compensation – Penalty
principal and the real property owner against 10137. It is unlawful for any licensed real estate
death, bodily injury, and property damage broker to employ or compensate, directly or
arising out of or in connection with the use, indirectly, any person for performing any of the
ownership, or maintenance of the real property acts within the scope of this chapter who is not a
which is the subject of the transaction. The licensed real estate broker, or a real estate
amount of the insurance coverage shall not be salesman licensed under the broker employing
less than five hundred thousand dollars or compensating him; provided, however, that a
($500,000) per person or one million dollars licensed real estate broker may pay a
($1,000,000) per occurrence for personal injury commission to a broker of another State.
and five hundred thousand dollars ($500,000)
for property damage. It must be issued by an No real estate salesman shall be employed by or
accept compensation from any person other than
BUSINESS AND PROFESSIONS CODE 29

the broker under whom he is at the time months, or by both fine and imprisonment; or if
licensed. a corporation, be punished by a fine not
exceeding sixty thousand dollars ($60,000). If a
It is unlawful for any licensed real estate
Real Estate Fraud Prosecution Trust Fund, as
salesman to pay any compensation for
described in Section 27388 of the Government
performing any of the acts within the scope of
Code, exists in the county where a person or
this chapter to any real estate licensee except
corporation is convicted, any fine collected from
through the broker under whom he is at the time
the person in excess of ten thousand dollars
licensed.
($10,000) or any fine collected from the
For a violation of any of the provisions of this corporation in excess of fifty thousand dollars
section, the commissioner may temporarily ($50,000) shall be deposited in that Real Estate
suspend or permanently revoke the license of the Fraud Prosecution Trust Fund.
real estate licensee, in accordance with the
False Advertising
provisions of this part relating to hearings.
10140. Every officer, agent or employee of any
Partnership – Acting Partners Must Be company, and every other person who
Licensed knowingly authorizes, directs or aids in the
10137.1. Nothing contained in this division shall publication, advertisement, distribution or
preclude a partnership from performing acts for circularization of any false statement or
which a real estate broker license is required, representation concerning any land or
provided every partner through whom the subdivision thereof, as defined in Chapter 1
partnership so acts is a licensed real estate (commencing at Section 11000) of Part 2 of this
broker. division, offered for sale or lease, or, if the land
Penalties for Payment of Unlawful is owned by the State or Federal Government,
Compensation which such person offers to assist another or
10138. It is a misdemeanor, punishable by a fine others to file an application for the purchase or
of not exceeding one hundred dollars ($100) for lease of, or to locate or enter upon, and every
each offense, for any person, whether obligor, person who, with knowledge that any
escrowholder or otherwise, to pay or deliver to advertisement, pamphlet, prospectus or letter
anyone a compensation for performing any of concerning any said land or subdivision, as
the acts within the scope of this chapter, who is defined in Chapter 1 (commencing at Section
not known to be or who does not present 11000) of Part 2 of this division, contains any
evidence to such payor that he is a regularly written statement that is false or fraudulent,
licensed real estate broker at the time such issues, circulates, publishes or distributes the
compensation is earned. same, or causes the same to be issued,
circulated, published or distributed, or who, in
For a violation of any of the provisions of this any other respect, willfully violates or fails to
section, the commissioner may temporarily comply with any of the provisions of this
suspend or permanently revoke the license of the section, or who in any other respect willfully
real estate licensee in accordance with the violates or fails, omits or neglects to obey,
provisions of this part relating to hearings. observe or comply with any order, permit,
Penalties for Unlicensed Person decision, demand or requirement of the
10139. Any person acting as a real estate broker commissioner under this section, is guilty of a
or real estate salesperson without a license or public offense, and shall be punished by a fine
who advertises using words indicating that he or not exceeding one thousand dollars ($1,000), or
she is a real estate broker without being so by imprisonment in a county jail not exceeding
licensed shall be guilty of a public offense one year, or by both such fine and
punishable by a fine not exceeding twenty imprisonment, and, if a real estate licensee, he
thousand dollars ($20,000), or by imprisonment shall be held to trial by the commissioner for a
in the county jail for a term not to exceed six suspension or revocation of his license, as
30 BUSINESS AND PROFESSIONS CODE

provided in the provisions of this part relating to creation of a professional relationship


hearings. The district attorney of each county in between the licensee and a consumer, and
this State shall prosecute all violations of the excludes an advertisement in print or
provisions of this section in respective counties electronic media and "for sale" signs.
in which the violations occur.
(3) Nothing in this section shall be construed
Disclosure of Name to limit or change the requirement described
10140.5. Each advertisement or other statement in Section 10236.4 as applicable to real
which is published by a real estate broker or estate brokers.
salesman offering to assist persons to file
(c) The provisions of this section shall not apply
applications for the purchase or lease of, or to
to classified rental advertisements reciting the
locate or enter upon, lands owned by the State or
telephone number at the premises of the property
Federal Government shall, when published,
offered for rent or the address of the property
indicate the name of the broker for whom it is
offered for rent.
published and state that he is licensed as a real
estate broker by the State of California. (d) "Mortgage loan originator," "unique
identifier," and "Nationwide Mortgage
Disclosure of Licensed Status in Advertising
Licensing System and Registry" have the
10140.6. (a) A real estate licensee shall not
meanings set forth in Section 10166.01.
publish, circulate, distribute, or cause to be
published, circulated, or distributed in any Sale Price Information Disclosure – Broker or
newspaper or periodical, or by mail, any matter Escrow
pertaining to any activity for which a real estate 10141. Within one month after the closing of a
license is required that does not contain a transaction in which title to real property or in
designation disclosing that he or she is the sale of a business when real or personal
performing acts for which a real estate license is property is conveyed from a seller to a purchaser
required. through a licensed real estate broker, such
broker shall inform or cause the information to
(b) (1) A real estate licensee shall disclose his be given to the seller and purchaser in writing of
or her license identification number and, if the selling price thereof and in event an
that licensee is a mortgage loan originator, exchange of real property or a business
the unique identifier assigned to that opportunity is involved, such information shall
licensee by the Nationwide Mortgage include a description of said property and
Licensing System and Registry, on all amount of added money consideration, if any. If
solicitation materials intended to be the first the transaction is closed through escrow and the
point of contact with consumers and on real escrow holder renders a closing statement which
property purchase agreements when acting reveals such information, that shall be deemed
as an agent in those transactions. The compliance with this section on the part of the
commissioner may adopt regulations broker.
identifying the materials in which a licensee
Broker’s Responsibility – Recording Trust
must disclose a license identification
Deeds – Escrow Compliance
number and, if that licensee is a mortgage
10141.5. Within one week after the closing of a
loan originator, the unique identifier
transaction negotiated by a real estate broker in
assigned to that licensee by the Nationwide
which title to real property is conveyed from a
Mortgage Licensing System and Registry.
seller to a purchaser and a deed of trust secured
(2) For purposes of this section, "solicitation by real property is executed, such broker shall
materials intended to be the first point of cause such deed of trust to be recorded with the
contact with consumers" includes business county recorder of the county in which the real
cards, stationery, advertising fliers, and property is located, or cause it to be delivered to
other materials designed to solicit the the beneficiary with a written recommendation
BUSINESS AND PROFESSIONS CODE 31

that it be recorded forthwith, unless written any state or federal land under the application.
instructions not to record are received from the
Handling of Trust Funds – Interest-Bearing
beneficiary. If the transaction is closed through
Accounts – Neutral Escrow Defined
escrow and the deed of trust is delivered to the
10145.
escrow holder within the time prescribed by this
section, that shall be deemed compliance with (a) (1) A real estate broker who accepts funds
this section on the part of the broker. Nothing in belonging to others in connection with a
this section shall affect the validity of a transfer transaction subject to this part shall deposit
of title to real property. all those funds that are not immediately
placed into a neutral escrow depository or
Delivery of Agreement
into the hands of the broker’s principal, into
10142. When a licensee prepares or has prepared
a trust fund account maintained by the
an agreement authorizing or employing such
broker in a bank or recognized depository in
licensee to perform any of the acts for which he
this state. All funds deposited by the broker
is required to hold a license, or when such
in a trust fund account shall be maintained
licensee secures the signature of any person to
there until disbursed by the broker in
any contract pertaining to such services or
accordance with instructions from the
transaction, he shall deliver a copy of the
person entitled to the funds.
agreement to the person signing it at the time the
signature is obtained. (2) Notwithstanding the provisions of
paragraph (1), a real estate broker collecting
Report to Commissioner – Application for
payments or performing services for
Government Land
investors or note owners in connection with
10143.5. Any real estate broker who assists
loans secured by a first lien on real property
another or others, or whose real estate salesmen
may deposit funds received in trust in an
assist another or others, for a compensation, in
out-of-state depository institution insured by
filing an application for the purchase or lease of,
the Federal Deposit Insurance Corporation,
or in locating or entering upon, lands owned by
if the investor or note owner is any one of
the State or Federal Government shall report to
the following:
the commissioner the names and addresses of all
persons he or his salesmen have assisted in filing (A) The Federal National Mortgage
applications for land owned by the State or Association, the Government National
Federal Government and the amount of Mortgage Association, the Federal
compensation received from such persons. The Home Loan Mortgage Corporation, the
report shall be filed quarterly within 10 days Federal Housing Administration, or the
after the end of each calendar quarter. United States Department of Veterans
Affairs.
Contract or Agreement Provisions
10144. The commissioner may prescribe by (B) A bank or subsidiary thereof, bank
regulation the information which shall be holding company or subsidiary thereof,
contained in contracts or other agreements by a trust company, savings bank or savings
real estate broker, or a real estate salesman, to and loan association or subsidiary
assist another or others in filing an application thereof, savings bank or savings
for the purchase or lease of, or in locating or association holding company or
entering upon, lands owned by the State or subsidiary thereof, credit union,
Federal Government, including, but not limited industrial bank or industrial loan
to, information with regard to the services company, or insurance company doing
agreed to be performed and information with business under the authority of, and in
regard to the hazards which may prevent the accordance with, the laws of this state,
person to be assisted in filing an application with another state, or the United States
the State or Federal Government ever receiving relating to banks, trust companies,
32 BUSINESS AND PROFESSIONS CODE

savings banks or savings associations, (b) A real estate broker acting as a principal
credit unions, industrial banks or pursuant to Section 10131.1 shall place all funds
industrial loan companies, or insurance received from others for the purchase of real
companies, as evidenced by a license, property sales contracts or promissory notes
certificate, or charter issued by the secured directly or collaterally by liens on real
United States or a state, district, property in a neutral escrow depository unless
territory, or commonwealth of the delivery of the contract or note is made
United States. simultaneously with the receipt of the purchase
funds.
(C) Trustees of a pension, profit-sharing,
or welfare fund, if the pension, profit- (c) A real estate sales person who accepts trust
sharing, or welfare fund has a net worth funds from others on behalf of the broker under
of not less than fifteen million dollars whom he or she is licensed shall immediately
($15,000,000). deliver the funds to the broker or, if so directed
by the broker, shall deliver the funds into the
(D) A corporation with outstanding
custody of the broker’s principal or a neutral
securities registered under Section 12 of
escrow depository or shall deposit the funds into
the Securities Exchange Act of 1934 or
the broker’s trust fund account.
a wholly owned subsidiary of that
corporation. (d) If not otherwise expressly prohibited by this
part, a real estate broker may, at the request of
(E) A syndication or other combination
the owner of trust funds or of the principals to a
of any of the entities specified in
transaction or series of transactions from whom
subparagraph (A), (B), (C), or (D) that is
the broker has received trust funds, deposit the
organized to purchase the promissory
funds into an interest-bearing account in a bank,
note.
savings and loan association, credit union, or
(F) The California Housing Finance industrial loan company, the accounts of which
Agency or a local housing finance are insured by the Federal Deposit Insurance
agency organized under the Health and Corporation, if all of the following requirements
Safety Code. are met:
(G) A licensed residential mortgage (1) The account is in the name of the broker
lender or servicer acting under the as trustee for the designated beneficiary or
authority of that license. principal of a transaction or series of
(H) A licensed real estate broker selling transactions.
all or part of the loan, note, or contract (2) All of the funds in the account are
to a lender or purchaser specified in covered by insurance provided by an agency
subparagraphs (A) to (G), inclusive. of the United States.
(3) A real estate broker who deposits funds (3) The funds in the account are kept
held in trust in an out-of-state depository separate, distinct, and apart from funds
institution in accordance with paragraph (2) belonging to the broker or to any other
shall make available, in this state, the books, person for whom the broker holds funds in
records, and files pertaining to the trust trust.
accounts to the commissioner or the
(4) The broker discloses to the person from
commissioner’s representatives or pay the
whom the trust funds are received, and to a
reasonable expenses for travel and lodging
beneficiary whose identity is known to the
incurred by the commissioner or the
broker at the time of establishing the
commissioner’s representatives in order to
account, the nature of the account, how
conduct an examination at an out-of-state
interest will be calculated and paid under
location.
various circumstances, whether service
BUSINESS AND PROFESSIONS CODE 33

charges will be paid to the depository and by Advance Fees to Be Deposited in Trust
whom, and possible notice requirements or Account
penalties for withdrawal of funds from the 10146. Any real estate broker who contracts for
account. or collects an advance fee from any other
person, hereinafter referred to as the "principal,"
(5) Interest earned on funds in the account
shall deposit any such amount or amounts, when
may not inure directly or indirectly to the
collected in a trust account with a bank or other
benefit of the broker or a person licensed to
recognized depository. Such funds are trust
the broker.
funds and not the funds of the agent. Amounts
(6) In an executory sale, lease, or loan may be withdrawn therefrom for the benefit of
transaction in which the broker accepts the agent only when actually expended for the
funds in trust to be applied to the purchase, benefit of the principal or five days after the
lease, or loan, the parties to the contract verified accounts mentioned hereinafter have
shall have specified in the contract or by been mailed to the principal. Upon request of the
collateral written agreement the person to commissioner, a broker shall furnish to the
whom interest earned on the funds is to be commissioner an authorization for examination
paid or credited. of financial records of the trust account in
(e) The broker shall have no obligation to place accordance with the procedures set forth in
trust funds into an interest-bearing account Section 7473 of the Government Code.
unless requested to do so and unless all of the
The commissioner may issue such rules and
conditions in subdivision (d) are met, nor, in any
regulations as he or she deems necessary to
event, if he or she advises the party making the
regulate the method of accounting, and to
request that the funds will not be placed in an
accomplish the purpose of the provisions of this
interest-bearing account.
code relating to advance fees including, but not
(f) Nothing in subdivision (d) shall preclude the limited to, establishing forms for and
commissioner from prescribing, by regulation, determining information to be included in such
circumstances in which, and conditions under accountings. Each principal shall be furnished a
which, a real estate broker is authorized to verified copy of such accountings at the end of
deposit funds received in trust into an interest- each calendar quarter and when the contract has
bearing trust fund account. been completely performed by the licensee. The
commissioner shall be furnished a verified copy
(g) The broker shall maintain a separate record
of any account or all accounts on his or her
of the receipt and disposition of all funds
demand therefor.
described in subdivisions (a) and (b), including
any interest earned on the funds. Where advance fees actually paid by or on
(h) Upon request of the commissioner, a broker behalf of any principal are not handled in
shall furnish to the commissioner an accordance with the preceding paragraph, it shall
authorization for examination of financial be presumed that the agent has violated Sections
records of those trust fund accounts maintained 506 and 506a of the Penal Code. The principal
in a financial institution, in accordance with the may recover treble damages for amounts so
procedures set forth in Section 7473 of the misapplied and shall be entitled to reasonable
Government Code. attorney's fees in any action brought to recover
the same.
(i) As used in this section, “neutral escrow”
means an escrow business conducted by a Commercial Property Owner’s Guide to
person licensed under Division 6 (commencing Earthquake Safety
with Section 17000) of the Financial Code or by 10147. (a) On or before January 1, 1993, the
a person described in paragraph (1) or (3) of Seismic Safety Commission shall develop,
subdivision (a) of Section 17006 of that code. adopt, and publish a Commercial Property
Owner’s Guide to Earthquake Safety for
34 BUSINESS AND PROFESSIONS CODE

distribution to licensees for purposes of Section Negotiability of Real Estate Commissions –


2079.9 of the Civil Code and, upon request, to Notice Requirement
any member of the general public. 10147.5. (a) Any printed or form agreement
which initially establishes, or is intended to
(b) In developing the guide, the Seismic Safety
establish, or alters the terms of any agreement
Commission shall consult with the Office of
which previously established a right to
Emergency Services, the Division of Mines and
compensation to be paid to a real estate licensee
Geology of the Department of Conservation, the
for the sale of residential real property
Department of Real Estate, and other interested
containing not more than four residential units,
agencies and persons.
or for the sale of a mobilehome, shall contain the
(c) The commission shall, to the extent possible, following statement in not less than 10-point
rely on currently available data to develop the boldface type immediately preceding any
guide. To the extent necessary, the commission provision of such agreement relating to
may contract for the development and compensation of the licensee:
production of the guide. The commission shall
Notice: The amount or rate of real estate
update the contents of the guide whenever it
commissions is not fixed by law. They are set by
determines that information within the guide is
each broker individually and may be negotiable
sufficiently inaccurate or incomplete so as to
between the seller and broker.
reduce the effectiveness of the guide. The
commission shall charge a fee to cover the costs (b) The amount or rate of compensation shall not
of production, distribution, development, and be printed in any such agreement.
updating the guide.
(c) Nothing in this section shall affect the
(d) The guide shall include, but need not be validity of a transfer of title to real property.
limited to, all of the following:
(d) As used in this section, “alters the terms of
(1) Maps and information on geologic and any agreement which previously established a
seismic hazard conditions in the state. right to compensation” means an increase in the
rate of compensation, or the amount of
(2) Explanations of typical structural and
compensation if initially established as a flat fee,
nonstructural earthquake hazards.
from the agreement which previously
(3) Recommendations for mitigating the established a right to compensation.
hazards of an earthquake, including
Loan Modification – Notice of Free Services
references and explanations of what
10147.6. (a) Any licensee who negotiates,
constitutes “adequate wall anchorage” as
attempts to negotiate, arranges, attempts to
defined in Section 8893.1 of the
arrange, or otherwise offers to perform a
Government Code.
mortgage loan modification or other form of
(4) A statement that there are no guarantees mortgage loan forbearance for a fee or other
of safety or damage prevention that can be form of compensation paid by the borrower,
made with respect to a major earthquake and shall provide the following to the borrower, as a
that only precautions, such as retrofitting, separate statement, in not less than 14-point bold
can be taken to reduce the risk of various type, prior to entering into any fee agreement
types of earthquake damage. For purposes of with the borrower:
preparing the statement, the commission
It is not necessary to pay a third party to arrange
shall confer with insurers and design
for a loan modification or other form of
professional associations.
forbearance from your mortgage lender or
(5) Notice of the obligation to post a sign as servicer. You may call your lender directly to
required by Section 8875.8 of the ask for a change in your loan terms. Nonprofit
Government Code. housing counseling agencies also offer these and
other forms of borrower assistance free of
BUSINESS AND PROFESSIONS CODE 35

charge. A list of nonprofit housing counseling final decision following a disciplinary hearing
agencies approved by the United States held in accordance with Chapter 5 (commencing
Department of Housing and Urban Development with Section 11500) of Part 1 of Division 3 of
(HUD) is available from your local HUD office Title 2 of the Government Code that the broker
or by visiting www.hud.gov. has violated Section 10145 or a regulation or
rule of the commissioner interpreting Section
(b) If loan modification or other mortgage loan
10145.
forbearance services are offered or negotiated in
one of the languages set forth in Section 1632 of (c) If a broker fails to pay for the cost of an audit
the Civil Code, a translated copy of the as described in subdivision (b) within 60 days of
statement in subdivision (a) shall be provided to mailing a notice of billing, the commissioner
the borrower in that foreign language. may suspend or revoke the broker’s license or
deny renewal of the broker’s license. The
(c) A violation of this section by a natural person
suspension or denial shall remain in effect until
who is a licensee is a public offense punishable
the cost is paid or until the broker’s right to
by a fine not exceeding ten thousand dollars
renew a license has expired.
($10,000), by imprisonment in the county jail for
a term not to exceed one year, or by both that The commissioner may maintain an action for
fine and imprisonment, or if by a corporation, the recovery of the cost in any court of
the violation is punishable by a fine not competent jurisdiction. In determining the cost
exceeding fifty thousand dollars ($50,000). incurred by the commissioner for an audit, the
These penalties are cumulative to any other commissioner may use the estimated average
remedies or penalties provided by law. hourly cost for all persons performing audits of
real estate brokers.
(d) This section shall apply only to mortgages
and deeds of trust secured by residential real Homeowner’s Guide to Earthquake Safety
property containing four or fewer dwelling units. 10149. (a) On or before July 1, 1992, the
Seismic Safety Commission shall develop,
Retention of Records – Chargeable Audits
adopt, and publish a Homeowner’s Guide to
10148. (a) A licensed real estate broker shall
Earthquake Safety for distribution to licensees
retain for three years copies of all listings,
for purposes of Section 2079.8 of the Civil Code
deposit receipts, canceled checks, trust records,
and, upon request, to any member of the general
and other documents executed by him or her or
public.
obtained by him or her in connection with any
transactions for which a real estate broker (b) In developing the guide, the Seismic Safety
license is required. The retention period shall Commission shall consult with the Office of
run from the date of the closing of the Emergency Services, the Division of Mines and
transaction or from the date of the listing if the Geology of the Department of Conservation, the
transaction is not consummated. After notice, Department of Real Estate, and other interested
the books, accounts, and records shall be made agencies and persons.
available for examination, inspection, and
(c) The commission shall, to the extent possible,
copying by the commissioner or his or her
rely on currently available data to develop the
designated representative during regular
guide. To the extent necessary, the commission
business hours; and shall, upon the appearance
may contract for the development and
of sufficient cause, be subject to audit without
production of the guide. The commission shall
further notice, except that the audit shall not be
update the contents of the guide whenever it
harassing in nature.
determines that information within the guide is
(b) The commissioner shall charge a real estate sufficiently inaccurate or incomplete so as to
broker for the cost of any audit, if the reduce the effectiveness of the guide. The
commissioner has found, in a final desist and commission shall charge a fee to cover the costs
refrain order issued under Section 10086 or in a
36 BUSINESS AND PROFESSIONS CODE

of production, distribution, development, and The commissioner may prescribe the format and
updating the guide. content of the broker license application. The
application for the real estate broker license shall
(d) The guide shall include, but need not be
be accompanied by the appropriate fee.
limited to, all of the following:
(d) Application for an endorsement to act as a
(1) Maps and information on geologic and
mortgage loan originator, as defined in Section
seismic hazard conditions for all areas of the
10166.01, shall be made either electronically or
state.
in writing as directed by the commissioner. The
(2) Explanations of the related structural and commissioner may prescribe the format and
nonstructural hazards. content of the mortgage loan originator
(3) Recommendations for mitigating the endorsement application, which shall meet the
hazards of an earthquake. minimum requirements for licensing of a
mortgage loan originator, pursuant to the Secure
(4) A statement that there are no guarantees and Fair Enforcement for Mortgage Licensing
of safety or damage prevention that can be Act of 2008 (Public Law 110-289).
made with respect to a major earthquake and
that only precautions, such as retrofitting, Experience and Education Requirements for
can be taken to reduce the risk of various Broker License
types of earthquake damage. For purposes of 10150.6. The Real Estate Commissioner shall
preparing the statement, the commission not grant an original real estate broker’s license
shall confer with insurers and design to any person who has not held a real estate
professional associations. salesman’s license for at least two years and
qualified for renewal real estate salesman status,
Article 2. Licenses within the five-year period immediately prior to
the date of his application for the broker’s
Broker Examination and License Applications
license, and during such time was not actively
10150. (a) Application for the real estate broker
engaged in the business of real estate salesman,
license examination shall be made in writing to
except that an applicant for a real estate broker’s
the commissioner. The commissioner may
license having at least the equivalent of two
prescribe the format and content of the broker
years’ general real estate experience or
examination application. The application for the
graduation from a four-year college or university
broker examination shall be accompanied by the
course, which course included specialization in
real estate broker license examination fee.
real estate, files a written petition with the
(b) Persons who have been notified by the Department of Real Estate setting forth his
commissioner that they passed the real estate qualifications and experience, and the
broker license examination may apply for a real commissioner approves, he may be issued a real
estate broker license. A person applying for the estate broker’s license immediately upon passing
broker examination may also apply for a real the examination and satisfying the other
estate broker license. However, a license shall requirements of this article.
not be issued until the applicant passes the real
estate broker license examination. If there is any Salesperson Examination and License
change to the information contained in a real Applications
10151. (a) Application for the real estate
estate broker license application after the
salesperson license examination shall be made in
application has been submitted and before the
writing to the commissioner. The commissioner
license has been issued, the commissioner may
may prescribe the format and content of the
require the applicant to submit a supplement to
salesperson examination application. The
the application listing the changed information.
application for the salesperson examination shall
(c) Application for the real estate broker license be accompanied by the real estate salesperson
shall be made in writing to the commissioner. license examination fee.
BUSINESS AND PROFESSIONS CODE 37

(b) Persons who have been notified by the 10166.01, shall be made either electronically or
commissioner that they passed the real estate in writing as directed by the commissioner. The
salesperson license examination may apply for a commissioner may prescribe the format and the
real estate salesperson license. A person content of the mortgage loan originator
applying for the salesperson examination may endorsement application, which shall meet the
also apply for a real estate salesperson license. minimum requirements for licensing of a
However, a license shall not be issued until the mortgage loan originator, pursuant to the Secure
applicant passes the real estate salesperson and Fair Enforcement for Mortgage Licensing
license examination. If there is any change to the Act of 2008 (Public Law 110-289).
information contained in a real estate
Nonresident Applicant – Eligibility by State of
salesperson license application after the
Residence – Consent to Service of Process
application has been submitted and before the
10151.5. (a) An applicant who is not a resident
license has been issued, the commissioner may
of this state shall be eligible for a real estate
require the applicant to submit a supplement to
license provided (1) the applicant qualifies for
the application listing the changed information.
licensure under this chapter, including Section
(c) An application for the real estate salesperson 10162, and (2) the state or other jurisdiction that
license examination or for both the examination is the place of residence of the applicant permits
and license that is received by the commissioner a resident of California to qualify for and obtain
on or after October 1, 2007, shall include a real estate license in that jurisdiction.
evidence or certification, satisfactory to the
(b) A foreign corporation shall be exempt from
commissioner, of successful completion at an
the eligibility requirement set forth in clause (2)
accredited institution of a three-semester unit
of subdivision (a) if, and for so long as, at least
course, or the quarter equivalent thereof, or
one of the officers of the corporation who is
successful completion of an equivalent course of
designated and licensed as a real estate broker
study as defined in Section 10153.5, in real
pursuant to Section 10158 or 10211 is a resident
estate principles as well as the successful
of this state.
completion at an accredited institution of a
course in real estate practice and one additional (c) Every nonresident applicant for a real estate
course set forth in Section 10153.2, other than license shall, along with his or her application,
real estate principles, real estate practice, file with the Real Estate Commissioner an
advanced legal aspects of real estate, advanced irrevocable consent that if in any action
real estate finance, or advanced real estate commenced against him or her in this state,
appraisal. The applicant shall provide this personal service of process upon him or her
evidence or certification to the commissioner cannot be made in this state after the exercise of
prior to taking the real estate salesperson license due diligence, a valid service may thereupon be
examination. made upon the applicant by delivering the
process to the Department of Real Estate.
(d) The commissioner shall waive the
requirements of this section for the following Application Hearing
applicants: 10152. (a) The commissioner may require any
other proof he or she may deem advisable
(1) An applicant who is a member of the
concerning the honesty and truthfulness of any
State Bar of California.
applicant for a real estate license or license
(2) An applicant who has qualified to take examination, or of the officers, directors, or
the examination for an original real estate persons owning more than 10 percent of the
broker license by satisfying the requirements stock, of any corporation making application
of Section 10153.2. therefor, before authorizing the issuance of a
real estate license. For this purpose the
(e) Application for endorsement to act as a
commissioner may call a hearing in accordance
mortgage loan originator, as defined in Section
with this part relating to hearings. To assist in
38 BUSINESS AND PROFESSIONS CODE

his or her determination the commissioner shall examination, application, or request to be


require every original applicant to be examined.
fingerprinted prior to issuing a license. The
Any person who willfully violates or knowingly
commissioner may require the fingerprints to be
participates in the violation of this section is
submitted either with the application to take the
guilty of a misdemeanor.
license examination or with the application for a
real estate license. Real Estate Courses Required for Broker
License Applicants – Waiver
(b) This section shall become operative on July
10153.2. (a) An applicant to take the
1, 2004.
examination for an original real estate broker
Examination – All Applicants license shall also submit evidence, satisfactory
10153. In addition to the proof of honesty and to the commissioner, of successful completion,
truthfulness required of any applicant for a real at an accredited institution, of:
estate license, the commissioner shall ascertain
(1) A three-semester unit course, or the
by written examination that the applicant, and in
quarter equivalent thereof, in each of the
case of a corporation applicant for a real estate
following:
broker’s license that each officer, or agent
thereof through whom it proposes to act as a real (A) Real estate practice.
estate licensee, has all of the following: (B) Legal aspects of real estate.
(a) An appropriate knowledge of the English (C) Real estate appraisal.
language, including reading, writing, and
spelling and of arithmetical computations (D) Real estate financing.
common to real estate and business opportunity (E) Real estate economics or account-
practices. ting.
(b) An understanding of the principles of real (2) A three-semester unit course, or the
estate and business opportunity conveyancing, quarter equivalent thereof, in three of the
the general purposes and general legal effect of following:
agency contracts, deposit receipts, deeds,
mortgages, deeds of trust, chattel mortgages, (A) Advanced legal aspects of real
bills of sale, land contracts of sale and leases, estate.
and of the principles of business and land (B) Advanced real estate finance.
economics and appraisals.
(C) Advanced real estate appraisal.
(c) A general and fair understanding of the
obligations between principal and agent, of the (D) Business law.
principles of real estate and business opportunity (E) Escrows.
practice and the canons of business ethics
pertaining thereto, of the provisions of this part, (F) Real estate principles.
of Chapter 1 (commencing with Section 11000) (G) Property management.
of Part 2, and of the regulations of the Real
Estate Commissioner as contained in Title 10 of (H) Real estate office administration.
the California Administrative Code. (I) Mortgage loan brokering and
Identity of Examinee – Deception or Fraud lending.
Relating to Examination, Application or (J) Computer applications in real estate.
Examination Request
10153.1. It is unlawful for any person with (K) On and after July 1, 2004, California
respect to any examination under this part to law that relates to common interest
practice any deception or fraud with regard to developments, including, but not limited
his or her identity in connection with any to, topics addressed in the Davis-Stirling
BUSINESS AND PROFESSIONS CODE 39

Common Interest Development Act Notwithstanding subdivision (c), if the applicant


(Title 6 (commencing with Section fails to schedule an examination or to obtain a
1350) of Part 4 of Division 2 of the Civil passing score on it within that time period, he or
Code). she shall be required to submit evidence or
certification satisfactory to the commissioner of
(b) The commissioner shall waive the
satisfactory completion at an accredited
requirements of this section for an applicant who
institution of the courses described in
is a member of the State Bar of California and
subdivision (c) of Section 10151 or satisfactory
shall waive the requirements for which an
completion of an equivalent course of study as
applicant has successfully completed an
defined in Section 10153.5, before taking the
equivalent course of study as determined under
examination.
Section 10153.5.
(e) An applicant under this section shall, prior to
(c) The commissioner shall extend credit under
issuance of the real estate salesperson license,
this section for any course completed to satisfy
submit evidence or certification satisfactory to
requirements of Section 10153.3 or 10153.4.
the commissioner of successful completion of
Real Estate Principles Course Required of the real estate principles course as described in
Salesperson Applicants – Waiver subdivision (c) and of successful completion at
10153.3. (a) This section shall apply to an an accredited institution or successful
application for the real estate salesperson license completion of an equivalent course of study as
examination, the real estate salesperson license, defined in Section 10153.5, of a course in real
and for both the examination and license estate practice and one additional course set
received by the commissioner prior to October forth in Section 10153.2 other than real estate
1, 2007. principles, real estate practice, advanced legal
(b) Application for the real estate salesperson aspects of real estate, advanced real estate
license examination pursuant to this section shall finance, or advanced real estate appraisal.
be made in writing to the commissioner. The (f) The commissioner shall waive the
commissioner may prescribe the format and requirements of this section for an applicant who
content of the salesperson examination is a member of the State Bar of California, or
application. The application for the salesperson who has completed an equivalent course of
examination shall be accompanied by the real study, as determined under Section 10153.5, or
estate salesperson license examination fee. who has qualified to take the examination for an
(c) In order to take the examination for a real original real estate broker license by satisfying
estate salesperson license, an applicant under the requirements of Section 10153.2.
this section shall submit evidence or certification Additional Courses Required of Salespersons –
satisfactory to the commissioner of enrollment Continuing Education Required at First
in, or successful completion at, an accredited Renewal – Automatic Suspension – Waiver
institution of a three-semester unit course, or the 10153.4. (a) This section shall apply to an
quarter equivalent thereof, or successful application for the real estate salesperson license
completion of an equivalent course of study as examination, the real estate salesperson license,
defined in Section 10153.5, in real estate and for both the examination and license
principles. Evidence of enrollment satisfactory received by the commissioner prior to October
to the commissioner may include a statement 1, 2007, if the applicant obtains a passing score
from the applicant made under penalty of on the real estate salesperson license
perjury. examination and submits a license application
(d) An applicant under this section may take the prior to October 1, 2007.
real estate salesperson license examination (b) Application for the real estate salesperson
within two years of the date his or her license examination pursuant to this section shall
application was received by the commissioner. be made in writing to the commissioner. The
40 BUSINESS AND PROFESSIONS CODE

commissioner may prescribe the format and automatically suspended effective 18 months
content of the salesperson examination after issuance if the licensee has failed to satisfy
application. The application for the salesperson the requirements of subdivision (d). The
examination shall be accompanied by the real suspension shall not be lifted until the suspended
estate salesperson license examination fee. licensee has submitted the required evidence of
course completion and the commissioner has
(c) An applicant under this section shall comply
given written notice to the licensee of the lifting
with the requirements of subdivision (c) of
of the suspension.
Section 10153.3 in order to take the real estate
salesperson license examination. (g) The original license issued to a salesperson
shall clearly set forth the conditions of the
(d) An applicant under this section who obtains
license and shall be accompanied by a notice of
a passing score on the real estate salesperson
the provisions of this section and of any
license examination prior to October 1, 2007,
regulations adopted by the commissioner to
shall, prior to the issuance of the real estate
implement this section.
salesperson license, submit evidence or
certification satisfactory to the commissioner of (h) The commissioner shall waive the
successful completion at an accredited requirements of this section for any person who
institution of a three-semester unit course, or the presents evidence of admission to the State Bar
quarter unit equivalent thereof, or successful of California, and the commissioner shall waive
completion of an equivalent course of study as the requirement for any course for which an
defined in Section 10153.5, in real estate applicant has completed an equivalent course of
principles as described in subdivision (c) of study as determined under Section 10153.5.
Section 10153.3. An applicant for an original
“Equivalent Course of Study” – “Accredited
real estate salesperson license under this section
Institution” Defined
shall also, prior to the issuance of the license, or
10153.5. As used in Sections 10151, 10153.2,
within 18 months after issuance, submit
10153.3, and 10153.4, "an equivalent course of
evidence or certification satisfactory to the
study" consists of courses at a private vocational
commissioner of successful completion at an
school that have been found by the
accredited institution or a private vocational
commissioner, upon consideration of an
school, as specified in Section 10153.5, of a
application for approval, to be equivalent in
course in real estate practice and one additional
quality to the real estate courses offered by the
course set forth in Section 10153.2, other than
colleges and universities accredited by the
real estate principles, real estate practice,
Western Association of Schools and Colleges.
advanced legal aspects of real estate, advanced
As used in Sections 10151, 10153.2, 10153.3,
real estate finance, or advanced real estate
and 10153.4, "accredited institution" shall mean
appraisal.
a college or university that either:
(e) A salesperson who qualifies for a license
(a) Is accredited by the Western Association of
pursuant to this section shall not be required for
Schools and Colleges, or by any other regional
the first license renewal thereafter to complete
accrediting agency recognized by the United
the continuing education pursuant to Article 2.5
States Department of Education.
(commencing with Section 10170), except for
the courses specified in paragraphs (1) to (4), (b) In the judgment of the commissioner, has a
inclusive, of subdivision (a) of Section 10170.5 real estate curriculum equivalent in quality to
or, on and after July 1, 2007, except for the that of the institutions accredited pursuant to
courses specified in paragraphs (1) to (5), subdivision (a).
inclusive, of subdivision (a) of Section 10170.5. Broker License – Four-year Term
(f) The salesperson license issued to an applicant 10153.6. All real estate broker licenses issued by
who has satisfied only the requirements of the commissioner shall be for a period of four
subdivision (c) at the time of issuance shall be years. Applicants shall qualify in the appropriate
BUSINESS AND PROFESSIONS CODE 41

examination and satisfy all other requirements the provisions of Article 2.5 (commencing with
prior to issuance of the license. The four-year Section 10170) of this chapter, entitles the
license may be renewed upon filing the required applicant to continue operating under his
application and fee, and complying with the existing license after its specified expiration
provisions of Article 2.5 (commencing with date, if not previously suspended or revoked.
Section 10170).
If the commissioner determines that the
Salesperson License – Four-year Term applicant has not complied with the continuing
10153.7. All real estate salesperson licenses education requirements he shall either (1) advise
issued by the commissioner shall be for a period the applicant of the applicability of Section
of four years. 10171.2 on an extended period for compliance;
or (2) advise the applicant that his rights to
Applicants must qualify in the appropriate
operate under the prior license will expire five
examination and satisfy all other requirements
days from the date such notice is mailed, or on
prior to issuance of the license.
the date the license would normally expire,
The four-year license may be renewed upon whichever is later; and the commissioner’s
filing the required application and fee, and reason for that determination, and the right of
complying with the provisions of Article 2.5 the applicant to request a hearing on the
(commencing with Section 10170). decision.
Reexamination for Real Estate License Restricted License
10153.8. When an applicant for real estate 10156.5. The commissioner may issue a
license fails the qualifying examination, he may restricted license to a person:
apply for reexamination by filing the appropriate
(a) Who is or has been licensed under this
application and fee.
chapter and who has been found by the
The application and fee for reexamination shall commissioner after a hearing to have violated
be filed and the reexamination taken within the provisions of Division 4 of this code where such
two-year period following the date the violation would justify the suspension or
application for examination was filed. revocation of the license.
Conditional Salesperson License – Late (b) Who is applying for a license under this
Renewal Not Permitted – Waiting Period for chapter, who has met the examination and
Second Conditional License experience requirements, but who has been
10154. A person who has obtained a conditional found by the commissioner after a hearing to
license pursuant to Section 10153.4, but has not have failed to have made a satisfactory showing
satisfied the requirements for an unqualified that he meets all of the other requirements for
license under Section 10153.4, shall not be the license applied for, where such failure would
entitled to a late renewal of the license under justify the denial of the license applied for.
Section 10201, and shall not be entitled to the
Restricted License – Restrictions Authorized
issuance of another conditional license until four
10156.6. A restricted license issued pursuant to
years after the date of the issuance of the
Section 10156.5 as the commissioner in his or
preceding conditional license.
her discretion finds advisable in the public
Proper Renewal Application Entitles interest may be restricted:
Continued Operation
(a) By term.
10156.2. An application on the form prescribed
by the commissioner for the renewal of a (b) To employment by a particular real estate
license, filed before midnight of the last day of broker, if a salesperson.
the period for which a previous license was
(c) By conditions to be observed in the exercise
issued, accompanied by the applicable renewal
of the privileges granted.
fee and good faith evidence of compliance with
42 BUSINESS AND PROFESSIONS CODE

(d) If a salesperson licensee or applicant has not license to so employ each of such additional
complied with Section 10153. 4 within 18 officers.
months after issuance of the license.
Corporations – Authority of Licensed Officer
Restricted License – Privileges – Suspension – 10159. Each officer of a corporation through
No Renewal Rights whom it is licensed to act as a real estate broker
10156.7. (a) A restricted license issued pursuant is, while so employed under such license, a
to Section 10156.5 does not confer any property licensed real estate broker, but licensed only to
right in the privileges to be exercised thereunder, act as such for and on behalf of the corporation
and the holder of a restricted license does not as an officer.
have the right to the renewal of the license.
Responsibility of Corporate Officer in Charge
(b) Except as provided in subdivision (c), the 10159.2. (a) The officer designated by a
commissioner may without hearing issue an corporate broker licensee pursuant to Section
order suspending the licensee’s right to further 10211 shall be responsible for the supervision
exercise any privileges granted under a restricted and control of the activities conducted on behalf
license pending final determination made after of the corporation by its officers and employees
formal hearing. as necessary to secure full compliance with the
provisions of this division, including the
(c) A restricted salesperson license containing a
supervision of salespersons licensed to the
condition requiring compliance with Section
corporation in the performance of acts for which
10153.4 shall be automatically suspended upon
a real estate license is required.
the licensee’s failure to comply with the
condition. The suspension shall not be lifted (b) A corporate broker licensee that has procured
until the suspended licensee has submitted the additional licenses in accordance with Section
required evidence of course completion and the 10158 through officers other than the officer
commissioner has given written notice to the designated pursuant to Section 10211 may, by
licensee of the lifting of the suspension. appropriate resolution of its board of directors,
assign supervisory responsibility over
Surety Bonds as Condition for Restricted
salespersons licensed to the corporation to its
License
broker-officers.
10156.8. As one of the conditions to the
issuance of a restricted license authorized by (c) A certified copy of any resolution of the
Section 10156.5 the commissioner may require board of directors assigning supervisory
the filing of surety bonds in such form and responsibility over real estate salespersons
condition as he may require in respect to the licensed to the corporation shall be filed with the
restricted licensee for the protection of persons Real Estate Commissioner within five days after
or classes of persons with whom said licensee the adoption or modification thereof.
may deal.
Fictitious Name
Authority of a License Specific to Person to 10159.5. Every person applying for a license
Whom Issued under this chapter who desires to have such
10157. No real estate license gives authority to license issued under a fictitious business name
do any act specified in this chapter to any shall file with his application a certified copy of
person, other than the person to whom the his fictitious business name statement filed with
license is issued. the county clerk pursuant to Chapter 5
(commencing with Section 17900) of Part 3 of
Corporation License – Additional Licenses
Division 7.
10158. When a real estate license is issued to a
corporation, if it desires any of its officers other Possession and Inspection of Salesman’s
than the officer designated by it pursuant to License
Section 10211, to act under its license as a real 10160. The real estate salesman’s license shall
estate broker, it shall procure an additional remain in the possession of the licensed real
BUSINESS AND PROFESSIONS CODE 43

estate broker employer until canceled or until the and where personal consultations with clients
salesman leaves the employ of the broker, and are held.
the broker shall make his license and the
No real estate license authorizes the licensee to
licenses of his salesman available for inspection
do business except from the location stipulated
by the commissioner or his designated
in the real estate license as issued or as altered
representative.
pursuant to Section 10161.8.
License Holder in Government Office –
Branch Offices
Relinquishment/Reinstatement of License
10163. If the applicant for a real estate broker’s
10161.5. When the holder of a real estate
license maintains more than one place of
broker’s or salesman’s license is required to
business within the State he shall apply for and
relinquish his license to assume an office in
procure an additional license for each branch
local, state, or federal government, he may have
office so maintained by him. Every such
it reinstated at any time within six months of
application shall state the name of the person
termination of his service in office upon
and the location of the place or places of
payment of the appropriate renewal fee, and
business for which such license is desired. The
compliance with the provisions of Article 2.5
commissioner may determine whether or not a
(commencing with Section 10170) of this
real estate broker is doing a real estate brokerage
chapter, if the relinquished license was issued
business at or from any particular location which
four or more years prior to his application for
requires him to have a branch office license.
reinstatement.
Penalties
Salesman Employment and Termination
10165. For a violation of any of the provisions
10161.8. (a) Whenever a real estate salesman
of Section 10160, 10161.8, 10162, or 10163, the
enters the employ of a real estate broker, the
commissioner may temporarily suspend or
broker shall immediately notify the
permanently revoke the license of the real estate
commissioner thereof in writing.
licensee in accordance with the provisions of
(b) Whenever employment of a real estate this part relating to hearings.
salesman is terminated, the broker shall
Article 2.1. Secure and Fair Enforcement
immediately notify the commissioner thereof in
writing. for Mortgage Licenses

(c) Whenever a licensee acquires a business Definitions


address different from the address shown on his 10166.01. For purposes of this article, the
license he shall mark out the former address on following definitions shall apply:
the face of the license and type or write the new (a) "SAFE Act" means the federal Secure and
main office address in ink on the reverse side, Fair Enforcement for Mortgage Licensing Act of
and date and initial same. 2008 (Public Law 110-289).
(d) Whenever a real estate salesman enters the
(b) (1) "Mortgage loan originator" means an
employ of a new real estate broker he shall mark
individual who takes a residential mortgage
out the name of his former broker on the face of
loan application or offers or negotiates terms
the license and type or write the name of the
of a residential mortgage loan for
new employing broker in ink on the reverse side,
compensation or gain. An individual real
and date and initial same.
estate licensee acting within the meaning of
Place of Business paragraph (d) of Section 10131 is a
10162. Every licensed real estate broker shall mortgage loan originator for purposes of this
have and maintain a definite place of business in article with respect to activities involving
the State of California which shall serve as his residential mortgage loans.
office for the transaction of business. This office
shall be the place where his license is displayed
44 BUSINESS AND PROFESSIONS CODE

(2) Mortgage loan originator does not (c) "Nationwide Mortgage Licensing System
include any of the following: and Registry" means a mortgage licensing
system developed and maintained by the
(A) An individual who performs purely
Conference of State Bank Supervisors and the
administrative or clerical tasks on behalf
American Association of Residential Mortgage
of a person meeting the definition of a
Regulators for the licensing and registration of
mortgage loan originator, except as
mortgage loan originators.
otherwise provided in subdivision (c) of
Section 10166.03. The term (d) "Residential mortgage loan" means any loan
"administrative or clerical tasks" means primarily for personal, family, or household use
the receipt, collection, and distribution that is secured by a mortgage, deed of trust, or
of information common for the other equivalent consensual security interest on
processing or underwriting of a loan in a dwelling, or residential real estate upon which
the mortgage industry and is constructed or intended to be constructed a
communication with a consumer to dwelling. "Dwelling" means a residential
obtain information necessary for the structure that contains one to four units, whether
processing or underwriting of a or not that structure is attached to real property.
residential mortgage loan. The term includes an individual condominium
unit, cooperative unit, mobilehome, or trailer, if
(B) An individual that only performs
it is used as a residence.
real estate brokerage services, as defined
in subdivision (a) or (b) of Section (e) "Unique identifier" means a number or other
10131, unless that person is identifier assigned by protocols established by
compensated by a lender, other the Nationwide Mortgage Licensing System and
mortgage loan originator, or by any Registry.
agent of any lender or other mortgage
(f) "Loan processor or underwriter" means an
loan originator.
individual who performs clerical or support
(C) An individual who solely duties as an employee at the direction of, and
renegotiates terms for existing mortgage subject to the supervision and instruction of, a
loans held or serviced by his or her mortgage loan originator.
employer and who does not otherwise
Notice of Loan Activity
act as a mortgage loan originator, unless
10166.02. (a) A real estate broker who acts
the United States Department of
pursuant to Section 10131.1 or subdivision (d)
Housing and Urban Development or a
or (e) of Section 10131, and who makes,
court of competent jurisdiction
arranges, or services loans secured by real
determines that the SAFE Act requires
property containing one to four residential units,
such an employee to be licensed as a
and any salesperson who acts in a similar
mortgage loan originator under state
capacity under the supervision of that broker,
laws implementing the SAFE Act.
shall notify the department by January 31, 2010,
(D) An individual that is solely involved or within 30 days of commencing that activity,
in extensions of credit relating to whichever is later. The notification shall be
timeshare plans, as that term is defined made in writing, as directed, on a form that is
in Section 101 (53D) of Title 11 of the acceptable to the commissioner.
United States Code.
(b) No individual may engage in business as a
(E) An individual licensed or registered mortgage loan originator under this article
as a mortgage loan originator pursuant without first doing both of the following:
to the provisions of the Financial Code
(1) Obtaining and maintaining a real estate
and the SAFE Act.
license pursuant to Article 2 (commencing
with Section 10150).
BUSINESS AND PROFESSIONS CODE 45

(2) Obtaining and maintaining a real estate appropriation by the Legislature, be available for
license endorsement pursuant to this article expenditure for the purposes specified in
identifying that individual as a licensed Chapter 6.5 (commencing with Section 10470).
mortgage loan originator.
Loan Processor, Underwriter or Independent
(c) License endorsements shall be valid for a Contractor - Endorsement
period of one year and shall expire on the 31st of 10166.03. (a) A loan processor or underwriter
December each year. who does not represent to the public, through
advertising or other means of communicating or
(d) Applicants for a mortgage loan originator
providing information, including the use of
license endorsement shall apply in a form
business cards, stationery, brochures, signs, rate
prescribed by the commissioner. Each form shall
lists, or other promotional items, that the
contain content as set forth by rule, regulation,
individual can or will perform any of the
instruction, or procedure of the commissioner.
activities of a mortgage loan originator shall not
(e) In order to fulfill the purposes of this article, be required to obtain a license endorsement as a
the commissioner may establish relationships or mortgage loan originator.
contracts with the Nationwide Mortgage
(b) An individual engaging solely in loan
Licensing System and Registry or other entities
processor or underwriter activities shall not
designated by the Nationwide Mortgage
represent to the public, through advertising or
Licensing System and Registry to collect and
other means of communicating or providing
maintain records and process transaction fees or
information including the use of business cards,
other fees related to licensees or other persons
stationery, brochures, signs, rate lists, or other
subject to this article.
promotional items, that the individual can or will
(f) A real estate broker who fails to notify the perform any of the activities of a mortgage loan
department pursuant to subdivision (a), or who originator.
fails to obtain a license endorsement required
(c) An independent contractor who is employed
pursuant to paragraph (2) of subdivision (b),
by a mortgage loan originator may not engage in
shall be assessed a penalty of fifty dollars ($50)
the activities of a loan processor or underwriter
per day for each day written notification has not
for a residential mortgage loan unless the
been received or a license endorsement has not
independent contractor loan processor or
been obtained, up to and including the 30th day
underwriter obtains and maintains an
after the first day of the assessment penalty. On
endorsement as a mortgage loan originator under
and after the 31st day, the penalty is one
this article. Each independent contractor loan
hundred dollars ($100) per day, not to exceed a
processor or underwriter who obtains and
total penalty of ten thousand dollars ($10,000),
maintains an endorsement as a mortgage loan
regardless of the number of days, until the
originator under this article shall have and
department receives the written notification or
maintain a valid unique identifier issued by the
the licensee obtains the license endorsement.
Nationwide Mortgage Licensing System and
Penalties for violations of subdivisions (a) and
Registry.
(b) shall be additive.
Mortgage Loan Originator - Endorsement
(g) The commissioner may suspend or revoke
10166.04. (a) In connection with an application
the license of a real estate broker who fails to
to the commissioner for a license endorsement
pay a penalty imposed pursuant to this section.
as a mortgage loan originator, every applicant
In addition, the commissioner may bring an
shall furnish to the Nationwide Mortgage
action in an appropriate court of this state to
Licensing System and Registry information
collect payment of that penalty.
concerning the applicant's identity, including the
(h) All penalties paid or collected under this following:
section shall be deposited into the Recovery
Account of the Real Estate Fund and shall, upon
46 BUSINESS AND PROFESSIONS CODE

(1) Fingerprint images and related (a). The Department of Justice shall provide the
information, for purposes of performing a same electronic response to the department.
federal, or both a state and federal, criminal
(e) The Department of Justice shall charge a fee
history background check.
sufficient to cover the cost of processing the
(2) Personal history and experience in a requests described in this section.
form prescribed by the Nationwide
Denial of Mortgage Loan Originator
Mortgage Licensing System and Registry,
Endorsement
including the submission of authorization
10166.05. Notwithstanding any other provision
for the Nationwide Mortgage Licensing
of law, the commissioner shall not issue a
System and Registry and the commissioner
license endorsement to act as a mortgage loan
to obtain both of the following:
originator to an applicant unless the
(A) An independent credit report from a commissioner makes all of the following
consumer reporting agency. findings:
(B) Information related to any (a) The applicant has never had a mortgage loan
administrative, civil, or criminal originator license revoked in any governmental
findings by any governmental jurisdiction, except that a subsequent formal
jurisdiction. vacation of a revocation shall not be deemed a
revocation.
(b) The commissioner may ask the Nationwide
Mortgage Licensing System and Registry to (b) The applicant has not been convicted of, or
obtain state criminal history background check pled guilty or nolo contendere to, a felony in a
information on applicants described in domestic, foreign, or military court, under either
subdivision (a) using the procedures set forth in of the following conditions, however, any
subdivisions (c) and (d). pardon of a conviction shall not be considered a
conviction for purposes of this subdivision:
(c) If the Nationwide Mortgage Licensing
System and Registry electronically submits (1) During the seven year period preceding
fingerprint images and related information, as the date of the application for licensing.
required by the Department of Justice, for an
(2) At any time preceding the date of
applicant for a mortgage loan originator license
application, if the felony involved an act of
endorsement, to the Department of Justice for
fraud, dishonesty, a breach of trust, or
the purposes of obtaining information as to the
money laundering.
existence and content of a record of state
convictions and state arrests, and as to the (c) The applicant has demonstrated such
existence and content of a record of state arrests financial responsibility, character, and general
for which the Department of Justice establishes fitness as to command the confidence of the
that the person is free on bail or on his or her community and warrant a determination that the
recognizance pending trial or appeal, the mortgage loan originator will operate honestly,
Department of Justice shall provide an electronic fairly, and efficiently within the purposes of the
response to the Nationwide Mortgage Licensing article.
System and Registry pursuant to paragraph (1) (d) The applicant has complied with the
of subdivision (p) of Section 11105 of the Penal education and written testing requirements in
Code, and shall provide the same electronic Section 10166.06.
response to the department.
Mortgage Loan Originator Endorsement –
(d) The Nationwide Mortgage Licensing System Prerequisites
and Registry may request from the Department 10166.06. (a) In addition to the requirements of
of Justice subsequent arrest notification service, Section 10153, an applicant for a license
as provided pursuant to Section 11105.2 of the endorsement as a mortgage loan originator shall
Penal Code, for persons described in subdivision
BUSINESS AND PROFESSIONS CODE 47

complete at least 20 hours of education courses, (f) Nothing in this section shall prohibit a test
which shall include at least the following: provider approved by the Nationwide Mortgage
Licensing System and Registry from providing a
(1) Three hours of federal law and
test at the location of the employer of the
regulations.
applicant or any subsidiary or affiliate of the
(2) Three hours of ethics, which shall employer of the applicant, or any entity with
include instruction on fraud, consumer which the applicant holds an exclusive
protection, and fair lending issues. arrangement to conduct the business of a
(3) Two hours of training related to lending mortgage loan originator.
standards for the nontraditional mortgage (g) An individual shall not be considered to have
product marketplace. passed a qualified written test administered
(b) For purposes of this section, education pursuant to this section unless the individual
courses are only acceptable if they have been achieves a test score of not less than 75 percent
reviewed and approved, or otherwise deemed correct answers to questions.
acceptable, by the Nationwide Mortgage (h) An individual who fails the qualified written
Licensing System and Registry, in accordance test may retake the test up to three consecutive
with the SAFE Act. Education may be offered in times, although at least 30 days must pass
a classroom, online, or by any other means between each retesting.
approved by the Nationwide Mortgage
(i) An applicant who fails three consecutive
Licensing System and Registry, in accordance
retests must wait at least six months before
with the SAFE Act.
retesting.
(c) A person who successfully completes the
(j) A mortgage loan originator who fails to
education requirements approved by the
maintain a valid license endorsement for a
Nationwide Mortgage Licensing System and
period of five years or longer or who fails to
Registry in any state other than California shall
register as a mortgage loan originator in
be granted credit by the commissioner toward
accordance with applicable California law shall
completion of the education requirements of this
retake the qualified written test.
section.
Mortgage Loan Business Activity Reports
(d) Before being issued a license endorsement to
10166.07. (a) A real estate broker who acts
act as a mortgage loan originator, an individual
pursuant to Section 10131.1 or subdivision (d)
shall pass a qualified written test developed or
or (e) of Section 10131, and who makes,
otherwise deemed acceptable by the Nationwide
arranges, or services one or more loans in a
Mortgage Licensing System and Registry and
calendar year that are secured by real property
administered by a test provider approved or
containing one to four residential units, shall
otherwise deemed acceptable by the Nationwide
annually file a business activities report, within
Mortgage Licensing System and Registry.
90 days after the end of the broker's fiscal year
(e) A written test shall not be treated as a or within any additional time as the
qualified written test for purposes of this section, commissioner may allow for filing for good
unless the test adequately measures the cause. The report shall contain within its scope
applicant's knowledge and comprehension in the all of the following information for the fiscal
following subject areas: ethics, federal law and year, relative to the business activities of the
regulation pertaining to mortgage origination, broker and those of any other brokers and real
state law and regulation pertaining to mortgage estate salespersons acting under that broker's
origination, and federal and state law and supervision:
regulation relating to fraud, consumer
(1) Name and license number of the
protection, the nontraditional mortgage
supervising broker and names and license
marketplace, and fair lending issues.
numbers of the real estate brokers and
48 BUSINESS AND PROFESSIONS CODE

salespersons under that broker's supervision. (B) The total number and aggregate
The report shall include brokers and principal amount of covered loans, as
salespersons who were under the defined in Section 4970 of the Financial
supervising broker's supervision for all or Code.
part of the year.
(C) The total number and aggregate
(2) A list of the real estate-related activities principal amount of loans for which
in which the supervising broker and the Department of Real Estate form RE
brokers and salespersons under his or her Form 885 or an equivalent is required.
supervision engaged during the prior year.
(5) For adjustable rate loans made, brokered,
This listing shall identify all of the
or serviced, all of the following:
following:
(A) The total number, aggregate
(A) Activities relating to mortgages,
principal amount, lowest beginning
including arranging, making, or
interest rate, highest beginning interest
servicing.
rate, highest margin, and a list of the
(B) Other activities performed under the institutional lenders of record. If the
real estate broker's or salesperson's loan was funded by any lender other
license. than an institutional lender, the broker
shall categorize the loan as privately
(C) Activities performed under related
funded.
licenses, including, but not limited to, a
license to engage as a finance lender or (B) The total number and aggregate
a finance broker under the California principal amount of covered loans, as
Finance Lenders Law (Division 9 defined in Section 4970 of the Financial
(commencing with Section 22000) of Code.
the Financial Code), or a license to
(C) The total number and aggregate
engage as a residential mortgage lender
principal amount of loans for which
or residential mortgage loan servicer
Department of Real Estate form RE
under the California Residential
Form 885 or an equivalent is required.
Mortgage Lending Act (Division 20
(commencing with Section 50000) of (6) For all loans made, brokered, or
the Financial Code). serviced, the total number and aggregate
principal amount of loans funded by
(3) A list of the forms of media used by the
institutional lenders, and the total number
broker and those under his or her
and aggregate principal amount of loans
supervision to advertise to the public,
funded by private lenders.
including print, radio, television, the
Internet, or other means. (7) For all loans made, brokered, or
serviced, the total number and aggregate
(4) For fixed rate loans made, brokered, or
principal amount of loans that included a
serviced, all of the following:
prepayment penalty, the minimum
(A) The total number, aggregate prepayment penalty length, the maximum
principal amount, lowest interest rate, prepayment penalty length, and the number
highest interest rate, and a list of the of loans with prepayment penalties whose
institutional lenders of record. If the length exceeded the length of time before
loan was funded by any lender other the borrower's loan payment amount could
than an institutional lender, the broker increase.
shall categorize the loan as privately
(8) For all loans brokered, the total
funded.
compensation received by the broker,
including yield spread premiums,
BUSINESS AND PROFESSIONS CODE 49

commissions, and rebates, but excluding disclosure by paragraph (2) of subdivision (d) of
compensation used to pay fees for third- Section 6254 of the Government Code.
party services on behalf of the borrower.
(e) The commissioner may waive the
(9) For all mortgage loans made or brokered, requirement to submit certain information
the total number of loans for which a described in paragraphs (1) to (10), inclusive, of
mortgage loan disclosure statement was subdivision (a) if the commissioner determines
provided in a language other than English, that this information is duplicative of
and the number of forms provided per information required by the Nationwide
language other than English. Mortgage Licensing System and Registry,
pursuant to Section 10166.08.
(10) For all mortgage loans serviced, the
total amount of funds advanced to be Reports to NMLS & R
applied toward a payment to protect the 10166.08. Each mortgage loan originator shall
security of the note being serviced. submit reports of condition to the Nationwide
Mortgage Licensing System and Registry reports
(11) For purposes of this section, an
of condition, and those reports shall be in the
institutional lender has the meaning
form and shall contain information as the
specified in paragraph (1) of subdivision (c)
Nationwide Mortgage Licensing System and
of Section 10232.
Registry may require.
(b) A broker subject to this section and Section
Endorsement Renewal
10232.2 may file consolidated reports that
10166.09. The minimum standards for renewal
include all of the information required under this
of an endorsement as a mortgage loan originator
section and Section 10232.2. Those consolidated
shall include the following:
reports shall clearly indicate that they are
intended to satisfy the requirements of both (a) The mortgage loan originator continues to
sections. meet the minimum standards for obtaining an
endorsement as a mortgage loan originator.
(c) If a broker subject to this section fails to
timely file the report required under this section, (b) The mortgage loan originator satisfies the
the commissioner may cause an examination and annual continuing education requirements
report to be made and may charge the broker one described in Section 10166.10.
and one-half times the cost of making the
Mortgage Loan Originator – Continuing
examination and report. In determining the
Education
hourly cost incurred by the commissioner for
10166.10. (a) A mortgage loan originator shall
conducting an examination and preparing the
complete at least eight hours of continuing
report, the commissioner may use the estimated
education annually, which shall include at least
average hourly cost for all department audit staff
three hours relating to federal law and
performing audits of real estate brokers. If a
regulations, two hours of ethics, which shall
broker fails to pay the commissioner's cost
include instruction on fraud, consumer
within 60 days of the mailing of a notice of
protection, and fair lending issues, and two
billing, the commissioner may suspend the
hours related to lending standards for the
broker's license or deny renewal of that license.
nontraditional mortgage product marketplace.
The suspension or denial shall remain in effect
until the billed amount is paid or the broker's (b) For purposes of subdivision (a), continuing
right to renew a license has expired. The education courses and course providers shall be
commissioner may maintain an action for the reviewed and approved by the commissioner and
recovery of the billed amount in any court of the Nationwide Mortgage Licensing System and
competent jurisdiction. Registry.
(d) The report described in this section is (c) The commissioner shall have the authority to
exempted from any requirement of public substitute any of the courses described in
50 BUSINESS AND PROFESSIONS CODE

subdivision (a) for the course requirements of Record Retention – Mortgage Loan Brokers
Section 10170.5, subject to a finding that the 10166.11. (a) A real estate broker who acts
course requirements in subdivision (a) and the pursuant to Section 10131.1 or subdivision (d)
course completion standards in subdivision (g) or (e) of Section 10131 and who makes,
of Section 10166.06 are substantially equivalent arranges, or services loans secured by real
to, and meet the intent of, Section 10170.5. property containing one to four residential units,
shall keep documents and records that will
(d) Nothing in this section shall preclude any
properly enable the commissioner to determine
education course, as approved by the
whether the residential mortgage brokerage,
commissioner and the Nationwide Mortgage
servicing, and lending functions performed by
Licensing System and Registry, that is provided
the broker comply with this division and with all
by the employer of the mortgage loan originator
applicable rules and orders made by the
or an entity that is affiliated with the mortgage
commissioner. These documents shall include, at
loan originator by an agency contract, or any
a minimum, the documents described in Section
subsidiary or affiliate of the employer or entity.
10148. Upon request of the commissioner, a real
(e) Continuing education may be offered either estate broker shall file an authorization for
in a classroom, online, or by any other means disclosure to the commissioner of financial
approved by the commissioner and the records of his or her licensed business pursuant
Nationwide Mortgage Licensing System and to Section 7473 of the Government Code.
Registry.
(b) Notwithstanding subdivision (a) of Section
(f) A mortgage loan originator may only receive 10148, the business documents and records of
credit for a continuing education course in the real estate brokers described in subdivision (a)
year in which the course is taken. and real estate salespersons acting under those
(g) A mortgage loan originator may not take the brokers are subject to inspection and
same approved course in the same or successive examination or audit by the commissioner, at his
years to meet the requirements of this section for or her discretion, after reasonable notice. That
continuing education. real estate broker or salesperson shall, upon
request by the commissioner and within the time
(h) A mortgage loan originator who is an period specified in that request, allow the
instructor of an approved continuing education commissioner, or his or her authorized
course may receive credit for his or her own representative, to inspect and copy any business
annual continuing education requirement at the documents and records. The commissioner may
rate of two hours credit for every one hour suspend or revoke the license of the broker or
taught. salesperson if he or she fails to produce
(i) A person who successfully completes the documents or records within the time period
education requirements approved by the specified in the request.
Nationwide Mortgage Licensing System and (c) Inspection and examination or audit reports
Registry in any state other than California shall prepared by the commissioner's duly designated
be granted credit by the commissioner towards representatives pursuant to this section are not
completion of continuing education public records. Those reports may be disclosed
requirements in this state. to the officers or directors of a licensee that is
(j) A mortgage loan originator whose license the subject of the report for the purpose of
endorsement lapses, expires, or is suspended or corrective action. That disclosure shall not
revoked, and who wishes to regain his or her operate as a waiver of the exemption specified in
license endorsement, shall complete continuing subdivision (d) of Section 6254 of the
education requirements for the last year in which Government Code.
the endorsement was held, prior to issuance of a
new or renewed endorsement.
BUSINESS AND PROFESSIONS CODE 51

Examination of Books and Records (d) The statement of the findings of an


10166.12. (a) As often as the commissioner examination conducted pursuant to this section
deems necessary and appropriate, the shall belong to the commissioner and shall not
commissioner shall examine the affairs of each be disclosed to anyone other than the licensee,
real estate broker who is required to notify the law enforcement officials, or other state or
commissioner or obtain a license endorsement federal regulatory agencies for further
pursuant to Section 10166.02 for compliance investigation and enforcement. Reports required
with this part. These examinations shall also of licensees by the commissioner under this
include a review of the affairs of all real estate division and results of examinations performed
brokers and real estate salespersons acting under by the commissioner under this division are the
the supervision of each real estate broker who is property of the commissioner.
required to file reports with the department
Call Reports
pursuant to Section 10166.07. The commissioner
10166.13. A real estate broker who acts pursuant
shall appoint suitable persons to perform these
to Section 10131.1 or subdivision (d) or (e) of
examinations. The commissioner and his or her
Section 10131 and who makes, arranges, or
appointees may examine the books, records, and
services loans secured by real property
documents of the licensee, and may examine the
containing one to four residential units shall
licensee's officers, directors, employees, or
make any special reports to the commissioner
agents under oath regarding the licensee's
that the commissioner may, from time to time,
operations. The commissioner may cooperate
require.
with any agency of the state or federal
government, other states, agencies, the Federal Termination and Reporting
National Mortgage Association, or the Federal 10166.14. A real estate broker shall notify the
Home Loan Mortgage Corporation. The department when he or she is no longer subject
commissioner may accept an examination to this part. If a broker has already made reports
conducted by one of these entities in place of an required by Sections 10166.07 and 10166.08
examination by the commissioner under this within the year, he or she shall continue reports
section, unless the commissioner determines that for that year, but shall notify the department
the examination does not provide information prior to the expiration of that year that he or she
necessary to enable the commissioner to fulfill will no longer be subject to this part in the
his or her responsibilities under this division. succeeding year.
(b) The commissioner may impose a penalty Reporting of Violations to NMLS & R
against a real estate broker or real estate 10166.15. (a) The commissioner shall regularly
salesperson whose affairs are examined or report violations of this article, as well as
reviewed pursuant to subdivision (a) based on enforcement actions taken against any mortgage
the findings of the examination or review. The loan originator to whom an endorsement has
commissioner may suspend or revoke the license been issued, and enforcement actions taken
or license endorsement of a real estate broker or against any individual for failure to obtain an
real estate salesperson who fails to pay that endorsement as a mortgage loan originator, to
penalty. In addition, the commissioner may the Nationwide Mortgage Licensing System and
bring an action in an appropriate court of this Registry.
state to collect payment of the penalty. (b) The commissioner shall establish a process
(c) Penalties collected pursuant to subdivision that may be used by mortgage loan originators to
(b) shall be deposited into the Recovery Account challenge information entered into the
of the Real Estate Fund and shall, upon Nationwide Mortgage Licensing System and
appropriation by the Legislature, be available for Registry by the commissioner.
expenditure for the purposes specified in (c) The commissioner is authorized to
Chapter 6.5 (commencing with Section 10470). promulgate regulations specifying (1) the
52 BUSINESS AND PROFESSIONS CODE

recordkeeping requirements that mortgage loan (d) This section shall not apply with respect to
originators shall satisfy and (2) the penalties that the information or material relating to the
shall apply to mortgage loan originators for employment history of, and publicly adjudicated
violations of this article. disciplinary and enforcement actions against,
mortgage loan originators that is included in the
Confidentiality of Reports
Nationwide Mortgage Licensing System and
10166.16. (a) Except as otherwise provided in
Registry for access by the public.
Section 1512 of the SAFE Act, the requirements
under any federal or state law regarding the Authority to Establish Regulations
privacy or confidentiality of any information or 10166.17. In addition to any other duties
material provided to the Nationwide Mortgage imposed upon the commissioner by law, the
Licensing System and Registry, and any commissioner shall require mortgage loan
privilege arising under federal or state law, originators to be licensed and registered through
including the rules of any federal or state court, the Nationwide Mortgage Licensing System and
with respect to that information or material, shall Registry. In order to carry out this requirement
continue to apply to the information or material the commissioner is authorized to participate in
after the information or material has been the Nationwide Mortgage Licensing System and
disclosed to the Nationwide Mortgage Licensing Registry. For this purpose, the commissioner
System and Registry. The information and may establish by rule, regulation, or order,
material may be shared with all state and federal requirements as necessary, including, but not
regulatory officials with mortgage industry limited to, the following:
oversight authority without the loss of privilege
(a) Background checks for the following:
or the loss of confidentiality protections
provided by federal or state law. (1) Criminal history through fingerprint or
other databases.
(b) For these purposes, the commissioner is
authorized to enter agreements or sharing (2) Civil or administrative records.
arrangements with other governmental agencies, (3) Credit history.
the Conference of State Bank Supervisors, the
American Association of Residential Mortgage (4) Any other information as deemed
Regulators, or other associations representing necessary by the Nationwide Mortgage
governmental agencies as established by rule, Licensing System and Registry.
regulation or order of the commissioner. (b) The payment of fees to apply for or renew
(c) Information or material that is subject to a licenses through the Nationwide Mortgage
privilege or confidentiality under subdivision (a) Licensing System and Registry.
shall not be subject to either of the following: (c) The setting or resetting as necessary of
(1) Disclosure under any federal or state law renewal or reporting dates.
governing the disclosure to the public of (d) Requirements for amending or surrendering
information held by an officer or an agency a license or any other activities as the
of the federal government or the state. commissioner deems necessary for participation
(2) Subpoena or discovery, or admission in the Nationwide Mortgage Licensing System
into evidence, in any private civil action or and Registry.
administrative process, unless with respect
Article 2.3 Prepaid Rental Listing Service
to any privilege held by the Nationwide
Mortgage Licensing System and Registry Definitions
with respect to the information or material, 10167. The definitions used in this section shall
the person to whom the information or govern the construction and terms as used in this
material pertains waives, in whole or in part, article:
in the discretion of the person, that privilege. (a) “Prepaid rental listing service” means the
BUSINESS AND PROFESSIONS CODE 53

business of supplying prospective tenants with service unless licensed in that capacity or unless
listings of residential real properties for tenancy, licensed as a real estate broker.
by publication or otherwise, pursuant to an
(b) (1) The requirements of this article apply
arrangement under which the prospective tenants
only to the provision of listings of
are required to pay an advance or
residential real properties for tenancy by
contemporaneous fee (1) specifically to obtain
prepaid rental listing services. Except if
listings or (2) to purchase any other product or
expressly provided otherwise in this article,
service in order to obtain listings, but which
the requirements of this article do not apply
does not otherwise involve the negotiation of
to any other goods or services sold by a
rentals by the person conducting the service.
prepaid rental listing service as long as the
“Prepaid rental listing service” does not include
purchase of those goods or services is not
the business of providing roommate referral
required to obtain those listings, and as long
information designed to assist persons in
as the purchase of those goods or services is
locating a roommate who meets various
not included in the same contract as the
selection criteria related to the prospective
contract to provide those listings, and as
roommate’s personal traits, characteristics,
long as the contract to provide those listings
habits or preferences, and selection criteria
clearly specifies that the purchase of any
related to the residential real property occupied
other goods and services is optional, and as
by the prospective roommate.
long as the price charged for any other
(b) “Licensee” means a person licensed to goods and services is fair and reasonable.
conduct a prepaid rental listing service or a
(2) In an action alleging that the price
person engaged in the business of a prepaid
charged for any other goods and services is
rental listing service under a real estate broker
not fair and reasonable, the burden shall be
license.
on the commissioner to demonstrate that the
(c) “Location” means the place, other than the price charged unreasonably exceeds the fee
main or branch office of a real estate broker, customarily charged for the same or
where a prepaid rental listing service business is comparable goods or services in the
conducted. community in which the prepaid rental
listing service operates. The fact that the
(d) “Designated agent” means the person who is
price charged for goods or services exceeds
in charge of the business of a prepaid rental
the cost incurred by the prepaid rental listing
listing service at a given location.
service shall not render the price charged for
(e) “Fee” means the charge required by a the goods or services to be unfair or
licensee (1) to obtain listings of residential real unreasonable, so long as the price charged
properties for tenancy or (2) to purchase any does not unreasonably exceed the fee
other product or service in order to obtain customarily charged for the same or
listings. comparable goods or services in the
(f) “Service charge” means the amount of the fee community in which the prepaid rental
that a licensee may retain if a prospective tenant listing service operates.
finds housing through a source other than the Separate Application for Each Location –
listings supplied by the licensee. Broker May Provide Service
Newspapers of General Circulation Excluded 10167.3. (a) A separate application for a license
10167.1. This article shall not apply to a as a prepaid rental listing service shall be made
newspaper of general circulation. in writing for each location to be operated by a
licensee other than a real estate broker. Each
License Required application shall be on forms provided by the
10167.2. (a) It is unlawful for any person to department, shall be signed by the applicant, and
engage in the business of a prepaid rental listing shall be accompanied by a one hundred dollar
54 BUSINESS AND PROFESSIONS CODE

($100) application fee for the first location, and supervision of the licensee or a designated agent
a twenty-five dollar ($25) application fee for who is not a designated agent at any other
each additional location of the applicant. location. Whenever a designated agent ceases
Applications to add or eliminate locations during permanently to be a designated agent at any
the term of a license shall be on forms location because of death, termination of
prescribed by the department. A twenty-five employment, or any other reason, the licensee,
dollar ($25) application fee for the remainder of within five days thereafter, shall give written
a license term for each location to be added shall notice to the department. A license issued for a
accompany the application. particular location shall automatically expire 60
days after the time the business conducted at
(b) A real estate broker may provide a prepaid
such location ceases for any reason to be under
rental listing service at a licensed office for the
the charge of and managed by the designated
conduct of his or her real estate brokerage
agent of record with the department, unless
business if the business at the office is
within such 60-day period the licensee submits
conducted under the immediate supervision of
written notice of the new designated agent to the
the broker or of a real estate salesperson licensed
department.
to, and acting on behalf of, the broker.
A designated agent of the licensed service may
Application Hearing
serve as designated agent for the location in
10167.4. The commissioner may require such
question as well as for the location for which he
proof as he or she may deem advisable
or she is the designated agent of record during
concerning the honesty and truthfulness of (a)
the period of 60 days.
any applicant for a license as a prepaid rental
listing service, (b) the designated agents of the Nonresident Licensees
applicant, (c) the officers, directors, and any 10167.6. Every applicant for a prepaid rental
persons owning 25 percent or more of the shares listing service license who is not a resident of
of any corporation making such an application, this state shall file with the application for a
or (d) any person owning or controlling a license an irrevocable consent that in any action
beneficial ownership interest of 25 percent or arising out of the activities of the prepaid rental
more in the entity making application before listing service commenced against him or her in
authorizing the issuance of a license for a this state, if personal service of process upon
location. For this purpose, the commissioner him or her cannot be made in this state in the
may hold a hearing in accordance with Chapter exercise of due diligence, a valid service may be
5 (commencing with Section 11500) of Part 1 of made upon him or her by delivering the process
Division 3 of Title 2 of the Government Code to the Secretary of State.
and may refuse to issue a license to an applicant
Insofar as possible, the provisions of Section
who does not furnish satisfactory proof of his or
1018 of the Code of Civil Procedure relating to
her honesty and truthfulness or of the honesty
service of process on the Secretary of State are
and truthfulness of the corporate officers,
applicable to this section.
directors, and shareholders. To assist in this
determination, the commissioner shall require Bond Requirement – Each Location
the fingerprinting of every original applicant 10167.7. Except as provided in Section 10167.8,
including designated agents, officers, directors, each licensee shall provide to the department,
and persons owning 25 percent or more of the and at all times maintain in force, a bond in the
shares of the corporate applicant. amount of ten thousand dollars ($10,000) for
each location. The bond may be in the form of a
Supervision – Termination of Designated
corporate surety bond, or a cash deposit. A cash
Agent – License Expiration
deposit may be deposited by the licensee in an
10167.5. The business at a location licensed
interest-bearing account assigned to the
pursuant to subdivision (a) of Section 10167.3
commissioner, with interest earned thereon
shall be conducted under the immediate
payable to the licensee. The bond or cash deposit
BUSINESS AND PROFESSIONS CODE 55

may be utilized by the commissioner for the prospective tenant.


benefit of any unsatisfied judgment creditor in
(C) Furnished or unfurnished.
an action pursuant to subdivision (e) of Section
10167.10. (D) Number of bedrooms required.
Bond Exemptions (E) Maximum acceptable monthly
10167.8. The requirement of Section 10167.7 rental.
shall not apply to any prepaid rental listing (5) The contract expiration date, which shall
service operated by: not be later than 90 days from the date of
(a) a person exempt from the payment of federal execution of the contract.
and state income taxes; (6) A clause setting forth the right to a full
(b) an agency of the federal, state, or local or partial refund of the fee paid as provided
government; or in Section 10167.10.
(c) a real estate broker conducting a prepaid (7) The signature and printed full name of
rental listing service pursuant to a real estate the licensee or of the designated agent, real
license. estate salesperson, or employee acting on
behalf of the licensee. The signature of any
PRLS Contract Requirements – DRE Approval
person, including any signature required by
of Contract Required
the terms of the contract to be provided by
10167.9. (a) Prior to the acceptance of a fee, a
the prospective tenant, may be provided in
licensee shall offer the prospective tenant a
any electronic form that provides a
written contract, either on paper or in electronic
reasonable method of indicating that the
form, which shall include at least the following:
individual whose signature is required
(1) The name of the licensee and the authorized the contract to be signed in that
addresses and telephone numbers of the electronic form.
principal office or location of the licensee
(8) A clause in bold type letters outlining the
and of the location, or branch office of a real
small claims court remedy available to the
estate broker, providing the listing to the
prospective tenant.
prospective tenant.
(9) A clause in boldface type letters clearly
(2) Acknowledgment of receipt of the fee,
stating that the purchase of any goods and
including the amount.
services other than the provision of listings
(3) A description of the service to be of residential real properties for tenancy is
performed by the licensee, including optional.
significant conditions, restrictions, and
(b) (1) The original of each contract, any
limitations where applicable.
separate contracts for required goods or
(4) The prospective tenant’s specifications services, refund claims, receipts and any
for the rental property, including, but not other relevant documents shall be retained
limited to: by the licensee for a period of not less than
three years from the date of termination of
(A) Type of structure, including, but not
the contract during which time the contract
limited to, detached single-family home,
shall be subject to examination by a duly
apartment, or duplex.
authorized representative of the
(B) Location by commonly accepted commissioner. Any records retained
residential area name, by designation of pursuant to this subdivision that are stored in
boundary streets, or by any other the ordinary course of business in digital
manner affording a reasonable means of media shall, upon request of a duly
identifying locations acceptable to the authorized representative of the
56 BUSINESS AND PROFESSIONS CODE

commissioner, be provided on diskette, CD- Refund of Advance Fee Paid


ROM or similar portable digital storage 10167.10. (a) (1) A licensee shall refund in
medium. For purposes of this subdivision, full the fee paid by a prospective tenant if
the “original” of a contract executed in the licensee does not, within five days after
electronic form shall be either the copy of execution of the contract, supply at least
the contract stored in digital media or a three rental properties then available to the
paper printout of that contract. prospective tenant and meeting the
specifications of the contract, unless the
(2) Any licensee, or employee thereof, shall
prospective tenant obtains a rental through
dispose of the documents required to be kept
the services of the licensee.
pursuant to paragraph (1) by shredding or
other appropriate means so that the identity (2) A licensee will be deemed to have
of the prospective tenant may not be supplied information meeting the
determined from the disposed information specifications of the prospective tenant if the
alone or in combination with other publicly information supplied meets the contract
available information. specifications with reference to: (i) type of
structure; (ii) designated area; (iii) furnished
(c) The form of contract proposed to be used by
or unfurnished; (iv) number of bedrooms;
a licensee to effect compliance with this section
(v) maximum rental; and (vi) any other
shall be filed with the department prior to use.
specification expressly set forth in the
Any modification of a form previously filed with
contract. A demand for the return of the fee
the department, including a change in the name
shall be made by or on behalf of the
or business address of the licensee, shall also be
prospective tenant within 10 days following
filed prior to use. The department shall withhold
the expiration of the five-day period referred
the issuance or renewal of a license until the
to above by delivery or by mailing by
department has approved the contract. If a
registered or certified mail to the address of
proposed modification to a contract has not been
a location, or branch office of a real estate
approved or disapproved within 15 working
broker, set forth in the contract.
days of being filed with the department, the
proposed modification shall be deemed (b) (1) Except as provided in paragraph (3), a
approved. If a proposed modification or contract licensee shall refund any fee paid over and
provision is disapproved, the department shall above the sum of a fifty dollar ($50) service
communicate that disapproval in writing to the charge to the prospective tenant if the
licensee within 15 working days of being filed prospective tenant obtains a rental other than
with the department, accompanied by a written through the services of the licensee during
justification of why the modification or contract the term of the contract or does not obtain a
provision is contrary to the requirements of this rental, provided that the prospective tenant
article. demands a return of that part of the fee
within 10 days after the expiration of the
(d) Notwithstanding any other provision of law,
contract.
a contract for prepaid rental listing services
executed in electronic form, and signed in any (2) The licensee shall refund any fee paid
electronic form that provides a reasonable over and above the sum of a fifty dollar
method of indicating that the individual whose ($50) service charge to the prospective
signature is required authorized the contract to tenant within 10 days of receipt from the
be signed in electronic form, shall be valid to the prospective tenant of either the
same extent as an executed written contract. documentation specified in subparagraph
Upon request by the customer, the licensee shall (A) or the written statement specified in
deliver an executed paper copy to the customer subparagraph (B), as applicable:
within five working days of receiving the
(A) Except as specified in subparagraph
request.
(B), a prospective tenant demanding a
BUSINESS AND PROFESSIONS CODE 57

refund shall provide to the licensee allowable service charge to reflect the rate
reasonable documentation of the of inflation from the previous date that the
prospective tenant’s new rental or of the amount of the allowable service charge was
fact that the prospective tenant did not established, as measured by the Consumer
move, such as a lease, rental agreement, Price Index or other method of measuring
or utility bill, with sufficient information the rate of inflation which the department
to verify that the new rental was not determines is reliable and generally
obtained through the services of the accepted.
licensee or that the prospective tenant
(c) Each contract shall contain provisions that
did not move.
shall read as follows unless different language
(B) If the prospective tenant is unable to shall have been approved in writing by the
locate or provide the documentation department prior to use:
specified in subparagraph (A), the
RIGHT TO REFUND
prospective tenant may, at his or her
(Full capital letters, in 12-point type or greater,
option, fill out and sign a written
boldface or italicized)
statement, supplied by the licensee, in
the following form: “IF, WITHIN FIVE DAYS AFTER PAYMENT OF
A FEE, THE LICENSEE HAS NOT SUPPLIED
I, __________________________, do THE PROSPECTIVE TENANT WITH AT LEAST
(name of prospective tenant) THREE AVAILABLE RENTAL PROPERTIES
swear or affirm the following: MEETING THE SPECIFICATIONS OF THE
CONTRACT AS TO (I) TYPE OF STRUCTURE;
I currently live at __________________ (II) DESIGNATED AREA; (III) FURNISHED OR
(street address) UNFURNISHED; (IV) NUMBER OF BEDROOMS;
The following statement is true (check (V) MAXIMUM RENTAL; AND (VI) ANY
OTHER SPECIFICATION EXPRESSLY SET
one):
FORTH IN THE CONTRACT, THE FULL
____ I have rented a unit at the above AMOUNT OF THE FEE PAID SHALL BE
address. I did not obtain this REFUNDED TO THE PROSPECTIVE TENANT
rental through the services of UPON PRESENTATION OF EVIDENCE OF
_________________________ THAT FAILURE WITHIN 10 DAYS AFTER THE
(name of licensee) EXPIRATION OF THE FIVE-DAY PERIOD. THE
PROSPECTIVE TENANT IS NOT ENTITLED TO
during the time of our contract.
A REFUND IF THE PROSPECTIVE TENANT
____ I did not find a new rental and OBTAINS A RENTAL THROUGH THE
did not move. I still live at the SERVICES OF THE LICENSEE.
above address. IF THE PROSPECTIVE TENANT OBTAINS A
I declare under penalty of perjury that RENTAL OTHER THAN THROUGH THE
SERVICES OF THE LICENSEE DURING THE
the foregoing is true and correct to the
TERM OF THIS CONTRACT OR IF THE
best of my knowledge. PROSPECTIVE TENANT DOES NOT OBTAIN A
________________________________ RENTAL THROUGH THE SERVICES OF THE
(date) LICENSEE DURING THE TERM OF THE
____________________________________ CONTRACT, THE LICENSEE SHALL REFUND
(location) THE FEE RECEIVED IN EXCESS OF A (INSERT
APPLICABLE LIMIT PURSUANT TO
________________________________ SUBDIVISION (B) OF SECTION 10167.10 OF
(signature) THE BUSINESS AND PROFESSIONS CODE)
SERVICE CHARGE TO THE PROSPECTIVE
(3) On or after January 1, 2002, the TENANT WITHIN 10 DAYS AFTER THE
department may, from time to time, by PROSPECTIVE TENANT SUPPLIES EITHER (I)
regulation, adjust the amount of the REASONABLE DOCUMENTATION OF THE
58 BUSINESS AND PROFESSIONS CODE

PROSPECTIVE TENANT’S NEW RENTAL OR in making the refund is found to have been done
OF THE FACT THAT THE PROSPECTIVE in bad faith, a court of appropriate jurisdiction,
TENANT DID NOT MOVE, SUCH AS A LEASE, including a small claims court, shall be
RENTAL AGREEMENT, OR UTILITY BILL, empowered to award damages to the plaintiff in
WITH SUFFICIENT INFORMATION TO VERIFY
an amount not to exceed one thousand dollars
THAT THE NEW RENTAL WAS NOT
OBTAINED THROUGH THE SERVICES OF THE ($1,000) in addition to actual damages sustained
LICENSEE OR THAT THE PROSPECTIVE by the plaintiff. If the licensee refuses or is
TENANT DID NOT MOVE, OR (II) IF THE unable to pay the damages awarded by the court,
PROSPECTIVE TENANT IS UNABLE TO the award may be satisfied out of the security
LOCATE OR PROVIDE THAT required under Section 10167.7.
DOCUMENTATION, THE PROSPECTIVE
TENANT MAY, AT HIS OR HER OPTION, FILL Violations
OUT A WRITTEN FORM PROVIDED BY THE 10167.11. It shall be a violation of this article for
LICENSEE AND SIGNED BY THE any licensee or any employee or agent of a
PROSPECTIVE TENANT UNDER PENALTY OF licensee to do the following:
PERJURY STATING THAT HE OR SHE DID NOT
(a) Make, or cause to be made, any false,
OBTAIN A RENTAL THROUGH THE SERVICES
OF THE LICENSEE DURING THE TIME OF THE misleading, or deceptive advertisements or
CONTRACT. representations concerning the services that the
licensee will provide to prospective tenants.
TO BE ENTITLED TO A REFUND IN EXCESS OF
THE SERVICE CHARGE, THE PROSPECTIVE (b) Refer a property to a prospective tenant
TENANT MUST MAIL OR DELIVER THE knowing or having reason to know that:
DEMAND FOR REFUND NOT LATER THAN 10
DAYS AFTER EXPIRATION OF THIS (1) The property does not exist or is
CONTRACT, AND MUST SUPPLY EITHER (I) unavailable for tenancy.
REASONABLE DOCUMENTATION OF THE (2) The property has been described or
PROSPECTIVE TENANT’S NEW RENTAL OR
advertised by or on behalf of the licensee in
OF THE FACT THAT THE PROSPECTIVE
TENANT DID NOT MOVE, SUCH AS A LEASE,
a false, misleading, or deceptive manner.
RENTAL AGREEMENT, OR UTILITY BILL, (3) The licensee has not confirmed the
WITH SUFFICIENT INFORMATION TO VERIFY availability of the property for tenancy
THAT THE NEW RENTAL WAS NOT during the four-day period immediately
OBTAINED THROUGH THE SERVICES OF THE
preceding dissemination of the listing
LICENSEE OR THAT THE PROSPECTIVE
TENANT DID NOT MOVE, OR (II) A WRITTEN information. However, it shall not be a
FORM PROVIDED BY THE LICENSEE AND violation to refer a property to a prospective
SIGNED BY THE PROSPECTIVE TENANT tenant during a period of from five to seven
UNDER PENALTY OF PERJURY STATING days after the most recent confirmation of
THAT HE OR SHE DID NOT OBTAIN A RENTAL the availability of the property for rental if
THROUGH THE SERVICES OF THE LICENSEE the licensee has made a good faith effort to
DURING THE TIME OF THE CONTRACT. THE confirm availability within the stated four-
DOCUMENTATION MAY BE SUPPLIED AFTER day period, and if the most recent date of
THE DEMAND FOR A REFUND IS MAILED OR confirmation of availability is set forth in the
DELIVERED, PROVIDED THAT IT IS SUPPLIED
referral.
WITHIN A REASONABLE TIME AFTER IT
BECOMES AVAILABLE.” (4) The licensee has not obtained written or
(d) This section shall not apply to a person oral permission to list the property from the
purchasing rental information for a purpose property owner, manager, or other
other than that of locating a rental unit for authorized agent.
personal use or the use of a designated person. License Suspension or Revocation
(e) If the licensee fails to make a refund as 10167.12. (a) The commissioner may suspend,
provided in this section and if the denial or delay deny, or revoke the license of a licensee or the
BUSINESS AND PROFESSIONS CODE 59

license of the licensee to operate at one or more willfully violates any provision of this article is
locations for either of the following: guilty of a misdemeanor.
(1) A violation of this article by a licensee or Applicable Laws
by an employee or agent, including a 10167.16. A person or corporation licensed
designated agent, of the licensee. pursuant to this article and not engaging in acts
for which a real estate license is required under
(2) A conviction of a licensee, or a
Article 1 (commencing with Section 10130) of
designated agent, or of an officer, director,
Chapter 3 of Part 1 of Division 4, shall be
or owner of 25 percent or more of the shares
subject, in addition to the provisions of this
of a corporate licensee for a crime which is
article, to the provisions of Chapter 1
substantially related to the qualifications,
(commencing with Section 10000) and Chapter
functions, or duties of a prepaid rental listing
2 (commencing with Section 10050) of Part 1 of
service licensee.
Division 4, and to Sections 10450, 10452,
(b) For the purpose of determining whether 10453, and 10454.
grounds exist for suspending, denying, or
Provisions of Licensure
revoking the license of a licensee, the
10167.17. The commissioner shall, by
commissioner shall hold a hearing in accordance
regulation, make prepaid rental listing service
with Chapter 5 (commencing with Section
licensees and applicants for prepaid rental listing
11500) of Part 1 of Division 3 of Title 2 of the
service licenses subject to the same provisions
Government Code.
respecting licensure as are applicable to real
Two-year License Term estate licenses under Sections 10151.5, 10156.5,
10167.13. A prepaid rental listing service license 10156.6, 10156.7, 10200, and 10201.
issued by the department shall be for a period of
two years. An application and fee for renewal Article 2.5. Continuing Education
filed with the department before midnight of the Legislative Determination
last day of the period for which a previous 10170. The Legislature has determined that it is
license was issued entitles the licensee to in the public interest of consumer protection and
continue operating at all locations specified in consumer service that all real estate licensees
the previous license for which a renewal fee is licensed under the provisions of this part comply
paid. with continuing education requirements adopted
Injunction by the commissioner pursuant to this article as a
10167.14. Whenever any person has engaged or prerequisite to the renewal of real estate licenses
threatens to engage in any acts or practices on and after January 1, 1981.
which constitute, or will constitute a violation of Advisory Committee
a provision of the article, the superior court of 10170.2. The commissioner may appoint a
the county in which the acts or practices have committee comprised of licensees under this part
taken place, or are about to take place, on and persons with expertise in real estate
complaint of the commissioner, the attorney education to advise him with respect to his
general, district attorney, or city attorney, may responsibilities under this article.
enjoin such acts or practices by appropriate
Regulations to Be Adopted
order. The proceedings under this section shall
10170.4. The commissioner shall adopt
be governed by Chapter 3 (commencing with
regulations pursuant to Section 10080, to
Section 525) of Title 7 of Part 2 of the Code of
prescribe all of the following:
Civil Procedure, except that no undertaking shall
be required. (a) A definition of basic requirements for
continuing education of 45 clock hours of
Misdemeanor
attendance at approved educational courses,
10167.15. Any person, including an officer,
seminars, workshops, or conferences, or their
director, or employee of a corporation who
60 BUSINESS AND PROFESSIONS CODE

equivalent, achieved during a four-year period Required Courses


preceding license renewal application. 10170.5. (a) Except as otherwise provided in
Sections 10153.4 and 10170.8, no real estate
(b) A basis and method of qualifying educational
license shall be renewed unless the
programs, the successful completion of which,
commissioner finds that the applicant for license
will satisfy the requirements of this article.
renewal has, during the four-year period
(c) A procedure for evaluation of petitions based preceding the renewal application, successfully
on a claim of equivalency with the requirements completed the 45-clock hours of education
of subdivision (a), and a reasonable standard by provided for in Section 10170.4, including all of
which an activity would be judged equivalent, the following:
including, but not limited to, instruction in real
(1) A three-hour course in ethics,
estate subjects, publication of professional
professional conduct, and legal aspects of
articles or books, or development of real estate
real estate, which shall include, but not be
educational programs, law or research.
limited to,relevant legislation, regulations,
(d) A system of control and reporting qualifying articles, reports, studies, court decisions,
attendance. treatises, and information of current interest.
(e) An appropriate form of testing, examination (2) A three-hour course in agency
or evaluation by the sponsor of each approved relationships and duties in a real estate
correspondence or homestudy educational brokerage practice, including instruction in
program, or equivalent, of the student. the disclosures to be made and the
(f) A statement of the conditions of exemption confidences to be kept in the various agency
from the continuing education requirements relationships between licensees and the
established under this article, as well as a parties to real estate transactions.
method of applying and qualifying for these (3) A three-hour course in trust fund
exemptions, for reasons of health, military accounting and handling.
service, or other compelling cause.
(4) A three-hour course in fair housing.
In exercising the authority under this article, the
(5) A three-hour course in risk management
commissioner shall establish standards which
that shall include, but need not be limited to,
will assure reasonable currency of knowledge as
principles, practices, and procedures
a basis for a level of real estate practice which
calculated to avoid errors and omissions in
will provide a high level of consumer protection
the practice of real estate licensed activities.
and of competence in achieving the objectives of
members of the public who engage the services (6) Not less than 18-clock hours of courses
of licensees. The standards shall permit a variety or programs related to consumer protection,
of alternatives of subject material to licensees and designated by the commissioner as
taking cognizance of specialized areas of satisfying this purpose in his or her approval
practice, and alternatives in sources of programs of the offering of these courses or programs,
considering availability in area and time. The which shall include, but not be limited to,
standards shall include, where qualified, forms of real estate financing relevant to
generally accredited educational institutions, serving consumers in the marketplace, land
private vocational schools, correspondence use regulation and control, pertinent
institutions, educational programs, workshops, consumer disclosures, agency relationships,
and seminars of professional societies and capital formation for real estate
organizations, other organized educational development, fair practices in real estate,
programs on technical subjects, or equivalent appraisal and valuation techniques, landlord-
offerings. tenant relationships, energy conservation,
environmental regulation and consideration,
taxation as it relates to consumer decisions
BUSINESS AND PROFESSIONS CODE 61

in real estate transactions, probate and education completed pursuant to such amended
similar disposition of real property, or repealed regulation during his current license
governmental programs such as revenue term, as a basis for license renewal.
bond activities, redevelopment, and related
Exemption Conditions – 30 Years as Licensee –
programs, business opportunities, mineral,
70 Years or Older
oil, and gas conveyancing, and California
10170.8. The provisions of this article shall not
law that relates to managing community
apply to any real estate licensee who submits
associations that own, operate, and maintain
proof satisfactory to the commissioner that he or
property within common interest
she has been a real estate licensee in good
developments, including, but not limited to,
standing for 30 continuous years in this state and
management, maintenance, and financial
is 70 years of age or older.
matters addressed in the Davis-Stirling
Common Interest Development Act. A licensee in good standing is one who holds an
active license which has not been suspended,
(7) Other courses and programs that will
revoked, or restricted as a result of disciplinary
enable a licensee to achieve a high level of
action.
competence in serving the objectives of
consumers who may engage the services of License Grace Period
licensees to secure the transfer, financing, or 10171.2. If an applicant for a license has
similar objectives with respect to real submitted, in good faith, evidence of completion
property, including organizational and of continuing education which he had reason to
management techniques that will believe would qualify him for license renewal,
significantly contribute to this goal. but the commissioner finds that the evidence
submitted does not qualify under standards
(b) Except as otherwise provided in Section
adopted pursuant to this article, the
10170.8, no real estate license shall be renewed
commissioner may, nonetheless, extend the
for a licensee who already has renewed under
license for 90 days in order to allow the
subdivision (a), unless the commissioner finds
applicant to submit additional evidence of
that the applicant for license renewal has, during
compliance, which satisfies the requirements of
the four-year period preceding the renewal
this article. When the license is issued during or
application, successfully completed the 45-clock
at the end of the grace period provided for in this
hours of education provided for in Section
section it shall expire four years from the date
10170.4, including an eight-hour update survey
otherwise applicable if no grace period had been
course that covers the subject areas specified in
granted.
paragraphs (1) to (5), inclusive, of subdivision
(a). License Reinstatement After Disciplinary
Action
(c) Any denial of a license pursuant to this
10171.3. On and after January 1, 1981, a real
section shall be subject to Section 10100.
estate license, which has been revoked as the
(d) For purposes of this section, “successful result of disciplinary action by the
completion” of a course described in paragraphs commissioner, shall not be reinstated, nor shall a
(1) to (5), inclusive, of subdivision (a) means the restricted real estate license be issued to an
passing of a final examination. applicant in connection with a petition for
reinstatement, unless the applicant presents
Licensee Right
evidence of completion of the continuing
10170.6. The commissioner may amend or
education required by this article. This
repeal any regulation adopted pursuant to this
requirement of evidence of continuing education
article in the same manner as provided for
shall not be imposed upon an applicant for
adoption of such regulations, except that no
reinstatement who has been required under
amendment or repeal shall operate to deprive
Section 10182 to pass a qualifying examination
any licensee of the right to submit qualifying
as a condition to reinstatement.
62 BUSINESS AND PROFESSIONS CODE

Temporary License Issuance further condition that the licensee incur no other
10171.4. Any licensee who applies for renewal cause for disciplinary action within a period of
of his or her license under Section 10461, or for time specified by the commissioner.
reinstatement of his or her license under Section
(b) The commissioner may exercise the
10161.5 or 10463, shall, if the previous active
discretion granted under subdivision (a) either
license issued to him or her was issued four or
with respect to a suspension ordered by a
more years prior to his or her application for
decision after a contested hearing on an
renewal or reinstatement, present evidence of
accusation against the licensee or by stipulation
compliance with this article. If no such
with the licensee after the filing of an
qualifying evidence is presented, the
accusation, but prior to the rendering of a
commissioner may issue a temporary license for
decision based upon the accusation. In either
a period of 90 days.
case, the terms and conditions of the disciplinary
If the applicant presents evidence within 90 days action against the licensee shall be made part of
of compliance with this article and is otherwise a formal decision of the commissioner.
qualified, the commissioner shall issue a regular
(c) If a licensee fails to pay the monetary penalty
license without additional fee. It shall expire
in accordance with the terms and conditions of
four years from the date which would otherwise
the decision of the commissioner, the
have been applicable if a temporary license
commissioner may, without a hearing, order the
under this section had not been issued.
immediate execution of all or any part of the
Corporate Broker-Officer stayed suspension in which event the licensee
10171.5. A person who is licensed as a real shall not be entitled to any repayment nor credit,
estate broker only as an officer of a corporate prorated or otherwise, for money paid to the
broker pursuant to Section 10158 or 10211 shall department under the terms of the decision.
not be eligible for the renewal of such license
(d) The amount of the monetary penalty payable
nor for the issuance of a license in an individual
under this section shall not exceed two hundred
capacity or as an officer of a corporate broker
fifty dollars ($250) for each day of suspension
licensed pursuant to Section 10158 or 10211,
stayed nor a total of ten thousand dollars
unless and until such person has completed the
($10,000) per decision regardless of the number
continuing education requirements of this
of days of suspension stayed under the decision.
article.
(e) Any monetary penalty received by the
Article 3. Disciplinary Action department pursuant to this section shall be
Powers credited to the Recovery Account of the Real
10175. Upon grounds provided in this article Estate Fund.
and the other articles of this chapter, the license Grounds for Revocation or Suspension
of any real estate licensee may be revoked or 10176. The commissioner may, upon his or her
suspended in accordance with the provisions of own motion, and shall, upon the verified
this part relating to hearings. complaint in writing of any person, investigate
Monetary Penalty in Lieu of Suspension the actions of any person engaged in the
10175.2. (a) If the Real Estate Commissioner business or acting in the capacity of a real estate
determines that the public interest and public licensee within this state, and he or she may
welfare will be adequately served by permitting temporarily suspend or permanently revoke a
a real estate licensee to pay a monetary penalty real estate license at any time where the licensee,
to the department in lieu of an actual license while a real estate licensee, in performing or
suspension, the commissioner may, on the attempting to perform any of the acts within the
petition of the licensee, stay the execution of all scope of this chapter has been guilty of any of
or some part of the suspension on the condition the following:
that the licensee pay a monetary penalty and the (a) Making any substantial misrepresentation.
BUSINESS AND PROFESSIONS CODE 63

(b) Making any false promises of a character (j) Obtaining the signature of a prospective
likely to influence, persuade or induce. purchaser to an agreement which provides that
the prospective purchaser shall either transact
(c) A continued and flagrant course of
the purchasing, leasing, renting or exchanging of
misrepresentation or making of false promises
a business opportunity property through the
through real estate agents or salespersons.
broker obtaining the signature, or pay a
(d) Acting for more than one party in a compensation to the broker if the property is
transaction without the knowledge or consent of purchased, leased, rented or exchanged without
all parties thereto. the broker first having obtained the written
(e) Commingling with his or her own money or authorization of the owner of the property
property the money or other property of others concerned to offer the property for sale, lease,
which is received and held by him or her. exchange or rent.

(f) Claiming, demanding, or receiving a fee, (k) Failing to disburse funds in accordance with
compensation or commission under any a commitment to make a mortgage loan that is
exclusive agreement authorizing or employing a accepted by the applicant when the real estate
licensee to perform any acts set forth in Section broker represents to the applicant that the broker
10131 for compensation or commission where is either of the following:
the agreement does not contain a definite, (1) The lender.
specified date of final and complete termination.
(2) Authorized to issue the commitment on
(g) The claiming or taking by a licensee of any behalf of the lender or lenders in the
secret or undisclosed amount of compensation, mortgage loan transaction.
commission or profit or the failure of a licensee
(l) Intentionally delaying the closing of a
to reveal to the employer of the licensee the full
mortgage loan for the sole purpose of increasing
amount of the licensee's compensation,
interest, costs, fees, or charges payable by the
commission or profit under any agreement
borrower.
authorizing or employing the licensee to do any
acts for which a license is required under this (m) Generating an inaccurate opinion of the
chapter for compensation or commission prior to value of residential real property, requested in
or coincident with the signing of an agreement connection with a debt forgiveness sale, in order
evidencing the meeting of the minds of the to do either or both of the following:
contracting parties, regardless of the form of the
(1) Manipulate the lienholder to reject the
agreement, whether evidenced by documents in
proposed debt forgiveness sale.
an escrow or by any other or different procedure.
(2) Acquire a financial or business
(h) The use by a licensee of any provision
advantage, including a listing agreement,
allowing the licensee an option to purchase in an
that directly results from the inaccurate
agreement authorizing or employing the licensee
opinion of value, with regard to the subject
to sell, buy, or exchange real estate or a business
property.
opportunity for compensation or commission,
except when the licensee prior to or coincident Escrow Services – Notification of Enforcement
with election to exercise the option to purchase or Disciplinary Actions Taken
reveals in writing to the employer the full 10176.1. (a) (1) Whenever the commissioner
amount of licensee's profit and obtains the takes any enforcement or disciplinary action
written consent of the employer approving the against a licensee, and the enforcement or
amount of the profit. disciplinary action is related to escrow
services provided pursuant to paragraph (4)
(i) Any other conduct, whether of the same or a
of subdivision (a) of Section 17006 of the
different character than specified in this section,
Financial Code, upon the action becoming
which constitutes fraud or dishonest dealing.
final the commissioner shall notify the
64 BUSINESS AND PROFESSIONS CODE

Insurance Commissioner and the (c) There shall be no liability on the part of, and
Commissioner of Corporations of the action no cause of action of any nature shall arise
or actions taken. The purpose of this against, the State of California, the Department
notification is to alert the departments that of Real Estate, the Real Estate Commissioner,
enforcement or disciplinary action has been any other state agency, or any officer, agent,
taken, if the licensee seeks or obtains employee, consultant, or contractor of the state,
employment with entities regulated by the for the release of any false or unauthorized
departments. information pursuant to this section, unless the
release of that information was done with
(2) The commissioner shall provide the
knowledge and malice, or for the failure to
Insurance Commissioner and the
release any information pursuant to this section.
Commissioner of Corporations, in addition
to the notification of the action taken, with a Real Estate Transfer Disclosure Statement
copy of the written accusation, statement of Violations
issues, or order issued or filed in the matter 10176.5. (a) The commissioner may, upon his or
and, at the request of the Insurance her own motion, and shall upon receiving a
Commissioner or the Commissioner of verified complaint in writing from any person,
Corporations, with any underlying factual investigate an alleged violation of Article 1.5
material relevant to the enforcement or (commencing with Section 1102) of Chapter 2
disciplinary action. Any confidential of Title 4 of Part 4 of Division 2 of the Civil
information provided by the commissioner Code by any real estate licensee within this state.
to the Insurance Commissioner or the The commissioner may suspend or revoke a
Commissioner of Corporations shall not be licensee’s license if the licensee acting under the
made public pursuant to this section. license has willfully or repeatedly violated any
Notwithstanding any other provision of law, of the provisions of Article 1.5 (commencing
the disclosure of any underlying factual with Section 1102) of Chapter 2 of Title 4 of
material to the Insurance Commissioner or Part 4 of Division 2 of the Civil Code.
the Commissioner of Corporations shall not
(b) Notwithstanding any other provision of
operate as a waiver of confidentiality or any
Article 1.5 (commencing with Section 1102) of
privilege that the commissioner may assert.
Chapter 2 of Title 4 of Part 4 of Division 2 of
(b) The commissioner shall establish and the Civil Code, and in lieu of any other civil
maintain, on the Web site maintained by the remedy, subdivision (a) of this section is the
Department of Real Estate, a database of its only remedy available for violations of Section
licensees, including those who have been subject 1102.6b of the Civil Code by any real estate
to any enforcement or disciplinary action that licensee within this state.
triggers the notification requirements of this
Further Grounds for Disciplinary Action
section. The database shall also contain a direct
10177. The commissioner may suspend or
link to the databases, described in Section
revoke the license of a real estate licensee, or
17423.1 of the Financial Code and Section
may deny the issuance of a license to an
12414.31 of the Insurance Code and required to
applicant, who has done any of the following, or
be maintained on the Web sites of the
may suspend or revoke the license of a
Department of Corporations and the Department
corporation, or deny the issuance of a license to
of Insurance, respectively, of persons who have
a corporation, if an officer, director, or person
been subject to enforcement or disciplinary
owning or controlling 10 percent or more of the
action for malfeasance or misconduct related to
corporation's stock has done any of the
the escrow industry by the Insurance
following:
Commissioner and the Commissioner of
Corporations. (a) Procured, or attempted to procure, a real
estate license or license renewal, for himself or
herself or a salesperson, by fraud,
BUSINESS AND PROFESSIONS CODE 65

misrepresentation, or deceit, or by making a revocation of a California real estate license, if


material misstatement of fact in an application the action of denial, revocation, or suspension by
for a real estate license, license renewal, or the other agency or entity was taken only after
reinstatement. giving the licensee or applicant fair notice of the
charges, an opportunity for a hearing, and other
(b) Entered a plea of guilty or nolo contendere
due process protections comparable to the
to, or been found guilty of, or been convicted of,
Administrative Procedure Act (Chapter 3.5
a felony, or a crime substantially related to the
(commencing with Section 11340), Chapter 4
qualifications, functions, or duties of a real
(commencing with Section 11370), and Chapter
estate licensee, and the time for appeal has
5 (commencing with Section 11500) of Part 1 of
elapsed or the judgment of conviction has been
Division 3 of Title 2 of the Government Code),
affirmed on appeal, irrespective of an order
and only upon an express finding of a violation
granting probation following that conviction,
of law by the agency or entity.
suspending the imposition of sentence, or of a
subsequent order under Section 1203.4 of the (g) Demonstrated negligence or incompetence in
Penal Code allowing that licensee to withdraw performing an act for which he or she is required
his or her plea of guilty and to enter a plea of not to hold a license.
guilty, or dismissing the accusation or
(h) As a broker licensee, failed to exercise
information.
reasonable supervision over the activities of his
(c) Knowingly authorized, directed, connived at, or her salespersons, or, as the officer designated
or aided in the publication, advertisement, by a corporate broker licensee, failed to exercise
distribution, or circulation of a material false reasonable supervision and control of the
statement or representation concerning his or her activities of the corporation for which a real
designation or certification of special education, estate license is required.
credential, trade organization membership, or
(i) Has used his or her employment by a
business, or concerning a business opportunity
governmental agency in a capacity giving access
or a land or subdivision, as defined in Chapter 1
to records, other than public records, in a
(commencing with Section 11000) of Part 2,
manner that violates the confidential nature of
offered for sale.
the records.
(d) Willfully disregarded or violated the Real
(j) Engaged in any other conduct, whether of the
Estate Law (Part 1 (commencing with Section
same or a different character than specified in
10000)) or Chapter 1 (commencing with Section
this section, which constitutes fraud or dishonest
11000) of Part 2 or the rules and regulations of
dealing.
the commissioner for the administration and
enforcement of the Real Estate Law and Chapter (k) Violated any of the terms, conditions,
1 (commencing with Section 11000) of Part 2. restrictions, and limitations contained in an order
granting a restricted license.
(e) Willfully used the term "realtor" or a trade
name or insignia of membership in a real estate (l) (1) Solicited or induced the sale, lease, or
organization of which the licensee is not a listing for sale or lease of residential
member. property on the ground, wholly or in part, of
loss of value, increase in crime, or decline of
(f) Acted or conducted himself or herself in a
the quality of the schools due to the present
manner that would have warranted the denial of
or prospective entry into the neighborhood
his or her application for a real estate license, or
of a person or persons having a
has either had a license denied or had a license
characteristic listed in subdivision (a) or (d)
issued by another agency of this state, another
of Section 12955 of the Government Code,
state, or the federal government revoked or
as those characteristics are defined in
suspended for acts that, if done by a real estate
Sections 12926 and 12926.1, subdivision
licensee, would be grounds for the suspension or
(m) and paragraph (1) of subdivision (p) of
66 BUSINESS AND PROFESSIONS CODE

Section 12955, and Section 12955.2 of the officers, directors, or persons owning or
Government Code. controlling 10 percent or more of the
corporation's stock, the commissioner may not
(2) Notwithstanding paragraph (1), with
deny the issuance of a real estate license to, or
respect to familial status, paragraph (1) shall
suspend or revoke the real estate license of, the
not be construed to apply to housing for
corporation, provided that any offending officer,
older persons, as defined in Section 12955.9
director, or stockholder, who has done any of the
of the Government Code. With respect to
foregoing acts individually and not on behalf of
familial status, nothing in paragraph (1)
the corporation, has been completely
shall be construed to affect Sections 51.2,
disassociated from any affiliation or ownership
51.3, 51.4, 51.10, 51.11, and 799.5 of the
in the corporation.
Civil Code, relating to housing for senior
citizens. Subdivision (d) of Section 51 and Suspension Without Hearing for Fraud, etc., in
Section 1360 of the Civil Code and Obtaining a License
subdivisions (n), (o), and (p) of Section 10177.1. The commissioner may, without a
12955 of the Government Code shall apply hearing, suspend the license of any person who
to paragraph (1). procured the issuance of the license to himself
by fraud, misrepresentation, deceit, or by the
(m) Violated the Franchise Investment Law
making of any material misstatement of fact in
(Division 5 (commencing with Section 31000)
his application for such license.
of Title 4 of the Corporations Code) or
regulations of the Commissioner of Corporations The power of the commissioner under this
pertaining thereto. section to order a suspension of a license shall
expire 90 days after the date of issuance of said
(n) Violated the Corporate Securities Law of
license and the suspension itself shall remain in
1968 (Division 1 (commencing with Section
effect only until the effective date of a decision
25000) of Title 4 of the Corporations Code) or
of the commissioner after a hearing conducted
the regulations of the Commissioner of
pursuant to Section 10100 and the provisions of
Corporations pertaining thereto.
this section.
(o) Failed to disclose to the buyer of real
A statement of issues as defined in Section
property, in a transaction in which the licensee is
11504 of the Government Code shall be filed
an agent for the buyer, the nature and extent of a
and served upon the respondent with the order of
licensee's direct or indirect ownership interest in
suspension. Service by certified or registered
that real property. The direct or indirect
mail directed to the respondent’s current address
ownership interest in the property by a person
of record on file with the commissioner shall be
related to the licensee by blood or marriage, by
effective service.
an entity in which the licensee has an ownership
interest, or by any other person with whom the The respondent shall have 30 days after service
licensee has a special relationship shall be of the order of suspension and statement of
disclosed to the buyer. issues in which to file with the commissioner a
written request for hearing on the statement of
(p) Violated Article 6 (commencing with
issues filed against him. The commissioner shall
Section 10237).
hold a hearing within 30 days after receipt of the
(q) Violated or failed to comply with Chapter 2 request therefor unless the respondent shall
(commencing with Section 2920) of Title 14 of request or agree to a continuance thereof. If a
Part 4 of Division 3 of the Civil Code, related to hearing is not commenced within 30 days after
mortgages. receipt of the request for hearing or on the date
If a real estate broker that is a corporation has to which continued with the agreement of
not done any of the foregoing acts, either respondent, or if the decision of the
directly or through its employees, agents, commissioner is not rendered within 30 days
BUSINESS AND PROFESSIONS CODE 67

after completion of the hearing, the order of customers to any escrow agent, structural pest
suspension shall be vacated and set aside. control firm, home protection company, title
insurer, controlled escrow company, or
A hearing conducted under this section shall in
underwritten title company. A licensee may not
all respects, except as otherwise expressly
be disciplined under any provision of this part
provided herein, conform to the substantive and
for reporting to the commissioner violations of
procedural provisions of Chapter 5
this section by another licensee, unless the
(commencing with Section 11500) of Part 1 of
licensee making the report had guilty knowledge
Division 3 of Title 2 of the Government Code
of, or committed or participated in, the violation
applicable to a hearing on a statement of issues.
of this section.
Grounds for Disciplinary Action – Mobilehome
(b) The term “other consideration” as used in
Sales Violations
this section does not include any of the
10177.2. The commissioner may, upon his or
following:
her own motion, and shall, upon the verified
complaint in writing of any person, investigate (1) Bona fide payments for goods or
the actions of any licensee, and he or she may facilities actually furnished by a licensee or
suspend or revoke a real estate license at any for services actually performed by a
time where the licensee in performing or licensee, provided these payments are
attempting to perform any of the acts within the reasonably related to the value of the goods,
scope of Section 10131.6 has been guilty of any facilities, or services furnished;
of the following acts:
(2) Furnishing of documents, services,
(a) Has used a false or fictitious name, information, advertising, educational
knowingly made any false statement, or materials, or items of a like nature that are
knowingly concealed any material fact, in any customary in the real estate business and
application for the registration of a mobilehome, that relate to the product or services of the
or otherwise committed a fraud in that furnisher and that are available on a similar
application. and essentially equal basis to all customers
or the agents of the customers of the
(b) Failed to provide for the delivery of a
furnisher.
properly endorsed certificate of ownership or
certificate of title of a mobilehome from the (3) Moderate expenses for food, meals,
seller to the buyer thereof. beverages, and similar items furnished to
individual licensees or groups or
(c) Has knowingly participated in the purchase,
associations of licensees within a context of
sale, or other acquisition or disposal of a stolen
customary business, educational, or
mobilehome.
promotional practices pertaining to the
(d) Has submitted a check, draft, or money order business of the furnisher.
to the Department of Housing and Community
(4) Items of a character and magnitude
Development for any obligation or fee due the
similar to those in paragraphs (2) and (3)
state and it is thereafter dishonored or refused
that are promotional of the furnisher’s
payment upon presentation.
business customary in the real estate
Referral of Customers for Compensation business, and available on a similar and
10177.4. (a) Notwithstanding any other essentially equal basis to all customers, or
provision of law, the commissioner may, after the agents of the customers, of the furnisher.
hearing in accordance with this part relating to
(c) Nothing in this section shall relieve any
hearings, suspend or revoke the license of a real
licensee of the obligation of disclosure otherwise
estate licensee who claims, demands, or receives
required by this part.
a commission, fee, or other consideration, as
compensation or inducement, for referral of
68 BUSINESS AND PROFESSIONS CODE

Fraud in a Civil Action the employer had guilty knowledge of such


10177.5. When a final judgment is obtained in a violation.
civil action against any real estate licensee upon
Corporate Officer or Agent Revocation
grounds of fraud, misrepresentation, or deceit
10180. The commissioner may deny, suspend or
with reference to any transaction for which a
revoke the real estate license of a corporation as
license is required under this division, the
to any officer or agent acting under its license
commissioner may, after hearing in accordance
without revoking the license of the corporation.
with the provisions of this part relating to
hearings, suspend or revoke the license of such Reinstatement Examination
real estate licensee. 10182. As a condition to the reinstatement of a
revoked or suspended license, the commissioner
Disclosure of Roles when Arranging
may require the applicant to take and pass a
Financing
qualifying examination.
10177.6 When an agent undertakes to arrange
financing in connection with a sale, lease, or Violations Are Misdemeanors
exchange of real property, or when a person or 10185. Any person, including officers, directors,
entity arranging financing in connection with the agents or employees of corporations, who
sale, lease, or exchange of real property willfully violates or knowingly participates in
undertakes to act as an agent with respect to that the violation of this division shall be guilty of a
property, that agent, person, or entity shall, misdemeanor punishable by a fine not exceeding
within 24 hours, make a written disclosure of ten thousand dollars ($10,000), or by
those roles to all parties to the sale, lease, or imprisonment in the county jail not exceeding
exchange, and any related loan transaction. For six months, or by a fine and imprisonment.
purposes of this section, "agent" has the same
Article 4. Fees
meaning as defined in subdivision (a) of Section
2079.13 of the Civil Code. When Payable – Expiration of Licenses
10200. All real estate license fees shall be
Broker Must Report Discharge of Salesperson
payable in advance of issuing the licenses and at
for Violation
the time of filing the application.
10178. When any real estate salesman is
discharged by his employer for a violation of Unless otherwise provided, all licenses expire at
any of the provisions of this article prescribing a midnight of the last day of the period for which
ground for disciplinary action, a certified written issued.
statement of the facts with reference thereto
Late Renewal
shall be filed forthwith with the commissioner
10201. The holder of a license who fails to
by the employer and if the employer fails to
renew it prior to the expiration of the period for
notify the commissioner as required by this
which it was issued and who has otherwise
section, the commissioner may temporarily
qualified for such license, may renew it within
suspend or permanently revoke the real estate
two years from such expiration upon proper
license of the employer, in accordance with the
application and the payment of a late renewal
provisions of this part relating to hearings.
fee in an amount equal to one and one-half times
Effect of Violation by Salesperson on Broker the regular renewal fee in effect at the time the
10179. No violation of any of the provisions of license is reinstated.
this part relating to real estate or of Chapter 1 of
Filing Application and Fee
Part 2 by any real estate salesman or employee
10201.6. Any person who has qualified in an
of any licensed real estate broker shall cause the
examination for a real estate license shall file the
revocation or suspension of the license of the
required application and fee for the license
employer of the salesman or employee unless it
within one year thereafter.
appears upon a hearing by the commissioner that
BUSINESS AND PROFESSIONS CODE 69

Definitions – Applicability educational courses, seminars, workshops,


10202. The definitions contained in this article conference, or their equivalent, or for the
are solely for the purposes of this article. evaluation of petition based on a claim of
equivalency, as authorized by Section 10170.4
Amount – Fees Not Refundable
in an amount sufficient to cover the cost of
10207. The amount of the real estate fees
processing such applications or petitions.
prescribed for an examination or for a license
under this chapter is that fixed by the following Restricted Broker License Fee
provisions of this article. No part of any fee paid 10209.5. The fee for a restricted broker license
in accordance with the provisions of this chapter shall be the same as that for an unrestricted
is refundable. It is deemed earned by the license as provided in Section 10210.
department upon its receipt.
Broker License Fee
Broker License Examination Fee 10210. (a) The fee for a real estate broker
10208.5. The real estate broker license license shall not exceed three hundred dollars
examination fee is ninety-five dollars ($95). The ($300). In the case of an original applicant, the
real estate broker license reexamination fee is fee is payable upon filing the real estate broker
ninety-five dollars ($95). license application.
If an applicant fails to appear for the (b) If an applicant fails to pass the real estate
examination within two years from the date of broker license examination within two years
filing his or her application and fee for the from the date of filing his or her broker license
examination, his or her application shall application, his or her broker license application
thereupon lapse and no further proceedings shall lapse and no further proceedings thereon
thereon shall be taken. shall be taken.
This section shall remain in effect unless it is (c) This section shall remain in effect unless it is
superseded pursuant to subdivision (a) of superseded pursuant to Section 10226 or
Section 10226.5. subdivision (a) of Section 10226.5, whichever is
applicable.
Application for Approval of Equivalent Course
of Study – Fee Corporation License – Fee for Additional
10209. (a) The commissioner shall, by Officer(s)
regulation, establish fees for applications for 10211. If the licensee is a corporation, the
approval of equivalent courses of study as license issued to it entitles one officer thereof,
defined in Section 10153.5 in an amount on behalf of the corporation, to engage in the
sufficient to cover the cost of administration. business of real estate broker without the
The fee for an application for approval of each payment of any further fee, such officer to be
course given by a private vocational school, designated in the application of the corporation
including any branch school which gives the for a license. For each officer other than the
same course, shall not exceed one hundred fifty officer so designated, through whom it engages
dollars ($150). in the business of real estate broker, the
appropriate original or renewal fee is to be paid
(b) The commissioner shall notify every
in addition to the fee paid by the corporation.
applicant of his decision on the application no
later than 60 days after receipt by the Salesperson License Examination Fee
commissioner of a completed application. The 10213.5. The real estate salesperson license
application shall be on a form to be supplied by examination fee is sixty dollars ($60). The real
the commissioner. estate salesperson license reexamination fee is
sixty dollars ($60).
Continuing Education Course Application Fee
10209.2. The commissioner shall, by regulation, If an applicant fails to appear for the
establish fees for applications for approval of examination within two years from the date of
70 BUSINESS AND PROFESSIONS CODE

filing his or her application and fee for the salesperson license application shall lapse and
examination, his or her application shall no further proceedings thereon shall be taken.
thereupon lapse and no further proceedings
(c) This section shall remain in effect unless it is
thereon shall be taken.
superseded pursuant to Section 10226 or
This section shall remain in effect unless it is subdivision (a) of Section 10226.5, whichever is
superseded pursuant to subdivision (a) of applicable.
Section 10226.5.
Other Examination Fees
Rescheduling an Examination 10222. For any examination required under any
10213.6. If an applicant for any examination order issued pursuant to the provisions of the
fails to take the examination on the date Administrative Procedure Act, the fee shall be
scheduled, he or she may make application in the same as for a salesperson or broker license
writing to the principal office of the department examination, as appropriate.
in Sacramento for a new date. A fee of twenty
Filing Fee and Inspection Costs for Real
dollars ($20) shall accompany the written
Property Securities Permit
request for applying for the first new
10225. An application for a permit to sell real
examination date in the case of a broker
property securities secured by liens on real
applicant, and a fee of fifteen dollars ($15) shall
property situated outside the State of California
accompany the written request for the first new
shall be accompanied by the filing fee together
examination date in the case of a salesperson
with an amount equivalent to twenty-five cents
applicant. A fee of thirty dollars ($30) shall
($0.25) a mile for each mile going and returning,
accompany the written request for all subsequent
or where public transportation is available the
new examination dates for both broker and
actual round trip fare pertaining thereto,
salesperson applicants.
estimated by the commissioner to be traveled
This section shall remain in effect unless it is from the office of the Department of Real Estate
superseded pursuant to subdivision (a) of where the application is filed to the location of
Section 10226.5. the property, and the amount estimated to be
necessary to cover the expense of the inspection
Restricted Salesperson License Fee
and appraisal of the property, not to exceed
10214.5. The fee for a restricted salesperson
seventy-five dollars ($75) a day for each day
license shall be the same as that for an
actually spent in the inspection and appraisal of
unrestricted license as provided in Section
the property or properties.
10215.
License Fees Lower than Prescribed
Salesperson License Fee
10226. (a) The commissioner may periodically
10215. (a) The fee for a real estate salesperson
by regulation prescribe fees lower than the
license shall not exceed two hundred forty-five
maximum fees provided in Sections 10209.5,
dollars ($245), except that for an applicant
10210, 10214.5, 10215, and 10250.3 whenever
qualifying pursuant to Section 10153.4 who has
he or she determines those lower fees are
not satisfied all of the educational requirements
sufficient to offset the costs and expenses
prior to issuance of the license, the fee shall not
incurred in the administration of Part 1
exceed two hundred seventy-five dollars ($275).
(commencing with Section 10000) of this
In the case of an original applicant, the fee is
division. The commissioner shall hold at least
payable upon filing the real estate salesperson
one regulation hearing each calendar year, to
license application.
determine if lower fees should be prescribed.
(b) If an applicant fails to pass the real estate
(b) If, as of June 30 of any fiscal year, the
salesperson license examination within two
balance of funds in the Real Estate Fund exceeds
years from the date of filing his or her
an amount equal to 150 percent of the
salesperson license application, his or her
department’s authorized budget for the
BUSINESS AND PROFESSIONS CODE 71

following year, then within 30 days thereafter (7) Real estate salesperson license without
the commissioner shall, notwithstanding the all educational requirements: One hundred
Administrative Procedure Act (Chapter 3.5 forty-five dollars ($145).
(commencing with Section 11340) of Part 1 of
(8) A notice of intention without a
Division 3 of Title 2 of the Government Code),
completed questionnaire: One hundred fifty
issue regulations reducing real estate license and
dollars ($150).
subdivision fees so that as of June 30 of the next
fiscal year the balance of funds in the Real (9) An original public report for subdivision
Estate Fund shall not exceed an amount equal to interests described in Section 11004.5: One
150 percent of the department’s authorized thousand six hundred dollars ($1,600) plus
budget for that year. ten dollars ($10) for each subdivision
interest to be offered.
(c) If the commissioner fails to reduce these fees
within the timeframe specified in subdivision (10) An original public report for
(b), then fees shall automatically be reduced to subdivision interests other than those
the levels as indicated in subdivision (b) of described in Section 11004.5: Five hundred
Section 10226.5. That reduction shall be dollars ($500) plus ten dollars ($10) for each
effective no later than September 1 of the fiscal interest to be offered.
year wherein the commissioner is obliged to (11) A conditional public report for
issue regulations pursuant to subdivision (b). subdivision interests described in Section
Transfer of Funds – Reduction of Fees 11004.5: Five hundred dollars ($500).
10226.5. (a) If at any time funds are transferred (12) A conditional public report for
or loaned from the Real Estate Fund to the subdivision interests other than those
General Fund by the Budget Act, then 30 days described in Section 11004.5: Five hundred
from and after the date of the transfer or loan, dollars ($500).
fees shall be reduced as indicated in subdivision
(b), irrespective of any provisions of the Budget (13) A preliminary public report for
Act precluding that reduction. subdivision interests described in Section
11004.5: Five hundred dollars ($500).
(b) Fees shall be reduced pursuant to paragraph
(a) to the following maximum amounts: (14) A preliminary public report for
subdivision interests other than those
(1) Real estate broker examination or described in Section 11004.5: Five hundred
reexamination: Fifty dollars ($50). dollars ($500).
(2) First reschedule of broker examination: (15) A renewal public report for subdivision
Fifteen dollars ($15); subsequent interests described in Section 11004.5: Five
reschedules: Twenty-five dollars ($25). hundred dollars ($500).
(3) Real estate broker license, original or (16) A renewal public report for subdivision
renewal: One hundred sixty-five dollars interests other than those described in
($165). Section 11004.5: Five hundred dollars
(4) Real estate salesperson examination or ($500).
reexamination: Twenty-five dollars ($25). (17) An amended public report for
(5) First reschedule of salesperson subdivision interests described in Section
examination: Ten dollars ($10); subsequent 11004.5: Three hundred dollars ($300) plus
reschedules: Twenty-five dollars ($25). ten dollars ($10) for each subdivision
interest to be offered under the amended
(6) Real estate salesperson license, original
public report for which a fee has not
or renewal: One hundred twenty dollars
previously been paid.
($120).
72 BUSINESS AND PROFESSIONS CODE

(18) An amended public report to offer sale or exchange transaction in which the broker
subdivision interests other than those acted as the agent of one or more of the parties
described in Section 11004.5: Three hundred to the qualifying real property sale or exchange
dollars ($300) plus ten dollars ($10) for each regardless of the time of the sale or exchange of
subdivision interest to be offered under the the promissory note. For the purposes of this
amended public report for which a fee has subdivision, a “qualifying” sale or exchange of
not previously been paid. real property is one that is subject to the
requirements of Article 3 (commencing with
(19) An application for an original, renewal,
Section 2956) of Chapter 2 of Title 14 of Part 4
or amended registration as required by
of Division 3 of the Civil Code.
Section 10249: One hundred dollars ($100).
(b) Subdivision (a) shall not apply to the
(20) The filing fee for an application for a
negotiation of loans nor to sales or exchanges of
permit to be issued pursuant to Article 8.5
promissory notes in connection with the
(commencing with Section 10250) for each
financing of a real property sale or exchange
subdivision or phase of the subdivision in
transaction in which the broker had a direct or
which interests are to be offered for sale or
indirect monetary interest as a party.
lease shall be as follows:
Acceptance of Loan Funds
(A) One thousand six hundred dollars
10231. Except as authorized by permit issued
($1,600) plus ten dollars ($10) for each
pursuant to the applicable provisions of the
subdivision interest to be offered for an
Corporate Securities Law of 1968 (Section
original permit application.
25000 et seq. of the Corporations Code), no
(B) Five hundred dollars ($500) plus ten person in doing any of the acts set forth in
dollars ($10) for each subdivision subdivision (d) of Section 10131, subdivision (e)
interest to be offered that was not of Section 10131, and Section 10131.1 shall
permitted to be offered under the permit accept any purchase or loan funds or other
to be renewed for a renewal permit consideration from a prospective purchaser or
application. lender, or directly or indirectly cause such funds
(C) Three hundred dollars ($300) plus or other consideration to be deposited in an
ten dollars ($10) for each subdivision escrow except as to a specific loan or a specific
interest to be offered under the amended real property sales contract or promissory note
permit for which a fee has not secured directly or collaterally by a lien on real
previously been paid for an amended property on which loan, contract or note the
permit application. person has a bona fide authorization to negotiate
or to sell or which has been bought and
(D) Five hundred dollars ($500) for a completely paid for by the licensee, or has an
conditional permit application. unconditional written contract which obligates
him to purchase a specific real property sales
Article 5. Transactions in Trust Deeds
contract or promissory note secured directly or
and Real Property Sales Contracts
collaterally by a deed of trust.
Exception
Retention of Funds
10230. (a) The provisions of this article do not
10231.1. No person in doing any of the acts set
apply to the negotiation of a loan by or on behalf
forth in subdivision (d) of Section 10131,
of a real estate broker in connection with a
subdivision (e) of Section 10131, and Section
qualifying sale or exchange of real property in
10131.1 shall, as agent or principal, retain funds
which the broker acted as the agent of one or
payable according to the terms of a promissory
more of the parties to the sale or exchange, nor
note or real property sales contract secured
to the sale or exchange by or on behalf of the
directly or collaterally by a lien on real property,
broker of a promissory note created for the
for a period longer than 25 days, except pursuant
purpose of financing a qualifying real property
BUSINESS AND PROFESSIONS CODE 73

to a written agreement with the purchaser or (c) None of the provisions of subdivision (a) or
lender. (b) shall apply in the case of an offering of a
security authorized pursuant to applicable
Solicitation and Acceptance of Funds Other
provisions of the Corporate Securities Law of
than for Services – Specified Statement and Its
1968 (Division 1 (commencing with Section
Use
25000) of Title 4 of the Corporations Code).
10231.2. (a) A real estate broker who, through
express or implied representations that the (d) In the case of a solicitation by a corporate
broker or any salesperson acting on the broker’s real estate broker, the provisions of subdivisions
behalf is engaging in acts for which a real estate (a) and (b) shall apply if the funds solicited are
license is required by subdivision (d) or (e) of intended for the direct or indirect use or benefit
Section 10131, proposes to solicit and accept of an officer or director of the corporation or of
funds, or to cause the solicitation and acceptance a person with a 10 percent or greater ownership
of funds, to be applied to a purchase or loan interest in the corporation.
transaction in which the broker will directly or
Application of Sections 10232.2, 10232.25,
indirectly obtain the use or benefit of the funds
10233 and 10236.6
other than for commissions, fees, and costs and
10232. (a) Except as otherwise expressly
expenses as provided by law for the broker’s
provided, Sections 10232.2, 10232.25, 10233,
services as an agent, shall, prior to the making of
and 10236.6 are applicable to every real estate
any representation, solicitation, or presentation
broker who intends or reasonably expects in a
of the statement described in subdivision (b),
successive 12 months to do any of the following:
submit the following to the Department of Real
Estate: (1) Negotiate a combination of 10 or more
of the following transactions pursuant to
(1) A true copy of the statement described in
subdivision (d) or (e) of Section 10131 or
subdivision (b) complete except for the
Section 10131.1 in an aggregate amount of
signature of the prospective lender or
more than one million dollars ($1,000,000):
purchaser.
(A) Loans secured directly or
(2) A statement that the submittal is being
collaterally by liens on real property or
made to the department pursuant to Section
on business opportunities as agent for
10231.2.
another or others.
(b) A broker making a solicitation pursuant to
(B) Sales or exchanges of real property
subdivision (a) shall deliver, or cause to be
sales contracts or promissory notes
delivered, to the person solicited, the applicable
secured directly or collaterally by liens
completed statement described in Section
on real property or on business
10232.5 not less than 24 hours before the earlier
opportunities as agent for another or
of the acceptance of any funds from that person
others.
by or on behalf of the broker or the execution of
any instrument obligating the person to make the (C) Sales or exchanges of real property
loan or purchase. The statement shall be signed sales contracts or promissory notes
by the prospective lender or purchaser and by secured directly or collaterally by liens
the real estate broker or, on the broker’s behalf, on real property as the owner of those
by a real estate salesperson licensed to the notes or contracts.
broker. When so executed, an exact copy of the (2) Make collections of payments in an
executed statement shall be given to the aggregate amount of two hundred fifty
prospective lender or purchaser, and the broker thousand dollars ($250,000) or more on
shall retain a true copy of the executed statement behalf of owners of promissory notes
for a period of four years. secured directly or collaterally by liens on
74 BUSINESS AND PROFESSIONS CODE

real property, owners of real property sales trust company, savings bank or savings
contracts, or both. and loan association or subsidiary
thereof, savings bank or savings
(3) Make collections of payments in an
association holding company or
aggregate amount of two hundred fifty
subsidiary thereof, credit union,
thousand dollars ($250,000) or more on
industrial bank or industrial loan
behalf of obligors of promissory notes
company, finance lender, or insurer
secured directly or collaterally by liens on
doing business under the authority of,
real property, lenders of real property sales
and in accordance with, the laws of this
contracts, or both. Persons under common
state, any other state, or the United
management, direction, or control in
States relating to banks, trust companies,
conducting the activities enumerated above
savings banks or savings associations,
shall be considered as one person for the
credit unions, industrial banks or
purpose of applying the above criteria.
industrial loan companies, commercial
(b) The negotiation of a combination of two or finance lenders, or insurers, as
more new loans and sales or exchanges of evidenced by a license, certificate, or
existing promissory notes and real property sales charter issued by the United States or a
contracts of an aggregate amount of more than state, district, territory, or
two hundred fifty thousand dollars ($250,000) in commonwealth of the United States.
any three successive months or a combination of
(C) Trustees of a pension, profit-sharing,
five or more new loans and sales or exchanges
or welfare fund, if the pension, profit-
of existing promissory notes and real property
sharing, or welfare fund has a net worth
sales contracts of an aggregate amount of more
of not less than fifteen million dollars
than five hundred thousand dollars ($500,000) in
($15,000,000).
any successive six months shall create a
rebuttable presumption that the broker intends to (D) A corporation with outstanding
negotiate new loans and sales and exchanges of securities registered under Section 12 of
an aggregate amount that will meet the criteria the Securities Exchange Act of 1934 or
of subdivision (a). a wholly owned subsidiary of that
corporation.
(c) In determining the applicability of Sections
10232.2, 10232.25, 10233, and 10236.6, loans (E) A syndication or other combination
or sales negotiated by a broker, or for which a of any of the entities specified in
broker collects payments or provides other subparagraph (A), (B), (C), or (D) that is
servicing for the owner of the note or contract, organized to purchase the promissory
shall not be counted in determining whether the note.
broker meets the criteria of subdivisions (a) and
(F) The California Housing Finance
(b) if any of the following apply:
Agency or a local housing finance
(1) The lender or purchaser is any of the agency organized under the Health and
following: Safety Code.
(A) The Federal National Mortgage (G) A licensed residential mortgage
Association, the Government National lender or servicer acting under the
Mortgage Association, the Federal authority of that license.
Home Loan Mortgage Corporation, the
(H) An institutional investor that issues
Federal Housing Administration, and the
mortgage-backed securities, as specified
United States Department of Veterans
in paragraph (11) of subdivision (i) of
Affairs.
Section 50003 of the Financial Code.
(B) A bank or subsidiary thereof, bank
holding company or subsidiary thereof,
BUSINESS AND PROFESSIONS CODE 75

(I) A licensed real estate broker selling advertisement by the department, the proposed
all or part of the loan, the note, or the advertisement shall be deemed approved, but the
contract to a lender or purchaser department shall not be precluded from
specified in subparagraphs (A) to (H), disapproving a later publication or other use of
inclusive. the same or similar advertising.
(2) The loan or sale is negotiated, or the loan The commissioner shall adopt regulations
or contract is being serviced for the owner, pertaining to the submittal and clearance of that
under authority of a permit issued pursuant advertising and establishing criteria for approval
to applicable provisions of the Corporate to ensure that the public will be protected
Securities Law of 1968 (Division 1 against false or misleading representations.
(commencing with Section 25000) of Title 4
Except as provided in subdivision (b),
of the Corporations Code).
“advertisement” includes dissemination in any
(3) The transaction is subject to the newspaper, circular, form letter, brochure or
requirements of Article 3 (commencing with similar publication, display, sign, radio
Section 2956) of Chapter 2 of Title 14 of broadcast or telecast, which concerns (1) the use,
Part 4 of Division 3 of the Civil Code. terms, rates, conditions, or the amount of any
loan or sale referred to in subdivisions (d) and
(d) If two or more real estate brokers who are
(e) of Section 10131 or Section 10131.1 or (2)
not under common management, direction, or
the security, solvency, or stability of any person
control cooperate in the negotiation of a loan or
carrying on the activities described in those
the sale or exchange of a promissory note or real
sections.
property sales contract and share in the
compensation for their services, the dollar (b) “Advertisement” does not include a letter or
amount of the transaction shall be allocated brochure that meets both of the following
according to the ratio that the compensation criteria:
received by each broker bears to the total
(1) It is restricted in distribution to other real
compensation received by all brokers for their
estate brokers and to persons for whom the
services in negotiating the loan or sale or
broker has previously acted as an agent in
exchange.
arranging a loan secured by real property or
(e) A real estate broker who meets any of the in the purchase, sale, or exchange of a deed
criteria of subdivision (a) or (b) shall notify the of trust or real property sales contract.
department in writing within 30 days after that
(2) It is restricted in content to the
determination is made.
identification and a description of the terms
Proposed Advertising – Submission – Fee – of loans, mortgages, deeds of trust, real
Regulations – Duration of Approval property sales contracts, or any combination
10232.1. (a) A real estate broker, prior to the use thereof offered for funding or purchase
of any proposed advertisement in connection through the broker as agent.
with the conduct of activities described in
(c) Subdivision (a) is not applicable to
subdivisions (d) and (e) of Section 10131 and
advertising that is used exclusively in
Section 10131.1, may submit a true copy thereof
connection with an offering authorized by
to the Department of Real Estate for approval.
permit issued pursuant to the applicable
The submission shall be accompanied by a fee
provisions of the Corporate Securities Law of
of not more than forty dollars ($40). The
1968 (Division 1 (commencing with Section
commissioner shall by regulation prescribe the
25000) of Title 4 of the Corporations Code).
amount of the fee. If disapproval of the proposed
advertisement is not communicated by the (d) All advertising approvals shall be for a
department to the broker within 15 calendar days period of five years after the date of approval.
after receipt of the copy of the proposed The approval period applies to all advertising,
76 BUSINESS AND PROFESSIONS CODE

including that which was previously submitted broker’s fiscal year or, within any additional
on a mandatory basis. time as the commissioner may allow for a filing
for good cause, a notarized statement under
Filing Fiscal Year Reports – Accounting
penalty of perjury on a form provided by the
Criteria
department attesting to the fact that the broker
10232.2. A real estate broker who meets the
did not receive any trust funds in cash or
criteria of subdivision (a) of Section 10232 shall
convertible to cash during the fiscal year.
annually file the reports referred to in
subdivisions (a) and (c) with the Department of (c) A report of all of the following aspects of the
Real Estate within 90 days after the end of the business conducted by the broker while
broker’s fiscal year or within any additional time engaging in activities described in subdivisions
as the Real Estate Commissioner may allow for (d) and (e) of Section 10131 and in Section
filing for good cause: 10131.1:
(a) The report of a review by a licensed (1) Number and aggregate dollar amount of
California independent public accountant of trust loan, trust deed sales and real property sales
fund financial statements, conducted in contract transactions negotiated.
accordance with generally accepted accounting
(2) Number and aggregate dollar amount of
practices, which shall include within its scope
promissory notes and contracts serviced by
the following information for the fiscal year
the broker or an affiliate of the broker.
relative to the business activities of the broker
described in subdivisions (d) and (e) of Section (3) Number and aggregate dollar amount of
10131: late payment charges, prepayment penalties
and other fees or charges collected and
(1) The receipt and disposition of all funds
retained by the broker under servicing
of others to be applied to the making of
agreements with beneficiaries and obligees.
loans and the purchasing of promissory
notes or real property sales contracts. (4) Default and foreclosure experience in
connection with promissory notes and
(2) The receipt and disposition of all funds
contracts subject to servicing agreements
of others in connection with the servicing by
between the broker and beneficiaries or
the broker of the accounts of owners of
obligees.
promissory notes and real property sales
contracts including installment payments (5) Commissions received by the broker for
and loan or contract payoffs by obligors. services performed as agent in negotiating
loans and sales of promissory notes and real
(3) A statement as of the end of the fiscal
property sales contracts.
year which shall include an itemized trust
fund accounting of the broker and (6) Aggregate costs and expenses as referred
confirmation that the trust funds are on to in Section 10241 paid by borrowers to the
deposit in an account or accounts maintained broker.
by the broker in a financial institution. (d) The commissioner shall adopt regulations
(b) A broker who meets the criteria of Section prescribing the form and content of the report
10232, but who, in carrying on the activities referred to in subdivision (c) with appropriate
described in subdivisions (d) and (e) of Section categories to afford a better understanding of the
10131, has not during a fiscal year, accepted for business conducted by the broker.
the benefit of a person to whom the broker is a (e) If the broker fails to file either of the reports
trustee, any payment or remittance in a form required under subdivisions (a) and (c) within
convertible to cash by the broker, need not the time permitted herein, the commissioner may
comply with the provisions of subdivision (a). In cause an examination and report to be made and
lieu thereof, the broker shall submit to the may charge the broker one and one-half times
commissioner within 30 days after the end of the
BUSINESS AND PROFESSIONS CODE 77

the cost of making the examination and report. immediately preceding the end of the fiscal
In determining the hourly cost incurred by the quarter and a schedule of withdrawals and
commissioner for conducting an examination deposits adjusting the account to its true
and preparing the report, the commissioner may balance as of the end of the fiscal quarter.
use the estimated average hourly cost for all
(5) A statement explaining any difference in
department audit staff performing audits of real
amount between the broker’s total
estate brokers. If a broker fails to pay the above
accountability under paragraph (3) above
amount within 60 days of the mailing of a notice
and the adjusted trust account bank balance
of billing, the commissioner may suspend the
under paragraph (4) above.
broker’s license or deny renewal of the broker’s
license. The suspension or denial shall remain in (b) Each report made pursuant to subdivision (a)
effect until the above amount is paid or the shall include the following:
broker’s right to renew a license has expired. (1) The name, address, and position or
The commissioner may maintain an action for capacity of the person who prepared the
the recovery of the above amount in any court of report.
competent jurisdiction.
(2) A declaration under penalty of perjury
(f) The reports referred to in subdivisions (a) and by the broker that the information and
(c) are exempted from any requirement of public representations in the report are true,
disclosure by paragraph (2) of subdivision (d) of complete, and correct to the best of the
Section 6254 of the Government Code. The broker’s knowledge and belief. The
commissioner shall annually make and file as a declaration in a report submitted on behalf
public record, a composite of the annual reports of a corporate broker shall be signed by a
and any comments thereon which are deemed to broker-officer through whom the
be in the public interest. corporation is licensed as a real estate broker
Trust Funds Status Report – Contents and by the chief executive officer of the
10232.25. (a) A real estate broker who meets the corporation if he or she is not the signing
criteria of subdivision (a) of Section 10232 shall, broker-officer.
within 30 days after the end of each of the first (c) If a broker fails to file a report required under
three fiscal quarters of the broker’s fiscal year, subdivision (a) within the time permitted, the
or within any additional time as the Real Estate commissioner may cause an examination and
Commissioner may allow for good cause, file report to be made and may charge the broker one
with the commissioner a trust funds status report and one-half times the cost of making the
as of the last day of the fiscal quarter which shall examination and report. In determining the
include the following: hourly cost incurred by the commissioner for
(1) A representation that the form and conducting an examination and preparing the
content of the trust account records of the report, the commissioner may use the estimated
broker are in compliance with the average hourly cost for all department audit staff
regulations of the commissioner. performing audits of real estate brokers. If a
broker fails to pay the above amount within 60
(2) A representation that the broker’s trust
days of the mailing of a notice of billing, the
fund bank account is maintained in
commissioner may suspend the broker’s license
compliance with the regulations of the
or deny renewal of the broker’s license. The
commissioner.
suspension or denial shall remain in effect until
(3) A statement of the broker’s aggregate the above amount is paid or the broker’s right to
accountability for trust funds. renew a license has expired. The commissioner
may maintain an action for the recovery of the
(4) A report of trust funds in the broker’s
above amount in any court of competent
custody consisting of the trust account bank
jurisdiction.
statements as of the bank’s accounting date
78 BUSINESS AND PROFESSIONS CODE

(d) A broker who meets the criteria of Section applicable completed statement described in
10232, but who, in carrying on the activities Section 10232.5 as early as practicable before he
described in subdivisions (d) and (e) of Section or she becomes obligated to make the loan or
10131, did not during a fiscal quarter, accept for purchase and, except as provided in subdivision
the benefit of a person to whom the broker is (c), before the receipt by or on behalf of the
trustee, any payment or remittance in a form broker of any funds from that person. The
convertible to cash by the broker, need not statement shall be signed by the prospective
comply with the provisions of subdivision (a). In lender or purchaser and by the real estate broker,
lieu thereof, the broker shall submit to the or by a real estate salesperson licensed to the
commissioner within 30 days after the end of the broker, on the broker's behalf. When so
fiscal quarter or within any additional time as executed, an exact copy shall be given to the
the commissioner may allow for good cause, a prospective lender or purchaser, and the broker
statement under penalty of perjury on a form shall retain a true copy of the executed statement
provided by the department attesting to the fact for a period of three years.
that the broker did not receive any trust funds in
(b) The requirement of delivery of a disclosure
cash or convertible to cash during the fiscal
statement pursuant to subdivision (a) shall not
quarter.
apply with respect to the following persons:
(e) Any real estate broker who engages in any of
(1) The prospective purchaser of a security
the activities specified in subdivision (d) or (e)
offered under authority of a permit issued
of Section 10131, but who is not required by this
pursuant to applicable provisions of the
section to file trust funds status reports with the
Corporate Securities Law of 1968 (Division
commissioner and who is not exempt therefrom
1 (commencing with Section 25000) of Title
under subdivision (d), shall complete trust funds
4 of the Corporations Code) that require that
status reports in accordance with either (1) the
each prospective purchaser of a security be
requirements of subdivisions (a) and (b)
given a prospectus or other form of
applicable to trust funds status reports filed with
disclosure statement approved by the
the commissioner, or (2) the requirements
department issuing the permit.
established by the lender or note owner, if the
lender or note owner does all of the following: (2) The seller of real property who agrees to
(i) requires monthly reconciliations of trust take back a promissory note of the purchaser
account balances; (ii) requires annual, CPA- as a method of financing all or a part of the
audited financial statements; and (iii) maintains purchase of the property.
a contractual right to audit the trust accounts (3) The prospective purchaser of a security
held by the broker on behalf of the lender or offered pursuant to and in accordance with a
note owner. regulation duly adopted by the
The broker shall retain all trust funds status Commissioner of Corporations granting an
reports prepared under this subdivision on file at exemption from qualification under the
the broker’s offices, where they shall be subject Corporate Securities Law of 1968 for the
to inspection by representatives of the offering if one of the conditions of the
commissioner upon 24 hours' notice. exemption is that each prospective purchaser
of the security be given a disclosure
Disclosure Statement – Delivery – Exception –
statement prescribed by the regulation
Funds Handling
before the prospective purchaser becomes
10232.4. (a) In making a solicitation to a
obligated to purchase the security.
particular person and in negotiating with that
person to make a loan secured by real property (4) A prospective lender or purchaser, if that
or to purchase a real property sales contract or a lender or purchaser is any of the following:
note secured by a deed of trust, a real estate (A) The United States or any state,
broker shall deliver to the person solicited the district, territory, or commonwealth
BUSINESS AND PROFESSIONS CODE 79

thereof, or any city, county, city and specified in subparagraph (A), (B), (C),
county, public district, public authority, or (D) which is organized to purchase
public corporation, public entity, or the promissory note.
political subdivision of a state, district,
(F) A licensed real estate broker
territory, or commonwealth of the
engaging in the business of selling all or
United States, or any agency or
part of the loan, note, or contract to a
corporate or other instrumentality of any
lender or purchaser to whom no
one or more of the foregoing, including
disclosure is required pursuant to this
the Federal National Mortgage
subdivision.
Association, the Government National
Mortgage Association, the Federal (G) A licensed residential mortgage
Home Loan Mortgage Corporation, the lender or servicer when acting under the
Federal Housing Administration, and the authority of that license.
Veteran's Administration. (c) When the broker has custody of funds of a
(B) Any bank or subsidiary thereof, prospective lender or purchaser which were
bank holding company or subsidiary received and are being maintained with the
thereof, trust company, savings bank or express permission of the owner and in
savings and loan association or accordance with law, and the broker retains the
subsidiary thereof, savings bank or funds in an escrow depository or a trust fund
savings association holding company or account pending receipt of the owner's express
subsidiary thereof, credit union, written instructions to disburse the funds for a
industrial bank or industrial loan loan or purchase, the broker shall cause the
company, finance lender, or insurance disclosure statement to be delivered to the owner
company doing business under the and shall obtain the owner's written consent to
authority of, and in accordance with, the the proposed disbursement before making the
laws of this state, any other state, or of disbursement. Unless the broker has a written
the United States relating to banks, trust agreement with the owner as provided in Section
companies, savings banks or savings 10231.1, the broker shall transmit to the owner
associations, credit unions, industrial not later than 25 days after receipt, all funds then
banks or industrial loan companies, in the broker's custody for which the owner has
commercial finance lenders, or not given written instructions authorizing
insurance companies, as evidenced by a disbursement.
license, certificate, or charter issued by Disclosure Statement Content
the United States or any state, district, 10232.5. (a) If the real estate broker is
territory, or commonwealth of the performing acts described in subdivision (d) of
United States. Section 10131 in negotiating a loan to be
(C) Trustees of pension, profitsharing, secured by a lien on real property or on a
or welfare fund, if the pension, business opportunity, the statement required to
profitsharing, or welfare fund has a net be given to the prospective lender shall include,
worth of not less than fifteen million but shall not necessarily be limited to, the
dollars ($15,000,000). following information:
(D) Any corporation with outstanding (1) Address or other means of identification
securities registered under Section 12 of of the real property that is to be the security
the Securities Exchange Act of 1934 or for the borrower’s obligation.
any wholly owned subsidiary of that (2) Estimated fair market value of the
corporation. securing property as determined by an
(E) Any syndication or other appraisal, a copy of which shall be provided
combination of any of the entities to the lender. However, a lender may waive
80 BUSINESS AND PROFESSIONS CODE

the requirement of an independent appraisal prospective lender along with persons not
in writing, on a case-by-case basis, in which otherwise associated with him or her will be
case, the real estate broker shall provide the joint beneficiaries or obligees.
broker’s written estimated fair market value
(9) If the solicitation is subject to the
of the securing property, which shall include
provisions of Section 10231.2, a detailed
the objective data upon which the broker’s
statement of the intended use and disposition
estimate is based.
of the funds being solicited including an
(3) Age, size, type of construction and a explanation of the nature and extent of the
description of improvements to the property benefits to be directly or indirectly derived
if contained in the appraisal or as by the broker.
represented to the broker by the prospective
(b) If the real estate broker is performing acts
borrower.
described in subdivision (e) of Section 10131 or
(4) Identity, occupation, employment, in Section 10131.1 in negotiating the sale of a
income, and credit data about the real property sales contract or promissory note
prospective borrower or borrowers as secured directly or collaterally by a lien on real
represented to the broker by the prospective property, the statement required to be given to
borrower or borrowers. the prospective purchaser by Section 10232.4
shall include, but shall not necessarily be limited
(5) Terms of the promissory note to be given
to, the following information:
to the lender.
(1) Address or other means of identification
(6) Pertinent information concerning all
of the real property that is the security for
encumbrances which constitute liens against
the trustor’s or vendee’s obligation.
the securing property and, to the extent of
actual knowledge of the broker, pertinent (2) Estimated fair market value of the real
information about other loans that the property as determined by an appraisal, a
borrower expects or anticipates will result in copy of which shall be provided to the
a lien being recorded against the property prospective purchaser. However, a purchaser
securing the promissory note to be created in may waive the requirement of an
favor of the prospective lender. independent appraisal in writing, on a case-
by-case basis, in which case, the real estate
As used in this paragraph, actual knowledge
broker shall provide the broker’s written
with respect to any anticipated or expected
estimated fair market value of the securing
loan, means knowledge gained by the broker
property, which shall include the objective
through arranging that other loan or receipt
data upon which the broker’s estimate is
of written notification of that other loan. In
based.
this regard, the broker shall also provide to
the prospective lender the option to apply to (3) Age, size, type of construction and a
purchase a title insurance policy or an description of improvements to the real
endorsement to an existing title insurance property if known by the broker.
policy covering the securing property, and a
(4) Information available to the broker
copy of a written loan application, and a
relative to the ability of the trustor or vendee
credit report.
to meet his or her contractual obligations
(7) Provisions for servicing of the loan, if under the note or contract including the
any, including disposition of the late charge trustor’s or vendee’s payment history under
and prepayment penalty fees paid by the the note or contract.
borrower.
(5) Terms of the contract or note including
(8) Detailed information concerning any the principal balance owing.
proposed arrangement under which the
BUSINESS AND PROFESSIONS CODE 81

(6) Provisions for servicing of the note or (c) Nothing in this section is intended to relieve
contract, if any, including disposition of late the broker of any obligation or requirement to
charge, prepayment penalty or other fees or disclose what he or she knows about the value of
charges paid by the trustor or vendee. the property.
(7) Detailed information concerning any (d) This section shall apply only to loan
proposed arrangement under which the transactions and shall have no effect on a real
prospective purchaser along with persons estate broker’s duties of disclosure in purchase
not otherwise associated with him or her or sales transactions.
will be joint beneficiaries or obligees. In this
Authorization Required to Service Promissory
regard, the broker shall also provide to the
Note
prospective purchaser the option to apply to
10233. A real estate licensee who undertakes to
purchase a title insurance policy or an
service a promissory note secured directly or
endorsement to an existing title insurance
collaterally by a lien on real property or a real
policy covering the real property and, if
property sales contract shall comply with each of
available from the seller of the note or
the following requirements: (a) The licensee
contract or from the original lender, a copy
shall have a written authorization from the
of a written loan application, and a credit
borrower, the lender, or the owner of the note or
report.
contract, that is included within the terms of a
(8) A statement as to whether the dealer is written servicing agreement that satisfies the
acting as a principal or as an agent in the requirements of paragraphs (1), (2), (4), and (5)
transaction with the prospective purchaser. of subdivision (k) of Section 10238.
Appraisal – Disclosure of Fair Market Value in (b) The licensee shall provide the lender or the
Loan Transactions owner of the note or contract with at least the
10232.6. (a) A real estate broker, acting within following accountings: (1) An accounting of the
the course and scope of his or her license, who unpaid principal balance at the end of each year.
arranges for or engages the services of an (2) An accounting of collections and
appraiser licensed or certified by the Office of disbursements received and made during each
Real Estate Appraisers for the applicable year. (3) Each accounting required under this
transaction, and delivers the resulting appraisal subdivision shall identify the person who holds
to the prospective lender and prospective the original note or contract and the deed of trust
purchaser as required by Section 10232.5, has evidencing and securing the debt or obligation
met the broker’s obligation of full and complete for which the accounting has been provided.
disclosure solely pursuant to paragraph (2) of
(c) The licensee shall provide to the lender or the
subdivision (a) of Section 10232.5 and
owner of the note or contract written notification
paragraph (2) of subdivision (b) of Section
within 15 days of the occurrence of any of the
10232.5, and is not required to provide a
following events:
separate estimate of fair market value under
Section 10232.5. (1) The recording of a notice of default.
(b) This section shall not apply in instances (2) The recording of a notice of trustee’s
where the licensed or certified appraiser is an sale.
employee of the broker. However, the duty of (3) The receipt of any payment constituting
disclosure shall not be deemed met where the an amount greater than or equal to five
broker knew or should have known that the monthly payments, together with a request
referral was negligently made or that the fair for partial or total reconveyance of the real
market value provided by the appraiser was property, in which case the notice shall also
inaccurate. indicate any further transfer or delivery
instructions.
82 BUSINESS AND PROFESSIONS CODE

(4) The delinquency of any installment or Recordation of Trust Deeds, Assignments


other obligation under the note or contract 10234. (a) Except as provided in subdivision (d),
for over 30 days. every real estate licensee who negotiates a loan
secured by a trust deed on real property shall
Broker Advancing Other than Obligor’s Funds
cause the trust deed to be recorded, naming as
10233.1. If a real estate broker in servicing a real
beneficiary the lender or his or her nominee
property sales contract or a promissory note
(who shall not be the licensee or the licensee’s
secured directly or collaterally by a lien on real
nominee), with the county recorder of the county
property for the mortgagee, beneficiary, or
in which the real property is located prior to the
owner of the note or contract, causes funds other
time that any funds are disbursed, except when
than funds received from the obligor of the note
the lender has given written authorization for
or contract to be applied toward a payment to
prior release.
protect the security of the note or contract being
serviced, including the payment of debt service (b) If funds are released on the lender’s written
on an obligation secured by the same real authorization as described in subdivision (a), the
property having priority over the mortgage or trust deed shall be recorded, or delivered to the
deed of trust securing the promissory note that lender or beneficiary with a written
the broker is servicing, the broker shall, not later recommendation that it be recorded forthwith,
than 10 days after making any such payment, within 10 days following release.
give written notice to the mortgagee,
(c) Every real estate licensee who sells,
beneficiary, or owner of the date and amount of
exchanges, or negotiates the sale or exchange of
payment, the name of the person to whom
a real property sales contract or a promissory
payment was made, the source of funds, and the
note secured by a trust deed on real property
reason for making the payment.
shall cause a proper assignment of the real
Loan Servicing – Delivery by Recordation property sales contract or trust deed to be
Provided Note Payable to Lender or Endorsed executed and shall cause the assignment to be
or Assigned to Loan Purchaser recorded, naming as assignee the purchaser or
10233.2. For the purposes of Division 3 his or her nominee (who shall not be the licensee
(commencing with Section 3101) and Division 9 or the licensee’s nominee), with the county
(commencing with Section 9101) of the recorder of the county in which the real property
Commercial Code, when a broker, acting within is located within 10 working days after the
the meaning of subdivision (d) or (e) of Section licensee or seller receives any funds from the
10131 or Section 10131.1, has arranged a loan buyer or after close of escrow; or shall deliver
or sold a promissory note or any interest therein, the real property sales contract or trust deed to
and thereafter undertakes to service the the purchaser with a written recommendation
promissory note on behalf of the lender or that the assignment thereof be recorded
purchaser in accordance with Section 10233, forthwith.
delivery, transfer, and perfection shall be
(d) A trust deed may be recorded in the name of
deemed complete even if the broker retains
the real estate broker negotiating the loan if all
possession of the note or collateral instruments
of the following apply: (1) the lender or
and documents, provided that the deed of trust or
purchaser is any person or entity set forth in
an assignment of the deed of trust or collateral
paragraph (1) of subdivision (c) of Section
documents in favor of the lender or purchaser is
10232, (2) the trust deed is recorded with the
recorded in the office of the county recorder in
county recorder of the county in which the real
the county in which the security property is
property is located, and (3) the real property
located, and the note is made payable to the
securing the loan as described in the trust deed is
lender or is endorsed or assigned to the
not a dwelling as defined in Section 10240.2 or
purchaser.
unimproved real property.
BUSINESS AND PROFESSIONS CODE 83

Delivery of Copies of Deed of Trust any provision of this article or with respect to
10234.5. In addition to the requirements of any regulation for implementation of provisions
Section 10234, in the placing of any loan, a of this article.
broker shall deliver or cause to be delivered
No provision of this article imposing any
conformed copies of any deed of trust to both
liability applies in the case of an act done or
the investor or lender and the borrower within a
omitted in good faith in conformity with a
reasonable amount of time from the date of
written interpretive opinion of the commissioner
recording.
or an opinion of the Attorney General,
Misleading Advertising notwithstanding that the opinion may later be
10235. No real estate licensee shall knowingly amended or rescinded or be determined by
advertise, print, display, publish, distribute, judicial or other authority to be invalid for any
telecast or broadcast, or cause or permit to be reason.
advertised, printed, displayed, published,
Inducement Prohibited
distributed, televised or broadcast, in any
10236.1. No real estate licensee shall advertise
manner any statement or representation with
to give or to offer to give to a prospective
regard to the rates, terms, or conditions for
purchaser or lender any premium, gift or any
making, purchasing or negotiating loans or real
other object of value as an inducement for
property sales contracts which is false,
making a loan, or purchasing a promissory note
misleading or deceptive.
secured directly or collaterally by a lien on real
Indicating or otherwise implying any specific property or a real property sales contract.
yield or return on any note other than the interest
Penalties for Noncompliance with Section
rate specified in said note shall be prima facie
10232
evidence that such advertisement is misleading
10236.2. (a) A real estate broker who satisfies
or deceptive unless the advertisement sets forth
the criteria of subdivision (a) or (b) of Section
the actual interest rate specified in the note and
10232 and who fails to notify the Department of
the discount from the outstanding principal
Real Estate, in writing, of that fact within 30
balance at which it is being offered for sale.
days thereafter as required by subdivision (e) of
Advertising of Loan – License Disclosure Section 10232 shall be assessed a penalty of
10235.5. (a) No real estate licensee or mortgage fifty dollars ($50) per day for each additional
loan originator shall place an advertisement day written notification has not been received up
disseminated primarily in this state for a loan to and including the 30th day after the first day
unless there is disclosed within the printed text of the assessment penalty. On and after the 31st
of that advertisement, or the oral text in the case day the penalty is one hundred dollars ($100)
of a radio or television advertisement, the per day, not to exceed a total penalty of ten
Department of Real Estate license number and thousand dollars ($10,000), regardless of the
the unique identifier assigned to that licensee by number of days, until the department receives
the Nationwide Mortgage Licensing System and the written notification.
Registry under which the loan would be made or
(b) The commissioner may suspend or revoke
arranged.
the license of any real estate broker who fails to
(b) "Mortgage loan originator," "unique pay a penalty imposed under this section. In
identifier," and "Nationwide Mortgage addition, the commissioner may bring an action
Licensing System and Registry" have the in an appropriate court of this state to collect
meanings set forth in Section 10166.01. payment of the penalty.
Requests for Interpretive Opinions (c) All penalties paid or collected under this
10236. The commissioner in his or her section shall be deposited into the Recovery
discretion may honor requests from interested Account of the Real Estate Fund.
persons for interpretive opinions with respect to
84 BUSINESS AND PROFESSIONS CODE

Disclosure of License Number in (1) Trust accounts under the control of the
Advertisement; License Number and DRE broker or in any manner affiliated with the
License Information Telephone Number in broker.
Disclosure Statements
(2) Nontrust accounts under the control of
10236.4. (a) In compliance with Section
the broker or in any manner affiliated with
10235.5, every licensed real estate broker shall
the broker to which funds from trust
also display his or her license number on all
accounts have been deposited other than for
advertisements where there is a solicitation for
the payment of commissions, fees, costs, or
borrowers or potential investors. Every
expenses due to or incurred by the broker.
mortgage loan originator, as defined in Section
10166.01, shall also display the unique identifier (b) The authority to audit these nontrust
assigned to that individual by the Nationwide accounts shall be limited to instances where
Mortgage Licensing System and Registry on all either an annual review or audit conducted by an
advertisements where there is a solicitation for independent certified public accountant or a
borrowers. departmental audit reveals unauthorized
transfers of money to those accounts.
(b) The disclosures required by Sections 10232.4
and 10240 shall include the licensee's license Article 6. Claim of Exemption From
number, the mortgage loan originator's unique Securities Qualification
identifier, if applicable, and the department's
10237. Any transaction that involves the sale of
license information telephone number.
or offer to sell a series of notes secured directly
(c) "Mortgage loan originator," "unique by interests in one or more parcels of real
identifier," and "Nationwide Mortgage property, or the sale of undivided interests in a
Licensing System and Registry" have the note secured directly by one or more parcels of
meanings set forth in Section 10166.01. real property equivalent to a series transaction,
Notification of End of Section 10232 Reporting shall comply with all of the provisions of this
Status article.
10236.5. A real estate broker shall notify the 10238. (a) A notice in the following form and
department when he or she is no longer containing the following information shall be
servicing or arranging loans subject to the filed with the commissioner within 30 days after
reporting requirements of Section 10232. If a the first transaction and within 30 days of any
broker has already made reports required by this material change in the information required in
article within the year, he or she shall continue the notice:
reports for that year, but shall notify the
TO: Real Estate Commissioner
department prior to the expiration of that year
Mortgage Loan Section
that he or she will no longer be servicing or
2201 Broadway
arranging loans for which reports are required.
Sacramento, CA 95818
The department’s records, including those which
may be disclosed by calling the license This notice is filed pursuant to Section 10237 of
information telephone number of the the Business and Professions Code.
department, may then be appropriately updated.
( ) Original Notice ( ) Amended Notice
Audit – After Reasonable Notice
1. Name of Broker conducting transaction
10236.6. (a) The commissioner, in his or her
under Section 10237:
discretion, may audit any broker who conducts
transactions subject to the provisions of this _______________________________________
article. The audit shall be conducted after
2. Broker license identification number:
reasonable notice to the broker and shall include
an examination of both of the following: _______________________________________
BUSINESS AND PROFESSIONS CODE 85

3. List the month the fiscal year ends: Amount of Multilender Payments
Collected Last Fiscal Quarter:
_______________________________________
____________________________________
4. Broker’s telephone number:
Total Number of Investors Due
_______________________________________
Payments Last Fiscal Quarter:
5. Firm name (if different from “1”):
____________________________________
_______________________________________
( ) The undersigned Broker is NOT (or
6. Street address (main location): does NOT expect to be) required to file
_______________________________________ reports of inspection of its trust
# and Street City account(s) with the Real Estate
Commissioner pursuant to paragraph (3)
_______________________________________ of subdivision (k) of Section 10238.
State ZIP Code
12. Signature. The contents of this notice are
7. Mailing address (if different from “6”): true and correct.
_______________________________________ _______________________________________
8. Servicing agent: Identify by name, address, Date Type Name of Broker
and telephone number the person or entity
who will act as the servicing agent in _______________________________________
transactions pursuant to Section 10237 Signature of Broker or of Designated
(including the undersigned Broker if that is Officer of Corporate Broker
the case):
_______________________________________
_______________________________________ Type Name of Person(s) Signing This Notice
_______________________________________
NOTE: AN AMENDED NOTICE MUST BE
9. Total number of multilender notes arranged: FILED BY THE BROKER WITHIN 30 DAYS
OF ANY MATERIAL CHANGE IN THE
____________________________________ INFORMATION REQUIRED TO BE SET
10. Total number of interests sold to investors FORTH HEREIN.
on the multilender’s notes: (b) A broker or person who becomes the
____________________________________ servicing agent for notes or interest sold
pursuant to this article, upon which payments
11. Inspection of trust account (before due during any period of three consecutive
answering this question, review the months in the aggregate exceed one hundred
provisions of paragraph (3) of subdivision twenty-five thousand dollars ($125,000) or the
(k) of Section 10238). number of persons entitled to the payments
CHECK ONLY ONE OF THE exceeds 120, shall file the notice required by
FOLLOWING: subdivision (a) with the commissioner within 30
days after becoming the servicing agent.
( ) The undersigned Broker is (or expects to
be) required to file reports of inspection (c) All advertising employed for transactions
of its trust account(s) with the Real under this article shall show the name of the
Estate Commissioner pursuant to broker and comply with Section 10235 and
paragraph (3) of subdivision (k) of Sections 260.302 and 2848 of Title 10 of the
Section 10238. California Code of Regulations. Brokers and
their agents are cautioned that a reference to a
86 BUSINESS AND PROFESSIONS CODE

prospective investor that a transaction is neither the broker nor an affiliate of the broker
conducted under this article may be deemed shall have an interest as owner, lessor, or
misleading or deceptive if this representation developer of the property securing the loan, or
may reasonably be construed by the investor as any contractual right to acquire, lease, or
an implication of merit or approval of the develop the property securing the loan. This
transaction. provision does not prohibit a broker from
conducting the following transactions if, in
(d) Each parcel of real property directly securing
either case, the disclosure statement furnished by
the notes or interests is located in this state, the
the broker pursuant to subdivision (l) discloses
note or notes are not by their terms subject to
the interest of the broker or affiliate in the
subordination to any subsequently created deed
transaction and the circumstances under which
of trust upon the real property, and the note or
the broker or affiliate acquired the interest:
notes are not promotional notes secured by liens
on separate parcels of real property in one (1) A transaction in which the broker or an
subdivision or in contiguous subdivisions. For affiliate of the broker is acquiring the
purposes of this subdivision, a promotional note property pursuant to a foreclosure under, or
means a promissory note secured by a trust deed, sale pursuant to, a deed of trust securing a
executed on unimproved real property or note for which the broker is the servicing
executed after construction of an improvement agent or that the broker sold to the holder or
of the property but before the first purchase of holders.
the property as so improved, or executed as a
(2) A transaction in which the broker or an
means of financing the first purchase of the
affiliate of the broker is reselling from
property as so improved, that is subordinate, or
inventory property acquired by the broker
by its terms may become subordinate, to any
pursuant to a foreclosure under, or sale
other trust deed on the property. However, the
pursuant to, a deed of trust securing a note
term “promotional note” does not include either
for which the broker is the servicing agent or
of the following:
that the broker sold to the holder or holders.
(1) A note that was executed in excess of
(f) (1) The notes or interests shall not be sold to
three years prior to being offered for sale.
more than 10 persons, each of whom meets
(2) A note secured by a first trust deed on one or both of the qualifications of income
real property in a subdivision that evidences or net worth set forth below and signs a
a bona fide loan made in connection with the statement, which shall be retained by the
financing of the usual cost of the broker for four years, conforming to the
development in a residential, commercial, or following:
industrial building or buildings on the
Transaction
property under a written agreement
Identifier:____________________________
providing for the disbursement of the loan
funds as costs are incurred or in relation to Name of Purchaser:____________________
the progress of the work and providing for Date:____________
title insurance ensuring the priority of the Check either one of the following, if true:
security as against mechanic’s and
materialmen’s liens or for the final ( ) My investment in the transaction does not
disbursement of at least 10 percent of the exceed 10% of my net worth, exclusive of
loan funds after the expiration of the period home, furnishings, and automobiles.
for the filing of mechanic’s and ( ) My investment in the transaction does not
materialmen’s liens. exceed 10% of my adjusted gross income
(e) The notes or interests are sold by or through for federal income tax purposes for my last
a real estate broker, as principal or agent. At the tax year or, in the alternative, as estimated
time the interests are originally sold or assigned, for the current year.
BUSINESS AND PROFESSIONS CODE 87

____________________________________ these interests. The interest of each purchaser


shall be recorded pursuant to subdivisions (a) to
Signature
(c), inclusive, of Section 10234.
(2) The number of offerees shall not be
(h) (1) Except as provided in paragraph (2), the
considered for the purposes of this section.
aggregate principal amount of the notes or
(3) A husband and wife and their interests sold, together with the unpaid
dependents, and an individual and his or her principal amount of any encumbrances upon
dependents, shall be counted as one person. the real property senior thereto, shall not
(4) A retirement plan, trust, business trust, exceed the following percentages of the
corporation, or other entity that is wholly current market value of each parcel of the
owned by an individual and the individual’s real property, as determined in writing by
spouse or the individual’s dependents, or the broker or appraiser pursuant to Section
any combination thereof, shall not be 10232.6, plus the amount for which the
counted separately from the individual, but payment of principal and interest in excess
the investments of these entities shall be of the percentage of current market value is
aggregated with those of the individual for insured for the benefit of the holders of the
the purposes of the statement required by notes or interests by an insurer admitted to
paragraph (1). If the investments of any do business in this state by the Insurance
entities are required to be aggregated under Commissioner:
this subdivision, the adjusted gross income (A) Single-family residence,
or net worth of these entities may also be owner occupied………80%
aggregated with the net worth, income, or
(B) Single-family residence, not
both, of the individual.
owner occupied………75%
(5) The “institutional investors” enumerated
(C) Commercial and income-
in subdivision (i) of Section 25102 or
producing properties…65%
subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted (D) Single-family residentially
pursuant thereto, shall not be counted. zoned lot or parcel which
has installed offsite
(6) A partnership, limited liability company,
improvements including
corporation, or other organization that was
drainage, curbs, gutters,
not specifically formed for the purpose of
sidewalks, paved roads, and
purchasing the security offered in reliance
utilities as mandated by the
upon this exemption from securities
political subdivision having
qualification is counted as one person.
jurisdiction over the lot or
(g) The notes or interests of the purchasers shall parcel…………………65%
be identical in their underlying terms, including
(E) Land that has been zoned
the right to direct or require foreclosure, rights to
for (and if required,
and rate of interest, and other incidents of being
approved for subdivision as)
a lender, and the sale to each purchaser pursuant
commercial or residential
to this section shall be upon the same terms,
development………….50%
subject to adjustment for the face or principal
amount or percentage interest purchased and for (F) Other real property…...35%
interest earned or accrued. This subdivision does
(2) The percentage amounts specified in
not preclude different selling prices for interests
paragraph (1) may be exceeded when and to
to the extent that these differences are
the extent that the broker determines that the
reasonably related to changes in the market
encumbrance of the property in excess of
value of the loan occurring between the sales of
these percentages is reasonable and prudent
88 BUSINESS AND PROFESSIONS CODE

considering all relevant factors pertaining to escrow prior to recording of the deed or
the real property. However, in no event shall deeds of trust.
the aggregate principal amount of the notes
(C) A comprehensive, detailed, draw
or interests sold, together with the unpaid
schedule is used to ensure proper and
principal amount of any encumbrances upon
timely disbursements to allow for
the property senior thereto, exceed 80
completion of the project.
percent of the current fair market value of
improved real property or 50 percent of the (D) The disbursement draws from the
current fair market value of unimproved real escrow account are based on verification
property, except in the case of a single- from an independent qualified person
family zoned lot or parcel as defined in who certifies that the work completed to
paragraph (1), which shall not exceed 65 date meets the related codes and
percent of the current fair market value of standards and that the draws were made
that lot or parcel, plus the amount insured as in accordance with the construction
specified in paragraph (1). A written contract and draw schedule. For
statement shall be prepared by the broker purposes of this subparagraph,
that sets forth the material considerations “independent qualified person” means a
and facts that the broker relies upon for his person who is not an employee, agent,
or her determination, which shall be retained or affiliate of the broker and who is a
as a part of the broker’s record of the licensed architect, general contractor,
transaction. Either a copy of the statement or structural engineer, or active local
the information contained therein shall be government building inspector acting in
included in the disclosures required pursuant his or her official capacity.
to subdivision (l). (E) An appraisal is completed by a
(3) A copy of the appraisal or the broker’s qualified and licensed appraiser in
evaluation, for each parcel of real property accordance with the Uniform Standards
securing the notes or interests, shall be of Professional Appraisal Practice
delivered to each purchaser. The broker (USPAP).
shall advise purchasers of their right to (F) In addition to the transaction
receive a copy. For purposes of this documentation required by subdivision
paragraph, “appraisal” means a written (i), the documentation shall include a
estimate of value based upon the detailed description of actions that may
assembling, analyzing, and reconciling of be taken in the event of a failure to
facts and value indicators for the real complete the project, whether that
property in question. A broker shall not failure is due to default, insufficiency of
purport to make an appraisal unless the funds, or other causes.
person so employed is qualified on the basis
of special training, preparation, or (G) The entire amount of the loan does
experience. not exceed two million five hundred
thousand dollars ($2,500,000).
(4) For construction or rehabilitation loans,
the term “current market value” may be (5) If a note or an interest will be secured by
deemed to be the value of the completed more than one parcel of real property, for
project if the following safeguards are met: the purpose of determining the maximum
amount of the note or interest, each security
(A) An independent neutral third-party property shall be assigned a portion of the
escrowholder is used for all deposits and note or interest which shall not exceed the
disbursements. percentage of current market value
(B) The loan is fully funded, with the determined by, and in accordance with, the
entire loan amount to be deposited in provisions of paragraphs (1) and (2).
BUSINESS AND PROFESSIONS CODE 89

(i) The documentation of the transaction shall include a sample of transactions, as reflected
require that (1) a default upon any interest or in the records of the trust account required
note is a default upon all interests or notes and pursuant to paragraph (1) of subdivision (k),
(2) the holders of more than 50 percent of the and the bank statements and supporting
recorded beneficial interests of the notes or documents. These documents shall be
interests may govern the actions to be taken on reviewed for compliance with this article
behalf of all holders in accordance with Section with respect to the handling and distribution
2941.9 of the Civil Code in the event of default of funds. The sample shall be selected at
or foreclosure for matters that require direction random by the accountant from all these
or approval of the holders, including designation transactions and shall consist of the
of the broker, servicing agent, or other person following: (A) three sales made or 5 percent
acting on their behalf, and the sale, of the sales made pursuant to this article
encumbrance, or lease of real property owned by during the period for which the examination
the holders resulting from foreclosure or receipt is conducted, whichever is greater, and (B)
of a deed in lieu of foreclosure. The terms called 10 payments processed or 2 percent of
for by this subdivision may be included in the payments processed under this article during
deed of trust, in the assignment of interests, or in the period for which the examination is
any other documentation as is necessary or conducted, whichever is greater.
appropriate to make them binding on the parties.
(5) For the purposes of this subdivision, the
(j) (1) The broker shall not accept any purchase transaction that constitutes a “sale” is the
or loan funds or other consideration from a series of transactions by which a series of
prospective lender or purchaser, or directly notes of a maker, or the interests in the note
or indirectly cause the funds or other of a maker, are sold or issued to their
consideration to be deposited in an escrow various purchasers under this article,
or trust account, except as to a specific loan including all receipts and disbursements in
or note secured by a deed of trust that the that process of funds received from the
broker owns, is authorized to negotiate, or is purchasers or lenders. The transaction that
unconditionally obligated to buy. constitutes a “payment,” for the purposes of
this subdivision, is the receipt of a payment
(2) All funds received by the broker from
from the person obligated on the note or
the purchasers or lenders shall be handled in
from some other person on behalf of the
accordance with Section 10145 for
person so obligated, including the broker or
disbursement to the persons thereto entitled
servicing agent, and the distribution of that
upon recordation of the interests of the
payment to the persons entitled thereto. If a
purchasers or lenders in the note and deed of
payment involves an advance paid by the
trust. No provision of this article shall be
broker or servicing agent as the result of a
construed as modifying or superseding
dishonored check, the inspection shall
applicable law regulating the escrowholder
identify the source of funds from which the
in any transaction or the handling of the
payment was made or, in the alternative, the
escrow account.
steps that are reasonably necessary to
(3) The books and records of the broker or determine that there was not a disbursement
servicing agent, or both, shall be maintained of trust funds. The accountant shall inspect
in a manner that readily identifies for compliance with the following specific
transactions under this article and the receipt provisions of this section: paragraphs (1),
and disbursement of funds in connection (2), and (3) of subdivision (j) and paragraphs
with these transactions. (1) and (2) of subdivision (k).
(4) If required by paragraph (3) of (6) Within 30 days of the close of the period
subdivision (k), the review by the for which the report is made, or within any
independent certified public accountant shall additional time as the commissioner may in
90 BUSINESS AND PROFESSIONS CODE

writing allow in a particular case, the transaction other than the transaction for
accountant shall forward to the broker or which the funds are received.
servicing agent, as the case may be, and to
(2) That payments received on the note or
the commissioner, the report of the
notes shall be transmitted to the purchasers
accountant, stating that the inspection was
or lenders pro rata according to their
performed in accordance with this section,
respective interests within 25 days after
listing the sales and the payments examined,
receipt thereof by the agent. If the source for
specifying the nature of the deficiencies, if
the payment is not the maker of the note, the
any, noted by the accountant with respect to
agent shall inform the purchasers or lenders
each sale or payment, together with any
of the source for payment. A broker or
further information as the accountant may
servicing agent who transmits to the
wish to include, such as corrective steps
purchaser or lenders the broker’s or
taken with respect to any deficiency so
servicing agent’s own funds to cover
noted, or stating that no deficiencies were
payments due from the borrower but unpaid
observed. If the broker meets the threshold
as a result of a dishonored check may
criteria of Section 10232, the report of the
recover the amount of the advances from the
accountant shall be submitted as part of the
trust fund when the past due payment is
quarterly reports required under Section
received. However, this article does not
10232.25.
authorize the broker, servicing agent, or any
(k) The notes or interests shall be sold subject to other person to issue, or to engage in any
a written agreement that obligates a licensed real practice constituting, any guarantee or to
estate broker, or a person exempted from the engage in the practice of advancing
licensing requirement for real estate brokers payments on behalf of the borrower.
under this chapter, to act as agent for the
(3) If the broker or person who is or
purchasers or lenders to service the note or notes
becomes the servicing agent for notes or
and deed of trust, including the receipt and
interests sold pursuant to this article upon
transmission of payments and the institution of
which the payments due during any period
foreclosure proceedings in the event of a default.
of three consecutive months in the aggregate
A copy of this servicing agreement shall be
exceed one hundred twenty-five thousand
delivered to each purchaser. The broker shall
dollars ($125,000) or the number of persons
offer to the lenders or purchasers the services of
entitled to the payments exceeds 120, the
the broker or one or more affiliates of the
trust account or accounts of that broker or
broker, or both, as servicing agent for each
affiliate shall be inspected by an
transaction conducted pursuant to this article.
independent certified public accountant at
The agreement shall require all of the following:
no less than three-month intervals during the
(1) (A) That payments received on the note time the volume is maintained. Within 30
or notes be deposited immediately to a days after the close of the period for which
trust account maintained in accordance the review is made, the report of the
with this section and with the provisions accountant shall be forwarded as provided in
for trust accounts of licensed real estate paragraph (6) of subdivision (j). If the
brokers contained in Section 10145 and broker is required to file an annual report
Article 15 (commencing with Section pursuant to subdivision (o) or pursuant to
2830.1) of Chapter 6 of Title 10 of the Section 10232.2, the quarterly report
California Code of Regulations. pursuant to this subdivision need not be filed
for the last quarter of the year for which the
(B) That payments deposited pursuant to
annual report is made. For the purposes of
subparagraph (A) shall not be
this subdivision, an affiliate of a broker is
commingled with the assets of the
any person controlled by, controlling, or
servicing agent or used for any
under common control with the broker.
BUSINESS AND PROFESSIONS CODE 91

(4) Unless the servicing agent will receive cost payable by the purchasers in
notice pursuant to Section 2924b of the Civil connection with the sale.
Code, the servicing agent shall file a request
(B) In the case of the origination of a
for notice of default upon any prior
note:
encumbrances and promptly notify the
purchasers or lenders of any default on the (i) The name and address of the
prior encumbrances or on the note or notes escrowholder for the transaction.
subject to the servicing agreement. (ii) The anticipated closing date.
(5) The servicing agent shall promptly (iii) A description of, and the
forward copies of the following to each estimated amount of, each cost
purchaser or lender: payable by the borrower in
(A) Any notice of trustee sale filed on connection with the loan and a
behalf of the purchasers or lenders. description of, and the estimated
amount of, each cost payable by the
(B) Any request for reconveyance of the
lenders in connection with the loan.
deed of trust received on behalf of the
purchasers or lenders. (C) In the case of a transaction involving
a note or interest secured by more than
(l) The broker shall disclose in writing to each
one parcel of real property, in addition
purchaser or lender the material facts concerning
to the requirements of subparagraphs
the transaction on a disclosure form adopted or
(A) and (B):
approved by the commissioner pursuant to
Section 10232.5, subject to the following: (i) The address, description, and
estimated fair market value of each
(1) The disclosure form shall include a
property securing the loan.
description of the terms upon which the note
and deed of trust are being sold, including (ii) The amount of the available
the terms of the undivided interests being equity in each property securing the
offered therein, including the following: loan after the loan amount to be
apportioned to each property is
(A) In the case of the sale of an existing
assigned.
note:
(iii) The loan to value percentage for
(i) The aggregate sale price of the
each property after the loan amount
note.
to be apportioned to each property is
(ii) The percent of the premium over assigned pursuant to subdivision (h).
or discount from the principal
(2) A copy of the written statement or
balance plus accrued but unpaid
information contained therein, as required
interest.
by paragraph (2) of subdivision (h), shall be
(iii) The effective rate of return to included in the disclosure form.
the purchasers if the note is paid
(3) Any interest of the broker or affiliate in
according to its terms.
the transaction, as described in subdivision
(iv) The name and address of the (e), shall be included with the disclosure
escrowholder for the transaction. form.
(v) A description of, and the (4) When the particular circumstances of a
estimated amount of, each cost transaction make information not specified
payable by the seller in connection in the disclosure form material or essential
with the sale and a description of, to keep the information provided in the form
and the estimated amount of, each from being misleading, and the other
92 BUSINESS AND PROFESSIONS CODE

information is known to the broker, the other transactions that is prepared in accordance with
information shall also be provided by the subdivision (c) of Section 10232.2. If the broker
broker. also meets the threshold criteria of Section
10232, the report shall include the transactions
(5) If more than one parcel of real property
subject to that section as well. This report shall
secures the notes or interests, the disclosure
be confidential pursuant to subdivision (f) of
form shall also fully disclose any risks to
Section 10232.2.
investors associated with securing the notes
or interests with multiple parcels of real 10239. The jurisdiction of the Commissioner of
property. Corporations under the Corporate Securities
Law of 1968 shall be neither limited nor
(m) The broker or servicing agent shall furnish
expanded by this article. Nothing in this article
any purchaser of a note or interest, upon request,
shall be construed to supersede or restrict the
with the names and addresses of the purchasers
application of the Corporate Securities Law of
of the other notes or interests in the loan.
1968. A transaction under this article shall not
(n) No agreement in connection with a be construed to be a transaction involving the
transaction covered by this article shall grant to issuance of securities subject to authorization by
the real estate broker, the servicing agent, or any the Real Estate Commissioner under subdivision
affiliate of the broker or agent the option or (e) of Section 25100 of the Corporations Code.
election to acquire the interests of the purchasers
10239.1. Nothing in this article shall be
or lenders or to acquire the real property
construed to change the agency relationships
securing the interests. This subdivision shall not
between the parties where they exist or limit in
prohibit the broker or affiliate from acquiring the
any manner the fiduciary duty of brokers to
interests, with the consent of the purchasers or
borrowers, lenders, and purchasers of notes or
lenders whose interests are being purchased, or
interests in transactions subject to this article.
the property, with the consent of the purchasers
or lenders, if the consent is given at the time of 10239.2. For the purposes of this article, the
the acquisition. following definitions shall apply:
(o) Each broker who conducts transactions under (a) “Broker” means a person licensed as a broker
this article, or broker or person who becomes the under this part.
servicing agent for notes or interest sold
(b) “Affiliate” means a person controlled by,
pursuant to this article, who meets the criteria of
controlling, or under common control with, the
paragraph (3) of subdivision (k) shall file with
broker.
the commissioner an annual report of a review
of its trust account. The report shall be prepared (c) “Servicing agent” means the real estate
and filed in accordance with subdivision (a) of broker or person exempted from the licensing
Section 10232.2 and the rules and procedures requirements for real estate brokers under this
thereunder of the commissioner. That report chapter, to act as agent for the purchasers or
shall cover the broker’s transactions under this lenders to service the notes and deeds of trust,
article and, if the broker also meets the threshold including the handling the receipt and
criteria set forth in Section 10232, the broker’s transmission of payments and the institution of
transactions subject to that section shall be foreclosure proceedings in the event of a default.
included as well. (d) Except as provided in paragraph (5) of
(p) Each broker conducting transactions subdivision (j) of Section 10238, the terms
pursuant to this article, or broker or person who “sale” and “offer to sell,” shall have the same
becomes the servicing agent for notes or interest meaning as set forth in Section 25017 of the
sold pursuant to this article, who meets the Corporations Code and include the acts of
criteria of paragraph (3) of subdivision (k) shall negotiating and arranging the transaction.
file with the commissioner a report of the
BUSINESS AND PROFESSIONS CODE 93

10239.3. (a) If any person other than a real estate shall, within three business days after receipt of
broker makes or keeps any of the books, a completed written loan application or before
accounts, or other records maintained in the borrower becomes obligated on the note,
connection with a transaction described in this whichever is earlier, cause to be delivered to the
article, the provisions of this article and of any borrower a statement in writing, containing all
regulation or order issued under this section the information required by Section 10241. It
shall apply to the person with respect to the shall be personally signed by the borrower and
performance of those services and with respect by the real estate broker negotiating the loan or
to those books, accounts, and other records to by a real estate licensee acting for the broker in
the same extent as if the person were the broker. negotiating the loan. When so executed, an exact
copy thereof shall be delivered to the borrower
(b) If any person other than an affiliate of a
at the time of its execution. The real estate
broker makes or keeps any of the books,
broker negotiating the loan shall retain on file
accounts, or other records maintained in
for a period of three years a true and correct
connection with a transaction described in this
copy of the statement as signed by the borrower.
article, or in the case of an affiliate other than a
parent or subsidiary of the broker, the provisions No real estate licensee shall permit the statement
of this article and of any regulation or order to be signed by a borrower if any information
issued under this article shall apply to the person required by Section 10241 is omitted.
with respect to those books, accounts, and other
(b) For the purposes of applying the provisions
records to the same extent as if the person were
of this article, a real estate broker is acting
the affiliate.
within the meaning of subdivision (d) of Section
10239.4. This article applies only to the 10131 if he or she solicits borrowers, or causes
exemption from securities qualification claimed borrowers to be solicited, through express or
under Section 25102.5 of the Corporations implied representations that the broker will act
Code. This article does not apply to any other as an agent in arranging a loan, but in fact makes
exemption from securities qualification, the loan to the borrower from funds belonging to
including subdivision (e) of Section 25102 of the the broker.
Corporations Code, which may be claimed
(c) In a federally regulated residential mortgage
without complying with this article, or to any
loan transaction in which the principal loan
permit to qualify the offer and sale of securities
amount exceeds the principal loan levels set
under the Corporate Securities Law of 1968. A
forth in Section 10245, a real estate broker
real estate broker, when engaging in acts for
satisfies the requirements of this section if the
which a license is required, who arranges a
borrower receives (1) a “good faith estimate”
transaction pursuant to this article or pursuant to
that satisfies the requirements of the Real Estate
an offering subject to the Corporations Code,
Settlement Procedures Act of 1974 (12 U.S.C.A.
shall clearly indicate in the broker’s transaction
2601 et seq.), and that sets forth the broker’s real
file the provision of the Corporate Securities
estate license number and a clear and
Law of 1968 pertaining to qualification or
conspicuous statement on the face of the
exemption from qualification under which the
document stating that the “good faith estimate”
transaction is being conducted, and shall retain
does not constitute a loan commitment, (2) all
this information for the period specified in
applicable disclosures required by the Truth in
subdivision (a) of Section 10148.
Lending Act (15 U.S.C.A. 1601 et seq.), and (3)
Article 7. Real Property Loans if the loan contains a balloon payment provision,
the disclosure described in subdivision (h) of
Written Disclosure Statement
Section 10241, the balloon disclosure required
10240. (a) Every real estate broker, upon acting
for that loan by Fannie Mae or Freddie Mac, or
within the meaning of subdivision (d) of Section
an alternative disclosure determined by the
10131, who negotiates a loan to be secured
directly or collaterally by a lien on real property
94 BUSINESS AND PROFESSIONS CODE

commissioner to satisfy the requirements of the of Section 10131 shall adopt and adhere to
Truth in Lending Act. policies and procedures that are reasonably
intended to achieve the objectives set forth in the
Prior to becoming obligated on the loan the
documents described in subdivision (a).
borrower shall acknowledge, in writing, receipt
of the “good faith estimate” and all applicable Statement Content
disclosures required by the Truth in Lending 10241. The statement required by Section
Act. The real estate broker shall retain on file for 10240, the form of which shall be approved by
a period of three years a true and correct copy of the commissioner, shall set forth separately the
the signed acknowledgment and a true and following items:
correct copy of the “good faith estimate” and all
(a) The estimated maximum costs and expenses
applicable disclosures required by the Truth in
of making the loan, which are to be paid by the
Lending Act as acknowledged by the borrower.
borrower, including but not limited to, the
Application of Provisions following:
10240.1. The provisions of this article, exclusive
(1) Appraisal fees.
of the provisions of Section 10240, apply only to
loans secured by a dwelling. (2) Escrow fees.
“Dwelling” Defined (3) Title charges.
10240.2. As used in this article, “dwelling” (4) Notary fees.
means any of the following units which are
owned by a signatory to the mortgage or deed of (5) Recording fees.
trust secured by the dwelling unit at the time of (6) Credit investigation fees.
execution of the mortgage or deed of trust:
If a real estate licensee performs or is to perform
(a) A single dwelling unit in a condominium or any of the services for which costs and expenses
cooperative. are disclosed pursuant to this subdivision, the
(b) Any parcel containing only residential licensee shall be entitled to those costs and
buildings if the total number of units on the expenses in addition to the charges specified in
parcel is four or less. subdivision (b).
Nontraditional Mortgages and Subprime (b) The total of the brokerage or commissions
Lending contracted for, or to be received by, the real
10240.3. (a) The commissioner shall apply the estate broker for services performed as an agent
guidance on nontraditional mortgage product in negotiating, procuring, or arranging the loan
risks published on November 14, 2006, by the or the total of loan origination fees, points,
Conference of State Bank Supervisors and the bonuses, and other charges in lieu of interest to
American Association of Residential Mortgage be received by the broker if he or she elects to
Regulators, and the Statement on Subprime act as a lender rather than agent in the
Mortgage Lending published on July 17, 2007, transaction.
by the aforementioned entities and the National (c) Any liens against the real property, as
Association of Consumer Credit Administrators, disclosed by the borrower, the approximate
to real estate brokers acting within the meaning amount thereof, and whether each lien will
of Section 10131.1 or subdivision (d) of Section remain senior, or will be subordinate, to the lien
10131. that will secure the loan.
(b) The commissioner may adopt emergency and (d) The estimated amounts to be paid on the
final regulations to clarify the application of this order of the borrower, as disclosed by the
section as soon as possible. borrower, including, but not limited to:
(c) A real estate broker acting within the (1) Fire insurance premiums.
meaning of Section 10131.1 or subdivision (d)
BUSINESS AND PROFESSIONS CODE 95

(2) Amounts due on prior liens, including spouse, child, parent, grandparent, brother,
interest or other charges arising in sister, father-in-law, mother-in-law, brother-in-
connection with the payment, release, law, or sister-in-law of the broker, or by any
reconveyance, extinction, or other removal entity in which the broker alone or together with
of record of the prior liens. any of the above relatives of the broker has an
ownership interest of 10 percent or more.
(3) Amounts due other creditors.
(k) The terms of prepayment privileges and
(4) Assumption, transfer, forwarding, and
penalties, if any.
beneficiary statement fees.
(l) A statement that the purchase of credit or
(e) The estimated balance of the loan funds to be
credit disability insurance is not required as a
paid to the borrower after deducting the total of
condition for the making of the loan.
amounts disclosed pursuant to subdivisions (a),
(b), and (d). (m) If the loan is one that is within the limits
specified in Section 10245, a certification by the
(f) The principal amount of the loan.
real estate licensee negotiating the loan that the
(g) The rate of interest. loan is being made in compliance with the
(h) The term of the loan, the number of provisions of this article.
installments, the amount of each installment, and Insurance Limitations
the approximate balance due at maturity, and the 10241.1. (a) The purchase of credit life
following notice in 10-point bold typeface: insurance on the life of the borrower or credit
“NOTICE TO BORROWER: IF YOU DO disability insurance to provide indemnity for
NOT HAVE THE FUNDS TO PAY THE payments becoming due on the indebtedness
BALLOON PAYMENT WHEN IT COMES shall not be required as a condition of making a
DUE, YOU MAY HAVE TO OBTAIN A loan under this article.
NEW LOAN AGAINST YOUR PROPERTY (b) The licensee may provide through duly
TO MAKE THE BALLOON PAYMENT. IN licensed agents, and collect from the borrower
THAT CASE, YOU MAY AGAIN HAVE TO the costs of purchasing, credit life insurance on
PAY COMMISSIONS, FEES, AND the life of a borrower and credit disability
EXPENSES FOR THE ARRANGING OF insurance to provide indemnity for payments
THE NEW LOAN. IN ADDITION, IF YOU becoming due on the indebtedness, with the
ARE UNABLE TO MAKE THE MONTHLY borrower’s consent. The form and rate of the
PAYMENTS OR THE BALLOON insurance shall be approved by the Insurance
PAYMENT, YOU MAY LOSE THE Commissioner, as provided in Section 779.9 of
PROPERTY AND ALL OF YOUR EQUITY the Insurance Code. The insurance shall be in an
THROUGH FORECLOSURE. KEEP THIS amount not in excess of that reasonably
IN MIND IN DECIDING UPON THE necessary to discharge the obligation of the
AMOUNT AND TERMS OF THIS LOAN.” borrower, and for a term not exceeding the term
(i) A statement containing the name of the real of the loan. Only one premium for credit
estate broker negotiating the loan, his or her disability insurance may be collected by the
license number, and the address of his or her licensee in connection with any loan contract
licensed place of business. irrespective of the number of borrowers, and
only one borrower may be insured, except that
(j) If the broker anticipates that the loan to the where more than one borrower is a party to a
borrower may be made wholly or in part from loan contract and each borrower is a wage earner
broker-controlled funds, a statement to that whose earnings are reasonably relied upon by
effect. the lender for the repayment of the loan, each
For purposes of this section, “broker-controlled borrower may be insured.
funds” means funds owned by the broker, by a
96 BUSINESS AND PROFESSIONS CODE

(c) The licensee may collect from the borrower promissory note evidencing the loan or in a rider
the costs of purchasing fire and hazard insurance to that note, the undertaking shall be in writing
on the property offered as security for a loan in and the notice required by this section shall be
order to reasonably insure against loss for a provided to the borrower.
reasonable term considering the circumstances
(b) The notice required by subdivision (a), shall
of the loan, (1) if the policy or policies of
state in at least 10-point boldface capitalized
insurance are made payable to the borrower or
type:
any member of his or her family, regardless of
whether a customary mortgagee clause is “AS THIS LOAN PROVIDES FOR A
attached, and (2) if the insurance is sold at BALLOON PAYMENT, SEE THE
standard rates through duly licensed agents. MORTGAGE LOAN DISCLOSURE
STATEMENT/GOOD FAITH ESTIMATE
(d) If premiums for any insurance provided
FOR IMPORTANT INFORMATION ON
under this section are to be paid from the
BALLOON PAYMENTS. ALSO, REFER
proceeds of the loan, any amount so paid and
TO THE LOAN DOCUMENTS AND THIS
any commission under subdivision (b) of
EXTENSION AGREEMENT FOR YOUR
Section 10242 attributable to borrowing that
SPECIFIC RIGHTS AND OBLIGATIONS.”
amount, shall not be considered in determining
whether the loan is exempt from this article (c) The notice shall also contain, in at least 10-
under Section 10245. point boldface capitalized type, either of the
following statements depending upon which
Broker- Controlled Loan Funds – Notice to
statement best describes the nature of the
Borrower
undertaking:
10241.2. If the broker elects to make a loan
subject to Section 10240 which consists wholly (1) THE LENDER OR NOTEHOLDER
or in part of broker-controlled funds as defined HAS AGREED TO AN EXTENSION,
in subdivision (j) of Section 10241, the broker REFINANCING, OR
shall advise the borrower of that fact not later RENEGOTIATION OF THE TERMS
than the next business day after making the OF THIS LOAN, AND THE LENDER’S
election, but in any event before the close of OR NOTEHOLDER’S SIGNED
escrow of the loan transaction. AGREEMENT IS ATTACHED (OR
THE NOTICE MAY DESCRIBE THE
Appraisal Report to Be Given to Borrower and
METHOD USED TO FURNISH THAT
Lender
SIGNED DOCUMENT).
10241.3. In any loan transaction in which a fee
TRANSMISSION BY A BROKER OF A
is charged to a borrower for an appraisal of the
LENDER’S OR NOTEHOLDER’S
real property that will serve as security for the
UNDERTAKING OR THE BROKER’S
loan, a copy of the appraisal report shall be
REPRESENTATION OF THAT
given by or on behalf of the broker to both the
UNDERTAKING, PURSUANT TO THIS
borrower and the lender at or before the closing
SECTION, DOES NOT OF ITSELF,
of the loan transaction.
CREATE OR ALTER ANY AGENCY
Notice re Balloon Payment – Extension of OR SIMILAR RELATIONSHIP
Loan BETWEEN THE LENDER OR
10241.4. (a) Prior to a borrower becoming NOTEHOLDER AND THE
obligated on any loan secured by a dwelling that BORROWER, OR THE LENDER OR
provides for a balloon payment and is otherwise NOTEHOLDER AND THE BROKER.
subject to Section 10240, if any agreement
(2) THE BROKER, ______________
includes a promise, representation, or similar
(INSERT NAME OF BROKER
undertaking to extend or seek the extension of
MAKING OR ARRANGING THE
the term of the loan or refinancing of the loan,
LOAN), HAS AGREED TO USE HIS OR
and the undertaking is not set forth in the
BUSINESS AND PROFESSIONS CODE 97

HER BEST EFFORTS TO OBTAIN A note on which the further advance is being
FUTURE EXTENSION, made, including any extension thereof.
REFINANCING, OR
(c) No interest may be charged with respect to
RENEGOTIATION OF THE LOAN BY
any period prior to the date that the proceeds of
THE LENDER OR NOTE OWNER.
the loan are made available to the borrower or
THERE CAN BE NO ASSURANCE OR
are deposited in escrow.
GUARANTEE THAT THE LENDER
OR NOTE OWNER WILL AGREE. Late Charges
10242.5. (a) A charge imposed for late payment
Maximum Expenses, Charges and Interest
of an installment due on a loan secured by a
10242. The maximum amount of expenses,
mortgage or deed of trust on real property shall
charges and interest to be paid by a borrower
not exceed an amount equal to 10 percent of the
with respect to any loan subject to this article
installment due, except that a minimum charge
shall be as follows:
of five dollars ($5) may be imposed when the
(a) The maximum amount of all costs and late charge permitted by this section would
expenses referred to in subdivision (a) of Section otherwise be less than that minimum charge.
10241, exclusive of actual title charges and
The charge permitted by this section may be
recording fees, shall not exceed 5 percent of the
assessed only as a percentage of the increment
principal amount of the loan or three hundred
of any installment due that is attributable to
ninety dollars ($390), whichever is greater but in
principal and interest.
no event to exceed seven hundred dollars
($700), provided that in no event shall said (b) No charge may be imposed more than once
maximum amount exceed actual costs and for the same late payment of an installment. No
expenses paid, incurred or reasonably earned. late charge may be imposed on any installment
which is paid or tendered in full within 10 days
(b) The maximum amount of the charges
after its scheduled due date, even though an
referred to in subdivision (b) of Section 10241
earlier maturing installment or a late charge on
shall not exceed the following amounts:
an earlier installment may not have been paid in
(1) In the case of a loan secured directly or full. For purposes of this subdivision, a payment
collaterally, in whole or in part by a first or tender of payment made within 10 days of a
trust deed, 5 percent of the principal amount scheduled installment due date shall be deemed
of the loan where the term of the loan is a to have been made or tendered for payment of
period of less than three years and 10 that installment.
percent where the term is a period of three
(c) A late-payment charge may be imposed
years or more.
pursuant to this subdivision for the payment of
(2) In the case of a loan secured directly or any balloon payment more than 10 days after the
collaterally by a trust deed other than a first date due. The charge shall not exceed an amount
trust deed, 5 percent of the principal amount equal to the maximum late charge that could
of the loan where the term of the loan is a have been assessed with respect to the largest
period of less than two years, 10 percent single monthly installment previously due, other
where the term is a period of two years but than the balloon payment, multiplied by the sum
less than three years, and 15 percent where of one plus the number of months occurring
the term is a period of three years or more. since the late-payment charge began to accrue.
For purposes of this subdivision, “month” means
(3) With respect to a further advance on a
the period between a particular day of a calendar
note, the charges shall not exceed the
month and the same day of the next calendar
charges for an original loan in the same
month.
amount as the further advance and made for
a term equal to the remaining term of the
98 BUSINESS AND PROFESSIONS CODE

Loan Prepayment agreement authorizing or employing a licensee


10242.6. (a) The principal and accrued interest to negotiate a loan secured directly or
on any loan secured by a mortgage or deed of collaterally by a lien on real property shall be
trust on real property containing only a single- limited to a term of not more than 45 days.
family, owner-occupied dwelling may be
Legal Action Required
prepaid in whole or in part at any time but only a
If the loan is not consummated and the broker is
prepayment made within seven years of the date
entitled to any charges, costs or expenses
of execution of such mortgage or deed of trust
authorized by this article, he or she may not
may be subject to a prepayment charge and then
record a lien or encumbrance against the
solely as herein set forth. An amount not
borrower’s property except subsequent to the
exceeding 20 percent of the unpaid balance may
filing of a legal action pursuant to the Code of
be prepaid in any 12-month period. A
Civil Procedure to recover said charges, costs or
prepayment charge may be imposed on any
expenses. However, nothing contained herein
amount prepaid in any 12-month period in
shall prohibit a broker from recording a lien
excess of 20 percent of the unpaid balance
pursuant to a voluntary lien agreement in
which charge shall not exceed an amount equal
conjunction with a stipulation to dismiss an
to the payment of six months’ advance interest
actual or proposed complaint for damages
on the amount prepaid in excess of 20 percent of
entitling the broker to such charges, costs or
the unpaid balance.
expenses after written notice to the borrower that
(b) Notwithstanding subdivision (a), there shall the broker proposes or has initiated a complaint
be no prepayment penalty charged to a borrower for damages pursuant to the Code of Civil
under a loan subject to this section if the Procedure.
dwelling securing the loan has been damaged to
Substantially Equal Payments – Loans Under
such an extent by a natural disaster for which a
Three Years
state of emergency is declared by the Governor,
10244. Any loan made by any person and
pursuant to Chapter 7 (commencing with
secured directly by a lien on real property, other
Section 8550) of Division 1 of Title 2 of the
than a note given back to the seller by the
Government Code, that the dwelling cannot be
purchaser on account of the purchase price,
occupied and the prepayment is causally related
which provides for installment payments and the
thereto.
term of which is less than three years, shall
(c) As used in this section, “owner-occupied require substantially equal installment payments
dwelling” means a dwelling which will be over the period of the loan with the final
owned and occupied by a signatory to the payment not payable until the maturity date
mortgage or deed of trust secured by the thereof. No installment including the final
dwelling within 90 days of the execution of the installment shall be greater than twice the
mortgage or deed of trust. amount of the smallest installment.
Borrower Liable If any loan having an original maturity period of
10243. If the loan is not consummated due to the less than three (3) years is renewed or
failure of the borrower to disclose the refinanced, the total amount of charges to be
outstanding liens of record or the correct current paid on both the original obligation and the
vested title which is material to the loan upon balance of such obligation, as renewed or
the real property as provided by subdivision (c) refinanced, shall not in the aggregate exceed the
of Section 10241, the borrower shall be liable amount of charges as provided in Section 10242,
for the costs and expenses provided in and if such a loan is renewed or refinanced
subdivision (a) of Section 10241 which have through the person who negotiated the original
been paid or incurred, and shall be liable for the loan, the total amount of costs and expenses to
payment of one-half of the charges provided in be paid on both the original obligation and the
subdivision (b) of Section 10241. An exclusive renewed or refinanced obligation shall not
BUSINESS AND PROFESSIONS CODE 99

exceed in the aggregate the amount of costs and Right to Recover


expenses authorized in subdivision (a) of said 10246. If any amount:
section.
(a) In excess of the charges referred to in Section
The provisions of this section do not apply to a 10241 and limited by Section 10242,
bona fide loan, secured by a first trust deed on
(b) In excess of the charges permitted by Section
real property, made in connection with the
10242.5, or
financing of the usual costs of the development
of a residential, commercial or industrial (c) Prohibited by Section 10248.1, is received,
building or buildings on the property under a the borrower may recover, from the person who
written agreement providing for the shall have taken or received the excess or
disbursement of the loan funds as costs are prohibited amount, three times the amount of the
incurred or in relation to the progress of the excess or prohibited amount and the borrower
work and providing for title insurance insuring shall be entitled to costs and a reasonable
the priority of the security as against mechanic’s attorney’s fee; provided that any action for
and materialmen’s liens or for the final recovery must be brought within two (2) years
disbursement of at least ten (10) percent of the from the date such excess or prohibited charge
loan funds after the expiration of the period for was received. However, if the excess or
the filing of mechanics’ and materialmen’s liens. prohibited amount is the result of a bona fide
error the borrower may only recover such excess
Loans Under Six Years – Owner Occupied
or prohibited amount.
10244.1. Notwithstanding the provisions of
Section 10244, on a loan secured directly or Third Party Liability
collaterally by a lien on real property comprising 10247. The provisions of this article pertaining
an owner-occupied dwelling, for a term of six to maximum costs and expenses, charges and
years or less, no installment, whether providing interest, together with the penalties stated in this
for payment of principal and interest or interest article, shall apply to any transaction involving a
only, shall be greater than twice the amount of third party as a purported lender or any other
the smallest installment. This section does not transaction which is used as a subterfuge or
apply to a note given back to the seller by the means of avoiding or evading the provisions of
purchaser on account for the purchase price or this article.
any collateral loans secured solely by such a Charges Limited by Section 10242
note. As used in this section, “owner-occupied 10248. Every person who, for compensation to
dwelling” means a single dwelling unit in a be received directly or indirectly, sells, offers to
condominium or cooperative or a residential sell, purchases for resale or offers to purchase
building of less than three separate dwelling for resale, or who negotiates or arranges for the
units, one of which will be owned and occupied purchase, sale or exchange of a promissory note
by a signatory to the mortgage or deed of trust secured directly or collaterally by a lien on real
secured by such dwelling within 90 days of the property, may receive only the maximum total
execution of the mortgage or deed of trust. charges provided for in Section 10242.
Exceptions Laws Governing Charges/Fees
10245. The provisions of this article, exclusive 10248.1. No real estate licensee shall charge,
of the provisions of Sections 10240, 10240.3, receive, or negotiate for the payment by the
10242.5, and 10242.6, do not apply to any bona borrower of any service charge or fee other than
fide loan secured directly or collaterally by a charges and fees specified in Sections 10241,
first trust deed, the principal of which is thirty 10241.1, 10242, and 10242.5, prepayment
thousand dollars ($30,000) or more, or to any penalties as authorized by law, beneficiary-
bona fide loan secured directly or collaterally by statement, payoff-demand, extinction, release,
any lien junior thereto, the principal of which is reconveyance or other removal of record fees,
twenty thousand dollars ($20,000) or more. and trustee’s costs and fees, and any other fees if
100 BUSINESS AND PROFESSIONS CODE

in accordance with the Civil Code and the Code cancellation of any insurance subject to Section
of Civil Procedure. 10248.1 which was purchased by the borrower.
Borrower’s Rights and Remedies – May Not (d) No action for damages shall be maintained
Waive under this section unless brought within two
10248.2. (a) A borrower may not waive any years after the maturity of the loan.
right or remedy under this article. This
(e) The provisions of this article are not
subdivision shall not be deemed to prohibit a
exclusive. The remedies provided for herein
bona fide settlement, release or compromise of
shall be in addition to any other procedures or
any claim under this article.
remedies provided under law.
(b) If a loan is negotiated in violation of any
Limits of Article
section of this article, the licensee, on demand,
10248.3. The provisions of this article shall
shall return to the borrower any bonus,
apply only to those loans otherwise subject to
brokerage or commission paid or payable under
this article which are made or negotiated by real
subdivision (b) of Section 10242 for negotiation
estate brokers acting within the meaning of
of such loans. In the event such demand is not
subdivision (d) of Section 10131 or subdivision
satisfied within 20 days from the date of written
(b) of Section 10240.
demand, the borrower may commence an action
under this subdivision and may recover actual Article 8. Out-of-State Land Promotions
damages or twice any bonus, brokerage, or
Registration Required
commission paid or payable under subdivision
10249. (a) A person acting as a principal or
(b) of Section 10242 for the negotiation of said
agent who intends, in this state, to sell or lease
loan whichever is greater, plus costs and
or offer for sale or lease lots, parcels, or interests
reasonable attorney’s fees.
in a subdivision, as defined in Section 10249.1,
The “date of written demand” shall mean either situated outside of this state but within the
the date upon which the written demand is United States, shall, prior to a sale, lease, or
personally delivered to the licensee or the date offer, register the subdivision with the
upon which the written demand is mailed to the commissioner. An application for registration
licensee. shall be made on a form acceptable to the
commissioner and include, together with a fee, a
A licensee may not be held liable in any action
description of the offering, certification by the
brought under this section for a violation of this
applicant that the subdivision is in compliance
article if the licensee shows by a preponderance
with all applicable requirements of the state or
of evidence that the violation was not intentional
states wherein the project is located, evidence of
and resulted from a bona fide error
this compliance, if applicable, and a consent to
notwithstanding the maintenance of procedures
service as described in Section 10249.92.
reasonably adapted to avoid any such error.
(b) The commissioner, within 10 days of receipt
If the borrower proceeds under this section he
of an application of registration, shall provide
may not proceed under Section 10246 as to the
the applicant with notice of the completion of
same breach.
the registration or a notice of deficiency. If the
(c) If a real estate licensee subject to the department does not provide a notice within 10
provisions of this article violates any provision days, the registration shall be deemed complete.
of Section 10241.1 he shall be liable for, and pay
Subdivision Defined
over to the borrower, any commission or
10249.1. “Subdivision,” as used in Section
experience rating dividend attributable to the
10249, includes all of the following:
insurance written on that loan received by the
licensee as a result of the sale of such insurance (a) Improved or unimproved land or lands
to the borrower in violation of Section 10241.1 divided or proposed to be divided for the
in addition to any premium loss due to short rate
BUSINESS AND PROFESSIONS CODE 101

purpose of sale or lease, whether immediate or Disclaimers – Subdivisions Outside of


future, into five or more lots or parcels. California But Within the U.S.
10249.8. (a) Notwithstanding any provision to
(b) Improved or unimproved land or lands in
the contrary in Section 10249 or 11000, it is
which, for the purpose of sale or lease, whether
unlawful for a person, in this state, to sell or
immediate or future, five or more undivided
lease or offer for sale or lease lots, parcels, or
interests are created or proposed to be created.
interests in a subdivision, as defined in Section
(c) “Subdivision,” as defined in Section 11004.5, 10249.1, entirely located outside of this state but
excluding “subdivision” as defined in within the United States, unless any printed
subdivision (e) of that section. material, literature, advertising, or invitation in
Application for Registration – Filing Fee this state relating to that sale, lease, or offer
10249.3. (a) The commissioner may by clearly and conspicuously contains the following
regulation prescribe filing fees in connection disclaimer in at least 10-point type:
with registrations with the department pursuant WARNING: THE CALIFORNIA
to the provisions of this article that are lower DEPARTMENT OF REAL ESTATE HAS
than the maximum fees specified in subdivision NOT INSPECTED, EXAMINED, OR
(b) if the commissioner determines that the QUALIFIED THIS OFFERING.
lower fees are sufficient to offset the costs and
(b) If an offer on property described in
expenses incurred in the administration of this
subdivision (a) is not initially made in writing,
article. The commissioner shall hold at least one
the disclaimer set forth in subdivision (c) shall
hearing each calendar year to determine if lower
be received by the offeree in writing prior to a
fees than those specified in subdivision (b)
visit to a location, sales presentation, or contact
should be prescribed.
with a person representing the offeror, when the
(b) The filing fee for an application for a visit or contact was scheduled or arranged by the
registration with the department pursuant to the offeror or its representative. The deposit of the
provisions of this article shall not exceed the disclaimer in the United States mail, addressed
following for each subdivision or phase of the to the offeree and with first-class postage
subdivision in which interests are to be offered prepaid, at least five days prior to the scheduled
for sale or lease: or arranged visit or contact, shall be deemed to
(1) An application for an original constitute delivery for purposes of this section.
registration: One hundred dollars ($100). (c) If a California resident is presented with an
(2) An application for a renewal registration: agreement or contract to lease or purchase any
One hundred dollars ($100). property described in subdivision (a), where an
offer to lease or purchase that property was
(3) An application for an amended made to that resident in California, a copy of the
registration: One hundred dollars ($100). disclaimer set forth in this subdivision shall be
(c) All fees collected by the Department of Real inserted in at least 10-point type at the top of the
Estate under authority of this article shall be first page of that agreement or contract and shall
deposited into the Real Estate Fund under be initialed by that California resident.
Chapter 6 (commencing with Section 10450) of WARNING: THE CALIFORNIA
Part 1. All fees received by the department DEPARTMENT OF REAL ESTATE HAS
pursuant to the provisions of this article shall be NOT QUALIFIED, INSPECTED, OR
deemed earned upon receipt. No part of any fee EXAMINED THIS OFFERING, INCLUDING,
is refundable unless the commissioner BUT NOT LIMITED TO, THE CONDITION
determines that it was paid as a result of mistake OF TITLE, THE STATUS OF BLANKET
or inadvertence. LIENS ON THE PROJECT (IF ANY),
ARRANGEMENTS TO ASSURE PROJECT
COMPLETION, ESCROW PRACTICES,
102 BUSINESS AND PROFESSIONS CODE

CONTROL OVER PROJECT (b) If an offer on property described in


MANAGEMENT, RACIALLY subdivision (a) is not initially made in writing,
DISCRIMINATORY PRACTICES (IF ANY), the foregoing disclaimer shall be received by the
TERMS, CONDITIONS, AND PRICE OF THE offeree in writing prior to a visit to a location,
OFFER, CONTROL OVER ANNUAL sales presentation, or contact with a person
ASSESSMENTS (IF ANY), OR THE representing the offeror, when the visit or
AVAILABILITY OF WATER, SERVICES, contact was scheduled or arranged by the offeror
UTILITIES, OR IMPROVEMENTS. IT MAY or its representative. The deposit of the
BE ADVISABLE FOR YOU TO CONSULT disclaimer in the United States mail, addressed
AN ATTORNEY OR OTHER to the offeree and with first-class postage
KNOWLEDGEABLE PROFESSIONAL WHO prepaid, at least five days prior to the scheduled
IS FAMILIAR WITH REAL ESTATE AND or arranged visit or contact, shall be deemed to
DEVELOPMENT LAW IN THE STATE constitute delivery for purposes of this section.
WHERE THIS SUBDIVISION IS SITUATED.
(c) If any California resident is presented with
Disclaimer – Subdivisions Located Outside the an agreement or contract to lease or purchase a
U.S. property described in subdivision (a), where an
10249.9. (a) Notwithstanding any provision to offer to lease or purchase that property was
the contrary in Section 10249 or 11000, it is made to that resident in California, a copy of the
unlawful for a person, in this state, to sell or disclaimer set forth in subdivision (a) shall be
lease or offer for sale or lease a lot, parcel, or inserted in at least 10-point type at the top of the
interest in a subdivision, located outside the first page of that agreement or contract and shall
United States, unless the printed material, be initialed by that California resident.
literature, advertising, or invitation in this state
Term of Registration
relating to that sale, lease, or offer clearly and
10249.91. The term of a registration issued
conspicuously contains the following disclaimer
pursuant to this article shall be one year, unless
in at least 10-point capital type:
the commissioner by regulation prescribes a
WARNING: THE CALIFORNIA longer term.
DEPARTMENT OF REAL ESTATE HAS
Consent to Service
NOT EXAMINED THIS OFFERING,
10249.92. A registration application pursuant to
INCLUDING, BUT NOT LIMITED TO, THE
the provisions of this article shall be
CONDITION OF TITLE, THE STATUS OF
accompanied by an irrevocable consent stating
BLANKET LIENS ON THE PROJECT (IF
that if in any action commenced against the
ANY), ARRANGEMENTS TO ASSURE
applicant in this state personal service of process
PROJECT COMPLETION, ESCROW
upon the applicant cannot be made after the
PRACTICES, CONTROL OVER PROJECT
exercise of due diligence, a valid service may
MANAGEMENT, RACIALLY
thereupon be made upon the applicant by
DISCRIMINATORY PRACTICES (IF ANY),
delivering the process to the Secretary of State.
TERMS, CONDITIONS, AND PRICE OF THE
OFFER, CONTROL OVER ANNUAL Insofar as possible, the provisions of Section
ASSESSMENTS (IF ANY), OR THE 1018 of the Code of Civil Procedure relating to
AVAILABILITY OF WATER, SERVICES, service of process on the Secretary of State are
UTILITIES, OR IMPROVEMENTS. IT MAY applicable to this section.
BE ADVISABLE FOR YOU TO CONSULT Violation – Order to Cease and Desist
AN ATTORNEY OR OTHER 10249.93. (a) If the commissioner finds, based
KNOWLEDGEABLE PROFESSIONAL WHO on available evidence, that a person is violating
IS FAMILIAR WITH REAL ESTATE AND any provision of this article or a regulation of the
DEVELOPMENT LAW IN THE COUNTRY commissioner adopted to implement a provision
WHERE THIS SUBDIVISION IS SITUATED. of this article, the commissioner may order the
BUSINESS AND PROFESSIONS CODE 103

person to cease and desist from committing the Education and Research Account, shall be
violation or to cease and desist from the further credited to the Real Estate Fund. Funds in the
sale or lease of an interest in the subdivision Education and Research Account shall be used
until the violation is corrected. by the commissioner in accordance with Section
10451.5. The Recovery Account is a continuing
(b) A person to whom an order is directed shall,
appropriation for carrying out Chapter 6.5
upon receipt of the order, immediately cease the
(commencing with Section 10470).
activity described in the order.
The amendments to this section made at the
(c) The person to whom the order is directed
1997-98 Regular Session became operative July
may request a hearing in accordance with
1, 2000.
subdivision (c) of Section 11019.
Fund Appropriation
CHAPTER 6. REVENUE
10451. All money paid into the State Treasury
Article 1. Real Estate Fund and credited to the Real Estate Fund is hereby
appropriated to be used by the commissioner in
Real Estate Fund
carrying out the provisions of this part and
10450. All fees charged and collected under this
Chapter 1 of Part 2, including the payment of the
part and under Chapter 1 of Part 2, except as
salaries of the commissioner and his deputies,
provided in this chapter, shall be paid by the
clerks and assistants. The money credited to the
commissioner at least once a month,
fund shall remain therein.
accompanied by a detailed statement thereof,
into the Treasury of the State to the credit of the Education and Research
Real Estate Fund, which fund is continued in 10451.5. (a) All money paid into the State
existence. Treasury and credited to the Education and
Research Account in the Real Estate Fund
Separate Accounts for Education and
pursuant to Section 10450.6 is available for
Research, and for Recovery
appropriation by the Legislature to be used by
10450.6. There shall be separate accounts in the
the commissioner in carrying out the provisions
Real Estate Fund for purposes of real estate
of this part and Chapter 1 (commencing with
education and research and for purposes of
Section 11000) of Part 2, in the advancement of
recovery which shall be known respectively as
education and research in real estate at the
the Education and Research Account and the
University of California, state colleges and
Recovery Account. The commissioner may, by
community colleges, or in contracting for a
regulation, require that up to 8 percent, or any
particular research project in the field of real
lesser amount that he or she deems appropriate,
estate for the state with any university in the
of the amount of any license fee collected under
State of California accredited by the Western
this part be credited to the Education and
Association of Schools and Colleges, or with
Research Account. Twelve percent of the
any corporation or association qualified to
amount of any license fee collected shall be
perform such research.
credited to the Recovery Account, provided,
however, that if as of June 30 of any fiscal year (b) If the balance in the Education and Research
the balance of funds in the Recovery Account is Account is more than four hundred thousand
at least three million five hundred thousand dollars ($400,000), the Real Estate
dollars ($3,500,000), all funds in excess of this Commissioner may authorize the transfer of all
amount which have been credited to the or part of such surplus amount to the Real Estate
Recovery Account shall instead be credited to Fund and may authorize the return to the
the Real Estate Fund. As long as the balance of Education and Research Account of all or part of
funds in the Recovery Account exceeds three any amount previously transferred to the Real
million five hundred thousand dollars Estate Fund.
($3,500,000), all license fees collected, except
for the percentage of license fees credited to the
104 BUSINESS AND PROFESSIONS CODE

(c) Notwithstanding the provisions of the United States Navy, the United States Air
subdivision (b), if at any time the amount of Force, the Marine Corps, the Merchant Marine
funds credited to the Real Estate Fund, including in time of war, the Coast Guard, the National
any amounts credited to the separate accounts Guard, and all officers of the Public Health
for Education and Research and Recovery, is Service detailed by proper authority for duty
less than 25 percent of the department’s either with the Army or the Navy.
authorized expenditures for the following fiscal
(c) "Military service" signifies federal service
year, the commissioner may transfer any or all
after October 1, 1940, on active duty with any
of the funds credited to the Education and
branch of service heretofore referred to or
Research Account to the Real Estate Fund. The
mentioned as well as training or education under
commissioner may authorize the return to the
the supervision of the United States preliminary
Education and Research Account of all or part of
to induction into the military service. The terms
any amount previously transferred to the Real
"active service" or "active duty" include the
Estate Fund.
period during which a person in military service
Controller’s Warrants is absent from duty on account of sickness,
10452. The Controller shall draw his warrant on wounds, leave, or other lawful cause.
the respective funds from time to time in favor
Renewal of License
of the commissioner for the amounts expended
10461. A military licensee shall not be required
under his direction, and the Treasurer shall pay
to renew his license under this part or Chapter
the same.
19 of Division 3 until the beginning of the
Expenditures license period which first commences (a) after
10453. All of the expenditures of the his again engaging in business, or (b) after one
commissioner, including his salary, shall be paid year following termination of military service,
only from the Real Estate Fund except as whichever is the earlier.
otherwise provided in this chapter.
Limitation of Military License Privilege
Revolving Fund 10462. A military licensee shall not be entitled
10454. The commissioner may, with the consent to the privileges of this article if he receives a
of the Department of Finance, withdraw from dishonorable discharge from the military service
the Real Estate Fund moneys to be used as a of the United States or if he voluntarily remains
revolving fund where cash advances are in the military service for more than seven years
necessary. The commissioner shall account for from the date of notification to the commissioner
the sum withdrawn from the revolving fund at as provided by subdivision (a) of Section 10460.
any time upon demand of the Department of
Military License Reinstatement
Finance.
10463. Any person who would qualify as a
Article 2. Exemption from Fees military licensee except for the failure to notify
the commissioner of his entry into the military
Military Service Defined
service of the United States may apply to the
10460. As used in this article:
commissioner for reinstatement of his license
(a) "Military licensee" refers to any person who, upon resuming business or within one year
while licensed under the Real Estate Law, or any following termination of military service,
of the statutes codified therein, entered the whichever is earlier. The commissioner shall
military service of the United States and notifies reinstate such an applicant if he finds that the
the commissioner of that fact within six months applicant would be entitled to the privileges of
of such entry. this article except for his failure to give the
commissioner notice of his entry into the
(b) "Persons in the military service of the United
military service of the United States and that the
States" includes the following persons and no
applicant has complied with Article 2.5
others: all members of the United States Army,
(commencing with Section 10170). In the event
BUSINESS AND PROFESSIONS CODE 105

the applicant failed to notify the commissioner jurisdiction, including, but not limited to, a
of his entry into the military service as provided, criminal restitution order issued pursuant to
he shall be required to submit proof of his subdivision (f) of Section 1202.4 of the Penal
previous licensure within seven years of the date Code or Section 3663 of Title 18 of the United
of entry into the military service to permit States Code, or (2) an arbitration award that
reinstatement of his license. includes findings of fact and conclusions of law
rendered in accordance with the rules
Section 114 Not Applicable
established by the American Arbitration
10464. Section 114 of this code does not apply
Association or another recognized arbitration
to this part.
body, and in accordance with Sections 1281 to
CHAPTER 6.5. REAL ESTATE RECOVERY 1294.2, inclusive, of the Code of Civil
PROGRAM Procedure where applicable, and where the
arbitration award has been confirmed and
Provision for Augmentation
reduced to judgment pursuant to Section 1287.4
10470. If, on June 30 of any year, the balance
of the Code of Civil Procedure, against a
remaining in the Recovery Account in the Real
defendant based upon the defendant’s fraud,
Estate Fund is less than two hundred thousand
misrepresentation, or deceit, made with intent to
dollars ($200,000), every licensed broker, when
defraud, or conversion of trust funds, arising
obtaining or renewing any broker license within
directly out of any transaction in which the
four years thereafter, shall pay, in addition to the
defendant, while licensed under this part,
license fee, a fee of seven dollars ($7), and every
performed acts for which a real estate license
licensed salesperson, when obtaining or
was required, the aggrieved person may, upon
renewing such license within four years
the judgment becoming final, file an application
thereafter, shall pay, in addition to the license
with the Department of Real Estate for payment
fee, a fee of four dollars ($4). The fees from
from the Recovery Account, within the
both broker and salesperson licensees shall be
limitations specified in Section 10474, of the
paid into the State Treasury and credited to the
amount unpaid on the judgment that represents
Recovery Account.
an actual and direct loss to the claimant in the
Transfer of Funds transaction. As used in this chapter, “court of
10470.1. (a) In addition to the amount paid into competent jurisdiction” includes the federal
the Recovery Account as set forth in Section courts, but does not include the courts of another
10450.6, the Real Estate Commissioner may state.
authorize the transfer from the Real Estate Fund
(b) The application shall be delivered in person
to the Recovery Account of any amounts as are
or by certified mail to an office of the
deemed necessary.
department not later than one year after the
(b) If the balance remaining in the Recovery judgment has become final.
Account contains more than four hundred
(c) The application shall be made on a form
thousand dollars ($400,000), the commissioner
prescribed by the department, verified by the
may authorize the transfer of all or part of the
claimant, and shall include the following:
surplus amount into the Real Estate Fund.
(1) The name and address of the claimant.
(c) The commissioner may authorize the return
to the Recovery Account of all or any amount (2) If the claimant is represented by an
previously transferred to the Real Estate Fund attorney, the name, business address, and
under this section. telephone number of the attorney.
Application for Payment from Recovery (3) The identification of the judgment, the
Account amount of the claim and an explanation of
10471. (a) When an aggrieved person obtains (1) its computation.
a final judgment in a court of competent
106 BUSINESS AND PROFESSIONS CODE

(4) A detailed narrative statement of the (iii) The claimant employed no


facts in explanation of the allegations of the other procedural means contrary to
complaint upon which the underlying the diligent prosecution of the
judgment is based. complaint in order to seek to qualify
for the Recovery Account.
(5) (A) Except as provided in subparagraph
(B), a statement by the claimant, signed (6) The name and address of the judgment
under penalty of perjury, that the debtor or, if not known, the names and
complaint upon which the underlying addresses of persons who may know the
judgment is based was prosecuted judgment debtor’s present whereabouts.
conscientiously and in good faith. As
(7) The following representations and
used in this section, “conscientiously
information from the claimant:
and in good faith” means that no party
potentially liable to the claimant in the (A) That he or she is not a spouse of the
underlying transaction was intentionally judgment debtor nor a personal
and without good cause omitted from representative of the spouse.
the complaint, that no party named in (B) That he or she has complied with all
the complaint who otherwise reasonably of the requirements of this chapter.
appeared capable of responding in
damages was dismissed from the (C) That the judgment underlying the
complaint intentionally and without claim meets the requirements of
good cause, and that the claimant subdivision (a).
employed no other procedural means (D) A description of searches and
contrary to the diligent prosecution of inquiries conducted by or on behalf of
the complaint in order to seek to qualify the claimant with respect to the
for the Recovery Account. judgment debtor’s assets liable to be
(B) For the purpose of an application sold or applied to satisfaction of the
based on a criminal restitution order, all judgment, an itemized valuation of the
of the following statements by the assets discovered, and the results of
claimant: actions by the claimant to have the
assets applied to satisfaction of the
(i) The claimant has not judgment.
intentionally and without good
cause failed to pursue any person (E) That he or she has diligently pursued
potentially liable to the claimant in collection efforts against all judgment
the underlying transaction other than debtors and all other persons liable to
a defendant who is the subject of a the claimant in the transaction that is the
criminal restitution order. basis for the underlying judgment.
(ii) The claimant has not (F) That the underlying judgment and
intentionally and without good debt have not been discharged in
cause failed to pursue in a civil bankruptcy, or, in the case of a
action for damages all persons bankruptcy proceeding that is open at or
potentially liable to the claimant in after the time of the filing of the
the underlying transaction who application, that the judgment and debt
otherwise reasonably appeared have been declared to be
capable of responding in damages nondischargeable.
other than a defendant who is the (G) That the application was mailed or
subject of a criminal restitution delivered to the department no later than
order.
BUSINESS AND PROFESSIONS CODE 107

one year after the underlying judgment with a copy of the application upon the
became final. judgment debtor by personal service, by certified
mail, or by publication, as set forth in
(d) If the claimant is basing his or her
subdivision (b).
application upon a judgment against a
salesperson, and the claimant has not obtained a (b) If the judgment debtor holds an unexpired
judgment against that salesperson’s employing and unrevoked license issued by the department,
broker, if any, or has not diligently pursued the service of the notice and a copy of the
assets of that broker, the application shall be application may be made by certified mail
denied for failure to diligently pursue the assets addressed to the judgment debtor at the latest
of all other persons liable to the claimant in the business or residence address on file with the
transaction unless the claimant can demonstrate, department. If the judgment debtor does not hold
by clear and convincing evidence, either that the an unexpired and unrevoked license issued by
salesperson was not employed by a broker at the the department and personal service cannot be
time of the transaction, or that the salesperson’s effected through the exercise of reasonable
employing broker would not have been liable to diligence, the claimant shall serve the judgment
the claimant because the salesperson was acting debtor by one publication of the notice in each
outside the scope of his or her employment by of two successive weeks in a newspaper of
the broker in the transaction. general circulation published in the county in
which the judgment debtor was last known to
(e) The application form shall include detailed
reside.
instructions with respect to documentary
evidence, pleadings, court rulings, the products (c) If the application is served upon the
of discovery in the underlying litigation, and a judgment debtor by certified mail, service is
notice to the applicant of his or her obligation to complete five days after mailing if the place of
protect the underlying judgment from discharge address is within the State of California, 10 days
in bankruptcy, to be appended to the application. after mailing if the place of address is outside
the State of California but within the United
(f) An application for payment from the
States, and 20 days after mailing if the place of
Recovery Account that is based on a criminal
address is outside the United States. Personal
restitution order shall comply with all of the
service is complete on the date of service.
requirements of this chapter. For the purpose of
Service by publication is complete upon
an application based on a criminal restitution
completion of the second week of publication.
order, the following terms have the following
meanings: (d) If a judgment debtor wishes to contest
payment of an application by the commissioner,
(1) “Judgment” means the criminal
he or she shall mail or deliver a written response
restitution order.
to the application addressed to the department at
(2) “Complaint” means the facts of the its headquarters office within 30 days after
underlying transaction upon which the service of the notice and application, and shall
criminal restitution order is based. mail or deliver a copy of the response to the
(3) “Judgment debtor” means any defendant claimant. If a judgment debtor fails to mail or
who is the subject of the criminal restitution deliver a timely response, he or she shall have
order. waived his or her right to present objections to
payment.
The amendments to this section made at the July
1997-98 Regular Session shall become operative (e) The notice served upon the judgment debtor
July 1, 2000. shall include the following statement:

Notice to Be Served on Judgment Debtor


10471.1. (a) The claimant shall serve a copy of
the notice prescribed in subdivision (e) together
108 BUSINESS AND PROFESSIONS CODE

“NOTICE: Based upon a judgment entered dispute between the claimant and the
against you in favor of commissioner on the question of whether the
________________________________, application is substantially complete, the
(name of claimant) claimant may immediately file the claim with
the court pursuant to Section 10472.
application for payment from the Recovery
Account of the Real Estate Fund is being made Final Decision – Settlement
to the Department of Real Estate. 10471.3. (a) The commissioner shall render a
final written decision on the application within
“If payment is made from the Recovery 90 days after a completed application has been
Account, all licenses and license rights that you received unless the claimant agrees in writing to
have under the Real Estate Law will be extend the time within which the commissioner
automatically suspended on the date of payment may render a decision. If the commissioner fails
and cannot be reinstated until the Recovery to render a written decision in response to the
Account has been reimbursed for the amount claim within 90 days after its receipt or within
paid plus interest at the prevailing rate. the extended period agreed to by the claimant,
“If you wish to contest payment by the Real the claim shall be deemed to have been denied
Estate Commissioner, you must file a written by the commissioner on the final day for
response to the application addressed to the rendering the decision.
Department of Real Estate at ___________ (b) The commissioner may deny or grant the
within 30 days after mailing, delivery, or application or may enter into a compromise with
publication of this notice and mail or deliver a the claimant to pay less in settlement than the
copy of that response to the claimant. If you fail full amount of the claim. If the claimant refuses
to do so, you will have waived your right to to accept a settlement of the claim offered by the
present your objections to payment.” commissioner, the written decision of the
(f) If a judgment debtor fails to mail or deliver a commissioner shall be to deny the claim or it
written response to the application with the shall be deemed denied if a written decision is
department within 30 days after personal not rendered within the time specified in
service, mailing, or final publication of the subdivision (a). Evidence of settlement offers
notice, the judgment debtor shall not thereafter and discussions between the commissioner and
be entitled to notice of any action taken or the claimant shall not be competent evidence in
proposed to be taken by the commissioner with judicial proceedings undertaken by the claimant
respect to the application. pursuant to Section 10472.
Deficient or Substantially Complete Consideration of an Application
Application 10471.4. In its consideration and investigation of
10471.2. (a) If the commissioner determines that an application, the department shall have
the application as submitted by the claimant fails recourse to all appropriate means of
to comply substantially with the requirements of investigation and discovery available to it under
Section 10471 or with the requirements of a Article 2 (commencing with Section 11180) of
regulation adopted by the commissioner under Chapter 2 of Part 1 of Division 3 of Title 2 of
authority of Section 10080, the commissioner the Government Code.
shall, within 15 days after receipt of the Notice of Decision
application, mail an itemized list of deficiencies 10471.5. (a) The commissioner shall give notice
to the claimant. of a decision rendered with respect to the
(b) The time within which the commissioner is application to the claimant and to a judgment
required to act under Section 10471.3 shall be debtor who has filed a timely response to the
measured from the date of receipt by the application in accordance with Section 10471.1.
department of an application that is substantially
complete. In the event of an irreconcilable
BUSINESS AND PROFESSIONS CODE 109

(b) If the application is denied, the notice to the that would have been a proper venue if the
claimant and judgment debtor shall include the underlying lawsuit had been filed in a California
following: state court, or in the Superior Court of the
County of Sacramento. To be timely, the petition
“Claimant’s application has been denied. If the
must be filed with the court within 30 days of
claimant wishes to pursue the application in
receipt of this notice.”
court, the claimant must file the application as
follows in a superior court of this state not later Aggregate Claims – Proration
than six months after receipt of this notice, 10471.6. If, at any time prior to the rendering of
pursuant to Section 10472 of the Business and a decision on an application, the commissioner
Professions Code. If the underlying judgment is makes a preliminary determination that the
a California state court judgment, the application aggregate valid applications of all aggrieved
shall be filed in the court in which the persons against that licensee are likely to exceed
underlying judgment was entered. If the the limits of liability in Section 10474, the
underlying judgment is a federal court judgment, commissioner shall, in lieu of further
the application shall be filed in the superior administrative proceedings, initiate a proration
court of any county within California that would proceeding pursuant to Section 10474.5 in a
have been a proper venue if the underlying superior court of any county in this state that
lawsuit had been filed in a California state court, would be a proper court for the filing of a denied
or in the Superior Court of the County of application or writ of mandamus pursuant to
Sacramento.” Section 10471.5.
(c) If the decision of the commissioner is to Notice of Denial – Court Order Directing
make a payment to the claimant out of the Payment from Fund
Recovery Account, the following notice shall be 10472. (a) A claimant against whom the
given to the judgment debtor along with a copy commissioner has rendered a decision denying
of the decision of the commissioner: an application pursuant to Section 10471 may,
within six months after the mailing of the notice
“The decision of the Real Estate Commissioner
of the denial, file a verified application in
on the application of ____ is to pay $____ from
superior court for an Order Directing Payment
the Recovery Account. A copy of that decision
Out of the Recovery Account based upon the
is enclosed.
grounds set forth in the application to the
“Pursuant to Section 10475 of the Business and commissioner. If the underlying judgment is a
Professions Code, all of your licenses and California state court judgment, the application
license rights under the Real Estate Law will be shall be filed in the court in which the
suspended effective on the date of the payment, underlying judgment was entered. If the
and you will not be eligible for reinstatement of underlying judgment is a federal court judgment,
any license issued under authority of the Real the application shall be filed in the superior
Estate Law until you have reimbursed the court of any county within California that would
Recovery Account for this payment plus interest have been a proper venue if the underlying
at the prevailing legal rate.” lawsuit had been filed in a California state court,
“If you desire a judicial review of the suspension or in the Superior Court of the County of
of your licenses and license rights, you may Sacramento.
petition the superior court for a writ of (b) A copy of the verified application shall be
mandamus. If the underlying judgment is a served upon the commissioner and upon the
California state court judgment, the petition shall judgment debtor. A certificate or affidavit of
be filed in the court in which the judgment was service shall be filed by the claimant with the
entered. If the underlying judgment is a federal court. Service on the commissioner may be
court judgment, the petition shall be filed in the made by certified mail addressed to the
superior court of any county within California headquarters office of the department. Service
110 BUSINESS AND PROFESSIONS CODE

upon a judgment debtor may be made in Commissioner’s Right to Defend and Review
accordance with Section 10471.1. The notice 10473. Whenever the court proceeds upon an
served upon the judgment debtor shall read as application under Section 10472, it shall order
follows: payment out of the Recovery Account only upon
a determination that the aggrieved party has a
“NOTICE: An application has been filed with
valid cause of action within the purview of
the court for a payment from the Recovery
Section 10471, and has complied with Section
Account that was previously denied by the Real
10472.
Estate Commissioner.
The commissioner may defend any such action
“If the Department of Real Estate makes a
on behalf of the Recovery Account and shall
payment from the Recovery Account pursuant to
have recourse to all appropriate means of
court order, all of your licenses and license
defense and review, including examination of
rights under the Real Estate Law will be
witnesses and the right to relitigate any issues
automatically suspended until the Recovery
material and relevant in the proceeding against
Account has been reimbursed for the amount
the Recovery Account which were determined in
paid plus interest at the prevailing rate.
the underlying action on which the judgment in
“If you wish to defend in court against this favor of the applicant was based. If the judgment
application, you must file a written response in favor of the applicant was by default,
with the court within 30 days after having been stipulation, consent, or pursuant to Section 594
served with a copy of the application. If you do of the Code of Civil Procedure, or whenever the
not file a written response, you will have waived action against the licensee was defended by a
your right to defend against the application.” trustee in bankruptcy, the applicant shall have
Thirty Days to File Written Response the burden of proving that the cause of action
10472.1. (a) The commissioner and the against the licensee was for fraud,
judgment debtor shall each have 30 days after misrepresentation, deceit, or conversion of trust
being served with the application in which to file funds. Otherwise, the judgment shall create a
a written response. The court shall thereafter set rebuttable presumption of the fraud,
the matter for hearing upon the petition of the misrepresentation, deceit, or conversion of trust
claimant. The court shall grant a request of the funds by the licensee, which presumption shall
commissioner for a continuance of as much as affect the burden of producing evidence.
30 days and may, upon a showing of good cause The commissioner may move the court at any
by any party, continue the hearing as the court time to dismiss the application when it appears
deems appropriate. there are no triable issues and the petition is
(b) The claimant shall have the burden of without merit. The motion may be supported by
proving compliance with the requirements of affidavit of any person or persons having
Section 10471 by competent evidence at an knowledge of the facts, and may be made on the
evidentiary hearing. The claimant shall be basis that the petition, and the judgment referred
entitled to a de novo review of the merits of the to therein, does not form the basis for a
application as contained in the administrative meritorious recovery claim within the purview
record. of Section 10471; provided, however, the
commissioner shall give written notice at least
(c) If the judgment debtor fails to file a written 10 days before the motion.
response to the application, the application may
be compromised or settled by the commissioner The commissioner may, subject to court
at any time during the court proceedings and the approval, compromise a claim based upon the
court shall, upon joint petition of the claimant application of an aggrieved party. The
and the commissioner, issue an order directing commissioner shall not be bound by any
payment out of the Recovery Account. compromise or stipulation of the judgment
debtor.
BUSINESS AND PROFESSIONS CODE 111

Judgment Debtor’s Right to Defend – claims of all aggrieved persons by whom claims
Conclusive Adjudication have been filed against any one licensee, the
10473.1. The judgment debtor may defend an amount shall be distributed among them in the
action against the Recovery Account on his or ratio that their respective claims bear to the
her own behalf and shall have recourse to all aggregate of the valid claims, or in any other
appropriate means of defense and review, manner as the court deems equitable.
including examination of witnesses. All matters, Distribution of any moneys shall be among the
including, but not limited to, the issues of fraud, persons entitled to share therein, without regard
misrepresentation, deceit, or conversion of trust to the order of priority in which their respective
funds, finally adjudicated in the underlying judgments may have been obtained or their
action are conclusive as to the judgment debtor claims have been filed. Upon petition of the
and the applicant in the proceeding against the commissioner, the court may require all
Recovery Account. claimants and prospective claimants against one
licensee to be joined in one action, to the end
Court Order to Pay – Limitations – Multiple
that the respective rights of all claimants to the
Licensed Personnel
Recovery Account may be equitably adjudicated
10474. Notwithstanding any other provision of
and settled.
this chapter and regardless of the number of
persons aggrieved or parcels of real estate License Suspension
involved in a transaction or the number of 10475. Should the commissioner pay from the
judgments against a licensee, the liability of the Recovery Account any amount in settlement of a
Recovery Account shall not exceed the claim or toward satisfaction of a judgment
following amounts: against a licensed broker or salesperson, the
license of the broker or salesperson shall be
(a) Except as provided in subdivision (b), causes
automatically suspended upon the date of
of action which occurred on or after January 1,
payment from the Recovery Account. No broker
1980, twenty thousand dollars ($20,000) for any
or salesperson shall be granted reinstatement
one transaction and one hundred thousand
until he or she has repaid in full, plus interest at
dollars ($100,000) for any one licensee.
the prevailing legal rate applicable to a judgment
(b) For applications for payment from the rendered in any court of this state, the amount
Recovery Account filed on or after January 1, paid from the Recovery Account on his or her
2009, fifty thousand dollars ($50,000) for any account. A discharge in bankruptcy shall not
one transaction and two hundred fifty thousand relieve a person from the penalties and
dollars ($250,000) for any one licensee. disabilities provided in this chapter.
(c) When multiple licensed real estate personnel Insufficient Funds – Priority of Payment When
are involved in a transaction and the individual Money Deposited
conduct of two or more of the licensees results 10476. If, at any time, the money deposited in
in a judgment meeting the requirements of the Recovery Account is insufficient to satisfy
subdivision (a) of Section 10471, the claimant any duly authorized claim or portion thereof, the
may seek recovery from the Recovery Account commissioner shall, when sufficient money has
based on the judgment against any of the been deposited in the Recovery Account, satisfy
licensed real estate personnel, subject to the the unpaid claims or portions thereof, in the
limitations of this section and subparagraph (E) order that the claims or portions thereof were
of paragraph (7) of subdivision (c) of Section originally filed, plus accumulated interest at the
10471. rate of 4 percent a year.
Claims Equitably Distributed Deposit of Money – Allocation
10474.5. If the amount of liability of the 10477. Any sums received by the commissioner
Recovery Account as provided for in Section pursuant to any provisions of this chapter shall
10474 is insufficient to pay in full the valid
112 BUSINESS AND PROFESSIONS CODE

be deposited in the State Treasury and credited CHAPTER 7. MINERAL, OIL AND GAS
to the Recovery Account. BROKERAGE
Liability for False Documents Article 1. Scope of Regulation
10478. It shall be unlawful for any person or the
agent of any person to file with the MOG Broker or Real Estate Broker License
commissioner any notice, statement, or other Required for Certain Acts
document required under the provisions of this 10500. Except as otherwise provided in Section
chapter which is false or untrue or contains any 10131.4 and this chapter, it is unlawful for any
willful, material misstatement of fact. Such person to engage in any of the following acts for
conduct shall constitute a public offense another or others for compensation or in
punishable by imprisonment in the county jail expectation of compensation, unless the person
for a period of not more than one year or a fine is licensed as a mineral, oil, and gas broker or a
of not more than one thousand dollars ($1,000), real estate broker:
or both. (a) To sell or offer for sale, buy or offer to buy,
Commissioner’s Right to Subrogation solicit prospective sellers or purchasers, solicit
10479. When the commissioner has paid from or obtain listings, or negotiate the purchase, sale,
the Recovery Account any sum to the judgment or exchange of mineral, oil, or gas property.
creditor, the commissioner shall be subrogated (b) To solicit borrowers or lenders for or
to all of the rights of the judgment creditor and negotiate loans on mineral, oil, or gas property,
the judgment creditor shall assign all of his or or collect payments for lenders in connection
her right, title, and interest in the judgment to the with these loans.
commissioner and any amount and interest so
recovered by the commissioner on the judgment (c) To lease or offer to lease or negotiate the
shall be deposited to the Recovery Account. sale, purchase, or exchange of leases on mineral,
oil, or gas property.
Waiver of Rights
10480. The failure of an aggrieved person to (d) To rent or place for rent, mineral, oil, or gas
comply with all of the provisions of this chapter property or to collect rent or royalties from
shall constitute a waiver of any rights hereunder. mineral, oil, or gas property or improvements
thereon.
Disciplinary Action Against Licensee
10481. Nothing in this chapter limits the (e) Other than as an officer or employee of the
authority of the commissioner to take state or federal government, to assist or offer to
disciplinary action against any licensee for a assist another or others in filing an application
violation of the Real Estate Law, or of Chapter 1 for the purchase or lease of, or to locate or enter
(commencing with Section 11000) of Part 2, or upon mineral, oil, or gas property owned by the
of the rules and regulations of the commissioner; state or federal government.
nor shall the repayment in full of all obligations MOG or RE Broker License Required to
to the Recovery Account by any licensee nullify Engage in Certain Businesses
or modify the effect of any other disciplinary 10500.5. Except as otherwise provided in
proceeding brought pursuant to the Real Estate Section 10131.45 and in this chapter, it is
Law. unlawful for any person to engage in the
following businesses as a principal unless the
person is licensed as a mineral, oil, and gas
broker or a real estate broker:
(a) Except as provided in subdivision (d) of
Section 10502, buying or leasing, or taking an
option on mineral, oil, or gas property for the
purpose of sale, exchange, lease, sublease, or
BUSINESS AND PROFESSIONS CODE 113

assignment of a lease of the property or any part person organized for or engaging in oil or gas or
of the property. mineral or metal production.
(b) Offering mining claims or any interest (e) To deal with mineral rights or land, other
therein for sale or assignment. than oil or gas rights or land, as the owner of the
rights or land.
Violation – Prosecution – Penalties
10501. (a) The Real Estate Commissioner may MOG Property Defined
file a complaint for any violation of Section 10503. Mineral, oil or gas property refers to land
10500 or 10500.5 before any court of competent used for, intended to be used for, or concerning
jurisdiction, and the commissioner and the which representations are made with respect to,
commissioner’s counsel, deputies or assistants the mining of minerals or the extraction of oil or
may assist in presenting the law or facts at the gas therefrom.
trial.
Action for Compensation
(b) It is the duty of the district attorney of the 10508. No person engaged in the business or
county in which a violation of Section 10500 or acting in the capacity of a mineral, oil and gas
10500.5 occurs to prosecute the violation. broker within this state shall bring or maintain
any action in the courts of this state for the
(c) A natural person convicted of a violation of
collection of compensation for the performance
Section 10500 or 10500.5 shall be punished by a
of any of the acts mentioned in this article
fine of not to exceed five hundred dollars ($500)
without alleging and proving that he was a duly
or by imprisonment in the county jail for a term
licensed mineral, oil and gas broker at the time
not to exceed six months, or by both such fine
the alleged cause of action arose.
and imprisonment, in the discretion of the court.
A corporation convicted of a violation of Section Unlawful Payment of Compensation
10500 or 10500.5 shall be punished by a fine of 10509. (a) It is unlawful for a mineral, oil, and
not to exceed five thousand dollars ($5,000). gas broker or a real estate broker to employ or
compensate, directly or indirectly, any person
Activities Not Requiring an MOG License
who is not a mineral, oil, and gas broker or a
10502. A mineral, oil and gas broker license
licensed real estate salesperson in the employ of
shall not be required to engage in any of the
the real estate broker for performing any acts for
following activities with respect to a mineral, oil
which a mineral, oil, and gas broker license is
or gas property:
required.
(a) To act as a depository under an oil lease, gas
(b) It is a misdemeanor, punishable by a fine of
lease or oil and gas lease other than for purpose
not exceeding one hundred dollars ($100) for
of sale.
each offense, for any person, whether obligor,
(b) To engage in any transaction subject to an escrow holder or otherwise, to pay or deliver
order of a court of competent jurisdiction. compensation to a person for performing any
(c) To engage in the business of drilling for or acts for which a mineral, oil, and gas broker
producing oil or gas or mining for or producing license is required unless that person is known
minerals. by the payer to be or has presented evidence to
the payer that he or she was a licensed mineral,
(d) To negotiate leases or agreements between oil, and gas broker at the time the compensation
an owner of mineral, oil or gas lands, leases or was earned.
mineral rights on the one hand, and a person
organized for or engaging in oil or gas or False MOG Advertising
mineral or metal production on the other, or to 10512. Every officer, agent or employee of any
enter into leases or agreements with an owner of company, and every other person who
mineral, oil, or gas lands, leases, or mineral knowingly authorizes, directs or aids in the
rights on behalf of a disclosed or undisclosed publication, advertisement, distribution or
circularization of any false statement or
114 BUSINESS AND PROFESSIONS CODE

representation concerning any mineral, oil or gas 10159, 10159.2, 10159.5, 10161.5, 10161.75,
property, or, if the mineral, oil or gas property is 10162, 10163, and 10165.
owned by the state or federal government, which
(b) Mineral, oil, and gas brokers shall not be
such person offers to assist another or others to
subject to any of the provisions of Article 2
file an application for the purchase or lease of,
(commencing with Section 10150) or Article 2.5
or to locate or enter upon, and every person who,
(commencing with Section 10170) of Chapter 3
with knowledge that any advertisement,
which impose continuing education
pamphlet, prospectus or letter concerning any
requirements as a prerequisite to the renewal of
mineral, oil or gas property or any written
a license.
statement that is false or fraudulent, issues,
circulates, publishes or distributes the same, or Restricted License
causes the same to be issued, circulated, 10519. (a) The commissioner may issue a
published or distributed, or who in any other restricted mineral, oil, and gas broker license to
respect willfully violates or fails, omits, or a person whose mineral, oil, and gas broker
neglects to obey, observe or comply with any license has been revoked as the result of
order, permit, decision, demand or requirement disciplinary action taken by the commissioner.
of the commissioner under the provisions of this (b) A restricted mineral, oil, and gas broker
part relating to mineral, oil and gas brokerage, is license issued by the commissioner may be
guilty of a misdemeanor, and shall be punished restricted by term and by the conditions to be
by imprisonment in the county jail for a term not observed by the licensee in the performance of
to exceed six months, or by a fine of not to acts for which a mineral, oil, and gas broker
exceed one thousand dollars ($1,000), and, if a license is required including the posting of a
mineral, oil and gas licensee, he shall be held to surety bond by the restricted licensee in such
trial by the commissioner for a suspension or form and condition as the commissioner may
revocation of his mineral, oil and gas license, as require.
provided in the provisions of this part relating to
hearings. It shall be the duty of the district Restricted License – No Right to Renewal –
attorney of each county in this state to prosecute Suspension
all violations of the provisions of this section in 10519.1. There is no property right and no right
respective counties in which the violations to the renewal of a restricted license issued
occur. pursuant to Section 10519.
Application of Real Estate Broker Provisions The commissioner may suspend a restricted
10513. In performing acts within the scope and license pending the holding of a hearing on
under the authority of this chapter, mineral, oil charges alleging a basis for disciplinary action
and gas brokers are subject to the provisions against the restricted licensee.
applicable to real estate brokers contained in
Article 4. Disciplinary Action
Sections 10131.5, 10140.5, 10142, 10143.5,
10144, 10145, and 10148. Suspension or Revocation of MOG License
10560. Upon grounds provided in this article
Article 2. Licenses and the other articles of this chapter, the license
MOG Broker Subject to Certain Real Estate of any mineral, oil and gas licensee may be
Broker Provisions But Not Continuing revoked or suspended in accordance with the
Education Requirements provisions of this part relating to hearings.
10515. (a) Mineral, oil, and gas brokers in Grounds for Suspension or Revocation of
performing acts within the scope and under the MOG License
authority of this chapter are subject to the 10561. The commissioner may, upon his own
provisions applicable to real estate brokers motion, and shall, upon the verified complaint in
contained in Sections 10153.6, 10156.2, 10157, writing of any person, investigate the actions of
any person engaged in the business or acting in
BUSINESS AND PROFESSIONS CODE 115

the capacity of a mineral, oil and gas licensee, reveals in writing to the employer the full
within this state, and he may temporarily amount of licensee’s profit and obtains the
suspend or permanently revoke a mineral, oil written consent of the employer approving the
and gas license at any time if the licensee, while amount of such profit.
a mineral, oil and gas licensee, in performing or
(h) Any other conduct, whether of the same or a
attempting to perform any of the acts within the
different character than specified in this section,
scope of this chapter, has been guilty of any of
which constitutes fraud or dishonest dealing.
the following:
Further Grounds for Discipline
(a) Making any substantial misrepresentation.
10562. The commissioner may suspend or
(b) Making any false promises of a character revoke the license of a mineral, oil, and gas
likely to influence, persuade or induce. licensee who has done any of the following:
(c) Acting for more than one party in a (a) Entered a plea of guilty or nolo contendere
transaction without the knowledge or consent of to, or been found guilty of, or been convicted of,
all parties thereto. a felony, or a crime substantially related to the
qualifications, functions, or duties of a mineral,
(d) Commingling with his own money or
oil, and gas licensee, and the time for appeal has
property the money or property of others which
elapsed or the judgment of conviction has been
is received and held by him.
affirmed on appeal, irrespective of an order
(e) Claiming or demanding a fee, compensation granting probation following that conviction,
or commission under any exclusive agreement suspending the imposition of sentence, or of a
authorizing or employing a licensee to sell, buy subsequent order under the provision of Section
or exchange mineral, oil or gas property for 1203.4 of the Penal Code allowing the licensee
compensation, or commission where such to withdraw his or her plea of guilty and to enter
agreement does not contain a definite, specified a plea of not guilty, or setting aside the verdict
date of final and complete termination. of guilty, or dismissing the accusation or
(f) The claiming or taking by a licensee of any information.
secret or undisclosed amount of compensation, (b) Knowingly authorized, directed, connived at
commission or profit or the failure of a licensee or aided in the publication, advertisement,
to reveal to the employer of such licensee the distribution, or circulation of a material false
full amount of such licensee’s compensation, statement or representation concerning his or her
commission, or profit under any agreement business or a mineral, oil, or gas property
authorizing or employing such licensee to do offered for sale.
any acts for which a license is required under
(c) Willfully disregarded or violated any of the
this chapter for compensation or commission
provisions of the Real Estate Law (commencing
prior to or coincident with the signing of an
with Section 10000) or of Chapter 1
agreement evidencing the meeting of the minds
(commencing with Section 11000) of Part 2 or
of the contracting parties, regardless of the form
of the rules and regulations of the commissioner
of such agreement, whether evidenced by
for the administration and enforcement of the
documents in an escrow or by any other or
Real Estate Law and Chapter 1 (commencing
different procedure.
with Section 11000) of Part 2.
(g) The use by a licensee of any provision
(d) Acted or conducted himself or herself in a
allowing the licensee an option to purchase in an
manner which would have warranted the denial
agreement authorizing or employing such
of his or her application for a mineral, oil, and
licensee to sell, buy or exchange mineral, oil or
gas license.
gas property for compensation or commission,
except when such licensee prior to or coincident (e) Willfully used the term "realtor" or a trade
with election to exercise such option to purchase name or insigne of membership in a real estate
116 BUSINESS AND PROFESSIONS CODE

organization of which the licensee is not a lease or financing, whether immediate or future,
member. into five or more lots or parcels. However, land
or lands sold by lots or parcels of not less than
(f) Demonstrated negligence or incompetence in
160 acres which are designated by lot or parcel
performing an act for which he or she is required
description by government surveys and appear
to hold a license.
as such on the current assessment roll of the
(g) Has used his or her employment by a county in which the land or lands are situated
governmental agency in a capacity giving access shall not be deemed to be “subdivided lands” or
to records, other than public records, in a “a subdivision” within the meaning of this
manner that violates the confidential nature of section, unless the land or lands are divided or
the records. proposed to be divided for the purpose of sale
(h) Any other conduct, whether of the same or a for oil and gas purposes, in which case the land
different character than specified in this section, or lands shall be deemed to be “subdivided
which constitutes fraud or dishonest dealing. lands” or “a subdivision” within the meaning of
this section. This chapter also does not apply to
Fraud in Civil Action Against MOG Licensee the leasing of apartments, offices, stores, or
10562.5. When a final judgment is obtained in a similar space within an apartment building,
civil action against any mineral, oil and gas industrial building, commercial building, or
licensee, upon grounds of fraud, mobilehome park, as defined under Section
misrepresentation, or deceit with reference to 18214 of the Health and Safety Code, except
any transaction for which a license is required that the offering of leases for a term in excess of
under this division, the commissioner may, after five years to tenants within a mobilehome park
hearing in accordance with the provisions of this as a mandatory requirement and prerequisite to
part relating to hearings, suspend or revoke the tenancy within the mobilehome park shall be
license of such mineral, oil and gas licensee. subject to the provisions of this chapter. The
Action Against Officer or Agent of Corporation leasing of apartments in a community apartment
10564. The commissioner may suspend or project, as defined in Section 11004 in an
revoke the mineral, oil, and gas license of a apartment or similar space within a commercial
corporation as to any officer or agent acting building or complex, shall be subject to the
under its mineral, oil, and gas license, without provisions of this chapter.
revoking the mineral, oil, and gas license of the (b) Nothing in this section shall in any way
corporation. modify or affect any of the provisions of Section
66424 of the Government Code.
Article 5. Fees
(c) Subdivisions, as defined in Section 10249.1,
Applicability of Broker License Provisions
which are located entirely outside California
10580. Mineral, oil, and gas brokers are subject
shall be exempt from the provisions of this part.
to the provisions applicable to real estate brokers
contained in Sections 10200, 10207, 10209.5, “Undivided Interests” – Definition and
10210, 10211, and 10222. Exemption
11000.1. (a) “Subdivided lands” and
PART 2. REGULATION OF TRANSACTIONS “subdivision,” as defined by Sections 11000 and
CHAPTER 1. SUBDIVIDED LANDS 11004.5, also include improved or unimproved
land or lands, a lot or lots, or a parcel or parcels,
Article 1. General Provisions of any size, in which, for the purpose of sale or
“Subdivided Lands” and “Subdivision” lease or financing, whether immediate or future,
11000. (a) “Subdivided lands” and “subdivision” five or more undivided interests are created or
refer to improved or unimproved land or lands, are proposed to be created.
wherever situated within California, divided or
proposed to be divided for the purpose of sale or
BUSINESS AND PROFESSIONS CODE 117

(b) This section does not apply to the creation or contract resulting from the acceptance of that
proposed creation of undivided interests in land offer until midnight of the third calendar day
if any one of the following conditions exists: following the day on which the prospective
purchaser executed the offer to purchase.
(1) The undivided interests are held or to be
held by persons related one to the other by (b) The owner of a subdivision subject to this
blood or marriage. section or his or her agent shall, in accordance
with regulations adopted by the Real Estate
(2) The undivided interests are to be
Commissioner, clearly and conspicuously
purchased and owned solely by persons who
disclose to all prospective purchasers of
present evidence satisfactory to the Real
undivided interests the right of rescission
Estate Commissioner that they are
provided for in subdivision (a), and shall furnish
knowledgeable and experienced investors
to each offeror a form, as prescribed by
who comprehend the nature and extent of
regulations of the commissioner, for the exercise
the risks involved in the ownership of these
of the right of rescission.
interests. The Real Estate Commissioner
shall grant an exemption from this part if the (c) Any certificate bearing the signature of the
undivided interests are to be purchased by purchaser of an interest in an undivided-interest
no more than 10 persons, each of whom subdivision subject to this section which
furnishes a signed statement to the contains an adequate description of the interest
commissioner that he or she (A) is fully or interests sold and a statement by the
informed concerning the real property to be purchaser that he or she has not exercised the
acquired and his or her interest in that right of rescission within the time limit set forth
property including the risks involved in in subdivision (a) shall constitute conclusive
ownership of undivided interests, (B) is evidence that the right of rescission has not been
purchasing the interest or interests for his or exercised in any matter involving the rights of a
her own account and with no present third party who has acted in good faith in
intention to resell or otherwise dispose of reliance upon representations in the certificate.
the interest for value, and (C) expressly
Rules and Regulations
waives protections afforded to a purchaser
11001. The Real Estate Commissioner (hereafter
by this part.
referred to in this chapter as the commissioner)
(3) The undivided interests are created as the may adopt, amend, or repeal such rules and
result of a foreclosure sale. regulations as are reasonably necessary for the
enforcement of this chapter. He may issue any
(4) The undivided interests are created by a
order, permit, decision, demand or requirement
valid order or decree of a court.
to effect this purpose. Such rules, regulations,
(5) The offering and sale of the undivided and orders shall be adopted pursuant to the
interests have been expressly qualified by provisions of the Administrative Procedure Act.
the issuance of a permit from the
Planned Development Defined
Commissioner of Corporations pursuant to
11003. “Planned development” has the same
the Corporate Securities Law of 1968
meaning as specified in subdivision (k) of
(Division 1 (commencing with Section
Section 1351 of the Civil Code.
25000) of Title 4 of the Corporations Code).
Stock Cooperative Defined
“Undivided Interests” – Right to Rescind
11003.2. “Stock cooperative” has the same
Contract
meaning as specified in subdivision (m) of
11000.2. (a) A person who has made an offer to
Section 1351 of the Civil Code, except that, as
purchase an interest in an undivided-interest
used in this chapter, a “stock cooperative” does
subdivision specified in subdivision (a) of, and
not include a limited-equity housing
not exempted by subdivision (b) of, Section
cooperative.
11000.1 shall have the right to rescind any
118 BUSINESS AND PROFESSIONS CODE

“Limited-Equity Housing Cooperative” (2) No more than 20 percent of the total


Defined – Exempt from Chapter upon development cost of a limited-equity
Conditions mobilehome park, and no more than 10
11003.4. (a) A "limited-equity housing percent of the total development cost of
cooperative" or a "workforce housing other limited-equity housing cooperatives, is
cooperative trust" is a corporation that meets the provided by purchasers of membership
criteria of Section 11003.2 and that also meets shares.
the criteria of Sections 817 and 817.1 of the
(3) A regulatory agreement that covers the
Civil Code, as applicable. Except as provided in
cooperative for a term of at least as long as
subdivision (b), a limited-equity housing or
the duration of the permanent financing or
workforce housing cooperative trust shall be
subsidy, notwithstanding the source of the
subject to all the requirements of this chapter
permanent subsidy or financing has been
pertaining to stock cooperatives.
duly executed between the recipient of the
(b) A limited-equity housing cooperative or a financing and either (A) one of the federal or
workforce housing cooperative trust shall be state agencies specified in paragraph (1) or
exempt from the requirements of this chapter if (B) a local public agency that is providing
the limited-equity housing cooperative or financing for the project under a regulatory
workforce housing cooperative trust complies agreement meeting standards of the
with all the following conditions: Department of Housing and Community
Development. The regulatory agreement
(1) The United States Department of
shall make provision for at least all of the
Housing and Urban Development, the
following:
United States Department of Agriculture, the
National Consumers Cooperative Bank, the (A) Assurances for completion of the
California Housing Finance Agency, the common areas and facilities to be owned
Public Employees' Retirement System or leased by the limited-equity housing
(PERS), the State Teachers' Retirement cooperative, unless a construction
System (STRS), the Department of Housing agreement between the same parties
and Community Development, or the contains written assurances for
Federal Home Loan Bank System or any of completion.
its member institutions, alone or in any
(B) Governing instruments for the
combination with each other, or with the
organization and operation of the
city, county, school district, or
housing cooperative by the members.
redevelopment agency in which the
cooperative is located, directly finances or (C) The ongoing fiscal management of
subsidizes at least 50 percent of the total the project by the cooperative, including
construction or development cost or one an adequate budget, reserves, and
hundred thousand dollars ($100,000), provisions for maintenance and
whichever is less; or the real property to be management.
occupied by the cooperative was sold or (D) Distribution of a membership
leased by the Department of Transportation, information report to any prospective
other state agency, a city, a county, or a purchaser of a membership share, prior
school district for the development of the to purchase of that share. The
cooperative and has a regulatory agreement membership information report shall
approved by the Department of Housing and contain full disclosure of the financial
Community Development for the term of the obligations and responsibilities of
permanent financing, notwithstanding the cooperative membership, the resale of
source of the permanent subsidy or shares, the financing of the cooperative
financing. including any arrangements made with
BUSINESS AND PROFESSIONS CODE 119

any partners, membership share (c) Any condominium project containing five or
accounts, occupancy restrictions, more condominiums, as defined in Section 783
management arrangements, and any of the Civil Code.
other information pertinent to the
(d) Any stock cooperative as defined in Section
benefits, risks, and obligations of
11003.2, including any legal or beneficial
cooperative ownership.
interests therein, having or intended to have five
(4) The federal, state, or local public agency or more shareholders.
that executes the regulatory agreement shall
(e) Any limited-equity housing cooperative, as
satisfy itself that the bylaws, articles of
defined in Section 11003.4.
incorporation, occupancy agreement,
subscription agreement, any lease of the (f) In addition, the following interests shall be
regulated premises, any arrangement with subject to this chapter and the regulations of the
partners, and arrangement for membership commissioner adopted pursuant thereto:
share accounts provide adequate protection (1) Any accompanying memberships or
of the rights of cooperative members. other rights or privileges created in, or in
(5) The federal or state agency shall receive connection with, any of the forms of
from the attorney for the recipient of the development referred to in subdivision (a),
financing or subsidy a legal opinion that the (b), (c), (d), or (e) by any deeds,
cooperative meets the requirements of conveyances, leases, subleases, assignments,
Section 817 of the Civil Code and the declarations of restrictions, articles of
exemption provided by this section. incorporation, bylaws, or contracts
applicable thereto.
(c) Any limited-equity cooperative, or workforce
housing cooperative trust that meets the (2) Any interests or memberships in any
requirements for exemption pursuant to owners' association as defined in Section
subdivision (b) may elect to be subject to all 1351 of the Civil Code, created in
provisions of this chapter. connection with any of the forms of the
development referred to in subdivision (a),
(d) The developer of the cooperative shall notify
(b), (c), (d), or (e).
the Department of Real Estate, on a form
provided by the department, that an exemption is (g) Notwithstanding this section, time-share
claimed under this section. The Department of plans, exchange programs, incidental benefits,
Real Estate shall retain this form for at least four and short-term product subject to Chapter 2
years for statistical purposes. (commencing with Section 11210) are not
"subdivisions" or "subdivided lands" subject to
“Community Apartment Project” Defined
this chapter.
11004. “Community apartment project” has the
same meaning as specified in subdivision (d) of Nonresident Consent to Service
Section 1351 of the Civil Code. 11007. Every nonresident subdivider shall file
with the questionnaire an irrevocable consent
Subdivisions – Also Defined As
that if, in any action commenced against him in
11004.5. In addition to any provisions of Section
this State, personal service of process upon him
11000, the reference in this code to "subdivided
cannot be made in this State after the exercise of
lands" and "subdivision" shall include all of the
due diligence, a valid service may thereupon be
following:
made upon him by delivering the process to the
(a) Any planned development, as defined in Secretary of State.
Section 11003, containing five or more lots.
Insofar as possible, the provisions of Section
(b) Any community apartment project, as 1018 of the Code of Civil Procedure relating to
defined by Section 11004, containing five or the service of process on the Secretary of State
more apartments. are applicable to this section.
120 BUSINESS AND PROFESSIONS CODE

Criminal Provisions of the Law May Apply (7) A true statement of the use or uses for
11008. No provision of this part which makes a which the proposed subdivision will be
violation of this part a crime shall be construed offered.
to preclude application of any other criminal
(8) A true statement of the provisions, if
provision of the law of this state to an act or
any, limiting the use or occupancy of the
omission which constitutes a violation of this
parcels in the subdivision.
part.
(9) A true statement of the amount of
Article 2. Investigation, Regulation and indebtedness that is a lien upon the
Report subdivision or any part thereof, and that was
Application for Public Report – Waiver incurred to pay for the construction of any
11010. (a) Except as otherwise provided onsite or offsite improvement, or any
pursuant to subdivision (c) or elsewhere in this community or recreational facility.
chapter, any person who intends to offer (10) A true statement or reasonable estimate,
subdivided lands within this state for sale or if applicable, of the amount of any
lease shall file with the Department of Real indebtedness which has been or is proposed
Estate an application for a public report to be incurred by an existing or proposed
consisting of a notice of intention and a special district, entity, taxing area,
completed questionnaire on a form prepared by assessment district, or community facilities
the department. district within the boundaries of which, the
(b) The notice of intention shall contain the subdivision, or any part thereof, is located,
following information about the subdivided and that is to pay for the construction or
lands and the proposed offering: installation of any improvement or to furnish
community or recreational facilities to that
(1) The name and address of the owner. subdivision, and which amounts are to be
(2) The name and address of the subdivider. obtained by ad valorem tax or assessment, or
by a special assessment or tax upon the
(3) The legal description and area of lands.
subdivision, or any part thereof.
(4) A true statement of the condition of the
(11) A notice pursuant to Section 1102.6c of
title to the land, particularly including all
the Civil Code.
encumbrances thereon.
(12) (A) As to each school district serving
(5) A true statement of the terms and
the subdivision, a statement from the
conditions on which it is intended to dispose
appropriate district that indicates the
of the land, together with copies of any
location of each high school, junior high
contracts intended to be used.
school, and elementary school serving
(6) A true statement of the provisions, if the subdivision, or documentation that a
any, that have been made for public utilities statement to that effect has been
in the proposed subdivision, including requested from the appropriate school
water, electricity, gas, telephone, and district.
sewerage facilities. For subdivided lands
(B) In the event that, as of the date the
that were subject to the imposition of a
notice of intention and application for
condition pursuant to subdivision (b) of
issuance of a public report are otherwise
Section 66473.7 of the Government Code,
deemed to be qualitatively and
the true statement of the provisions made for
substantially complete pursuant to
water shall be satisfied by submitting a copy
Section 11010.2, the statement
of the written verification of the available
described in subparagraph (A) has not
water supply obtained pursuant to Section
been provided by any school district
66473.7 of the Government Code.
serving the subdivision, the person who
BUSINESS AND PROFESSIONS CODE 121

filed the notice of intention and information concerning soil conditions in


application for issuance of a public the subdivision is available.
report shall immediately provide the
(16) On or after July 1, 2005, as to property
department with the name, address, and
located within the jurisdiction of the San
telephone number of that district.
Francisco Bay Conservation and
(13) (A) The location of all existing airports, Development Commission, a statement that
and of all proposed airports shown on the property is so located and the following
the general plan of any city or county, notice:
located within two statute miles of the
NOTICE OF SAN FRANCISCO BAY
subdivision. If the property is located
CONSERVATION AND DEVELOPMENT
within an airport influence area, the
COMMISSION JURISDICTION
following statement shall be included in
the notice of intention: This property is located within the
jurisdiction of the San Francisco Bay
NOTICE OF AIRPORT IN VICINITY
Conservation and Development
This property is presently located in the Commission. Use and development of
vicinity of an airport, within what is property within the commission's
known as an airport influence area. For jurisdiction may be subject to special
that reason, the property may be subject regulations, restrictions, and permit
to some of the annoyances or requirements. You may wish to investigate
inconveniences associated with and determine whether they are acceptable
proximity to airport operations (for to you and your intended use of the property
example: noise, vibration, or odors). before you complete your transaction.
Individual sensitivities to those
(17) If the property is presently located
annoyances can vary from person to
within one mile of a parcel of real property
person. You may wish to consider what
designated as "Prime Farmland," "Farmland
airport annoyances, if any, are
of Statewide Importance," "Unique
associated with the property before you
Farmland," "Farmland of Local
complete your purchase and determine
Importance," or "Grazing Land" on the most
whether they are acceptable to you.
current "Important Farmland Map" issued
(B) For purposes of this section, an by the California Department of
"airport influence area," also known as Conservation, Division of Land Resource
an "airport referral area," is the area in Protection, utilizing solely the county-level
which current or future airport-related GIS map data, if any, available on the
noise, overflight, safety, or airspace Farmland Mapping and Monitoring Program
protection factors may significantly Website. If the residential property is within
affect land uses or necessitate one mile of a designated farmland area, the
restrictions on those uses as determined report shall contain the following notice:
by an airport land use commission.
NOTICE OF RIGHT TO FARM
(14) A true statement, if applicable,
This property is located within one mile of a
referencing any soils or geologic report or
farm or ranch land designated on the current
soils and geologic reports that have been
county-level GIS "Important Farmland
prepared specifically for the subdivision.
Map," issued by the California Department
(15) A true statement of whether or not fill of Conservation, Division of Land Resource
is used, or is proposed to be used, in the Protection. Accordingly, the property may
subdivision and a statement giving the name be subject to inconveniences or discomforts
and the location of the public agency where resulting from agricultural operations that
are a normal and necessary aspect of living
122 BUSINESS AND PROFESSIONS CODE

in a community with a strong rural character submitted to the department on or after July 1,
and a healthy agricultural sector. Customary 2001.
agricultural practices in farm operations may
Notice to Commissioner – Prior to Issuance of
include, but are not limited to, noise, odors,
Promissory Notes
dust, light, insects, the operation of pumps
11010.1. Prior to the issuance of promissory
and machinery, the storage and disposal of
notes secured by individual lots in an unrecorded
manure, bee pollination, and the ground or
subdivision, the owner, his agent or subdivider
aerial application of fertilizers, pesticides,
shall notify the commissioner in writing of his
and herbicides. These agricultural practices
intention to issue such notes.
may occur at any time during the 24-hour
day. Individual sensitivities to those The notice of intention shall contain the
practices can vary from person to person. following information:
You may wish to consider the impacts of (a) The name and address of the owner.
such agricultural practices before you
complete your purchase. Please be advised (b) The name and address of the subdivider.
that you may be barred from obtaining legal (c) The legal description and area of lands.
remedies against agricultural practices
conducted in a manner consistent with (d) A true statement of the condition of the title
proper and accepted customs and standards to the land, particularly including all
pursuant to Section 3482.5 of the Civil Code encumbrances thereon.
or any pertinent local ordinance. (e) A true statement of the terms and conditions
(18) Any other information that the owner, on which it is intended to issue the promissory
his or her agent, or the subdivider may notes.
desire to present. (f) A true statement of the provisions, if any, that
(c) The commissioner may, by regulation, or on have been made for public utilities in the
the basis of the particular circumstances of a proposed subdivision, including water,
proposed offering, waive the requirement of the electricity, gas and telephone facilities.
submission of a completed questionnaire if the (g) Such other information as the owner, his
commissioner determines that prospective agent or subdivider, may desire to present.
purchasers or lessees of the subdivision interests
to be offered will be adequately protected Subdivision Public Reports – Applications for
through the issuance of a public report based Issuance – Procedures
solely upon information contained in the notice 11010.2. (a) As used in this section:
of intention. (1) “Quantitative” means the number and
Senior Citizen Housing Development type of documents required to make the
11010.05. A person who proposes to create a filing substantially complete, as defined in
senior citizen housing development, as defined the regulations of the commissioner, without
in Section 51.3 or 51.11 of the Civil Code, shall regard to the content of those requirements.
include in the application for a public report a (2) “Qualitatively complete” means that all
complete statement of the restrictions on deficiencies and substantive inadequacies
occupancy that are to be applicable in the contained in the documents that were
development. Any public report issued for a required to make the filing substantially
senior housing development shall also include a complete have been corrected.
complete statement of the restrictions on
occupancy to be applicable in the development. (3) “Substantially complete” means that a
This section shall become operative on July 1, notice and application contain all
2001, and shall apply to all applications for a requirements as set forth in the regulations
public report for a senior housing development of the commissioner.
BUSINESS AND PROFESSIONS CODE 123

(b) Upon receipt of a notice of intention information in response to a list of any


pursuant to Section 11010 and an application for remaining deficiencies and substantive
issuance of a public report, the commissioner inadequacies, the commissioner shall provide
shall review the notice and application to notification within the time limits specified in
determine if the notice and application are this subdivision.
substantially complete, with respect to
(d) The commissioner shall issue a public report
quantitative requirements. The commissioner
within 15 days, in the case of a subdivision
shall notify the applicant in writing of that
specified in Section 11000.1 or 11004.5, or 10
determination within 10 days of receipt of the
days, in the case of other subdivisions, after the
notice and application.
notice and application are determined to be
(1) If the notice and application are not qualitatively and substantially complete, and
substantially complete with respect to the submittal of recorded or filed instruments and
quantitative requirements pursuant to this evidence of financial arrangements required by
subdivision, the notification shall specify the the commissioner.
information needed to make the notice and
(e) Upon receipt of an application for approval
application substantially complete. Upon
of a declaration as provided in Section 11010.10,
receipt of any resubmittal of a notice and
the commissioner shall notify the applicant of
application, the commissioner shall notify
any deficiency or inadequacy in the declaration
the applicant in writing of that determination
within 60 days of its receipt. The commissioner
within 10 days of receipt of the notice and
shall notify the applicant of any deficiency or
application.
inadequacy in a declaration that has been revised
(2) If the commissioner determines that the following the first notice of deficiency or
notice and application are substantially inadequacy within 30 days of its receipt.
complete with respect to the quantitative
(f) The commissioner shall adopt regulations, in
requirements pursuant to this subdivision,
accordance with Chapter 3.5 (commencing with
the commissioner shall provide the applicant
Section 11340) of Part 1 of Division 3 of Title 2
with a list of all deficiencies and substantive
of the Government Code, that define
inadequacies necessary for the notice and
“substantially complete” and that list all the
application to be qualitatively complete,
requirements necessary for a notice of intention
within 60 days of that determination, in the
and application to be considered “substantially
case of subdivisions specified in Section
complete.”
11000.1 or 11004.5, and within 20 days of
that determination, in the case of other (g) The commissioner may adopt emergency
subdivisions. regulations, in accordance with Chapter 3.5
(commencing with Section 11340) of Part 1 of
(c) Upon receipt of all documents, materials,
Division 3 of Title 2 of the Government Code, to
writings, and other information submitted in
increase, as set forth below, those time periods
response to the list in paragraph (2) of
specified in subdivisions (b), (c), and (d), upon a
subdivision (b), the commissioner shall notify
showing that the number of notices of intention
the applicant whether the notice and application
and applications for a subdivision public report
are qualitatively complete within 30 days, in the
filed with the department for any immediately
case of subdivisions specified in Section
preceding six-month period has increased by
11000.1 or 11004.5, and within 20 days of
more than 15 percent over the monthly average
receipt, in the case of other subdivisions. If the
number of notices and applications filed for the
application and notice are not qualitatively
base period commencing July 1, 1983, and
complete, the notification shall include a list of
ending June 30, 1986:
any remaining deficiencies and substantive
inadequacies. Upon receipt of any resubmittal of (1) The time for issuing the notice provided
documents, materials, writings, and other in subdivision (b) shall increase to 15 days.
124 BUSINESS AND PROFESSIONS CODE

(2) The time for providing the listing Other Notice of Intention Exemption
required by paragraph (2) of subdivision (b) 11010.4. The notice of intention specified in
shall increase to 90 days, in the case of Section 11010 is not required for a proposed
subdivisions specified in Sections 11000.1 offering of subdivided land that satisfies all of
and 11004.5, and to 30 days, in the case of the following criteria:
other subdivisions.
(a) The owner, subdivider, or agent has
(3) The time period provided in subdivision complied with Sections 11013.1, 11013.2, and
(c) for responding to receipt of documents 11013.4, if applicable.
intended to correct deficiencies shall be 30
(b) The subdivided land is not a subdivision as
days without regard to the type of
defined in Section 11000.1 or 11004.5.
subdivision being processed.
(c) Each lot, parcel or unit of the subdivision is
(4) The time periods provided in subdivision
located entirely within the boundaries of a city.
(d) within which the commissioner is
required to issue a public report in the case (d) Each lot, parcel or unit of the subdivision
of subdivisions specified in Sections will be sold or offered for sale improved with a
11000.1 and 11004.5, shall increase to 30 completed residential structure and with all other
days and in the case of other subdivisions improvements completed that are necessary to
shall increase to 15 days. occupancy or with financial arrangements
determined to be adequate by the city to ensure
This section does not apply to filings made
completion of the improvements.
exclusively under Section 11010.1. Nothing in
this section requires the commissioner to issue a Exceptions to Filing Second Notice of
public report where grounds for denial exist, Intention
provided that issuance of a public report shall 11010.5. The filing of a second notice of
not be denied for inadequate information if the intention to sell and a second report of the
cause thereof is the commissioner’s failure to commissioner under this article shall not be
comply with this section. required when all the following conditions have
been met:
Notwithstanding other provisions of this section,
the commissioner shall not be required to issue a (a) where there has been a previous subdivision
public report if grounds for denial exist under report and the lots are subsequently acquired
Section 11018 or 11018.5. However, the through any foreclosure action, or by a deed in
commissioner may not base the denial of a lieu of foreclosure, by a bank, life insurance
public report on the lack of adequate information company, industrial loan company, credit union,
if the commissioner has not acted within the or savings and loan association licensed or
time periods prescribed in this section. operating under the provisions of a state or
federal law if the acquired lots, either improved
Exemption – Industrial and Commercial
or unimproved, will be sold in conformance with
Subdivisions
the previously issued subdivision public report;
11010.3. The provisions of this chapter shall not
apply to the proposed sale or lease of lots or (b) the original public report is given to the first
other interests in a subdivision in which lots or purchasers of the lots in the foreclosed
other interests are (a) limited to industrial or subdivision; and
commercial uses by zoning or (b) limited to (c) the commissioner is notified of the change of
industrial or commercial uses by a declaration of ownership within 30 days of the acquisition of
covenants, conditions, and restrictions, which the title to such property.
declaration has been recorded in the official
records of the county or counties in which the
subdivision is located.
BUSINESS AND PROFESSIONS CODE 125

Notice of Intention Exemption – Public prospective resident or homeowner of the


Agencies mobilehome park, in accordance with
11010.6. The provisions of this chapter shall not subdivision (f) of Section 7312 of the
be applicable to subdivided land which is Corporations Code.
offered or proposed to be offered for sale, lease,
(3) A permit to issue securities under
or financing by a state agency, including the
Section 25113 of the Corporations Code is
University of California, a local agency, or other
obtained from the Department of
public agency.
Corporations. In the case of a nonissuer
Exception – Nonbinding Expression of Intent transaction (as defined by Section 25011 of
to Purchase the Corporations Code) involving the offer
11010.7. The notice of intention specified in to resell or the resale of memberships by a
Section 11010 shall not apply to nonbinding bona fide secured party as described in
expressions of intent to purchase or lease which paragraph (2) of this section, a permit is not
an owner, agent, or subdivider is required to required where the transaction is exempt
obtain from the tenants of units which are from the qualification requirements of
proposed to be converted to a condominium, Section 25130 of the Corporations Code
community apartment project, or stock pursuant to subdivision (e) of Section 25104
cooperative project, by ordinance, or as a of the Corporations Code. The exemption
condition to the approval of a tentative or parcel from qualification pursuant to subdivision
map pursuant to Division 2 (commencing with (e) of Section 25104 of the Corporations
Section 66410) of Title 7 of the Government Code available to a bona fide secured party
Code. does not eliminate the requirement of this
section that the nonprofit corporation shall
Exception – Mobilehome Park Purchase by
either file a notice of intention pursuant to
Nonprofit Corporation
Section 11010 or obtain a permit pursuant to
11010.8. (a) The requirement that a notice of
Section 25113 of the Corporations Code.
intention be filed pursuant to Section 11010 is
not applicable to the purchase of a mobilehome (4) All funds of tenants for the purchase of
park by a nonprofit corporation if all of the the mobilehome park are deposited in
following occur: escrow until the document transferring title
of the mobilehome park to the nonprofit
(1) A majority of the shareholders or
corporation is recorded. The escrow also
members of the nonprofit corporation
shall include funds of homeowners that shall
constitute a majority of the homeowners of
be available to the homeowners association
the mobilehome park, and a majority of the
nonprofit corporation for payment of any
members of the board of directors of the
and all costs reasonably associated with the
nonprofit corporation are homeowners of the
processing and conversion of the
mobilehome park.
mobilehome park into condominium
(2) All members of the corporation are interests. Payment of these costs may be
residents of the mobilehome park. Members made from the funds deposited in escrow
of the nonprofit corporation may enter into prior to the close of escrow upon the
leases with the corporation that are greater direction of the homeowners association
than five years in length. “Homeowners” or nonprofit corporation.
“residents” of the mobilehome park shall
(b) The funds described by paragraph (4) of
include a bona fide secured party who has,
subdivision (a), or any other funds subsequently
pursuant to a security interest in a
received from tenants for purposes other than the
membership, taken title to the membership
purchase of a separate subdivided interest in any
by means of foreclosure, repossession, or
portion of the mobilehome park, are not subject
voluntary repossession, and who is actively
attempting to resell the membership to a
126 BUSINESS AND PROFESSIONS CODE

to the requirements of Section 11013.1, 11013.2, recordation of the subdivision map and prior to
or 11013.4. the approval of the declaration pursuant to a
notice of intention for a public report, may
Mobilehome Park Conversion – Disclosures
submit an application requesting review of the
Regarding Prices
declaration, along with any required supporting
11010.9. (a) Notwithstanding any other
documentation, to the commissioner, without the
provision of law, the subdivider of a
filing of a notice of intention for the subdivision
mobilehome park that is proposed to be
for which the declaration is being prepared.
converted to resident ownership, prior to filing a
Upon approval, the commissioner shall give
notice of intention pursuant to Section 11010,
notice to the applicant that the declaration shall
shall disclose to homeowners and residents of
be approved for a subsequent notice of intent
the park, by written notice, the tentative price of
filing for any public report for the subdivision
the subdivided interest proposed to be sold or
identified in the application, provided that the
leased.
subdivision setup is substantially the same as
(b) The disclosure notice required by that originally described in the application for
subdivision (a) shall include a statement that the review of the declaration.
tentative price is not binding, could change
Disclosure – Right to Negotiate Property
between the time of disclosure and the time of
Inspections
governmental approval to commence the actual
11010.11. Notwithstanding any provision in the
sale or lease of the subdivided interests in the
purchase contract to the contrary, if the
park, as the result of conditions imposed by the
subdivision is to be used for residential
state or local government for approval of the
purposes, the subdivision public report shall
park conversion, increased financing costs, or
disclose that a prospective buyer has the right to
other factors and, in the absence of bad faith,
negotiate with the seller to permit inspections of
shall not give rise to a claim for liability against
the property by the buyer, or the buyer’s
the provider of this information.
designee, under terms mutually agreeable to the
(c) The disclosure notice required by subdivision prospective buyer and seller.
(a) shall not be construed to authorize the
Exempt Transfers – Builder to Builder
subdivider of a mobilehome park that is
11010.35. (a) The provisions of this chapter
proposed to be converted to resident ownership
shall not apply to the proposed sale or lease of
to offer to sell or lease, sell or lease, or accept
five or more lots, parcels, or other interests in a
money for the sale or lease of, subdivided
subdivision or the sale of one or more lots or
interests in the park, or to engage in any other
parcels in a subdivision where the lot or lots or
activities that are otherwise prohibited, with
parcel or parcels are intended to be further
regard to subdividing the park into ownership
subdivided into five or more lots, parcels, or
interests, prior to the issuance of a public report
other subdivision interests as defined in Sections
pursuant to this chapter.
11000, 11000.1, and 11004.5, to any person who
Separate Review of Proposed Management acquires the lots, parcels, or other subdivision
Documents interests for the purpose of engaging in the
11010.10. A person who plans to offer for sale business of constructing residential, commercial,
or lease lots or other interests in a subdivision or industrial buildings, or for the purpose of
which sale or lease (a) is not subject to the resale or lease of the lots, parcels, or other
provisions of this chapter, (b) does not require subdivision interests to persons engaged in this
the submission of a notice of intention as business, provided that the purchase or lease
provided in Section 11010, or (c) is subject to agreement or a separate disclosure document
this chapter and for which the local jurisdiction includes a statement or provision that the
requires review and approval of the declaration, purchaser or lessee is required to comply with
as defined in subdivision (h) of Section 1351 of the applicable provisions of this chapter prior to
the Civil Code, prior to or concurrently with the offering for sale or lease any lot, parcel, or other
BUSINESS AND PROFESSIONS CODE 127

subdivision interest acquired pursuant to the (4) A conditional public report for
exemption granted by this subdivision. subdivision interests described in Section
11004.5: Five hundred dollars ($500).
(b) The exemption provided by subdivision (a)
does not apply to a proposed sale or lease of lots, (5) A conditional public report for
parcels, or other subdivision interests that is subdivision interests other than those
done for the purpose of evading any other described in Section 11004.5: Five hundred
provision of this chapter. dollars ($500).
(c) The provisions of subdivision (a) are (6) A preliminary public report for
intended to clarify the application of this chapter subdivision interests described in Section
to the commercial sale or lease of residential 11004.5: Five hundred dollars ($500).
subdivision interests and should not be
(7) A preliminary public report for
interpreted to impose requirements on
subdivision interests other than those
transactions entered into prior to the date on
described in Section 11004.5: Five hundred
which this section became operative.
dollars ($500).
Subdivision Filing Fees – Notice of Intention
(8) A renewal public report for subdivision
11011. (a) The commissioner may by regulation
interests described in Section 11004.5: Six
prescribe filing fees in connection with
hundred dollars ($600).
applications to the Department of Real Estate
pursuant to this chapter that are lower than the (9) A renewal public report for subdivision
maximum fees specified in subdivision (b) if the interests other than those described in
commissioner determines that the lower fees are Section 11004.5: Six hundred dollars
sufficient to offset the costs and expenses ($600).
incurred in the administration of this chapter. (10) An amended public report for
The commissioner shall hold at least one hearing subdivision interests described in Section
each calendar year to determine if lower fees 11004.5: Five hundred dollars ($500) plus
than those specified in subdivision (b) should be ten dollars ($10) for each subdivision
prescribed. interest to be offered under the amended
(b) The filing fee for an application for a public public report for which a fee has not
report to be issued under authority of this previously been paid.
chapter shall not exceed the following for each (11) An amended public report to offer
subdivision or phase of a subdivision in which subdivision interests other than those
interests are to be offered for sale or lease: described in Section 11004.5: Five hundred
(1) A notice of intention without a dollars ($500) plus ten dollars ($10) for each
completed questionnaire: One hundred fifty subdivision interest to be offered under the
dollars ($150). amended public report for which a fee has
not previously been paid.
(2) An original public report for subdivision
interests described in Section 11004.5: One (c) The filing fee to review a declaration as
thousand seven hundred dollars ($1,700) described in Section 11010.10 shall not exceed
plus ten dollars ($10) for each subdivision two hundred dollars ($200).
interest to be offered. (d) The actual subdivision fees established by
(3) An original public report for subdivision regulation under authority of this section and
interests other than those described in Section 10249.3 shall not exceed the amount
Section 11004.5: Six hundred dollars ($600) reasonably required by the department to
plus ten dollars ($10) for each subdivision administer this part and Article 8 (commencing
interest to be offered. with Section 10249) of Chapter 3 of Part 1.
128 BUSINESS AND PROFESSIONS CODE

(e) All fees collected by the department under encumbrance, upon compliance with the terms
authority of this chapter shall be deposited into and conditions of the purchase or lease.
the Real Estate Fund under Chapter 6
Subdivision Subject to Blanket Encumbrance
(commencing with Section 10450) of Part 1. All
11013.2. Should there not exist in the blanket
fees received by the department pursuant to this
encumbrance or supplementary agreement a
chapter shall be deemed earned upon receipt. No
release clause as set forth in Section 11013.1,
part of any fee is refundable unless the
then it shall be unlawful for the owner,
commissioner determines that it was paid as the
subdivider, or agent to sell or lease lots or
result of a mistake or inadvertence.
parcels within such subdivision unless one of the
This section shall remain in effect unless it is following conditions is complied with:
superseded pursuant to Section 10226 or
Escrow
subdivision (a) of Section 10226.5, whichever is
(a) The entire sum of money paid or advanced
applicable.
by the purchaser or lessee of any such lot or
Notice of Change in Setup of Offering parcel, or such portion thereof as the
11012. It is unlawful for the owner, his agent, or commissioner shall determine is sufficient to
subdivider, of the project, after it is submitted to protect the interest of the purchaser or lessee,
the Department of Real Estate, to materially shall be deposited into an escrow depository
change the setup of such offering without first acceptable to the commissioner until either (1) a
notifying the Department of Real Estate in proper release is obtained from such blanket
writing of such intended change. This section encumbrance; or (2) either the owner,
only applies to those changes of which the subdivider, or agent or the purchaser or lessee
owner, his agent, or subdivider has knowledge may default under their contract of sale or lease
or constructive knowledge. and there is a determination as to the disposition
of such moneys; or (3) the owner, subdivider, or
Blanket Encumbrance
agent orders the return of such moneys to such
11013. For the purposes of this part, a blanket
purchaser or lessee.
encumbrance shall be considered to mean a trust
deed or mortgage or any other lien or Title Held in Trust
encumbrance, mechanics’ lien or otherwise, (b) The title to the subdivision is to be held in
securing or evidencing the payment of money trust under an agreement of trust acceptable to
and affecting land to be subdivided or affecting the commissioner until a proper release from
more than one lot or parcel of subdivided land, such blanket encumbrance is obtained.
or an agreement affecting more than one such lot
Bond
or parcel by which the owner or subdivider
(c) A bond to the State of California is furnished
holds said subdivision under an option, contract
to the commissioner for the benefit and
to sell, or trust agreement.
protection of purchasers or lessees of such lots
Release Clause or parcels, in such amount and subject to such
11013.1. It shall be unlawful, except as provided terms as may be approved by the commissioner,
in Section 11013.2, for the owner, subdivider, or which shall provide for the return of the moneys
agent to sell or lease lots or parcels within a paid or advanced by any purchaser or lessee, for
subdivision that is subject to a blanket or on account of the purchase or lease of any
encumbrance unless there exists in such blanket such lot or parcel if a proper release from such
encumbrance or other supplementary agreement blanket encumbrance is not obtained; provided,
a provision, hereinafter referred to as a release however, that if it should be determined that
clause, which by its terms shall unconditionally such purchaser or lessee, by reason of default or
provide that the purchaser or lessee of a lot or otherwise, is not entitled to the return of such
parcel can obtain legal title or other interest moneys, or any portion thereof, then such bond
contracted for, free and clear of such blanket shall be exonerated to the extent of the amount
BUSINESS AND PROFESSIONS CODE 129

of such moneys to which such purchaser or on account of the purchase or lease of any lot or
lessee is not entitled. parcel in the event that the owner, subdivider, or
agent does not, within the time specified in the
Alternative Requirement
contract to sell or lease, or any extension
(d) There is conformance to such other
thereof, deliver the legal title or other interest
alternative requirement or method which the
contracted for, whether title of record or other
commissioner may deem acceptable to carry into
interest, to the purchaser or lessee for any reason
effect the intent and provisions of this part.
other than an uncured default of the purchaser or
Taxes and Assessments lessee.
11013.3. Taxes and assessments levied by public
Association Certificates – Bond Increasable
authority shall not be considered a blanket
(c) An association, approved by the
encumbrance within the meaning of Section
commissioner, files with the commissioner a
11013.
certificate in which it certifies that the owner,
Subdivision Not Subject to Blanket subdivider, or agent is a member of the
Encumbrance association and that there is on file with the
11013.4. If a subdivision is not subject to a commissioner a bond, of the kind specified in
blanket encumbrance, as defined in Section subdivision (b), which has been approved by the
11013, it is unlawful for the owner, subdivider, commissioner as to amount, terms and coverage,
or agent to sell or lease lots or parcels within a and which is for the benefit and protection of all
subdivision unless one of the following purchasers and lessees of subdivided lots or
conditions is complied with: parcels to be sold or leased by members of the
Escrow association (all which the commissioner may, at
(a) The entire sum of money paid or advanced the commissioner’s option, verify or require to
by the purchaser or lessee of any lot or parcel, or be verified).
such portion thereof as the commissioner Proof of Security
determines is sufficient to protect the interest of (d) Proof, satisfactory to the commissioner, is
the purchaser or lessee, is deposited into an furnished:
escrow depository acceptable to the
(1) that security provided or contemplated to
commissioner or into a trust account acceptable
be given pursuant to the provisions of
to the commissioner to be held in the escrow
Section 66493 and Chapter 5 (commencing
depository or trust account until the legal title or
with Section 66499) of Division 2 of Title 7
other interest contracted for, whether title of
of the Government Code, has been given in
record or other interest, is delivered to the
an amount, the commissioner approves, or
purchaser or lessee or until (1) either the owner,
that the giving of such security is
subdivider, or agent or the purchaser or lessee
unnecessary; and
defaults under the contract of sale or lease and a
determination is made as to the disposition of (2) that a lien and completion bond or
the money; or (2) the owner, subdivider, or bonds, approved by the commissioner as to
agent orders the return of the money to the amount, terms and coverage and including
purchaser or lessee. within its scope all onsite construction work
to be undertaken on the lots or parcels, has
Bond
been written and issued by an admitted
(b) A bond to the State of California is furnished
surety insurer; provided, however, that this
to the commissioner for the benefit and
subdivision applies only to an owner,
protection of purchasers or lessees of the lots or
subdivider, or agent who proposes to sell or
parcels, in such amount and subject to such
lease the lots or parcels with improvements
terms as may be approved by the commissioner,
thereon in the nature of residential
which provides for the return of the money paid
structures.
or advanced by any purchaser or lessee, for or
130 BUSINESS AND PROFESSIONS CODE

Escrow – Limit of Applicability shall, unless there are grounds for denial, issue
(e) The entire sums of moneys paid or advanced to the subdivider a public report authorizing the
by the purchasers or lessees of the lots or sale or lease in this state of the lots or parcels
parcels, or such portion of the money as the within the subdivision. The report shall contain
commissioner determines is sufficient to protect the data obtained in accordance with Section
the interest of the purchaser or lessee, is 11010 and which the commissioner determines
deposited into an escrow depository or other are necessary to implement the purposes of this
agency, acceptable to the commissioner, to be article. The commissioner may publish the
held, in whole or in part, by the escrow report.
depository or other agency as provided by
The grounds for denial are:
subdivision (a) or, at the election of the owner,
subdivider, or agent, to be disbursed, in whole or (a) Failure to comply with any of the provisions
in part, for the construction of residential or in this chapter or the regulations of the
other structures to be built on the lots or parcels commissioner pertaining thereto.
within the subdivision, or such unit or units (b) The sale or lease would constitute
thereof as the commissioner determines, in such misrepresentation to or deceit or fraud of the
manner and pursuant to such instructions as the purchasers or lessees.
commissioner approves; provided, however, that
the provisions of this subdivision apply only to (c) Inability to deliver title or other interest
an owner, subdivider, or agent who proposes to contracted for.
sell or lease the lots or parcels with (d) Inability to demonstrate that adequate
improvements thereon in the nature of financial arrangements have been made for all
residential structures. offsite improvements included in the offering.
Alternative Methods (e) Inability to demonstrate that adequate
(f) There is conformance to such other financial arrangements have been made for any
alternative requirement or method the community, recreational or other facilities
commissioner deems acceptable to carry into included in the offering.
effect the intent and provisions of this part.
(f) Failure to make a showing that the parcels
Public Report can be used for the purpose for which they are
11013.5. The public report of the commissioner, offered; and in the case of a subdivision being
when issued, shall indicate the method or offered for residential purposes failure to make a
procedure selected by the owner or subdivider to showing that vehicular access and a source of
comply with the provisions of Sections 11013.1, potable domestic water either is available or will
11013.2 or 11013.4. be available.
Investigation of Subdivision Offering (g) Failure to provide in the contract or other
11014. The commissioner may investigate any writing the use or uses for which the parcels are
subdivision being offered for sale or lease in this offered, together with any covenants or
State. For the purposes of such investigations the conditions relative thereto.
commissioner may use and rely upon any
relevant information or data concerning a (h) Agreements or bylaws to provide for
subdivision obtained by him from the Federal management or other services pertaining to
Housing Administration, the United States common facilities in the offering, which fail to
Veterans Administration or any other federal comply with the regulations of the
agency having comparable duties and functions commissioner.
in relation to subdivisions or property therein. (i) Failure to demonstrate that adequate financial
Issuance or Denial of Public Report arrangements have been made for any guaranty
11018. The Real Estate Commissioner shall or warranty included in the offering.
make an examination of any subdivision, and
BUSINESS AND PROFESSIONS CODE 131

Prospective Purchaser to Receive Public Report Your ownership in this development and
11018.1. (a) A copy of the public report of the your rights and remedies as a member of its
commissioner, when issued, shall be given to the association will be controlled by governing
prospective purchaser by the owner, subdivider instruments which generally include a
or agent prior to the execution of a binding Declaration of Restrictions (also known as
contract or agreement for the sale or lease of any CC&R’s), Articles of Incorporation (or
lot or parcel in a subdivision. The requirement of association) and bylaws. The provisions of these
this section extends to lots or parcels offered by documents are intended to be, and in most cases
the subdivider after repossession. A receipt shall are, enforceable in a court of law. Study these
be taken from the prospective purchaser in a documents carefully before entering into a
form and manner as set forth in regulations of contract to purchase a subdivision interest.
the Real Estate Commissioner.
In order to provide funds for operation and
(b) A copy of the public report shall be given by maintenance of the common facilities, the
the owner, subdivider or agent at any time, upon association will levy assessments against your
oral or written request, to any member of the lot or unit. If you are delinquent in the payment
public. A copy of the public report and a of assessments, the association may enforce
statement advising that a copy of the public payment through court proceedings or your lot
report may be obtained from the owner, or unit may be liened and sold through the
subdivider or agent at any time, upon oral or exercise of a power of sale. The anticipated
written request, shall be posted in a conspicuous income and expenses of the association,
place at any office where sales or leases or offers including the amount that you may expect to pay
to sell or lease lots within the subdivision are through assessments, are outlined in the
regularly made. proposed budget. Ask to see a copy of the
budget if the subdivider has not already made it
(c) At the same time that a public report is
available for your examination.
required to be given by the owner, subdivider, or
agent pursuant to subdivision (a) with respect to A homeowner association provides a vehicle
a common interest development, as defined, in for the ownership and use of recreational and
subdivision (c) of Section 1351 of the Civil other common facilities which were designed to
Code, the owner, subdivider, or agent shall give attract you to buy in this development. The
the prospective purchaser a copy of the association also provides a means to accomplish
following statement: architectural control and to provide a base for
homeowner interaction on a variety of issues.
“COMMON INTEREST DEVELOPMENT
The purchaser of an interest in a common-
GENERAL INFORMATION
interest development should contemplate active
The project described in the attached participation in the affairs of the association. He
Subdivision Public Report is known as a or she should be willing to serve on the board of
common-interest development. Read the public directors or on committees created by the board.
report carefully for more information about the In short, “they” in a common interest
type of development. The development includes development is “you.” Unless you serve as a
common areas and facilities which will be member of the governing board or on a
owned or operated by an owners’ association. committee appointed by the board, your control
Purchase of a lot or unit automatically entitles of the operation of the common areas and
and obligates you as a member of the association facilities is limited to your vote as a member of
and, in most cases, includes a beneficial interest the association. There are actions that can be
in the areas and facilities. Since membership in taken by the governing body without a vote of
the association is mandatory, you should be the members of the association which can have a
aware of the following information before you significant impact upon the quality of life for
purchase: association members.
132 BUSINESS AND PROFESSIONS CODE

Until there is a sufficient number of proposed decision is not rendered within 45 days
purchasers of lots or units in a common interest after submission and an order adopting or
development to elect a majority of the governing rejecting the proposed decision is not issued
body, it is likely that the subdivider will within 15 days thereafter, the order of denial
effectively control the affairs of the association. shall be rescinded and a public report issued.
It is frequently necessary and equitable that the
Issuance of Public Reports on Section 11004.5
subdivider do so during the early stages of
Subdivisions
development. It is vitally important to the
11018.5. With respect to the subdivisions and
owners of individual subdivision interests that
interests of the type described in Section
the transition from subdivider to resident-owner
11004.5, and in addition to the other grounds for
control be accomplished in an orderly manner
denial of a public report as set forth in this code,
and in a spirit of cooperation.
the commissioner shall issue a public report if
When contemplating the purchase of a the commissioner finds the following with
dwelling in a common interest development, you respect to any such subdivision or interest:
should consider factors beyond the attractiveness
(a) (1) Reasonable arrangements have been
of the dwelling units themselves. Study the
made to assure completion of the
governing instruments and give careful thought
subdivision and all offsite improvements
to whether you will be able to exist happily in an
included in the offering.
atmosphere of cooperative living where the
interests of the group must be taken into account (2) If the condominium or community
as well as the interests of the individual. apartment project, stock cooperative or
Remember that managing a common interest planned development, or premises or
development is very much like governing a facilities within the common area are not
small community ... the management can serve completed prior to the issuance of a final
you well, but you will have to work for its subdivision public report on the project, the
success.” subdivider shall specify a reasonable date
for completion and shall comply with one of
Failure to provide the statement in accordance
the following conditions:
with this subdivision shall not be deemed a
violation subject to Section 10185. (A) Arranges for lien and completion
bond or bonds in an amount and subject
Public Report Required Prior to Sale or Lease
to such terms, conditions and coverage
or Offer for Sale or Lease
as the commissioner may approve to
11018.2. No person shall sell or lease, or offer
assure completion of the improvements
for sale or lease in this state any lots or parcels
lien free.
in a subdivision without first obtaining a public
report from the Real Estate Commissioner. This (B) All funds from the sale of lots or
section shall not apply to subdivisions for which parcels or such portions thereof as the
a notice of intention is not required under the commissioner shall determine are
provisions of this chapter. sufficient to assure construction of the
improvement or improvements, shall be
Right to Hearing
impounded in a neutral escrow
11018.3. Any subdivider objecting to the denial
depository acceptable to the
of a public report may, within 30 days after
commissioner until the improvements
receipt of the order of denial, file a written
have been completed and all applicable
request for a hearing. The commissioner shall
lien periods have expired; provided,
hold the hearing within 20 days thereafter unless
however, the commissioner determines
the party requesting the hearing requests a
the time for the completion is
postponement. If the hearing is not held within
reasonable.
20 days after request for a hearing is received
plus the period of the postponement or if a
BUSINESS AND PROFESSIONS CODE 133

(C) An amount sufficient to cover the maintenance, and preservation of the


costs of construction shall be deposited subdivision) as last submitted to the
in a neutral escrow depository commissioner prior to issuance of the final
acceptable to the commissioner under a public report, shall be binding upon the
written agreement providing for purchaser and occupant of every other lot,
disbursements from that escrow as work apartment, or condominium in the subdivision,
is completed. including, except with regard to a limited-equity
housing cooperative, purchasers acquiring title
(D) If the project is a condominium
by foreclosure, whether judicial or nonjudicial,
situated on a single parcel as shown on
or by deed in lieu thereof, under any mortgage
an approved final subdivision map,
or deed of trust, whether or not the mortgage or
arrange for (i) lien and completion bond
deed of trust was recorded prior to recordation
or bonds in an amount sufficient to
of the covenants, conditions and restrictions
assure lien-free completion of all
applicable to the first lot, apartment, or
common area improvements not located
condominium.
in a residential structure, and (ii)
placement of all funds, or such portions (d) Reasonable arrangements have been made
thereof as the commissioner shall for delivery of control over the subdivision and
determine are sufficient, from the sales all offsite land and improvements included in the
of condominium interests in a neutral offering, to the purchasers of lots, apartments, or
escrow depository acceptable to the condominiums in the subdivision.
commissioner. The funds for purchase
(e) Reasonable arrangements have been or will
or lease of the condominium interest
be made as to the interest of each of the
shall remain in the escrow account until
purchasers of lots, apartments, or condominiums
the residential structure in which the
in the subdivision with respect to the
purchaser’s separate unit is located has
management, maintenance, preservation,
been completed, and all lien periods
operation, use, right of resale, and control of
applicable to the purchaser’s separate
their lots, apartments, or condominiums, and
and undivided interests in the entire
such other areas or interests, whether or not
project arising out of the work of
within, or pertaining to, areas within the
improvement performed by either the
boundaries of the subdivision, as have been or
subdivider or any successor in interest to
will be made subject to the plan of control
the subdivider have expired or have
proposed by the owner and subdivider, and
been insured against in a manner
which are included in the offering. “Purchaser,”
satisfactory to the commissioner.
as used in this section, shall include within its
(E) Such other alternative plan as may meaning a lessee of the legal interests described
be approved by the commissioner. in Section 11003 of this code.
(b) The deeds, conveyances, leases, subleases, or Governing Documents – Availability and
instruments or assignment to be used are Delivery to Prospective Purchaser
adequate to transfer to the purchasers the legal 11018.6. Any person offering to sell or lease any
interests and uses which the owner or subdivider interest subject to the requirements of
represents the purchasers will receive. subdivision (a) of Section 11018.1 in a
subdivision described in Section 11004.5 shall
(c) After transfer of title to the first lot,
make a copy of each of the following documents
apartment, or condominium in the subdivision to
available for examination by a prospective
any purchaser, the provisions of the declaration
purchaser or lessee before the execution of an
of restrictions, articles of incorporation, bylaws,
offer to purchase or lease and shall give a copy
management contracts (and the provisions of
thereof to each purchaser or lessee as soon as
any and all other documents establishing, in
practicable before transfer of the interest being
whole or in part, the plan for use, enjoyment,
134 BUSINESS AND PROFESSIONS CODE

acquired by the purchaser or lessee: form the basis for denial of a public report under
Sections 11018 or 11018.5.
(a) The declaration of covenants, conditions, and
restrictions for the subdivision. An application for consent may be filed by any
interested person on a form prescribed by the
(b) Articles of incorporation or association for
commissioner. A filing fee to be fixed by
the subdivision owners association.
regulation, but not to exceed twenty-five dollars
(c) Bylaws for the subdivision owners ($25), shall accompany each application.
association.
There shall be no official meeting of owners or
(d) Any other instrument which establishes or members nor any written solicitation of them for
defines the common, mutual, and reciprocal the purpose of effectuating a change referred to
rights, and responsibilities of the owners or herein except in accordance with a procedure
lessees of interests in the subdivision as approved by the commissioner after the
shareholders or members of the subdivision application for consent has been filed with him
owners association or otherwise. or her; provided, however, that the governing
(e) To the extent available, the current financial body of the owners association may meet and
information and related statements as specified vote on the question of submission of the
in subdivision (a) of Section 1365 of the Civil proposed change to the commissioner.
Code, for subdivisions subject to those Conditional Public Report
provisions. 11018.12. (a) The commissioner may issue a
(f) A statement prepared by the governing body conditional public report for a subdivision
of the association setting forth the outstanding specified in Section 11004.5 if the requirements
delinquent assessments and related charges of subdivision (e) are met, all deficiencies and
levied by the association against the subdivision substantive inadequacies in the documents that
interests in question under authority of the are required to make an application for a final
governing instruments for the subdivision and public report for the subdivision substantially
association. complete have been corrected, the material
elements of the setup of the offering to be made
Governing Documents – Amendments under the authority of the conditional public
11018.7. (a) No amendment or modification of report have been established, and all
provisions in the declaration of restrictions, requirements for the issuance of a public report
bylaws, articles of incorporation or other set forth in the regulations of the commissioner
instruments controlling or otherwise affecting have been satisfied, except for one or more of
rights to ownership, possession, or use of the following requirements, as applicable:
interests in subdivisions as defined in Sections
11000.1 and 11004.5 which would materially (1) A final map has not been recorded.
change those rights of an owner, either directly (2) A condominium plan pursuant to
or as a member of an association of owners, is subdivision (e) of Section 1351 of the Civil
valid without the prior written consent of the Code has not been recorded.
Real Estate Commissioner during the period of
(3) A declaration of covenants, conditions,
time when the subdivider or his or her successor
and restrictions pursuant to Section 1353 of
in interest holds or directly controls as many as
the Civil Code has not been recorded.
one-fourth of the votes that may be cast to effect
that change. (4) A declaration of annexation has not been
recorded.
(b) The commissioner shall not grant his or her
consent to the submission of the proposed (5) A recorded subordination of existing
change to a vote of owners or members if he or liens to the declaration of covenants,
she finds that the change if effected would create conditions, and restrictions or declaration of
a new condition or circumstance that would annexation, or escrow instructions to effect
BUSINESS AND PROFESSIONS CODE 135

recordation prior to the first sale, are makes the application qualitatively
lacking. incomplete.
(6) Filed articles of incorporation are (c) A decision by the commissioner to not issue
lacking. a conditional public report shall be noticed in
writing to the applicant within five business days
(7) A current preliminary report of a
and that notice shall specifically state the
licensed title insurance company issued after
reasons why the report is not being issued.
filing of the final map and recording of the
declaration covering all subdivision interests (d) Notwithstanding the provisions of Section
to be included in the public report has not 11018.2, a person may sell or lease, or offer for
been provided. sale or lease, lots or parcels in a subdivision
pursuant to a conditional public report if, as a
(8) Other requirements the commissioner
condition of the sale or lease or offer for sale or
determines are likely to be timely satisfied
lease, delivery of legal title or other interest
by the applicant, notwithstanding the fact
contracted for will not take place until issuance
that the failure to meet these requirements
of a public report and provided that the
makes the application qualitatively
requirements of subdivision (e) are met.
incomplete.
(e) (1) Evidence shall be supplied that all
(b) The commissioner may issue a conditional
purchase money will be deposited in
public report for a subdivision not referred to or
compliance with subdivision (a) of Section
specified in Section 11000.1 or 11004.5 if the
11013.2 or subdivision (a) of Section
requirements of subdivision (e) are met, all
11013.4, and in the case of a subdivision
deficiencies and substantive inadequacies in the
referred to in subdivision (a) of this section,
documents that are required to make an
evidence shall be given of compliance with
application for a final public report for the
paragraphs (1) and (2) of subdivision (a) of
subdivision substantially complete have been
Section 11018.5.
corrected, the material elements of the setup of
the offering to be made under the authority of (2) A description of the nature of the
the conditional public report have been transaction shall be supplied.
established, and all requirements for issuance of
(3) Provision shall be made for the return of
a public report set forth in the regulations of the
the entire sum of money paid or advanced
commissioner have been satisfied, except for
by the purchaser if a subdivision public
one or more of the following requirements, as
report has not been issued during the term of
applicable:
the conditional public report, or as extended,
(1) A final map has not been recorded. or the purchaser is dissatisfied with the
public report because of a change pursuant
(2) A declaration of covenants, conditions,
to Section 11012.
and restrictions has not been recorded.
(f) A subdivider, principal, or his or her agent
(3) A current preliminary report of a
shall provide a prospective purchaser a copy of
licensed title insurance company issued after
the conditional public report and a written
filing of the final map and recording of the
statement including all of the following:
declaration covering all subdivision interests
to be included in the public report has not (1) Specification of the information required
been provided. for issuance of a public report.
(4) Other requirements the commissioner (2) Specification of the information required
determines are likely to be timely satisfied in the public report that is not available in
by the applicant, notwithstanding the fact the conditional public report, along with a
that the failure to meet these requirements statement of the reasons why that
136 BUSINESS AND PROFESSIONS CODE

information is not available at the time of Environmental Quality Act – Commissioner


issuance of the conditional public report. Not Responsible Agency
11018.14. The commissioner shall not be a
(3) A statement that no person acting as a
responsible agency for purposes of the
principal or agent shall sell or lease, or offer
California Environmental Quality Act (Division
for sale or lease, lots or parcels in a
13 (commencing with Section 21000), Public
subdivision for which a conditional public
Resources Code). Receipt by the commissioner
report has been issued except as provided in
of a copy of an environmental impact report or
this article.
negative declaration prepared pursuant to the
(4) Specification of the requirements of California Environmental Quality Act shall be
subdivision (e). conclusive evidence of compliance with that act
(g) The prospective purchaser shall sign a for purposes of issuing a subdivision public
receipt that he or she has received and has read report.
the conditional public report and the written Desist and Refrain Order
statement provided pursuant to subdivision (f). 11019. (a) Whenever the commissioner
(h) The term of a conditional public report shall determines from available evidence that a person
not exceed six months, and may be renewed for has done any of the following, the commissioner
one additional term of six months if the may order the person to desist and refrain from
commissioner determines that the requirements those acts and omissions or from the further sale
for issuance of a public report are likely to be or lease of interests in the subdivision until the
satisfied during the renewal term. condition has been corrected:

(i) The term of a conditional public report for (1) Has violated or caused the violation of
attached residential condominium units, as any provision of this part or the regulations
defined pursuant to Section 783 of the Civil pertaining thereto.
Code, consisting of 25 units or more as specified (2) Has violated or caused a violation of
on the approved tentative tract map, shall not Section 17537, 17537.1, or 17539.1, in
exceed 30 months and may be renewed for one advertising or promoting the sale of
additional term of six months if the subdivision interests.
commissioner determines that the requirements
(3) Has failed to fulfill representations or
for issuance of a public report are likely to be
assurances with respect to the subdivision or
satisfied during the renewal term.
the subdivision offering upon which the
Abandonment of Application for Public Report department relied in issuing a subdivision
– Regulations public report.
11018.13. (a) After written notice to the
(4) Has failed to inform the department of
subdivider, or the subdivider’s representative,
material changes that have occurred in the
the commissioner may abandon any application
subdivision or subdivision offering which
for a subdivision public report if the data
have caused the subdivision public report to
required by Section 11010 has not been
be misleading or inaccurate or which would
furnished within three years from the date a
have caused the department to deny a public
notice of intention is filed for a subdivision
report if the conditions had existed at the
public report.
time of issuance.
(b) The commissioner shall adopt regulations
(b) Upon receipt of such an order, the person or
establishing time periods for notifying the
persons to whom the order is directed shall
subdivider, or the subdivider’s representative, of
immediately discontinue activities in accordance
the intention to abandon a file, and establishing
with the terms of the order.
hardship or justifiable extenuating circumstances
the commissioner deems acceptable.
BUSINESS AND PROFESSIONS CODE 137

(c) Any person to whom the order is directed action or proceeding, either civil or criminal
may, within 30 days after service thereof upon involving any violation of this chapter, the cause
him, file with the commissioner a written of action shall be deemed to have accrued not
request for hearing to contest the order. The earlier than the time of recording with the
commissioner shall after receipt of a request for county recorder of the county in which the
hearing assign the matter to the Office of property is situated of any deed, lease or contract
Administrative Hearings to conduct a hearing of sale conveying property sold or leased in
for findings of fact and determinations of the violation of this chapter and which describes a
issues set forth in the order. If the hearing is not lot or parcel so wrongfully sold or leased.
commenced within 15 days after receipt of the
Nonrecording Does Not Prohibit Action
request for hearing, or on the date to which
This section does not prohibit the maintenance
continued with the agreement of the person
of any such action at any time before the
requesting the hearing, or if the decision of the
recording of such instruments.
commissioner is not rendered within 30 days
after completion of the hearing, the order shall False Subdivision Advertising
be deemed to be vacated. 11022. (a) It is unlawful for an owner,
subdivider, agent or employee of a subdivision
(d) Service and proof of service of an order
or other person, with intent directly or indirectly
issued by the commissioner pursuant to this
to sell or lease subdivided lands or lots or
section may be made in a manner and upon such
parcels therein, to authorize, use, direct, or aid in
persons as prescribed for the service of
the publication, distribution, or circularization of
summons in Article 3 (commencing with
an advertisement, radio broadcast, or telecast
Section 415.10), Article 4 (commencing with
concerning subdivided lands, that contains a
Section 416.10) and Article 5 (commencing with
statement, pictorial representation, or sketch that
Section 417.10) of Chapter 4 of Title 5 of Part 2,
is false or misleading.
of the Code of Civil Procedure.
(b) An owner, subdivider, agent, or employee of
False Public Report – Public Offense – Penalty
an owner or subdivider may, prior to the use,
11020. (a) It shall be unlawful for any person to
publication, distribution, or circulation of any
make, issue, publish, deliver, or transfer as true
advertisement concerning subdivided lands,
and genuine any public report which is forged,
submit the same to the department for approval.
altered, false, or counterfeit, knowing it to be
The submission shall be accompanied by a fee
forged, altered, false, or counterfeit or to cause
of not more than seventy-five dollars ($75). The
to be made or participate in the making,
commissioner shall prescribe by regulation the
issuance, delivery, transfer, or publication of a
amount of the fee.
public report with knowledge that it is forged,
altered, false, or counterfeit. If disapproval of the proposed advertisement is
not communicated by the department to the
(b) Any person who violates subdivision (a) is
owner, subdivider, agent, or employee within 15
guilty of a public offense punishable by a fine
calendar days after receipt of the copy of the
not exceeding ten thousand dollars ($10,000) or
proposed advertisement, the advertisement shall
by imprisonment in the state prison, or in the
be deemed approved, but the department shall
county jail not exceeding one year, or by both
not be stopped from disapproving a later
that fine and imprisonment.
distribution, circulation, or use of the same or
(c) The penalty provided by this section is not an similar advertising.
exclusive penalty, and does not affect any other
(c) Nothing in this section shall be construed to
penalty, relief, or remedy provided by law.
hold the publisher or employee of any
Statute of Limitations newspaper, or any job printer, or any
11021. For the purpose of calculating the period broadcaster, or telecaster, or any magazine
of any applicable statute of limitations in any publisher, or any of the employees thereof, liable
138 BUSINESS AND PROFESSIONS CODE

for any publication herein referred to unless the industry continues to grow, both in volume of
publisher, employee, or printer has actual sales and in complexity and variety of product
knowledge of the falsity thereof or has an structures; and that a uniform and consistent
interest either as an owner or agent in the method of regulation is necessary in order to
subdivided lands so advertised. safeguard California’s tourism industry and the
state’s economic well-being.
Violation Constitutes Public Offense
11023. Any person who violates Section 11010, (d) In order to protect the quality of California
11010.1, 11010.8, 11013.1, 11013.2, 11013.4, time-share plans and the consumers who
11018.2, 11018.7, 11018.9, 11018.10, 11018.11, purchase them, it is the intent of the Legislature
11019, or 11022 is guilty of a public offense that this chapter be interpreted broadly in order
punishable by a fine not exceeding ten thousand to encompass all forms of time-share plans with
dollars ($10,000) or by imprisonment in the state a duration of at least three years that are created
prison, or in a county jail not exceeding one with respect to accommodations that are located
year, or by both that fine and imprisonment. in the state or that are offered for sale in the
state, including, but not limited to,
Article 3. Contents of Sales Contracts condominiums, cooperatives, vacation clubs,
Sales Contracts – Contents and multisite vacation plans.
11200. Every sales contract relating to the (e) It is the intent of the Legislature that this
purchase of real property in a subdivision as chapter not be interpreted to preempt the
defined in this chapter shall clearly set forth the application of, the enforcement of, or alter the
legal description of the property, of the standards of, the general consumer protection
encumbrances outstanding at the date of the laws of this state set forth in Sections 17200 to
sales contract, and the terms of the contract. 17209, inclusive, and Sections 17500 to
CHAPTER 2. THE VACATION OWNERSHIP 17539.1, inclusive, of the Business and
AND TIME-SHARE ACT OF 2004 Professions Code.
Scope of the Act
Article 1. General Provisions
11211.5. (a) This chapter applies to all of the
“Vacation Ownership and Time-Share Act of following:
2004”
(1) Time-share plans with an
11210. This chapter may be cited as the
accommodation or component site in this
Vacation Ownership and Time-share Act of
state.
2004.
(2) Time-share plans without an
Purpose of the Act
accommodation or component site in this
11211. The purposes of this chapter are to do all
state, if those time-share plans are sold or
of the following:
offered to be sold to any individual located
(a) Provide full and fair disclosure to the within this state.
purchasers and prospective purchasers of time-
(3) Exchange programs as defined in this
share plans.
chapter.
(b) Require certain time-share plans offered for
(4) Short-term products as defined in this
sale or created and existing in this state to be
chapter.
subject to the provisions of this chapter.
(b) This chapter does not apply to any of the
(c) Recognize that the tourism industry in this
following:
state is a vital part of the state’s economy; that
the sale, promotion, and use of time-share plans (1) Time-share plans, whether or not an
is an emerging, distinct segment of the tourism accommodation is located in this state,
industry; that this segment of the tourism consisting of 10 or fewer time-share
BUSINESS AND PROFESSIONS CODE 139

interests. Use of an exchange program by Interest Development Act, the applicable


owners of time-share interests to secure provisions of this chapter shall control.
access to other accommodations shall not
(2) To the extent that a time-share plan is
affect this exemption.
part of a mixed use project where the time-
(2) Time-share plans, whether or not an share plan comprises a portion of a
accommodation is located in this state, the condominium or other common interest
use of which extends over any period of development, the applicable provisions of
three years or less. this chapter shall apply to that portion of the
project uniquely comprising the time-share
(3) Time-share plans, whether or not an
plan, and the Davis-Stirling Common
accommodation is located in this state,
Interest Development Act shall apply to the
under which the prospective purchaser's
project as a whole.
total financial obligation will be equal to or
less than three thousand dollars ($3,000) (c) (1) The offering of any time-share plan,
during the entire term of the time-share plan. exchange program, incidental benefit, or
short term product in this state that is subject
(c) For purposes of determining the term of a
to the provisions of this chapter shall be
time-share plan, the period of any renewal or
exempt from Sections 1689.5 to 1689.14,
renewal option shall be included.
inclusive, of the Civil Code (Home
(d) Single site time-share plans located outside Solicitation Sales), Sections 1689.20 to
the state and component sites of multisite time- 1689.24, inclusive, of the Civil Code
share plans located outside the state, that are (Seminar Sales), and Sections 1812.100 to
offered for sale or sold in this state are subject 1812.129, inclusive, of the Civil Code
only to Sections 11210 to 11219, inclusive, (Contracts for Discount Buying Services).
Sections 11225 to 11246, inclusive, Sections
(2) A developer or exchange company that,
11250 to 11256, inclusive, paragraphs (1), (2),
in connection with a time-share sales
(3), and (4) of subdivision (a), and subdivisions
presentation or offer to arrange an exchange,
(b) and (c), of Section 11265, subdivision (g) of
offers a purchaser the opportunity to utilize
Section 11266, subdivisions (a) and (c) of
the services of an affiliate, subsidiary, or
Section 11267, Sections 11272 and 11273,
third-party entity in connection with
subdivisions (b), (c), and (d) of Section 11274,
wholesale or retail air or sea transportation,
and Sections 11280 to 11287, inclusive.
shall not, in and of itself, cause the
Exemptions and Exceptions developer or exchange company to be
11211.7. (a) Any time-share plan registered considered a seller of travel subject to
pursuant to this chapter to which the Davis- Sections 17550 to 17550.34, inclusive, of
Stirling Common Interest Development Act the Business and Professions Code, so long
(Chapter 1 (commencing with Section 1350) of as the entity that actually provides or
Part 4 of Division 2 of the Civil Code) might arranges the air or sea transportation is
otherwise apply is exempt from that act, except registered as a seller of travel with the
for Sections 1354, 1355, 1355.5, 1356, 1357, California Attorney General’s office or is
1358, 1361, 1361.5, 1362, 1363.05, 1364, otherwise exempt under those sections.
1365.5, 1370, and 1371 of the Civil Code.
(d) To the extent certain sections in this chapter
(b) (1) To the extent that a single site time-share require information and disclosure that by their
plan or component site of a multisite time- terms only apply to real property time-share
share plan located in the state is structured plans, those requirements shall not apply to
as a condominium or other common interest personal property time-share plans.
development, and there is any inconsistency
between the applicable provisions of this
chapter and the Davis-Stirling Common
140 BUSINESS AND PROFESSIONS CODE

Definitions (2) Conspicuous type may be utilized in


11212. As used in this chapter, the following contracts for purchase or public permits only
definitions apply: where required by law or as authorized by
the commissioner.
(a) “Accommodation” means any apartment,
condominium or cooperative unit, cabin, lodge, (h) “Department” means the Department of Real
hotel or motel room, or other private or Estate.
commercial structure containing toilet facilities
(i) “Developer” means and includes any person
therein that is designed and available, pursuant
who creates a time-share plan or is in the
to applicable law, for use and occupancy as a
business of selling time-share interests, other
residence by one or more individuals, or any unit
than those employees or agents of the developer
or berth on a commercial passenger ship, which
who sell time-share interests on the developer’s
is included in the offering of a time-share plan.
behalf, or employs agents to do the same, or any
(b) “Advertisement” means any written, oral, or person who succeeds to the interest of a
electronic communication that is directed to or developer by sale, lease, assignment, mortgage,
targeted to persons within the state or such a or other transfer, but the term includes only
communication made from this state or relating those persons who offer time-share interests for
to a time-share plan located in this state and disposition in the ordinary course of business.
contains a promotion, inducement, or offer to
(j) “Dispose” or “disposition” means a voluntary
sell a time-share plan, including, but not limited
transfer or assignment of any legal or equitable
to, brochures, pamphlets, radio and television
interest in a time-share plan, other than the
scripts, electronic media, telephone and direct
transfer, assignment, or release of a security
mail solicitations, and other means of
interest.
promotion.
(k) “Exchange company” means any person
(c) “Association” means the organized body
owning or operating, or both owning and
consisting of the purchasers of time-share
operating, an exchange program.
interests in a time-share plan.
(l) “Exchange program” means any method,
(d) “Assessment” means the share of funds
arrangement, or procedure for the voluntary
required for the payment of common expenses
exchange of time-share interests or other
which is assessed from time to time against each
property interests. The term does not include the
purchaser by the managing entity.
assignment of the right to use and occupy
(e) “Commissioner” means the Real Estate accommodations to owners of time-share
Commissioner. interests within a single site time-share plan.
Any method, arrangement, or procedure that
(f) “Component site” means a specific
otherwise meets this definition in which the
geographic location where accommodations that
purchaser’s total contractual financial obligation
are part of a multisite time-share plan are
exceeds three thousand dollars ($3,000) per any
located. Separate phases of a time-share property
individual, recurring time-share period, shall be
in a specific geographic location and under
regulated as a time-share plan in accordance
common management shall not be deemed a
with this chapter. For purposes of determining
component site.
the purchaser’s total contractual financial
(g) “Conspicuous type” means either of the obligation, amounts to be paid as a result of
following: renewals and options to renew shall be included
(1) Type in upper and lower case letters two in the term except for the following: (1) amounts
point sizes larger than the nearest to be paid as a result of any optional renewal
nonconspicuous type, exclusive of headings, that a purchaser, in his or her sole discretion
on the page on which it appears but in at may elect to exercise, (2) amounts to be paid as
least 10-point type. a result of any automatic renewal in which the
BUSINESS AND PROFESSIONS CODE 141

purchaser has a right to terminate during the prospective purchaser receiving a vacation,
renewal period at any time and receive a pro rata discount vacation, gift, or prize, used by a
refund for the remaining unexpired renewal developer, or an agent, independent contractor,
term, or (3) amounts to be paid as a result of an or employee of any of the same on behalf of the
automatic renewal in which the purchaser developer, in connection with the offering and
receives a written notice no less than 30 nor sale of time-share interests in a time-share plan.
more than 90 days prior to the date of renewal
(r) “Public report” means a preliminary public
informing the purchaser of the right to terminate
report, conditional public report, final public
prior to the date of renewal. Notwithstanding
report, or other such disclosure document
these exceptions, if the contractual financial
authorized for use in connection with the
obligation exceeds three thousand dollars
offering of time-share interests pursuant to this
($3,000) for any three-year period of any
chapter.
renewal term, amounts to be paid as a result of
that renewal shall be included in determining the (s) “Purchaser” means any person, other than a
purchaser’s total contractual financial obligation. developer, who by means of a voluntary transfer
for consideration acquires a legal or equitable
(m) “Incidental benefit” is an accommodation,
interest in a time-share plan other than as
product, service, discount, or other benefit, other
security for an obligation.
than an exchange program, that is offered to a
prospective purchaser of a time-share interest (t) “Purchase contract” means a document
prior to the end of the rescission period set forth pursuant to which a developer becomes legally
in Section 11238, the continuing availability of obligated to sell, and a purchaser becomes
which for the use and enjoyment of owners of legally obligated to buy, a time-share interest.
time-share interests in the time-share plan is (u) “Reservation system” means the method,
limited to a term of not more than three years, arrangement, or procedure by which a purchaser,
subject to renewal or extension. The term shall in order to reserve the use or occupancy of any
not include an offer of the use of the accommodation of a multisite time-share plan
accommodation, product, service, discount, or for one or more time-share periods, is required
other benefit on a free or discounted one-time to compete with other purchasers in the same
basis. multisite time-share plan, regardless of whether
(n) “Managing entity” means the person who the reservation system is operated and
undertakes the duties, responsibilities, and maintained by the multisite time-share plan
obligations of the management of a time-share managing entity, an exchange company, or any
plan. other person. If a purchaser is required to use an
exchange program as the purchaser’s principal
(o) “Offer” means any inducement, solicitation,
means of obtaining the right to use and occupy
or other attempt, whether by marketing,
accommodations in a multisite time-share plan,
advertisement, oral or written presentation, or
that arrangement shall be deemed a reservation
any other means, to encourage a person to
system. When an exchange company utilizes a
acquire a time-share interest in a time-share
mechanism for the exchange of use of time-
plan, other than as security for an obligation.
share periods among members of an exchange
(p) “Person” means a natural person, program, that utilization is not a reservation
corporation, limited liability company, system of a multisite time-share plan.
partnership, joint venture, association, estate,
(v) “Short-term product” means the right to use
trust, government, governmental subdivision or
accommodations on a one-time or recurring
agency, or other legal entity, or any combination
basis for a period or periods not to exceed 30
thereof.
days per stay and for a term of three years or
(q) “Promotion” means a plan or device, less, and that includes an agreement that all or a
including one involving the possibility of a portion of the consideration paid by a person for
142 BUSINESS AND PROFESSIONS CODE

the short-term product will be applied to or (A) A “specific time-share interest,”


credited against the price of a future purchase of which is the right to use
a time-share interest or that the cost of a future accommodations at a specific time-share
purchase of a time-share interest will be fixed or property, together with use rights in
locked-in at a specified price. accommodations at one or more other
component sites created by or acquired
(w) “Time-share instrument” means one or more
through the time-share plan’s
documents, by whatever name denominated,
reservation system.
creating or governing the operation of a time-
share plan and includes the declaration (B) A “nonspecific time-share interest,”
dedicating accommodations to the time-share which is the right to use
plan. accommodations at more than one
component site created by or acquired
(x) “Time-share interest” means and includes
through the time-share plan’s
either of the following:
reservation system, but including no
(1) A “time-share estate,” which is the right specific right to use any particular
to occupy a time-share property, coupled accommodations.
with a freehold estate or an estate for years
(aa) “Time-share property” means one or more
with a future interest in a time-share
accommodations subject to the same time-share
property or a specified portion thereof.
instrument, together with any other property or
(2) A “time-share use,” which is the right to rights to property appurtenant to those
occupy a time-share property, which right is accommodations.
neither coupled with a freehold interest, nor
Title
coupled with an estate for years with a
11213. Each time-share estate, as specified in
future interest, in a time-share property.
paragraph (1) of subdivision (x) of Section
(y) “Time-share period” means the period or 11212, constitutes, for purposes of title, a
periods of time when the purchaser of a time- separate estate or interest in real property
share plan is afforded the opportunity to use the including ownership in real property for tax
accommodations of a time-share plan. purposes.
(z) “Time-share plan” means any arrangement, Developer Responsibility
plan, scheme, or similar device, other than an 11214. (a) The developer shall supervise,
exchange program, whether by membership manage, and control all aspects of the offering of
agreement, sale, lease, deed, license, right to use the time-share plan by or on behalf of the
agreement, or by any other means, whereby a developer, including, but not limited to,
purchaser, in exchange for consideration, promotion, advertising, contracting, and closing.
receives ownership rights in or the right to use The developer is responsible for each time-share
accommodations for a period of time less than a plan registered with the commissioner and for
full year during any given year, on a recurring the actions of any sales or marketing entity
basis for more than one year, but not necessarily utilized by the developer in the offering or
for consecutive years. A time-share plan may be selling of any registered time-share plan.
either of the following:
(b) Any violation of this chapter that occurs
(1) A “single site time-share plan,” which is during the offering activities shall be deemed to
the right to use accommodations at a single be a violation by the developer as well as by the
time-share property. person who actually committed the violation.
(2) A “multisite time-share plan,” which Time-Share Instrument
includes either of the following: 11215. (a) The time-share instrument shall
prohibit a person from seeking or obtaining,
through any legal procedures, judicial partition
BUSINESS AND PROFESSIONS CODE 143

of the time-share interest or sale of the time- (4) A copy of the form of the contract
share interest, in lieu of partition and shall between the purchaser and the exchange
subordinate all rights that a time-share interest company, along with a statement that the
owner might otherwise have as a tenant-in- purchaser’s contract with the exchange
common in real property to the terms of the company is a contract separate and distinct
time-share instrument. from the purchaser’s contract with the seller
of time-share interests.
(b) Subdivision (a) shall not be deemed to
prohibit a sale of an accommodation upon (5) Whether the purchaser’s participation in
termination of the time-share plan or the the exchange program is dependent upon the
removal of an accommodation from the time- continued affiliation of the applicable time-
share plan in accordance with applicable share plan with the exchange program.
provisions of the time-share instrument.
(6) Whether the purchaser’s participation in
Exchange Program the exchange program is voluntary.
11216. (a) An exchange program is not a part of
(7) A fair and accurate description of the
a time-share plan offering and, except as
terms and conditions of the purchaser’s
provided in this section and Section 11238, shall
contractual relationship with the exchange
not be subject to either this chapter or the
program and the procedure by which
regulations of the commissioner adopted
changes thereto may be made.
pursuant to this chapter.
(8) A fair and accurate description of the
(b) If a developer offers a purchaser the
procedures necessary to qualify for and
opportunity to subscribe to or to become a
effectuate exchanges.
member of an exchange program, the developer
shall provide to the purchaser in writing all of (9) A fair and accurate description of all
the information set forth in paragraphs (1) to limitations, restrictions, and priorities
(17), inclusive. If the exchange company is employed in the operation of the exchange
offering directly to the purchaser the opportunity program, including, but not limited to,
to subscribe to or become a member of an limitations on exchanges based on
exchange company, the exchange company shall seasonality, accommodation size, or levels
provide to the purchaser in writing all of the of occupancy, expressed in conspicuous
information set forth in paragraphs (1) to (17), type. If those limitations, restrictions, or
inclusive. In either case, the written information priorities are not uniformly applied by the
shall be provided prior to or concurrently with exchange company, the information shall
the execution of any contract or subscription for include a clear description of the manner in
membership in the exchange program. which they are applied.
(1) The name and address of the exchange (10) Whether exchanges are arranged on a
company. space available basis and whether any
guarantees of fulfillment of specific requests
(2) The names of all officers, directors, and
for exchanges are made by the exchange
shareholders of the exchange company.
company.
(3) Whether the exchange company or any
(11) Whether and under what circumstances
of its officers or directors have any legal or
an owner, in dealing with the exchange
beneficial interest in any developer or
program, may lose the right to use and
managing entity for any time-share plan
occupy an accommodation of the time-share
participating in the exchange program and,
plan during a reserved use period with
if so, the identity of the time-share plan and
respect to any properly applied for exchange
the nature of the interest.
without being provided with substitute
accommodations by the exchange program.
144 BUSINESS AND PROFESSIONS CODE

(12) The fees or range of fees for program divided by the number of
participation by owners in the exchange exchanges properly applied for, together
program, a statement of whether any such with a complete and accurate statement
fees may be altered by the exchange of the criteria used to determine whether
company and the circumstances under which an exchange request was properly
alterations may be made. applied for.
(13) The name and address of the site of (D) The number of use periods for
each accommodation included within a which the exchange program has an
time-share plan participating in the outstanding obligation to provide an
exchange program. exchange to an owner who relinquished
a use period during a particular year in
(14) The number of accommodations in each
exchange for a use period in any future
time-share plan that are available for
year.
occupancy and that qualify for participation
in the exchange program, expressed within (E) The number of exchanges confirmed
the following numerical groups: 1-5; 6-10; by the exchange program during the
11-20; 21-50; and 51 and over. year.
(15) The number of currently enrolled (F) A statement in conspicuous type to
owners for each time-share plan the effect that the percentage described
participating in the exchange program, in subparagraph (C) is a summary of the
expressed within the following numerical exchange requests entered with the
groups: 1-100; 101-249; 250-499; 500-999; exchange program in the period reported
and 1,000 and over; and a statement of the and that the percentage does not indicate
criteria used to determine those owners who the probabilities of an owner’s being
are currently enrolled with the exchange confirmed to any specific choice or
program. range of choices.
(16) The disposition made by the exchange (c) All written, visual, and electronic
company of use periods deposited with the communications relating to an exchange
exchange program by owners enrolled in the company or an exchange program shall be filed
exchange program and not used by the with the commissioner upon its request.
exchange company in effecting exchanges.
(d) The failure of an exchange company to
(17) The following information for the observe the requirements of this section, and the
preceding calendar year, which shall be use of any unfair or deceptive act or practice in
independently audited by a certified public connection with the operation of an exchange
accountant in accordance with the standards program, is a violation of this chapter.
of the Accounting Standards Board of the
(e) An exchange company may elect to deny
American Institute of Certified Public
exchange privileges to any owner whose use of
Accountants and reported annually no later
the accommodations of the owner’s time-share
than August 1 of each year:
plan is denied, and no exchange program or
(A) The number of owners currently exchange company shall be liable to any of its
enrolled in the exchange program. members or any third parties on account of any
such denial of exchange privileges.
(B) The number of time-share plans that
have current affiliation agreements with Exempt Communications
the exchange program. 11217. (a) The following communications shall
not be deemed an advertisement or promotion
(C) The percentage of confirmed
and are exempt from this chapter so long as the
exchanges, which is the number of
exchanges confirmed by the exchange
BUSINESS AND PROFESSIONS CODE 145

communications are in compliance with Section not constitute a solicitation of a time-share


11245: interest, shall be exempt from this chapter.
(1) Any stockholder communication, such as Interest in Subdivided Lands
an annual report or interim financial report, 11218. A time-share interest in a time-share plan
proxy material, a registration statement, a shall be deemed an interest in subdivided lands
securities prospectus, a registration, a or a subdivision for purposes of subdivision (f)
property report, or other material required to of Section 25100 of the Corporations Code.
be delivered to a prospective purchaser by
Qualified Resort Vacation Club Projects, Time-
an agency of any state or the federal
Shares and Injunctions
government.
11219. (a) Time-share plans registered as
(2) Any oral or written statement Qualified Resort Vacation Club Projects under
disseminated by a developer to broadcast or prior law shall continue to operate under that
print media, other than paid advertising or prior law notwithstanding anything in this
promotional material, regarding plans for the chapter to the contrary.
acquisition or development of time-share
(b) (1) All registrations of time-share plans in
property. However, any rebroadcast or any
effect on the effective date of this chapter
other dissemination of the oral statements to
shall remain in full force and effect and shall
a prospective purchaser by a developer or
be considered registered pursuant to this
any person in any manner, or any
chapter.
distribution of copies of newspaper
magazine articles or press releases, or any (2) All time-share plans included in this
other dissemination of the written statements subdivision are subject to Sections 11217,
to a prospective purchaser by a developer or 11219, 11238, 11239, 11245, 11250, and
any person in any manner, shall constitute 11280 to 11286, inclusive, and shall be
an advertisement. required to comply with the other provisions
of this chapter at the time they seek
(3) Any advertisement or promotion in any
amendment or renewal of their existing
medium to the general public if the
registrations. When an amendment or
advertisement or promotion clearly states
renewal of a time-share plan is filed with the
that it is not an offer in any jurisdiction in
commissioner, the existing registration
which any applicable registration
continues in full force and effect while the
requirements have not been fully satisfied.
amendment or renewal is pending before the
(4) Any audio, written, or visual publication commissioner.
or material relating to the availability of any
(c) Any existing injunction or temporary
accommodations for transient rental, so long
restraining order validly obtained that prohibits
as a sales presentation is not a term or
unregistered practice of time-share developers,
condition of the availability of the
time-share plans, or their agents shall not be
accommodations and so long as the failure
invalidated by the enactment of this chapter and
of any transient renter to take a tour of a
shall continue to have full force and effect on
time-share property or attend a sales
and after the effective date of this chapter.
presentation does not result in any reduction
in the level of services that would otherwise Article 2. Registration, Sale
be available to the transient renter. Requirements, and Fees
(b) Any communication regarding a time-share Registration, Sale Requirements
interest that is addressed to any person who has 11225. A person shall not be required to register
previously executed a contract for the sale or a time-share plan with the commissioner
purchase of that time-share interest and that does pursuant to this chapter if any of the following
applies:
146 BUSINESS AND PROFESSIONS CODE

(a) The person is an owner of a time-share OR BY HAND-DELIVERY. ANY ATTEMPT


interest who has acquired the time-share interest TO OBTAIN A WAIVER OF YOUR
for the person’s own use and occupancy and CANCELLATION RIGHT IS VOID AND OF
who later offers it for resale. NO EFFECT.
(b) The person is a managing entity or an (c) The person is conveyed, assigned, or
association that is not otherwise a developer of a transferred more than seven time-share interests
time-share plan in its own right, solely while from a developer in a single voluntary or
acting as an association or under a contract with involuntary transaction and subsequently
an association to offer or sell a time-share conveys, assigns, or transfers all of the time-
interest transferred to the association through share interests received from the developer to a
foreclosure, deed in lieu of foreclosure, or single purchaser in a single transaction.
gratuitous transfer, if these acts are performed in
(d) (1) The developer is offering or disposing of
the regular course of, or as an incident to, the
a time-share interest to a purchaser who has
management of the association for its own
previously acquired a time-share interest
account in the time-share plan. Notwithstanding
from the same developer if the developer
the exemption from registration, the association
has a time-share plan registered under this
or managing entity shall provide each purchaser
chapter, which was originally approved by
of a time-share interest covered by this
the commissioner within the preceding
subdivision a copy of the time-share
seven years, and the developer complies in
instruments, a copy of the then-current budget, a
all respects with the provisions of Section
written statement of the then-current assessment
11245, and, further, provides the purchaser
amounts, and shall provide the purchaser the
with (A) a cancellation period of at least
opportunity to rescind the purchase within seven
seven days, (B) all the time-share disclosure
days after receipt of these documents.
documents that are required to be provided
Immediately prior to the space reserved in the
to purchasers as if the sale occurred in the
contract for the signature of the purchaser, the
state or jurisdiction where the time-share
association or managing entity shall disclose, in
property is located, and (C) the following
conspicuous type, substantially the following
disclaimer in conspicuous type:
notice of cancellation:
WARNING: THE CALIFORNIA
YOU MAY CANCEL THIS CONTRACT
DEPARTMENT OF REAL ESTATE HAS
WITHOUT ANY PENALTY OR
NOT EXAMINED THIS OFFERING,
OBLIGATION WITHIN SEVEN CALENDAR
INCLUDING, BUT NOT LIMITED TO,
DAYS OF RECEIPT OF THE PUBLIC
THE CONDITION OF TITLE, THE
REPORT OR AFTER THE DATE YOU SIGN
STATUS OF BLANKET LIENS ON THE
THIS CONTRACT, WHICHEVER DATE IS
PROJECT (IF ANY), ARRANGEMENTS
LATER. IF YOU DECIDE TO CANCEL THIS
TO ASSURE PROJECT COMPLETION,
CONTRACT, YOU MUST NOTIFY THE
ESCROW PRACTICES, CONTROL
ASSOCIATION (OR MANAGING ENTITY)
OVER PROJECT MANAGEMENT,
IN WRITING OF YOUR INTENT TO
RACIALLY DISCRIMINATORY
CANCEL. YOUR NOTICE OF
PRACTICES (IF ANY), TERMS,
CANCELLATION SHALL BE EFFECTIVE
CONDITIONS, AND PRICE OF THE
UPON THE DATE SENT AND SHALL BE
OFFER, CONTROL OVER ANNUAL
SENT TO (NAME OF ASSOCIATION OR
ASSESSMENTS (IF ANY), OR THE
MANAGING ENTITY) AT (ADDRESS OF
AVAILABILITY OF WATER, SERVICES,
ASSOCIATION OR MANAGING ENTITY).
UTILITIES, OR IMPROVEMENTS. IT
YOUR NOTICE OF CANCELLATION MAY
MAY BE ADVISABLE FOR YOU TO
ALSO BE SENT BY FACSIMILE TO
CONSULT AN ATTORNEY OR OTHER
(FACSIMILE NUMBER OF THE
KNOWLEDGEABLE PROFESSIONAL
ASSOCIATION OR MANAGING ENTITY)
BUSINESS AND PROFESSIONS CODE 147

WHO IS FAMILIAR WITH REAL ESTATE AND DEVELOPMENT LAW IN


ESTATE AND DEVELOPMENT LAW IN THE COUNTRY WHERE THIS TIME-
THE STATE WHERE THIS TIME-SHARE SHARE PROPERTY IS SITUATED.
PROPERTY IS SITUATED.
(1) If an offer of time-share interest in a
(2) By making such an offering or time-share plan described in subdivision (e)
disposition, the person is deemed to consent is not initially made in writing, the foregoing
to the jurisdiction of the commissioner in the disclaimer shall be received by the offeree in
event of a dispute with the purchaser in writing prior to a visit to a location, sales
connection with the offering or disposition. presentation, or contact with a person
representing the offeror, when the visit or
(e) It is a single site time-share plan located
contact was scheduled or arranged by the
outside of the boundaries of the United States or
offeror or its representative. The deposit of
component site of a specific time-share interest
the disclaimer in the United States mail,
multisite time-share plan located wholly outside
addressed to the offeree and with first-class
of the boundaries of the United States, or a
postage prepaid, at least five days prior to
nonspecific time-share interest multisite time-
the scheduled or arranged visit or contact,
share plan in which all component sites are
shall be deemed to constitute delivery for
located wholly outside of the boundaries of the
purposes of this section.
United States. However, it is unlawful and a
violation of this chapter for a person, in this (2) If any California resident is presented
state, to sell or lease or offer for sale or lease a with an agreement or purchase contract to
time-share interest in such a time-share plan, lease or purchase a time-share interest as
located outside the United States, unless the described in subdivision (e), where an offer
printed material, literature, advertising, or to lease or purchase that time-share interest
invitation in this state relating to that sale, lease, was made to that resident in California, a
or offer clearly and conspicuously contains the copy of the disclaimer set forth in
following disclaimer in capital letters of at least subdivision (e) shall be inserted in at least
10-point type: 10-point type at the top of the first page of
that agreement or purchase contract and
WARNING: THE CALIFORNIA
shall be initialed by that California resident.
DEPARTMENT OF REAL ESTATE HAS
NOT EXAMINED THIS OFFERING, (3) Nothing contained in this subdivision
INCLUDING, BUT NOT LIMITED TO, shall be deemed to exempt from registration
THE CONDITION OF TITLE, THE in this state a nonspecific time-share interest
STATUS OF BLANKET LIENS ON THE multisite time-share plan in which any
PROJECT (IF ANY), ARRANGEMENTS component site in the time-share plan is
TO ASSURE PROJECT COMPLETION, located in the United States.
ESCROW PRACTICES, CONTROL
Registration Requirements
OVER PROJECT MANAGEMENT,
11226. (a) Any person who, to any individual
RACIALLY DISCRIMINATORY
located in the state, sells, offers to sell, or
PRACTICES (IF ANY), TERMS,
attempts to solicit prospective purchasers to
CONDITIONS, AND PRICE OF THE
purchase a time-share interest, or any person
OFFER, CONTROL OVER ANNUAL
who creates a time-share plan with an
ASSESSMENTS (IF ANY), OR THE
accommodation in the state, shall register the
AVAILABILITY OF WATER, SERVICES,
time-share plan with the commissioner, unless
UTILITIES, OR IMPROVEMENTS. IT
the time-share plan is otherwise exempt under
MAY BE ADVISABLE FOR YOU TO
this chapter.
CONSULT AN ATTORNEY OR OTHER
KNOWLEDGEABLE PROFESSIONAL (b) A developer, or any of its agents, shall not
WHO IS FAMILIAR WITH REAL sell, offer, or dispose of a time-share interest in
148 BUSINESS AND PROFESSIONS CODE

the state unless all necessary registration share property that is, or will be, offered for sale
requirements are provided and approved by the in this state pursuant to the registration:
commissioner, or the sale, offer, or disposition is
(1) That the accommodation is presently
otherwise permitted by this chapter, or while an
suitable for human occupancy or that
order revoking or suspending a registration is in
financial arrangements have been made to
effect.
complete construction or renovation of the
(c) In registering a time-share plan, the accommodation to make it suitable for
developer shall provide the commissioner all of human occupancy on or before the first date
the following information: for occupancy by a time-share interest
owner.
(1) The developer's legal name, any assumed
names used by the developer, principal (2) That the accommodation is owned or
office street address, mailing address, leased by the developer of the time-share
primary contact person, and telephone plan or is the subject of an enforceable
number. option or contract under which the developer
will build, purchase, or lease the
(2) The name of the developer's authorized
accommodation. Notwithstanding this
or registered agent in the state upon whom
subdivision, the developer shall present
claims can be served or service of process be
evidence prior to the receipt of a final public
had, the agent's street address in California,
report that the accommodation to be sold is
and telephone number.
owned or leased by the developer and that
(3) The name, street address, mailing the accommodation is free and clear of
address, primary contact person, and encumbrances in accordance with Sections
telephone number of the time-share plan 11244 and 11255.
being registered.
(e) If an accommodation in a time-share plan is
(4) The name, street address, mailing located within a local governmental jurisdiction
address, and telephone number of any or subdivision of real property in which the
managing entity of the time-share plan. dedication of accommodations to time-sharing is
(5) A public report that complies with the expressly prohibited by ordinance or recorded
requirements of Section 11234, or for a restriction, either absolutely or without a permit
time-share plan located outside of the state, or other entitlement from the governing body,
a public report that has been authorized for the applicant for a public report shall present
use by the situs state regulatory agency and evidence of a permit or other entitlement by the
that contains disclosures as determined by appropriate authority for the local government or
the commissioner upon review to be the subdivision.
substantially equivalent to or greater than (f) (1) The developer shall amend or supplement
the information required to be disclosed its disclosure documents and registration
pursuant to Section 11234. information, to reflect any material change in
(6) A description of the inventory control any information required by this chapter or the
system that will ensure compliance with regulations implementing this chapter. The
Section 11250. developer shall notify the commissioner of the
material change prior to implementation of the
(7) Any other information regarding the change, unless the change is beyond the control
developer, time-share plan, or managing of the developer; in which event, the developer
entities as established by regulation. shall provide written notice to the commissioner
(d) An applicant for a public report for a time- as soon as reasonably practicable after the
share plan shall present evidence of the occurrence of the event necessitating the change.
following for each accommodation in each time- All amendments, supplements, and facts relevant
to the material change shall be filed with the
BUSINESS AND PROFESSIONS CODE 149

commissioner within 20 calendar days of the through the time-share plan's reservation system,
material change. shall certify both of the following:
(2) The developer may continue to sell time- (1) That a purchaser has, or will have,
share interests in the time-share plan so long contractual or membership rights to use
as, prior to closing, the developer provides a accommodations at each affiliated site and
notice to each purchaser that describes the that, if an accommodation or promised
material change and provides to each improvement is, or may become, subject to a
purchaser the previously approved public blanket encumbrance, that the blanket
report. encumbrance is, or will be, subordinate to
these rights.
(A) If the change is material and adverse
to the purchaser, all purchaser funds (2) That a certificate of occupancy has been
shall be held in escrow, or pursuant to issued with respect to the accommodations
alternative assurances permitted by at each affiliated site or that adequate
subdivision (c) of Section 11243, and no provisions exist or will exist for the
closing shall occur until the amendment completion of all such accommodations. For
relating to the material and adverse any affiliated site accommodations that are
change has been approved by the not complete, the public report shall clearly
commissioner. After the amendment identify in conspicuous type that those
relating to the material and adverse accommodations are not completed. For any
change has been approved and the accommodations that are not complete and
amended public report has been issued, for which adequate provisions for
the amended public report shall be sent completion do not exist at the time the
to the purchaser, and an additional public report is issued, the public report
seven-day rescission period shall shall also provide in conspicuous type that
commence. The developer shall be those accommodations might not be built,
required to maintain evidence of the provided, however, that a developer's failure
receipt by each purchaser of the to build the accommodations shall not
amended public report. relieve the developer of any obligations
created by the certification made pursuant to
(B) If the commissioner refuses to
this subdivision.
approve the amendment relating to the
material and adverse change, all sales (h) For purposes of subdivision (d) of this
made using the notice shall be subject to section, the "time-share property being offered
rescission and all funds returned. for sale in this state" shall mean the following:
(3) The developer shall update the public (1) With respect to a single site time-share
report to reflect any changes to the time- plan, the time-share property being
share plan that are not material and adverse, registered pursuant to this chapter.
including the addition of any component
(2) With respect to a specific time-share
sites, within a reasonable time, and may
interest multisite time-share plan, the
continue to sell and close time-share
specific time-share property being registered
interests prior to the date that the amended
pursuant to this chapter.
public report is approved.
(3) With respect to a nonspecific time-share
(g) An applicant for a public report for a
interest multisite time-share plan, all time-
multisite, time-share plan consisting of specific
share properties in the time-share plan.
time-share interests, as defined in subparagraph
(A) of paragraph (2) of subdivision (z) of
Section 11212, affiliated with sites operated
150 BUSINESS AND PROFESSIONS CODE

Governing Documents – Availability and more of the following requirements, as may be


Delivery to Prospective Purchaser applicable:
11226.1. Any person offering to sell or lease any
(1) A final map has not been recorded.
interest subject to the requirements of Section
11226 shall make a copy of each of the (2) A condominium plan has not been
following documents available for examination recorded.
by a prospective purchaser or lessee before the (3) A declaration of covenants, conditions,
execution of an offer to purchase or lease and and restrictions has not been recorded.
shall give a copy of those documents to each
purchaser or lessee as soon as practicable before (4) A declaration of annexation has not been
transfer of the interest being acquired by the recorded.
purchaser or lessee: (5) A recorded subordination of existing
(a) The declaration of covenants, conditions, and liens to the time-share instruments or
restrictions for the time-share plan. declaration of annexation or escrow
instructions to effect recordation prior to the
(b) Articles of incorporation or association for first sale, are lacking.
the time-share owners' association.
(6) Filed articles of incorporation are
(c) Bylaws of the owners' association. lacking.
(d) Any other instrument that establishes or (7) A current preliminary report of a
defines the common, mutual, and reciprocal licensed title insurance company issued after
rights and responsibilities of the owners or filing of the final map and recording of the
lessees of interest in the time-share plan as time-share instrument covering all time-
members of the owners' association or share interests to be included in the public
otherwise. report has not been provided.
(e) The current budget and financial statements (8) Other requirements the commissioner
for the time-share plan. determines are likely to be timely satisfied
Public Report – Final, Conditional and/or by the applicant.
Preliminary (c) An applicant for a conditional public report
11227. (a) Subject to subdivision (h), the shall submit the following information and
commissioner shall issue a final public report if documents with the applicable filing fee:
all registration requirements have been met as
set forth in this chapter and if all deficiencies (1) A copy of the statement set forth in
and substantive inadequacies in the substantially subdivision (e).
complete application for a final public report for (2) A sales agreement or lease to be used in
the time-share plan have been corrected. any transaction conducted under authority of
(b) The commissioner may issue a conditional the conditional public report. The sales
public report prior to issuing a final public report agreement or lease shall include all of the
for a time-share plan if the requirements of following provisions:
subdivision (c) are met, all deficiencies and (A) No escrow will close, funds will not
substantive inadequacies in the substantially be released from escrow, and the interest
complete application for a final public report for contracted for will not be conveyed until
the time-share plan have been corrected, the a current final public report for the time-
material elements of the offering to be made share plan is furnished to the purchaser.
under the authority of the conditional public
report have been established, and all (B) The contract may be rescinded, in
requirements for the issuance of the conditional which event the entire sum of money
public report have been met, except for one or paid or advanced by the purchaser shall
BUSINESS AND PROFESSIONS CODE 151

be returned if (i) a final public report has of a final public report and provided that the
not been issued within six months after requirements of subdivision (c) are met.
the date of issuance of the conditional
(f) A developer, principal, or his or her agent
public report if the conditional public
shall provide a prospective purchaser a copy of
report is not renewed, (ii) the final
the conditional public report and a written
public report is not issued within 12
statement including all of the following
months after the initial conditional
information:
public report is received if the
conditional public report has been (1) Specification of the information required
renewed for an additional six-month for issuance of a final public report.
period, or (iii) the purchaser or lessee is (2) Specification of the information required
dissatisfied with the final public report in the final public report that is not available
because of a material and adverse in the conditional public report, along with a
change. statement of the reasons why that
(3) Escrow instructions to be used in any information is not available at the time of
transaction conducted under authority of the issuance of the conditional public report.
conditional public report that includes at (3) A statement that no person acting as a
least the following information: principal or agent shall sell or lease, or offer
(A) The name and address of the escrow for sale or lease, time-share interests in a
depository. time-share plan for which a conditional
public report has been issued except as
(B) A description of the nature of the
provided in this chapter.
transaction.
(4) Specification of the requirements of
(C) Provisions ensuring compliance
subdivision (e).
with Section 11243.
(g) The prospective purchaser shall sign a
(D) Provisions ensuring that no escrow
receipt that he or she has received and has read
will close, funds will not be released
the conditional public report and the written
from escrow, and the interest contracted
statement provided pursuant to subdivision (f).
for will not be conveyed until a current
final public report for the time-share (h) The term of a conditional public report may
plan is furnished to the purchaser or not exceed six months unless renewed pursuant
lessee. to this subdivision. The conditional public report
may be renewed for one additional six-month
(E) Provisions for the return of money
period if the commissioner determines that the
as prescribed in subparagraph (B) of
requirements for issuance of a final public report
paragraph (2). (d) A decision by the
are likely to be satisfied during the renewal term.
commissioner to not issue a conditional
The renewal of a conditional public report shall
public report shall be noticed in writing
not act to afford a purchaser who received the
to the applicant within five business
initial conditional public report any additional
days after his or her decision and that
rescission rights other than those provided to a
notice shall specifically state the reasons
purchaser when a final public report is issued
why the report is not being issued.
and a material and adverse change has been
(e) A person may sell or lease, or offer for sale made.
or lease, time-share interests in a time-share plan
(i) For single site time-share plans and
pursuant to a conditional public report if, as a
component sites of a multisite time-share plan
condition of the sale or lease or offer for sale or
located outside of the state, a disclosure
lease, delivery of legal title or other interest
document that has been authorized for use by the
contracted for will not take place until issuance
state regulatory agency in the state in which the
152 BUSINESS AND PROFESSIONS CODE

time-share plan or component site is located that the developer in connection with the
contains the disclosures as determined by the reservation.
commissioner upon review to be substantially
(3) Agree to provide a copy of the
equivalent to or greater than the information
reservation instrument signed by the
required to be disclosed pursuant to Section
potential purchaser and by or on behalf of
11234, shall be accepted in lieu of a public
the developer to the potential purchaser, and
report required pursuant to this section. The
place any deposit taken from the potential
disclosure document shall contain a cover page
purchaser into a neutral escrow depository
issued by the commissioner certifying the
acceptable to the commissioner.
approval of its use in lieu of the public report
required herein. Public Report – Term and Renewal
11228. The term of a final public report shall be
(j) Notwithstanding anything in this section to
limited to five years. A renewal shall be issued if
the contrary, the commissioner may grant a 12-
the developer, owner, or agent makes
month preliminary public report allowing the
application for renewal of any report and has
developer to begin offering and selling time-
submitted the additional information that the
share interests, in a time-share plan regardless of
commissioner may require.
whether the accommodations of the time-share
plan are located within or outside of the state, Public Report – Review and Grounds for
while the registration is pending with the Denial
commissioner. The commissioner may grant one 11229. (a) In connection with its review of the
additional 12-month period if the developer is registration application of a time-share plan, the
actively and diligently pursuing registration commissioner may make an examination of any
under this chapter. The preliminary public report time-share property submitted for registration
shall automatically terminate with respect to pursuant to this chapter, and shall, unless there
those time-share interests covered by a final are grounds for denial, issue to the developer a
public report that is issued before the scheduled public report authorizing the sale or lease in this
termination date of the preliminary report. To state of the time-share interests within the time-
obtain a preliminary public report, the developer share plan submitted pursuant to this chapter.
shall provide all of the following: The report shall contain the data obtained in
accordance with Section 11234.
(1) Submit the reservation instrument to be
used in a form previously approved by the (b) The commissioner may deny the issuance of
department with at least the following the public report based on the applicant’s failure
provisions: to comply with any of the provisions of this
chapter or the regulations of the commissioner
(A) The right of both the developer and
pertaining thereto, including, but not limited to,
the potential purchaser to unilaterally
all of the following:
cancel the reservation at any time.
(1) The sale or lease would constitute
(B) The payment to the potential
misrepresentation to, or deceit or fraud of,
purchaser of his or her total deposit
the purchasers or lessees.
following cancellation of the reservation
by either party. (2) Inability to deliver title or other interest
contracted for.
(C) The placing of the deposit into an
interest bearing escrow account. (3) Inability to demonstrate, in accordance
with this chapter, that adequate financial
(2) Agree to provide each potential
arrangements have been made for all offsite
purchaser with a copy of the preliminary
improvements included in the offering.
public report and an executed receipt for a
copy before any money or other thing of (4) Inability to demonstrate, in accordance
value has been accepted by or on behalf of with this chapter, that adequate financial
BUSINESS AND PROFESSIONS CODE 153

arrangements have been made for any improvements have been completed and all
community, recreational, or other facilities applicable lien periods have expired.
included in the offering.
(c) An amount sufficient to cover the costs of
(5) Failure to make a showing that the construction shall be deposited in a neutral
parcels can be used for the purpose for escrow depository acceptable to the
which they are offered. commissioner under a written escrow agreement
providing for disbursements from the escrow as
(6) Failure to provide in the contract or other
work is completed.
writing the use or uses for which the parcels
are offered, together with any covenants or (d) An alternative plan that may be approved by
conditions relative thereto. the commissioner.
(c) Any developer objecting to the denial of a Registration Review Timeframes
public report may, within 30 days after receipt of 11231. Every registration required to be filed
the order of denial, file a written request for a with the commissioner under this chapter shall
hearing. The commissioner shall hold the be reviewed and issued the specified public
hearing within 20 days thereafter unless the report in accordance with the following
party requesting the hearing requests a schedule:
postponement. If the hearing is not held within
(a) Time-share registration. Registration shall be
20 days after request for a hearing is received
effective only upon the issuance of a public
plus the period of the postponement or if a
report by the commissioner that shall occur no
proposed decision is not rendered within 45 days
later than 60 calendar days after the actual
after submission and an order adopting or
receipt by the commissioner of the properly
rejecting the proposed decision is not issued
completed application. The commissioner shall
within 15 days thereafter, the order of denial
provide a list of deficiencies in the application, if
shall be rescinded and a public report issued.
any, within 60 calendar days of receipt. This
Time-Share Plan – Completion of Construction same time period applies when amending a
11230. If the time-share plan, including any public report to add additional phases or
accommodations, or amenities within the component sites of the time-share plan.
common area are not completed prior to the
(b) Preliminary public report registration. A
issuance of a final public report for the time-
preliminary public report shall be issued within
share plan, the developer shall specify a
15 calendar days of receipt, unless the
reasonable date for completion and shall comply
commissioner provides to the applicant a written
with any one of the following conditions:
list of deficiencies in the application, if any,
(a) Arranges for lien and completion bond or within 15 calendar days of receipt of an
bonds, enforceable by the association, in an application.
amount and subject to the terms, conditions, and
(c) Amended public report where no additional
coverage necessary to assure completion of the
phases or component sites are added. An
improvements lien-free. The bond shall not
effective date for an amendment to a public
exceed 120 percent of the cost for completion,
report should occur no more than 45 calendar
and the bond shall provide for the reduction of
days after actual receipt by the commissioner of
the bond amount as work is completed.
the amendment. The commissioner shall provide
(b) All funds from the sale of time-share a list of deficiencies regarding the amendments,
interests as the commissioner shall determine are if any, within 45 calendar days of receipt.
sufficient to assure construction of the
Fees
improvement or improvements shall be bonded
11232. (a) The commissioner may by regulation
or impounded in a neutral escrow depository
prescribe filing fees in connection with
acceptable to the commissioner until the
applications to the Department of Real Estate for
154 BUSINESS AND PROFESSIONS CODE

a public report pursuant to the provisions of this Point System


chapter that are lower than the maximum fees 11233. An applicant for a public report for a
specified in subdivision (b) if the commissioner time-share plan in which the use and occupancy
determines that the lower fees are sufficient to of the time-share interest purchased in the time-
offset the costs and expenses incurred in the share plan is determined according to a point
administration of this chapter. The system shall include in the application the
commissioner shall hold at least one hearing following information:
each calendar year to determine if lower fees
(a) Whether additional points may be acquired
than those specified in subdivision (b) should be
by purchase or otherwise, in the future and the
prescribed.
manner in which future purchases of points may
(b) The filing fees for an application for a public be made.
report to be issued under authority of this
(b) The transferability of points to other persons,
chapter shall not exceed the following for each
other years or other time-share plans.
time-share plan, location, or phase of the time-
share plan in which interests are to be offered for (c) A copy of the then-current point value use
sale or lease: directory, along with rules and procedures for
changes by the developer or the association in
(1) One thousand seven hundred dollars
the manner in which point values may be used.
($1,700) plus ten dollars ($10) for each
time-share interest to be offered for an (1) No change exceeding 10 percent per
original public report application. annum in the manner in which point values
may be used may be made without the
(2) Six hundred dollars ($600) plus ten
assent of at least 25 percent of the voting
dollars ($10) for each time-share plan
power of the association other than the
interest to be offered that was not permitted
developer.
to be offered under the public report to be
renewed for a renewal public report or (2) No time-share interest owner shall be
permit application. prevented from using a time-share plan as a
result of changes in the manner in which
(3) Five hundred dollars ($500) plus ten
point values may be used.
dollars ($10) for each time-share interest to
be offered under the amended public report (3) In the event point values are changed or
for which a fee has not previously been paid adjusted, no time-share owner shall be
for an amended public report application. prevented from using his or her home resort
in the same manner as was provided for
(4) Five hundred dollars ($500) for a
under the original purchase contract.
conditional public report application.
(d) Any limitations or restrictions upon the use
(c) Fees collected by the commissioner under
of point values.
authority of this chapter shall be deposited into
the Real Estate Fund pursuant to Chapter 6 (e) A description of an inventory control system
(commencing with Section 10450) of Part 1. that will ensure compliance with Section 11250.
Fees received by the commissioner pursuant to Public Report – Preparation and Content
this article shall be deemed earned upon receipt. 11234. A developer shall prepare, for issuance
No part of any fee is refundable unless the by the commissioner, a public report that shall
commissioner determines that it was paid as a fully and accurately disclose those facts
result of mistake or inadvertency. This section concerning the time-share developer and time-
shall remain in effect unless it is superseded share plan that are required by this chapter or by
pursuant to Section 10266 or subdivision (a) of regulation. The developer shall provide the
Section 10266.5, whichever is applicable. public report to each purchaser of a time-share
interest in a time-share plan at the time of
BUSINESS AND PROFESSIONS CODE 155

purchase. The public report shall be in writing representation about the percentage of
and dated and shall require the purchaser to useable time authorized for sale, and if that
certify in writing the receipt thereof. The public percentage is 100 percent, then a statement
report for a single site time-share plan is subject describing how adequate periods of time for
to the requirements of subdivision (a). The maintenance and repair will be provided.
public report for a specific time-share interest
(4) A description of any existing or
multisite time-share plan is subject to the
proposed amenities of the time-share plan
requirements of both subdivisions (a) and (b).
and, if the amenities are proposed or not yet
The public report for a nonspecific time-share
complete or fully functional, the estimated
interest multisite time-share plan is subject to the
date of completion.
requirements of subdivision (c). For time-share
plans located outside of the state, a public report (5) The extent to which financial
that has been authorized for use by the situs state arrangements have been made for the
regulatory agency and that contains disclosures completion of any incomplete, promised
as determined by the commissioner upon review improvements.
to be substantially equivalent to or greater than (6) A description of the duration, phases,
the information required to be disclosed and operation of the time-share plan.
pursuant to this section may be used by the
developer to meet the requirements of this (7) The name and principal address of the
section. A developer may, upon approval by the managing entity and a description of the
commissioner, submit a public report that procedures, if any, for altering the powers
combines, in a manner prescribed by the and responsibilities of the managing entity
commissioner, the information required to be and for removing or replacing it.
disclosed by the applicable subdivisions of this (8) The current annual budget as required by
section and the information required to be Section 11240, along with the projected
disclosed in a public report issued by a assessments and a description of the method
regulatory agency in one or more other states. for calculating and apportioning the
(a) Public reports for a single site and those assessments among purchasers, all of which
component sites of a specific time-share interest shall be attached as an exhibit to the public
multisite time-share plan that are offered in this report.
state shall include the following: (9) Any initial or special fee due from the
(1) The name and address of the developer purchaser at closing together with a
and the type of time-share plan being description of the purpose and the method of
offered and the name and address of the calculating the fee.
time-share project. (10) A description of any financing offered
(2) A description of the existing or proposed by or available through the developer.
accommodations, including the type and (11) A description of any liens, defects, or
number of time-share interests in the encumbrances on or affecting the title to the
accommodations, and if the time-share interests.
accommodations are proposed or not yet
complete or fully functional, an estimated (12) A description of any bankruptcies,
date of completion. pending civil or criminal suits,
adjudications, or disciplinary actions of
(3) The number of accommodations and which the developer has knowledge, that
time-share interests, expressed in periods of would have a material effect on the
seven-day use availability or other time developer's ability to perform its obligations.
increments applicable to the time-share plan,
committed to the multisite time-share plan, (13) Any current or expected fees or charges
and available for use by purchasers and a to be paid by time-share purchasers for the
156 BUSINESS AND PROFESSIONS CODE

use of any amenities related to the time- disclosure of the rights of owners to inspect
share plan. the records pertaining to their accounts.
(14) A description and amount of insurance (19) If the time-share plan provides
coverage provided for the protection of the purchasers with the opportunity to
purchaser. participate in an exchange program, a
description of the name and address of the
(15) The extent to which a time-share
exchange company and the method by
interest may become subject to a tax lien or
which a purchaser accesses the exchange
other lien arising out of claims against
program.
purchasers of different time-share interests.
(20) Any other information that the
(16) A statement disclosing any right of first
developer, with the approval of the
refusal or other restraint on the transfer of all
commissioner, desires to include in the
or any portion of a time-share interest.
public report.
(17) A statement disclosing that a deposit
(21) Any other information reasonably
made in connection with the purchase of a
requested by the commissioner.
time-share interest shall be held by an
escrow agent until expiration of any right to (b) Public reports for specific time-share interest
cancel the contract and that a deposit shall multisite time-share plans shall include the
be returned to the purchaser if he or she following additional disclosures:
elects to exercise his or her right of
(1) A description of each component site,
cancellation. Alternatively, if the
including the name and address of each
commissioner has accepted from the
component site.
developer a surety bond, irrevocable letter of
credit, or other financial assurance, each of (2) The number of accommodations and
which shall be enforceable by the time-share interests, expressed in periods of
association, in lieu of placing deposits in an seven-day use availability or other time
escrow account: (A) a statement disclosing increments applicable to each component
that the developer has provided a surety site of the time-share plan, committed to the
bond, irrevocable letter of credit, or other multisite time-share plan and available for
financial assurance in an amount equal to or use by purchasers and a representation about
in excess of the funds that would otherwise the percentage of useable time authorized
be placed in an escrow account, (B) a for sale, and if that percentage is 100
description of the type of financial assurance percent, then a statement describing how
that has been obtained, (C) a statement that adequate periods of time for maintenance
if the purchaser elects to exercise his or her and repair will be provided.
right of cancellation as provided in the (3) Each type of accommodation in terms of
contract, the developer shall return the the number of bedrooms, bathrooms, and
deposit, and (D) a description of the person sleeping capacity, and a statement of
or entity to whom the purchaser should whether or not the accommodation contains
apply for payment. a full kitchen. For purposes of this
(18) A statement that the assessments description, a "full kitchen" means a kitchen
collected from the purchasers will be kept in having a minimum of a dishwasher, range,
a segregated account separate from the sink, oven, and refrigerator.
assessments collected from the purchasers of (4) A description of amenities available for
other time-share plans managed by the same use by the purchaser at each component site.
managing entity, along with a statement
identifying the location of the account and a (5) A description of the reservation system,
which shall include the following:
BUSINESS AND PROFESSIONS CODE 157

(A) The entity responsible for operating commissioner, desires to include in the time-
the reservation system, its relationship share disclosure statement.
to the developer, and the duration of any
(c) Public reports for nonspecific time-share
agreement for operation of the
interest multisite time-share plans shall include
reservation system.
the following:
(B) A summary of the rules and
(1) The name and address of the developer.
regulations governing access to and use
of the reservation system. (2) A description of the type of interest and
usage rights the purchaser will receive.
(C) The existence of and an explanation
regarding any priority reservation (3) A description of the duration and
features that affect a purchaser's ability operation of the time-share plan.
to make reservations for the use of a (4) A description of the type of insurance
given accommodation on a first-come- coverage provided for each component site.
first-served basis.
(5) An explanation of who holds title to the
(6) The name and principal address of the accommodations of each component site.
managing entity for the multisite time-share
plan and a description of the procedures, if (6) A description of each component site,
any, for altering the powers and including the name and address of each
responsibilities of the managing entity and component site.
for removing or replacing it. (7) The number of accommodations and
(7) A description of any right to make any time-share interests, expressed in periods of
additions, substitutions, or deletions of seven-day use availability or other time
accommodations, amenities, or component increments applicable to the multisite time-
sites, and a description of the basis upon share plan for each component site
which accommodations, amenities, or committed to the multisite time-share plan
component sites may be added to, and available for use by purchasers and a
substituted in, or deleted from the multisite representation about the percentage of
time-share plan. useable time authorized for sale, and if that
percentage is 100 percent, then a statement
(8) A description of the purchaser's liability describing how adequate periods of time for
for any fees associated with the multisite maintenance and repair will be provided.
time-share plan.
(8) Each type of accommodation in terms of
(9) The location of each component site of the number of bedrooms, bathrooms, and
the multisite time-share plan, the historical sleeping capacity, and a statement of
occupancy of each component site for the whether or not the accommodation contains
prior 12-month period, if the component site a full kitchen. For purposes of this
was part of the multisite time-share plan description, a "full kitchen" means a kitchen
during the 12-month time period, as well as having a minimum of a dishwasher, range,
any periodic adjustment or amendment to sink, oven, and refrigerator.
the reservation system that may be needed in
order to respond to actual purchaser use (9) A description of amenities available for
patterns and changes in purchaser use use by the purchaser at each component site.
demand for the accommodations existing at (10) A description of any incomplete
that time within the multisite time-share amenities at any of the component sites
plan. along with a statement as to any assurance
(10) Any other information that the for completion and the estimated date the
developer, with the approval of the amenities will be available.
158 BUSINESS AND PROFESSIONS CODE

(11) The location of each component site of description of the relationship between a
the multisite time-share plan, the historical multisite time-share plan managing entity
occupancy of each component site for the and the managing entity of the component
prior 12-month period, if the component site sites of a multisite time-share plan, if
was part of the multisite time-share plan different from the multisite time-share plan
during such 12-month time period, as well managing entity.
as any periodic adjustment or amendment to
(16) The current annual budget as provided
the reservation system that may be needed in
in Section 11240, along with the projected
order to respond to actual purchaser use
assessments and a description of the method
patterns and changes in purchaser use
for calculating and apportioning the
demand for the accommodations existing at
assessments among purchasers, all of which
that time within the multisite time-share
shall be attached as an exhibit to the public
plan.
report.
(12) A description of any right to make any
(17) Any current fees or charges to be paid
additions, substitutions, or deletions of
by time-share purchasers for the use of any
accommodations, amenities, or component
amenities related to the time-share plan and
sites, and a description of the basis upon
a statement that the fees or charges are
which accommodations, amenities, or
subject to change.
component sites may be added to,
substituted in, or deleted from the multisite (18) Any initial or special fee due from the
time-share plan. purchaser at closing, together with a
description of the purpose and method of
(13) A description of the reservation system
calculating the fee.
that shall include all of the following:
(19) A description of any financing offered
(A) The entity responsible for operating
by or available through the developer.
the reservation system, its relationship
to the developer, and the duration of any (20) A description of any bankruptcies,
agreement for operation of the pending civil or criminal suits,
reservation system. adjudications, or disciplinary actions of
which the developer has knowledge, which
(B) A summary of the rules and
would have a material effect on the
regulations governing access to and use
developer's ability to perform its obligations.
of the reservation system.
(21) A statement disclosing any right of first
(C) The existence of and an explanation
refusal or other restraint on the transfer of all
regarding any priority reservation
or any portion of a time-share interest.
features that affect a purchaser's ability
to make reservations for the use of a (22) A statement disclosing that a deposit
given accommodation on a first-come- made in connection with the purchase of a
first-served basis. time-share interest shall be held by an
escrow agent until expiration of any right to
(14) A description of any liens, defects, or
cancel the contract and that a deposit shall
encumbrances that materially affect the
be returned to the purchaser if he or she
purchaser's use rights.
elects to exercise his or her right of
(15) The name and principal address of the cancellation. Alternatively, if the
managing entity for the multisite time-share commissioner has accepted from the
plan and a description of the procedures, if developer a surety bond, irrevocable letter of
any, for altering the powers and credit, or other financial assurance in lieu of
responsibilities of the managing entity and placing deposits in an escrow account: (A) a
for removing or replacing it, and a statement disclosing that the developer has
BUSINESS AND PROFESSIONS CODE 159

provided a surety bond, irrevocable letter of (1) The right of rescission provided for in
credit, or other financial assurance in an subdivision (a).
amount equal to or in excess of the funds
(2) That reservations for accommodations
that would otherwise be placed in an escrow
under the contract are subject to availability
account, (B) a description of the type of
and that there is no guarantee that a
financial assurance that has been arranged,
purchaser will be able to obtain specific
(C) a statement that if the purchaser elects to
accommodations during a specific time
exercise his or her right of cancellation as
period, if applicable.
provided in the contract, the developer shall
return the deposit, and (D) a description of (3) Specific blackout dates, if applicable.
the person or entity to whom the purchaser (4) That the earlier the purchaser requests a
should apply for payment. reservation, the greater the opportunity to
(23) If the time-share plan provides received a confirmed reservation.
purchasers with the opportunity to (5) That, if the purchaser later purchases a
participate in an exchange program, a time-share interest, the developer shall
description of the name and address of the provide the purchaser with the then-current
exchange company and the method by public report for the time-share plan being
which a purchaser accesses the exchange purchased and that the purchaser shall have
program. until midnight of the seventh calendar day
(24) Any other information that the following receipt of the public report to
developer, with the approval of the cancel the purchase of the time-share
commissioner, desires to include in the time- interest.
share disclosure statement. (c) If a purchaser is unable to obtain a confirmed
(d) The commissioner may establish by reservation for a specific accommodation and
regulation provisions regarding the delivery of time period requested, the developer or other
the public report and other required information person who offers the short-term product shall
through alternative media forms. attempt to provide the purchaser with a
substantially similar alternative to the
(e) The commissioner may, upon finding that the
reservation requested. If the developer or other
subject matter is otherwise adequately covered
person who offers the short-term product is
or the information is unnecessary or
unable to provide the reservation requested or an
inapplicable, waive any requirement set forth in
acceptable alternative during the initial term of
this section.
the contract, the purchaser may request and be
Right to Rescind granted an extension of the contract for a period
11235. (a) A person who has entered into a of 12 months.
contract to purchase a short-term product shall
(d) The contract for the purchase of a short-term
have the right to rescind the contract until
product shall include the date of the contract and
midnight of the seventh calendar day, or a later
shall contain, in immediate proximity to the
time as provided in the contract, following the
space reserved for the signature of the purchaser,
day on which the contract is first made, in which
a conspicuous statement as follows:
event the purchaser shall be entitled to a refund
of 100 percent of the consideration paid under “YOU HAVE THE RIGHT TO CANCEL
the contract, without deduction. THIS CONTRACT AT ANY TIME PRIOR
TO MIDNIGHT OF THE SEVENTH (7TH)
(b) The developer or other person who offers a
(or later) CALENDAR DAY AFTER THE
short-term product shall clearly and
DATE OF THIS CONTRACT AND
conspicuously disclose, in writing, to all
RECEIVE A FULL REFUND. YOU MAY
purchasers of a short-term product, all of the
EXERCISE YOUR RIGHT TO CANCEL
following:
160 BUSINESS AND PROFESSIONS CODE

BY SENDING A FACSIMILE, OR BY product in excess of services or use of property


DEPOSIT, FIRST-CLASS POSTAGE provided to other owners.
PREPAID, INTO THE UNITED STATES
(i) If the contract for a short-term product is
MAIL TO THE FOLLOWING ADDRESS:
negotiated primarily in Spanish, Chinese,
(SPECIFIC CONTACT INFORMATION)”
Tagalog, Vietnamese, or Korean, orally or in
(e) A purchaser of a short-term product may writing, the developer shall provide to the
exercise the right of rescission by giving written prospective purchaser prior to the
notice to the owner of the short-term product as commencement of the rescission period an
specified in subdivision (b), using a preprinted unexecuted translation of the contract in the
form provided by the developer. The developer language in which the contract was negotiated.
or other person who offers the short-term The terms of the short-term contract that is
product shall cause any deposit given by a executed in the English language shall determine
purchaser who has exercised the right to rescind the rights and obligations of the parties.
described in subdivision (a) to be returned to the
Receipt for Public Report
purchaser not later than the last to occur of 10
11236. (a) A receipt on the form specified herein
business days following receipt of the
shall be taken by or on behalf of the developer
purchaser’s written notice of rescission, or 10
from each person executing a reservation
business days following the date upon which any
agreement under authority of a preliminary
deposit becomes good and immediately
public report and each person who has made a
available funds.
written offer to purchase or lease a time-share
(f) A developer or other person who offers a interest under authority of a preliminary,
short-term product shall do one of the following: conditional, or final public report.
(1) Place any purchase money funds (b) The developer or his or her agent shall retain
received from the purchaser of a short-term each receipt for a final public report for a period
product into an independent escrow of three years from the date of the receipt and
depository until the seven-day period for shall make the receipts available for inspection
rescission described in subdivision (a) has by the commissioner or his or her designated
expired. representative during regular business hours.
(2) Post a bond to secure the return of a (c) The form approved by the commissioner for
purchaser’s purchase money funds in a form the acknowledgment of receipt of a preliminary,
and in an amount prescribed by the conditional, or final public report shall be as
commissioner. follows:
(3) Make alternative arrangements “RECEIPT FOR PUBLIC REPORT
satisfactory to the commissioner to secure
The Law and Regulations of the
the owner’s obligation to return the purchase
commissioner require that you as a
money funds.
prospective purchaser or lessee be afforded
(g) If applicable, the developer shall disclose to an opportunity to read the public report for
the purchaser the type of alternative arrangement this time-share before you execute a contract
to be used and, in the event of a claim, to whom to purchase or lease a time-share interest or
the purchaser should apply for payment under before any money or other consideration
the alternative arrangement. toward purchase or lease of a time-share
interest is accepted from you.
(h) The developer shall compensate the
association for any services acquired from the You must be afforded an opportunity to read
association or for any of the association’s the report before a written reservation or any
property used when fulfilling a short-term deposit in connection therewith is accepted
from you.
BUSINESS AND PROFESSIONS CODE 161

DO NOT SIGN THIS RECEIPT UNTIL incidental benefits which may be used by the
YOU HAVE RECEIVED A COPY OF THE developer. The developer may, but shall not be
REPORT AND HAVE READ IT. required to describe the incidental benefits in the
public report for the time-share plan.
I have read the commissioner’s public report
on ____ (File No., Tract No., or Name). I (c) The incidental benefit disclosure is not
understand the report is not a required to be filed with the commissioner prior
recommendation or endorsement of the to the use of the disclosure. However, the
time-share, but is for information only. The commissioner may request and review the
date of the public report which I received records of the developer to ensure that the
and read is ____. incidental benefit disclosure required by this
section has been given to purchasers and to
Developer Is Required to Retain This
ensure that the statements required to be made in
Receipt for Three Years.
the disclosure are accurate as to the operation of
Incidental Benefit Disclosure each incidental benefit offered by the developer.
11237. (a) If a purchaser of a time-share interest The developer shall deliver the records to the
in a time-share plan is offered the opportunity to commissioner within 10 business days of the
acquire an incidental benefit in connection with commissioner’s request.
the sale of a time-share interest, the developer
Purchase Contract Voidable
shall provide the purchaser with a disclosure
11238. (a) The purchase contract entered into by
statement containing all of the following
any person who has made an offer to purchase a
information:
time-share interest or interests, any incidental
(1) A general description of the incidental benefit, made on the same day or within seven
benefit, including the terms and conditions calendar days after the person attended a sales
governing the use of the incidental benefit. presentation for a time-share interest, or any
(2) A statement that the continued right under an exchange program, made on the
availability of the incidental benefit is not same day or within seven calendar days after the
necessary for the use and enjoyment of the person attended a sales presentation for a time-
purchaser’s use of any accommodation of share interest, shall be voidable by the
the time-share plan. purchaser, without penalty, within seven
calendar days, or a longer period as provided in
(3) A statement that the purchaser’s use of the contract, after the receipt of the public report
or participation in the incidental benefit is or the execution of the purchase contract,
completely voluntary, and payment of any whichever is later.
fee or other cost associated with the
incidental benefit is required only upon that (1) The purchase contract shall provide
use or participation. notice of the seven-day cancellation period,
together with the name and mailing address
(4) A listing of the fees, if any, that the to which any notice of cancellation shall be
purchaser will be required to pay to use the delivered.
incidental benefit.
(2) Notice of cancellation shall be deemed
(5) A statement that no costs of acquisition, timely if given not later than midnight of the
operation, maintenance, or repair of the seventh calendar day.
incidental benefit shall be passed on to
purchasers of time-share interests in the (b) A person who has made an offer to purchase
time-share plan as a common expense of the a time-share interest, incidental benefit, or rights
time-share plan. under an exchange program as described above
may exercise the right of cancellation granted by
(b) A developer shall include in its initial this section by giving written notification of the
application for registration, a description of any notice to cancel to the developer at the place of
162 BUSINESS AND PROFESSIONS CODE

business designated by the developer in the (6) The specific number of years of the term
purchase contract. of the time-share plan.
(c) If the notice of cancellation is by United (7) Immediately prior to the space reserved
States mail, a rebuttable presumption shall exist in the contract for the signature of the
that notice was given on the date that it is purchaser, the developer shall disclose, in
postmarked. If the notice is sent by facsimile, it conspicuous type, substantially the
shall be considered given on the date of a following notice of cancellation:
confirmed transmission. If the notice is by
You may cancel this contract without
means of a writing sent other than by United
any penalty or obligation within seven
States mail or telegraph, it shall be considered as
calendar days of receipt of the public report
given at the time of delivery at the place of
or after the date you sign this contract,
business designated by the developer. Exercising
whichever date is later. If you decide to
the rescission rights of the time-share interest
cancel this contract, you must notify the
shall also automatically rescind any agreement
developer in writing of your intent to cancel.
for the purchase of an incidental benefit or an
Your notice of cancellation shall be effective
enrollment into an exchange program where the
upon the date sent and shall be sent to (name
agreements were entered into in conjunction
of developer) at (address of developer).
with the purchase of the time-share interest.
Your notice of cancellation may also be sent
(d) Each developer shall utilize and furnish each by facsimile to (facsimile number of the
purchaser with a fully completed and executed developer) or by hand-delivery. Any attempt
copy of a contract pertaining to the sale of a to obtain a waiver of your cancellation right
time-share interest, which contract shall include is void and of no effect.
the following information:
(8) The purchase contract for an interest in a
(1) The actual date the contract is executed single site or specific time-share interest
by each party. multisite time-share plan without an
accommodation in this state shall include the
(2) The names and addresses of the
following additional disclosure in
developer and time-share plan.
conspicuous type:
(3) The initial purchase price and any
The accommodations of this time-share
additional charges to which the purchaser
plan are located outside of California. As
may be subject to in connection with the
such, the management (including all matters
purchase of the time-share interest,
relating to the association, the association
including, but not limited to, financing, or
budget, and any management contract) of
other amounts that will be collected from the
this time-share plan is not governed by
purchaser on or before closing, such as the
California law, but by the applicable law, if
current year’s annual assessment for
any, of the jurisdiction in which the
common expenses.
accommodations are located as stated in the
(4) The estimated date of completion of public report. You should review the
construction of each accommodation governing documents related to the
promised to be completed which is not association, the association’s budget, and the
completed at the time the contract is management of the time-share plan.
executed.
(e) If rescission is sought and granted for a
(5) A brief description of the nature and violation of this section, the court may also
duration of the time-share interest being award reasonable attorneys’ fees and costs to the
sold, including whether any interest in real prevailing purchaser.
property is being conveyed.
BUSINESS AND PROFESSIONS CODE 163

Notice of Cancellation Rights _____________________________


11239. (a) To inform a purchaser of his or her (Signature)
right of cancellation under Section 11238, the _____________________________
developer shall attach to the face page of every (Print Name)
copy of a public report given to a prospective _____________________________
purchaser, the cancellation notice set forth in (Signature)
subdivision (b) thereof printed in conspicuous _____________________________
type. (Print Name)
(b) The form and content of the notice shall be
Estimated Operating Budget
as follows:
11240. An estimated operating budget for the
NOTICE OF CANCELLATION time-share plan shall be filed with the
RIGHTS commissioner along with the other information
You may cancel the purchase of the required to be registered pursuant to this chapter,
time-share interest(s) in the time-share plan and shall contain the following information:
identified below without any penalty or (a) The estimated annual expenses of the time-
obligation and are legally entitled to the share plan along with the estimated revenue of
return of all money and other considerations the association from all sources, including the
that you have given toward the purchase. If amounts collectible from purchasers as
you decide to cancel your purchase, you assessments. The estimated payments by the
must notify the developer in writing of your purchaser for assessments shall also be stated in
intent to cancel within seven calendar days the estimated amounts for the times when they
of receipt of the public report or the date you will be due. Expenses shall be shown in a
sign the purchase contract, whichever date is manner that enables the purchaser to calculate
later. Your notice of cancellation shall be the annual expenses associated with the time-
effective upon the date sent and shall be sent share interest being purchased. Expenses that are
to the developer at the address or facsimile personal to purchasers that are not uniformly
number provided in your purchase contract. incurred by all purchasers or that are not
Any attempt to obtain a waiver of your provided for or contemplated by the time-share
cancellation right is void and of no effect. plan documents may be excluded from this
(c) Each notice shall also contain the following estimate.
form. The form shall have all developer-related (b) (1) The estimated items of expenses of the
information completed by the developer and time-share plan and the association, except as
may be used by a purchaser to cancel the sale of excluded under subdivision (a), including, but
the time- share interest: not limited to, if applicable, the following items,
(Name of Developer) (Address of Developer) that shall be stated either as association expenses
collectible by assessments or as expenses of the
(Facsimile Number of Developer) purchaser payable to persons other than the
(Name of Time-share Plan) association:

(DRE Registration File Number) (2) Expenses for the association:

RE: ELECTION TO CANCEL THE SALE OF (A) Administration of the association.


A TIME-SHARE INTEREST(S) (B) Management fees.
I hereby elect to cancel my purchase of the time- (C) Maintenance.
share interest(s) in the above-name time-share
plan. _____________________________ (D) Rent for accommodations.

(Date) (E) Taxes upon time-share property.


164 BUSINESS AND PROFESSIONS CODE

(F) Taxes upon leased areas. or more special assessments is not


reasonable. If control of the association
(G) Insurance.
is in owners other than the developer,
(H) Security provisions. and such owners vote not to maintain
(I) Other expenses. reserves or to maintain reserves at less
than 50 percent, the failure to maintain
(J) Operating capital. the required level of reserves shall not
(K) Equitable apportionment of be cause for denying the developer a
expenses between time-share and non- public report.
time-share uses of the common area, if (c) The estimated amounts shall be stated for a
applicable. period of at least 12 months and may distinguish
(L) Reserves for deferred maintenance between the period prior to the time that
and reserves for capital expenditures. purchasers elect a majority of the board of
All reserves for any accommodations administration and the period after that date.
and common areas of a time-share plan (d) The budget of a phase time-share plan shall
located in this state shall be based upon contain a note identifying the number of time-
the estimated life and replacement cost share interests covered by the budget, indicating
of accommodations and common the number of time-share interests, if any,
elements of the time-share plan. For any estimated to be declared as part of the time-share
accommodations and common elements plan during that calendar year, and projecting
of a time-share plan located outside of the common expenses for the time-share plan
this state, the developer shall disclose based upon the number of time-share interests
the amount of reserves for deferred estimated to be declared as part of the time-share
maintenance and capital expenditures plan during that calendar year.
required by the law of the situs state, if
applicable, and maintained for those (e) For single site time-share plans and
accommodations and common elements, component sites of a multisite time-share plan
which amount of reserves shall be based located outside of the state, the budget shall
on the estimated life and replacement include the subject matter set forth in
cost of each reserve item. The developer subdivisions (a) to (d), inclusive. The budget
or the association shall include in the shall be in compliance with the applicable laws
budget a reasonable reserve of the state or jurisdiction in which the time-
accumulation plan. A plan that (i) share property or component site is located, and
provides for reserves to be funded if there is a conflict between the affirmative
within five years at a level of 50 percent standards set forth in the laws of the situs state
of the amount specified in the reserve and the requirements set forth in this section, the
study as fully funded, and (ii) requires law of the situs state shall control. If the budget
those reserves collected in any given provides for the matters contained in
year to equal or exceed the amount of subdivisions (a) to (d), inclusive, the budget
reserve expenditures estimated for that shall be deemed to be in compliance with the
year shall be deemed to be a reasonable requirements of this section, and the developer
reserve accumulation plan. The funding shall not be required to make revisions in order
of reserves may be based on collection to comply with this section.
of reserve amounts in conjunction with (f) The budget shall include a certification
annual assessments, or on some subscribed and sworn by an expert in the
alternative mechanism, including, but preparation of time-share plan budgets, who may
not limited to, a bond, letter of credit, or be (1) an independent public accountant, (2) a
similar mechanism. Collection of certified public accountant, who is an employee
required reserve amounts solely by one of the developer, or (3) at the discretion of the
BUSINESS AND PROFESSIONS CODE 165

commissioner, an individual or entity acceptable perjury for the benefit of all persons to whom
to the commissioner to conduct the review. this offer is made. We understand that violations
Acceptance of the individual or entity shall not are subject to the civil and criminal penalties of
be considered an endorsement by the the laws of California. The certification shall be
commissioner of a proposed budget. The budget dated within 90 days prior to the date of the
certification shall also be signed by the submission of the budget to the commissioner.
developer or on behalf of the developer by an The expert's certification shall be based on
appropriate officer, if the developer is a experience in the management of hotel, resort, or
corporation, or the managing member, if the time-share properties and disclose the
developer is a limited liability company. The approximate number of properties managed and
certification concerning the adequacy of the length of time managed, together with other
budget shall be in the following form: On behalf relevant real estate experience, qualifications,
of the developer of the captioned time-share and licenses.
plan, I/my firm has reviewed or prepared the
(g) Any budget that is not certified by an
budget containing projections of income and
independent certified public accountant or an
expenses for time-share operation. My/our
employee of the developer who is licensed as a
experience in this field includes: (List
certified public accountant may be reviewed by
experience.) I/we have reviewed the budget and
the commissioner to confirm the accuracy of the
investigated the facts set forth in the budget and
certification.
the facts underlying it with due diligence in
order to form a basis for this certification. I/we (h) The certified budget for the time-share plan
certify that the projections in the budget appear shall be prepared and submitted by the developer
reasonable and adequate based on present prices to the commissioner annually for as long as the
(adjusted to reflect continued inflation and registration is in effect. If the budget is increased
present levels of consumption for comparable more than 20 percent in any year, the developer
units similarly situated) or, for an existing shall submit to the commissioner, along with the
project, based on historical data for the project. increased budget, evidence that the requirements
I/we certify that the budget: (1) Sets forth in of paragraph (5) of subdivision (a) of Section
detail the terms of the transaction as it relates to 11265 have been met. The budget shall be
the budget and is complete, current, and submitted at least 15 days prior to the first day
accurate. (2) Affords potential purchasers an of the period that it covers. Upon the submission
adequate basis upon which to found their of each annual budget, the exhibit to the public
judgment. (3) Does not omit any material fact. report specified in paragraph (8) of subdivision
(4) Does not contain any untrue statement of a (a) of, and paragraph (16) of subdivision (c) of,
material fact. (5) Does not contain any fraud, Section 11234 shall be updated. The updating of
deception, concealment, or suppression. (6) the exhibit shall not be considered to constitute
Does not contain any promise or representation an amendment of the public report.
as to the future which is beyond reasonable (i) The audited financial statements of the
expectation or unwarranted by existing association prepared pursuant to paragraph (2)
circumstances. (7) Does not contain any of subdivision (b) of Section 11272 shall be
representation or statement which is false, where delivered to the commissioner upon request.
I/we: (A) Knew the truth. (B) With reasonable
effort could have known the truth and made no (j) At the time an application is submitted for
reasonable effort to ascertain the truth. (C) Did renewal of the public report or any amendment
not have knowledge concerning the of the public report that affects the budget for
representation or statement made. I/we the time-share plan, the developer shall submit
understand that a copy of this certification is with the application a copy of the most recent
intended to be incorporated into the public report audited financial statement for the time-share
so that prospective purchasers may rely on it. plan, along with a certified copy of the budget
This certification is made under the penalty of reflecting the amendment or renewal. If the
166 BUSINESS AND PROFESSIONS CODE

commissioner, upon reasonable comparison of including the establishment of reserves for


the budget and the prior year's audited financial replacement and major repair, for an operational
statements, determines that the budget is period of one year or 100 percent of the
deficient, the commissioner may subject the assessments attributed to the total amount of the
budget to a substantive review. total unsold time-share interests owned by the
developer and registered pursuant to this
Developer Obligated for Expenses Associated
chapter. The security shall be delivered to a
with Unsold Inventory
neutral escrow depository, or to the trustee if
11241. (a) The developer is obligated for the
title to the time-share property has been
expenses associated with unsold inventory held
delivered to the trustee, along with instructions
by the developer. The obligation can be fulfilled
signed by the developer for the benefit of the
in either of the following ways:
association which shall provide as follows:
(1) The developer shall pay the full
(1) Where the developer pays full
maintenance fee for each of the interests
maintenance fees on unsold inventory the
owned by the developer.
security shall remain available to pay any
(2) The developer shall enter into a subsidy assessments for which the developer is liable
agreement with the association to cover any and delinquent until the depository or trustee
shortfall between expenses incurred and has received both of the following:
assessments collected from other owners
(A) Written notice, from the developer
("deficit subsidy"), and shall furnish the
that sales of 80 percent of the time-share
association with an executed copy of the
interest in the time-share plan have been
agreement within 10 days after closing of
closed.
escrow of the first sale or lease of a time-
share interest. The department will not (B) Written notice from the association
approve a deficit subsidy program unless that the developer is not delinquent in
provisions are made for the accumulation of the payment of assessments for which it
reserves for replacement and major is obligated.
maintenance of the time-share property in
(2) The amount of the assurance required by
accordance with accepted property
this section may be adjusted annually to an
management practices and the transfer of the
amount approved by the commissioner, but
reserve fund to the association on
shall be not more than the smaller of 50
termination of the program.
percent of the anticipated cost of operation
(b) To assure the fulfillment of the obligations of and maintenance of the time-share plan,
the developer of a time-share plan to either pay including the establishment of reserves for
assessments as an owner of time-share interests replacement and major repair, for an
in the time-share plan or to pay a deficit subsidy, operational period of one year or 100
the commissioner shall require that the percent of the assessments attributed to the
developer furnish a surety bond, cash deposit, total amount of the total unsold time-share
letter of credit, or other alternate assurance interests owned by the developer and
enforceable by the association and acceptable to registered pursuant to this chapter.
the commissioner, and that assurance shall be in
(d) A deficit subsidy agreement entered into
compliance with either paragraph (1) or (2) of
after July 1, 2005, shall provide that if there is a
subdivision (c).
dispute between the developer and the
(c) The amount of the assurance shall be in such association with respect to the question of
an amount as may be approved by the satisfaction of the conditions for exoneration or
commissioner, but shall not exceed the lesser of release of the security, the issue shall, at the
50 percent of the anticipated cost of operation request of either party, be submitted to
and maintenance of the time-share plan, arbitration in accordance with the Commercial
BUSINESS AND PROFESSIONS CODE 167

Arbitration Rules of the American Arbitration ultimately be borne as determined by the


Association. The fee payable to the American arbitrator under those rules.
Arbitration Association to initiate the arbitration
Assurance Handling Procedures
shall be remitted by the developer. The cost of
11242.1. (a) The assurance specified in Section
arbitration shall ultimately be borne as
11241 and, if applicable, the assurance specified
determined by the arbitrator under these rules.
in Section 11242, shall be delivered to the
Developer Subsidization of Operating and trustee or an escrow depository acceptable to the
Maintenance Costs department along with an executed copy of the
11242. (a) In any time-share plan , the developer subsidization contract and instructions to the
may undertake to pay a portion of the escrow depository signed by the developer and
assessments otherwise payable by each on behalf of the association. The instructions
purchaser ("buy down subsidy"). Any developer shall provide for both of the following:
undertaking to pay a buy down subsidy shall do
(1) The escrow agent shall not release or
both of the following:
exonerate the security device until it has
(1) Enter into a contract with the association received written notice from the association
that specifies in detail the obligations of the that the developer has faithfully performed
developer and the methods to be used in all of his or her obligations under the
valuing the goods and services furnished subsidization contract, if applicable, and the
under the time-share plan. escrow agent has received the written
notices specified in paragraph (1) of
(2) Furnish the association with an executed
subdivision (c) of Section 11241.
copy of the subsidization contract within 10
days after closing of escrow of the first sale (2) If there is a dispute between the
or lease of a time-share interest. developer and the association with respect to
the questions of satisfaction of the
(b) If the developer is paying a buy down
conditions for exoneration or release of the
subsidy, the developer shall provide an
security, the issue or issues shall, at the
assurance for its buy down subsidy obligation in
request of either party, be submitted to
an amount acceptable to the commissioner, but
arbitration in accordance with the
not more than the aggregate amount by which
Commercial Arbitration Rules of the
annual assessments are to be reduced, for
American Arbitration Association.
example, the number of interests to be sold in
each unit type multiplied by the amount by (b) The fee payable to the American Arbitration
which the annual assessment for such unit type Association to initiate arbitration shall be
is to be reduced, multiplied by the number of submitted by the developer. The costs of
years in the term of the buy down subsidy. arbitration shall be borne by the party as
determined by the arbitrator pursuant to the
(c) For any buy down subsidy agreements
Commercial Arbitration Rules of the American
entered into after July 1, 2005, the subsidy
Arbitration Association.
agreements shall provide that if there is a dispute
between the developer and the association with (c) The agreement for the deficit subsidy,
respect to the question of satisfaction of the described in subdivision (a) of Section 11241,
conditions for exoneration or release of the and the agreement for the buy down subsidy,
security, the issue shall, at the request of either described in subdivision (a) of Section 11242
party, be submitted to arbitration in accordance may, at the option of the developer, be contained
with the Commercial Arbitration Rules of the in one instrument.
American Arbitration Association. The fee
Escrow Requirements
payable to the American Arbitration Association
11243. The developer shall comply with the
to initiate the arbitration shall be remitted by the
following escrow requirements:
developer. The cost of arbitration shall
168 BUSINESS AND PROFESSIONS CODE

(a) A developer of a time-share plan shall passed, and the time-share interest can be
deposit into an escrow account in an acceptable transferred free and clear of blanket
escrow depository 100 percent of all funds that encumbrances, including mechanics’ liens.
are received during the purchaser’s rescission Funds to be released from escrow shall be
period. An acceptable escrow depository released as follows:
includes, when qualified to do business in this
(1) If a prospective purchaser properly
state, escrow agents licensed by the
cancels the purchase contract pursuant to its
Commissioner of Corporations, banks, trust
terms, the funds shall be paid to the
companies, savings and loan associations, title
prospective purchaser or paid to the
insurers, and underwritten title companies. The
developer if the prospective purchaser’s
deposit of these funds shall be evidenced by an
funds have been previously refunded by the
executed escrow agreement between the escrow
developer.
agent and the developer, that shall include
provisions that state the following: (2) If a prospective purchaser defaults in the
performance of the prospective purchaser’s
(1) Funds may be disbursed to the developer
obligations under the purchase contract, the
by the escrow agent from the escrow
funds shall be paid to the developer.
account only after expiration of the
purchaser’s rescission period and in (3) If the funds of a prospective purchaser
accordance with the purchase contract, have not been previously disbursed in
subject to subdivision (b). accordance with the provisions of this
subdivision, they may be disbursed to the
(2) If a prospective purchaser properly
developer by the escrow agent upon the
cancels the purchase contract pursuant to its
issuance of acceptable evidence of
terms, the funds shall be paid to the
completion of construction.
prospective purchaser or paid to the
developer if the prospective purchaser’s (c) In lieu of the provisions in subdivisions (a)
funds have been previously refunded by the and (b), the commissioner may accept from the
developer. developer a surety bond, escrow bond,
irrevocable letter of credit, or other financial
(b) If a developer contracts to sell a time-share
assurance or arrangement acceptable to the
interest and the construction of any property in
commissioner. Any acceptable financial
which the time-share interest is located has not
assurance shall be in an amount equal to or in
been completed, the developer, upon expiration
excess of the lesser of (1) the funds that would
of the rescission period, shall continue to
otherwise be placed in escrow, or (2) in an
maintain in an escrow account all funds received
amount equal to the cost to complete the
by or on behalf of the developer from the
incomplete property in which the time-share
prospective purchaser under his or her purchase
interest is located. However, in no event shall
contract. The commissioner shall establish, by
the amount be less than the amount of funds that
regulation, the types of documentation which
would otherwise be placed in escrow pursuant to
shall be required for evidence of completion,
paragraph (1) of subdivision (a).
including, but not limited to, a certificate of
occupancy, a certificate of substantial (d) The developer shall provide escrow account
completion, or an inspection by the State Fire information to the commissioner and shall
Marshal designee or an equivalent public safety execute in writing an authorization consenting to
inspection agency in the applicable jurisdiction. an audit or examination of the account by the
Unless the developer submits financial commissioner on forms provided by the
assurances, in accordance with subdivision (c), commissioner. The developer shall comply with
funds shall not be released from escrow until a the reconciliation and records requirements
certificate of occupancy, or its equivalent, has established by regulation by the commissioner.
been obtained and the rescission period has The developer shall make documents related to
BUSINESS AND PROFESSIONS CODE 169

the escrow account or escrow obligation plan, has recorded a subordination and
available to the commissioner upon the notice to creditors document in the
department’s request. The escrow agent shall appropriate public records of the jurisdiction
maintain any disputed funds in the escrow in which the time-share interest is located.
account until either of the following occurs: The subordination document shall expressly
and effectively provide that the interest
(1) Receipt of written direction agreed to by
holder’s right, lien, or encumbrance shall not
signature of all parties.
adversely affect, and shall be subordinate to,
(2) Deposit of the funds with a court of the rights of the owners of the time-share
competent jurisdiction in which a civil interests in the time-share plan regardless of
action regarding the funds has been filed. the date of purchase, from and after the
Release of Funds Escrowed effective date of the subordination
11244. (a) Excluding any encumbrance placed document.
against the purchaser’s time-share interest (3) The developer, any owner of the
securing the purchaser’s payment of purchase underlying fee, a mortgagee, judgment
money financing for the purchase, the developer creditor, or other lienor, or any other person
shall not be entitled to the release of any funds having an interest in or lien or encumbrance
escrowed under Section 11243 with respect to against the time-share interest or
each time-share interest and any other property appurtenant property or property rights,
or rights to property appurtenant to the time- including any amenities represented to the
share interest, including any amenities purchaser as being part of the time-share
represented to the purchaser as being part of the plan, has transferred the subject
time-share plan, until the developer has provided accommodations, amenities, or all use rights
satisfactory evidence to the commissioner of one in the amenities to a nonprofit organization
of the following: or owners’ association to be held for the use
(1) The time-share interest, including, but and benefit of the owners of the time-share
not limited to, a time-share interest in any plan, which shall act as a fiduciary to the
component sites of a nonspecific time-share p