Recent Updates In California Real Estate Law

October 2012

The following article discusses new laws relating to landlords, tenants and common interest developments; real estate brokerage management and agent discipline; updated DRE statistics and new laws.


New laws regarding Planned Use Developments and Common Interest Developments will impact Homeowner Associations (HOAs), unit owners in planned use development and common interest developments (usually condominiums) and tenants. Following are some laws these people should be aware of:

Condominium Rentals

Condo owners are now allowed to rent or lease their units, unless they were restricted from doing so before they took ownership. To do this, owners must provide their HOA with proof of the date they purchased the unit and the tenant's contact information. The date of ownership is not reset due to title transfers exempt from property tax reassessment, including probate, spousal, parent-to-child and adding a joint tenant.

Excessive HOA Fees

HOAs can only charge the actual cost to procure, prepare, reproduce and deliver HOA disclosures and governing documents when a home is sold. "Junk" fees that are usually surcharges on top of typical fees are not allowed and HOAs are now required to provide estimates of their fees up front. In addition, HOAs cannot charge extra fees for electronic delivery of documents, if the documents are maintained electronically.

Tenant Smoking Ban

Landlords can ban smoking in or around residential property, including outside common areas, but it must be in writing as part of the rental agreement or lease. Depending on the terms of the agreement, existing tenants must be given written notice of the change with at least 30 days' notice.

Conservation Plumbing Fixtures

Sellers now must disclose to potential buyers whether the property has water conservation plumbing fixtures. The Transfer Disclosure Statement now includes a checkbox for such fixtures, as well as an alert for home buyers advising them that homes built on or before January 1, 1994 must have water conserving devices and that homes improved upon on or after January 1, 2014 must include water conserving plumbing fixtures for final permits to be approved.

Carbon Monoxide Detectors

As of July 1, 2011, all single family homes must have a carbon monoxide detector. All other residential units must install one by January 1, 2013, including rental property. The presence or absence of a carbon monoxide detector must also be disclosed on the Transfer Disclosure Statement.

Foreclosure Sales

More user-friendly information needs to be provided regarding the date and location of a trustee foreclosure auction if it's being postponed and the notices must specify the risks of buying a foreclosed property. A bank or authorized agent of the bank must provide this timely information about sale dates and postponements via the Internet, telephone or other free services.

Small Claims Limits

The prior limit in small claims jurisdiction of $7,500 has been increased to $10,000 if brought by a "natural person," i.e. a real human being, as opposed to a legal person, which may be a corporation or state. A claim brought by a business entity is still $5,000. The limit for injuries in an automobile accident increases to $10,000 in 2015.


Branch Manager Appointments

Effective July 1, 2012, Business and Professions (B&P) code §10164 allows an employing real estate broker or a corporate-designated broker officer to appoint a licensee as a manager of a branch office or division of their real estate business. The manager has responsibility to oversee and supervise operations and licensed activities and shares with the employing broker or corporate-designated broker officer the liability of potential license discipline if Real Estate Law violations occur at the branch or division. A licensee can only be appointed manager if s/he does not have a restricted license or has been subject to a bar order and, if a salesperson, s/he must have at least two years of full time real estate experience within the five years prior to appointment. If a branch or division manager is terminated or changed, the broker or corporate-designated broker officer must notify the DRE in writing.

Real Estate Agent Discipline

All agents and brokers must report to the DRE within 30 days of any disciplinary action taken by another state or federal agency; felony indictments or charges; and any felony or misdemeanor convictions. Real estate brokers who conduct their own escrow activities under a DRE license must provide to the DRE a written annual report with the number of escrows handled and the dollar amount.

The State Board of Equalization and the Franchise Tax Board periodically publish a list of the 500 tax delinquencies in excess of $100,000. If an agent or broker appears on the list, the DRE is required to suspend or refuse to renew their state license.


Some Statistics

For the fiscal year 2011/2012 ending June 30, 2012, a record 1,109 license were suspended, surrendered or revoked. This is a 100% increase from five years ago. Contributing to that number were nearly 500 accusations and Desist and Refrain orders against nearly 1,400 respondents in illegal foreclosure rescue and short sale scams. In addition, there were operators seeking illegal advance fees in exchange for promising to help distressed buyers with loan modifications to reduce exorbitant payments or reduce foreclosure perils without ever doing any work. Per a DRE Consumer Bulletin, pursuant to Senate bill 94, as of October 11, 2009, it is illegal in California for any person, including lawyers, real estate salespersons, corporations, companies, partnerships or any other licensed or unlicensed person or party to demand, charge or collect any advance, upfront or retainer fees or any other type of pre-payment compensation for loan modification work or services or any other type of mortgage loan forbearance. 

The DRE revoked 781 real estate licenses, up 14% from the last fiscal year; suspended for cause 190 real estate licenses, up nearly 80% from the prior year; and had 138 license surrenders from agents with disciplinary actions pending, up 20% from the previous year.

Loan Modifications

The only people who can act as Foreclosure Consultants offering loan modifications or foreclosure relief are those who are registered with, are issued and maintain a certificate of registration form from the Department of Justice. Contravention of this is a misdemeanor punishable by a fine of up to $25,000 for each violation and imprisonment of up to one year or both, in addition to any other penalties available by law. It is illegal for any person who negotiates, attempts to negotiate or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower to do any of the following: 

  • Claim, demand, charge, collect or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that s/he would perform;
  • Take any wage assignment, any lien of any type on real or personal property or other security to secure compensation; and
  • Take power of attorney from the borrower for any reason.

Natural persons who violate any of these provisions commit a public offense punishable by a fine of up to $10,000, imprisonment in a county jail for no longer than a year or both. For a business entity, the fine would not exceed $50,000. There are cumulative penalties with any other remedies provided by law.


Up Front Fees

Other than an agent or broker advertising a property using a publication or other media not owned by the broker, they cannot claim fees from clients until all the services they were contracted to perform are complete.

Discharging Loan Debts After Short Sales

A lender holding a first deed of trust (purchase or refinance) for a residence of one to four units cannot demand a deficiency judgment from the mortgagor (borrower) who sells the residence in a short sale to which the lender agrees in writing. The lender can seek damages against the owner or a third party if there was fraud with respect to the short sale or waste to the real property.

Mortgage Loan Origination (MLO)

As of January 1, 2011, the Federal Safe and Fair Enforcement (SAFE) Act and California Senate bill 36 require anyone performing MLO activities for a one to four unit residential property to have an MLO license endorsement and notify the DRE within 30 days of beginning the activity by completing the online form RE 866. All MLOs also need to register on the National Mortgage Licensing System and Registry (NMLS). 

If you are performing MLO activities and have completed form RE 866, but you do not have an MLO license endorsement, you are in violation of the law. 

Updating your RE 866 to reflect your current status ensures you are complying with the law.

About the Authors

Brian Sanders is a partner in the California law firm of Ericksen Arbuthnot who practices real estate, construction and professional liability law. Joseph J. (JJ) Minioza is also a partner at Ericksen Arbuthnot who practices real estate, construction, personal and professional liability and employment law.