The Real Estate Law establishes, within the Business, Consumer Services, and Housing Agency, the Department of Real Estate for the licensure and regulation of real estate brokers and salespersons. Existing law requires a licensed real estate broker to retain for 3 years copies of certain documents relating to transactions for which a real estate broker license is required, as specified.

Existing civil law provides that a multiple listing service (MLS), as defined, may be used by real estate agents and appraisers to prepare market evaluations and appraisals of real property and makes an agent or appraiser responsible for the truth of their representations and statements, as specified.

This bill would require a multiple listing service to retain and make accessible on its computer system, if any, all listing and other information placed in the multiple listing service by an agent or appraiser for no less than 3 years from the date the listing was placed. The bill would prohibit these provisions relating to multiple listing services from altering the obligations of a licensed real estate broker to retain documents relating to transactions for which a real estate broker license is required, as specified.

Existing law imposes certain disclosure requirements on the transferor of single-family residential property, including requiring the transferor to provide a specified real estate transfer disclosure statement and to disclose certain natural hazards. Existing law makes those provisions applicable to, among other transfers, a lease with an option to purchase, any other option to purchase, or a ground lease with improvements. Existing law specifically exempts certain transactions from those disclosure requirements.

This bill would revise the form for the real estate transfer disclosure statement to include a check box indicating that there are no substituted disclosures for the transfer. The bill would specifically exempt from the above-described disclosure requirements the sale, creation, or transfer of any lease, except a lease with an option to purchase or a ground lease coupled with improvements.

Existing law imposes a duty on a real estate broker or salesperson to a prospective buyer of single-family residential property or a manufactured home to conduct an inspection of the property offered for sale and to disclose to that prospective buyer all facts materially affecting the value or desirability of the property, if the broker has a written contract with the seller to find a buyer or the broker acts in cooperation with that broker.

This bill, instead, would impose that duty on a real estate broker or salesperson to a prospective buyer of residential real property improved with one to 4 dwelling units or a manufactured home.

Existing law defines various terms for specified provisions affecting the duties of real estate professionals to prospective sellers and buyers of real property.

This bill would define the terms single-family residential property and single-family residential real property for specified provisions.

The bill would also make technical and clarifying changes to related provisions affecting residential real property disclosures.

Date of Hearing: April 23, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 892

Author:(Holden) – As Amended Ver:April 22, 2019

PROPOSED CONSENT (As Proposed to be Amended)

SUBJECT: TRANSFERS OF REAL PROPERTY

KEY ISSUE: should VARIOUS non-controversial TECHNICAL CORRECTIONS, CLARIFICATIONS, AND AMENDMENTS TO current law governing the sale of real property and related disclosure requirements be ENACTED?

SYNOPSIS

This straightforward bill, sponsored by the California Association of Realtors, is largely concerned with making technical and clarifying amendments to the Real Estate Law. The need for these amendments has come to light in the months since the chaptering of AB 1289 (Arambula, Chap. 907, Stats. 2018) and AB 2884 (Irwin, Chap. 285, Stats. 2018), bills which effected a significant reorganization and revision of the Real Estate Law.

The bill would also amend provisions of the Civil Code governing residential real estate sales disclosures. First, the bill would clarify the window of time in which a prospective buyer may cancel an offer after receiving a disclosure statement from the seller. Second, the bill would require a seller to disclose whether plumbing fixtures are water-conserving only if the fixtures were installed while the seller owned the home. Third, the bill would require that a seller disclose whether they are aware that a property includes any noncompliant plumbing fixtures, rather than, as in current law, whether a property actually includes any compliant fixtures, a fact of which many sellers are apparently unaware. This bill has no opposition.

SUMMARY: Makes minor clarifications and technical corrections to selected provisions of the Real Estate Law, and makes two substantive amendments to conform existing law to widespread understanding and practice. Specifically, this bill:

1. Adds definitions of “single-family residential property” and “single-family residential real property” to the Civil Code in order to give meaning to other Civil Code provisions that use these defined terms.
2. Clarifies that the period of time in which a prospective buyer may terminate an offer for single-family residential real property commences when sections of the Real Estate Transfer Disclosure Statement (TDS) applicable to the particular transaction are completed.
3. Requires a seller of single-family residential real property to disclose (1) any plumbing fixtures that were installed in the property while the seller owned it, as well as whether these fixtures are water-conserving, and (2) any noncompliant plumbing fixtures contained in the property of which the seller is aware.
4. Makes other minor technical and clarifying amendments to the Real Estate Law.

EXISTING LAW:

1. Establishes the Department of Real Estate (DRE) within the Department of Consumer Affairs (DCA). (Government Code Section 12804.)
2. Establishes the Real Estate Law to provide for the licensure and regulation of real estate brokers and sales persons by the DRE. (Business & Professions Code Section 10000 et al.)
3. Entrusts the DRE with administering and enforcing the Real Estate Law, which deals with the licensing and regulation of real estate salespersons, brokers, and mortgage loan originators. (Ibid.)
4. Requires a transferor (seller) of residential property, as specified, to provide the transferee (buyer) with certain disclosures about the property by use of a statutorily prescribed TDS. (Civil Code Sections 1102 - 1102.6.)
5. Requires a seller of single-family residential real property to disclose:
   1. That California single-family residences must be equipped with water-conserving plumbing fixtures that are in compliance with current building standards applicable to newly-constructed residences of the same type; and
   2. Whether the property being offered for sale includes any statutorily-noncompliant plumbing fixtures, defined as: a toilet manufactured to use more than 1.6 gallons of water per flush, a urinal manufactured to use more than 1 gallon of water per flush, a showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute, and an interior faucet that emits more than 2.2 gallons of water per minute. (Civil Code Section 1102.155.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: This bill amends the Real Estate Law to cure an ambiguity regarding when prospective buyers of residential property may exercise their right to cancel an offer upon receipt of disclosures from the seller. As proposed to be amended, it also updates disclosure requirements around noncompliant plumbing fixtures to conform to the typical sellers’ expected level of knowledge. Finally, it makes various technical and clarifying amendments to the Real Estate Law, many of which correct errors inadvertently introduced with the Law’s recodification during the 2016-2018 period.

According to the author:

The real estate law, which had not been updated in decades, needed updating in order to address a number of changes that had occurred over the years including: updating archaic terminology including gender, making changes to reflect the use of electronic transactions and e-licensing, [and] updating the law to reflect current practice. This bill continues that process, helping to continue to clarify terminology and address outstanding concerns of those who practice in this area, while maintaining consumer protections.

The California Association of Realtors (CAR), which is sponsoring AB 892, adds:

All clarifications and changes to the law have been done with an eye toward ensuring that any changes do not negatively impact existing consumer protections. Also, we have reached out to and will continue to work at every stage with the relevant Committees and stakeholders to ensure that any concerns about the bill as it moves through the legislature are discussed and addressed.

Background and justification for the bill. The California Legislature enacted the first law requiring the licensure of real estate professionals in 1917. This law, the first of its type in the nation, was the subject of several legal challenges, but was ultimately upheld by the California Supreme Court in 1919. (Riley v. Chambers (1919) 181 Cal. 589.) Since then, the real estate code in California has undergone numerous changes, including the creation of various government entities charged with protecting Californians from fraud and abuse while engaged in real estate transactions. The principal such entity is the DRE. Appointed by the Governor, the Real Estate Commissioner functions as chief of the DRE and is responsible for administering and enforcing real estate law. This includes issuing regulations and managing several hundred civil service employees who support the DRE’s mission. As of 2016, the DRE supervised in excess of 402,000 licensees, including, 265,645 licensed salespersons and 136,232 licensed brokers.

In 2016 and 2018, the Legislature passed three bills that collectively effected a major reorganization and revision of the Real Estate Law:

• AB 685 (Irwin, Chap. 177, Stats. 2016) amended the Real Estate Law to (1) update male-specific terminology by either substituting gender-neutral terminology or adding female-specific terminology, and (2) prohibit the issuance of a real estate license if the prospective licensee owed an unpaid assessed fine, or had not complied with the terms of a citation issued by the Real Estate Commissioner.
• AB 2884 (Irwin, Chap. 285, Stats. 2018) amended the Business and Professions Code to add or amend numerous definitions related to real estate law, and to update various provisions to reflect current practice in the real estate profession.
• AB 1289 (Arambula, Chap. 907, Stats. 2018) revised and recast dozens of provisions of the Real Estate Law, including those governing the definitions of key terms such as “agent,” “transferor,” and “broker.” The bill also made various changes to provisions governing expert responsibility and real property disclosure requirements.

These bills are so extensive that to summarize them here would take nearly as many pages as the text of the bills themselves. As is invariable with such complex legislation, the bills themselves introduced errors, including undefined terms and erroneous cross-references. AB 892’s primary purpose is to correct those errors that have been identified to date. For example, the terms “single-family residential property” or “single-family residential real property” are currently used, but left undefined, in the Civil Code. A newly-added definition cures this omission, without adding any inadvertently undesirable effects.

Beyond correcting such errors, AB 892 also amends two requirements of the Real Estate Law in order to conform with existing practice in the real estate industry. These amendments are discussed in turn below.

Clarifying an ambiguity in the disclosures required under the Real Estate Law. Civil Code Section 1102.6 sets forth the precise form of the TDS, the disclosure statement that a seller of residential property must provide to a prospective buyer. Current law gives prospective buyers a window of time to withdraw an offer once they receive the TDS. There is an ambiguity as to whether, and when, this window opens, however. The pertinent provision currently reads:

The period of time the prospective buyer has in which to terminate his or her offer commences when Sections I, II, and III in the form described in Section 1102.6 are completed and delivered to the buyer or buyer’s agent. (Civil Code Section 1102.3 (c).)

The intent of this provision, according to CAR, is to trigger the opening of the cancellation window upon delivery of the TDS to the buyer or the buyer’s agent. Some sellers, however, have attempted to argue that the statutory text mandates that the cancellation window opens with a two-part trigger: first, the seller must complete all three of Sections I, II, and III, and next, the seller must deliver the completed TDS to the buyer or the buyer’s agent. The problem with this interpretation, according to CAR, is that not all transactions require the completion of Sections I, II, and III. In order to cure the ambiguity, AB 892 would amend the pertinent provision to read as follows:

The period of time the prospective buyer has in which to terminate his or her the offer commences when Sections I, II, and III, as applicable, in the form described in Section 1102.6 are completed and delivered to the buyer or buyer’s agent.

This revision ought to clarify that the delivery of the TDS is the sole triggering event for the opening of the cancellation window.

Conforming disclosures of noncompliant water fixtures to existing practice. As currently worded, Civil Code Section 1102.155 provides in pertinent part:

The seller of single-family residential real property subject to this article shall disclose, in writing, that Section 1101.4 requires that California single-family residences be equipped with water-conserving plumbing fixtures on or after January 1, 2017, and shall disclose whether the property includes any noncompliant plumbing fixtures as defined in subdivision (c) of Section 1101.3. (Civil Code Section 1102.155 (a)(1).)

In plain English, this provision requires a seller to disclose to a prospective buyer, first, that a home must now be equipped with water-conserving plumbing fixtures (as defined by currently-applicable law), and second, whether the home includes any statutorily-noncompliant plumbing fixtures (defined as a toilet manufactured to use more than 1.6 gallons of water per flush, a urinal manufactured to use more than 1 gallon of water per flush, a showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute, and an interior faucet that emits more than 2.2 gallons of water per minute). According to CAR, a common response of many sellers—particularly those who own older homes—is to ignore this requirement and simply write, “I don’t know” on the disclosure statement. This happens often enough that CAR wishes to amend this provision so that sellers are not violating the law when they answer in this way.

CAR originally sought an amendment that would have required sellers to disclose simply whether they were aware that the property included any noncompliant plumbing fixtures. However, such a requirement might undermine the water-conservation goals of the original legislation. Sellers should, it is generally agreed, be held accountable for knowledge of fixtures installed while they owned the property. The author therefore proposes to amend the pertinent provision to read as follows:

The seller of single-family residential real property subject to this article shall disclose, in writing, that Section 1101.4 requires that California single-family residences be equipped with water-conserving plumbing fixtures on or after January 1, 2017, and. The seller shall also disclose (1) any plumbing fixtures that were installed while the seller owned the property and whether those fixtures are water-conserving plumbing fixtures as defined in subdivision (e) of Section 1101.3, and (2) whether that seller is aware that the property includes any noncompliant plumbing fixtures as defined in subdivision (c) of Section 1101.3.

These amendments strike a sensible balance by requiring disclosure of information that a seller ought to be aware as a homeowner, as well as information of which the seller is actually aware, rather than, as is currently the case, information that many sellers simply do not know.

Other Related Legislation: SB 407 (Padilla, Chap. 587, Stats. 2009) required the replacement of all non-water conserving plumbing fixtures with water-conserving fixtures in commercial and residential properties built prior to 1994.  With certain exceptions, replacement compliance was required by 2017 for single-family residential properties and by 2019 for multi-family residential or commercial properties. Responsibility for replacement was placed upon either the property owner or a building permit applicant as a condition for issuance of a certificate of occupancy or a building permit.  This bill also required the seller or transferor of property to disclose in writing to the prospective purchaser or transferee whether the property included any noncompliant plumbing fixtures and the deadline for achieving compliance.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Realtors (sponsor)

Opposition

None on file

Analysis Prepared by: Jith Meganathan / JUD. / (916) 319-2334

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 892

Author:(Holden)

As Amended Ver:July 1, 2019

Majority vote

SUMMARY:

Makes minor clarifications and technical corrections to selected provisions of the Real Estate Law, and makes two substantive amendments to conform existing law to widespread understanding and practice. Specifically, this bill:

1. Adds definitions of "single-family residential property" and "single-family residential real property" to the Civil Code in order to give meaning to other Civil Code provisions that use these defined terms.
2. Clarifies that the period of time in which a prospective buyer may terminate an offer for single-family residential real property commences when sections of the Real Estate Transfer Disclosure Statement applicable to the particular transaction are completed.
3. Makes other minor technical and clarifying amendments to the Real Estate Law.

The Senate Amendments:

1. Require a multiple listing service to retain and make accessible on its computer system, for at least three years, all information placed in the listing by an agent or appraiser.
2. Preserve the existing requirement that sellers of single-family residential real property disclose any plumbing fixtures that do not comply with low-flow fixture laws, while removing proposed amendments that would have allowed sellers to disclose a) any plumbing fixtures that were installed in the property while the seller owned it, as well as whether these fixtures are water-conserving, and b) any noncompliant plumbing fixtures contained in the property of which the seller is aware.
3. Delete now-obsolete references to past deadlines by which the owners of single-family residential real property were to have replaced plumbing fixtures that do not comply with low-flow fixture laws.
4. Clarify that requirements regarding Real Estate Transfer Disclosure Statements and Natural Hazard Disclosures do not apply to the sale, creation, or transfer of any lease of any duration, except leases with an option to purchase and to ground leases.

COMMENTS:

This bill amends the Real Estate Law to cure an ambiguity regarding when prospective buyers of residential property may exercise their right to cancel an offer upon receipt of disclosures from the seller. The bill also amends the Real Estate Law to require multiple listing services to maintain and make available information placed on these services for a period of three years, the same amount of time that real estate brokers are currently required to retain records of a transaction. The bill further amends the Real Estate Law to clarify that leases, with two exceptions, are not subject to requirements regarding Real Estate Transfer Disclosure Statements and Natural Hazard Disclosures. Finally, this bill makes various technical and clarifying amendments to the Real Estate Law, many of which correct errors inadvertently introduced with the Law's recodification during the 2016-2018 period.

As passed by the Assembly, this bill would have amended requirements regarding the information that sellers of residential real property are required to disclose to prospective purchasers regarding plumbing fixtures that do not comply with low-flow fixture laws. Senate amendments restored these requirements to their currently-existing form, while deleting now-obsolete deadlines from the relevant statutes.

According to the Author:

The real estate law, which had not been updated in decades, needed updating in order to address a number of changes that had occurred over the years including: updating archaic terminology including gender, making changes to reflect the use of electronic transactions and e-licensing, [and] updating the law to reflect current practice. This bill continues that process, helping to continue to clarify terminology and address outstanding concerns of those who practice in this area, while maintaining consumer protections.

Arguments in Support:

The California Association of Realtors (CAR), which is sponsoring this bill, writes:

All clarifications and changes to the law have been done with an eye toward ensuring that any changes do not negatively impact existing consumer protections.

Arguments in Opposition:

None

FISCAL COMMENTS:

According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

VOTES:

ASM JUDICIARY: 12-0-0

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Kiley, Maienschein, Obernolte, Petrie-Norris, Reyes

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 74-0-6

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Gabriel, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Arambula, Burke, Cooley, Friedman, Cristina Garcia, Ting

SENATE FLOOR: 39-0-1

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

ABS, ABST OR NV: Leyva

UPDATED:

VERSION: July 1, 2019

CONSULTANT: Jith Meganathan / JUD. / (916) 319-2334 FN: 0001468

 CONSENT 

Bill No: AB 892

Author: Holden (D)

Amended: 7/1/19 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 6/25/19

AYES: Jackson, Borgeas, Durazo, Lena Gonzalez, Jones, Monning, Stern, Umberg, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 74-0, 5/16/19 (Consent) - See last page for vote

SUBJECT: Transfers of real property: disclosures

SOURCE: California Association of Realtors

DIGEST:

This bill clarifies and, in some instances, makes slight modifications to the laws governing the duties of the various actors involved in residential real estate transactions.

ANALYSIS:

Existing law:

1. Establishes the Department of Real Estate (DRE) within the Department of Consumer Affairs. (Gov. Code § 12804.)
2. Establishes the Real Estate Law to provide for the licensure and regulation of real estate brokers and sales persons by the DRE. (Bus. & Prof. Code § 10000 et seq.)
3. Charges the DRE with administering and enforcing the Real Estate Law. (Bus. & Prof. Code § 10050.)
4. Requires anyone selling residential property to provide prospective buyers with specified disclosures about the property using a statutorily prescribed form known as a Transfer Disclosure Statement (TDS). (Civ. Code §§ 1102 - 1102.6.)
5. Requires a seller of single-family residential real property to disclose:
   1. That California single-family residences must be equipped with water-conserving plumbing fixtures that are in compliance with current building standards applicable to newly-constructed residences of the same type; and
   2. Whether the property being offered for sale includes any statutorily-noncompliant plumbing fixtures, defined as: a toilet manufactured to use more than 1.6 gallons of water per flush, a urinal manufactured to use more than one gallon of water per flush, a showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute, and an interior faucet that emits more than 2.2 gallons of water per minute. (Civ. Code §§ 1101.4 and 1102.155.)

This bill:

1. Requires a multiple listing service to retain and make accessible on its computer system, for at least three years, all information placed in the listing by an agent or appraiser.
2. Eliminates obsolete references to past deadlines by which the owners of single-family residential real property were to have replaced plumbing fixtures that do not comply with low-flow fixture laws.
3. Clarifies that the period of time during which a prospective buyer may terminate an offer for single-family residential real property commences when the applicable sections of the real estate TDS applicable to the particular transaction are completed.
4. Clarifies that TDSs and Natural Hazard Disclosures (NHDs) do not apply to standard residential leases.
5. Adds a definition of “single-family residential property” and “single-family residential real property” that includes dwellings with up to four units in order to give meaning to other Civil Code provisions that use these defined terms.
6. Makes other minor technical, non-substantive amendments to the Real Estate Law.

Comments

1. Real Estate Law and Modifications to It

Both real estate transactions and the role of real estate brokers have long been regulated by the State. California enacted its Real Estate Law a century ago. (SB 379, Gates, Chapter 605, Statutes of 1919; Bus. & Prof. Code Sec. 10000 et seq.) The field has evolved significantly in the interim. In the process, some of the terminology contained in the Real Estate Law became outmoded. In addition, the use of terms across the existing law were not always consistent, breeding some unnecessary confusion among practitioners and consumers alike. With this in mind the California Association of Realtors (CAR) has been engaged in a multi-year effort to update the laws. Last session, CAR sponsored both AB 1289 (Arambula, Chapter 907, Statutes of 2018) and AB 2884 (Irwin, Chapter 285, Statutes of 2018), which made numerous detailed and technical modifications to the Real Estate Law.

The challenge with the Real Estate Law is that it is convoluted and interlaced with cross-references. In addition, it contains several instances in which the same term or phrase is defined differently in different parts of the law. As a result, making a change in one place often sets off a chain of unintended consequences elsewhere.^[1] This bill’s primary purpose is to clean-up a number of the unintended consequences resulting from last year’s legislation in this area. At the same time, the bill addresses a few minor remaining points in the law that were in need of further clarification.

1. Clarification About the Scope of Disclosure and Visual Inspection Requirements

Existing law requires the seller of property consisting of four or fewer dwelling units to provide a TDS and a NHD to prospective buyers (Civ. Code §§ 1102 et seq. and 1103 et seq.) Because of changes made to the definition of “transfer by sale” in last year’s legislation, the law could now be construed to apply these disclosure requirements to standard residential leases. As this was not an intended effect of last year’s legislation, this bill would clarify that the TDS and NHD requirements do not apply to standard residential leases.

Existing law also imposes on real estate agents representing clients in certain transactions the duty to make a competent visual inspection of the property to disclose to the prospective buyer or tenant all facts materially affecting the value or desirability of the property. (Civ. Code § 2079.) Because of changes made to the laws as part of last year’s legislation, this inspection requirement could be construed to apply only to single-family residences composed of a single unit. This was not an intended change, so this bill restores the pre-existing duty for a real estate agent to make the competent visual inspection in any transaction involving a residential property with up to four units on it.

1. Clarification of When the Clock Starts on the Buyer’s Window to Rescind an Offer After Receiving the TDS

In residential real estate sales, the delivery of the completed TDS triggers the start of a short period during which the prospective buyer, upon reviewing the conditions reported, may back out of the sale. (Civ. Code Sec. 1102.3(c).) Existing law does not specify precisely what constitutes a completed TDS, however, so some dispute has arisen about when the rescission period starts. According to the sponsor, CAR, some real estate agents exploit this ambiguity to try to prolong the rescission period. Last year’s legislation attempted to resolve this problem by stating that a TDS is complete when the first three sections of the form are filled out. However, there is not always a responsive answer for section I of the form and section III of the form is not always applicable, complicating the situation. This bill adds a check box to section I of the form, for people to fill out if they have nothing to declare in section I. Then this bill clarifies that the TDS is complete when sections I and II of the form have been filled out, and, if applicable, section III as well. This should help prevent disputes from arising over ambiguities about when the rescission period clock starts.

1. Multiple-Listing Services Document Retention Obligation

Multiple-listing services are databases containing information about properties for sale in a given area. Real estate agents and appraisers contribute the content and keep it updated. This bill newly requires multiple-listing services to retain and make accessible on their computer systems all listing and other information placed on the multiple-listing service by an agent or appraiser for at least three years.

Since multiple-listing services are not regulated by the DRE and no consequence is mentioned for failure to comply, it is somewhat unclear how this provision will be enforced. Nonetheless, the documents in question constitute important records about a real estate transaction and could become evidence in a dispute about it, so there is no obvious harm in requiring the multiple-listing services to keep these documents around.

The length of the retention requirement – three years – is consistent with real estate brokers’ existing duty to retain records of a transaction. (Bus. & Prof. Code § 10148(a).). This bill’s new requirement that multiple listing services also keep these records would thus serve as a backstop to the existing requirement. To ensure that real estate brokers are not lulled into thinking that the new requirement absolves them of their existing duties, this bill emphasizes that the multiple-listing services’ new document retention policy would not in any way alter the broker’s obligations under Business and Professions Code Section 10148(a).

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 8/19/19)

California Association of Realtors (source)

OPPOSITION: (Verified 8/19/19)

None received

ARGUMENTS IN SUPPORT: According to the author:

The real estate law, which had not been updated in decades, needed updating in order to address a number of changes that had occurred over the years including: updating archaic terminology including gender, making changes to reflect the use of electronic transactions and e-licensing, updating the law to reflect current practice. This bill continues that process, helping to continue to clarify terminology and address outstanding concerns of those who practice in this area, while maintaining consumer protections.

As sponsor of this bill, the California Association of Realtors writes:

Last session’s bills represented significant changes to the real estate law and practitioners in the area have raised concerns about possible unintended ambiguities that may have been created by some of those changes. AB 892 primarily addresses and “cleans up” those issues while also addressing some other limited areas to reflect current practice. […]

All clarifications and changes to the law have been done with an eye toward ensuring that any changes do not negatively impact existing consumer protections.

ASSEMBLY FLOOR: 74-0, 5/16/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Gabriel, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Burke, Cooley, Friedman, Cristina Garcia, Ting

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

8/21/19 10:07:09

**** END ****

1. Given how hard it is, the Legislature may wish at some point to consider assigning the task of re-drafting these provisions to the California Law Revision Commission, rather than doing it bill-by-bill. ↑

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 892 (Author:Holden)

Version: April 29, 2019

Hearing Date: June 25, 2019

Fiscal: Yes

Urgency: No

Consultant: TSG

SUBJECT

Transfers of real property: disclosures

DIGEST

This bill clarifies and, in some instances, makes slight modifications to the laws governing the duties of the various actors involved in residential real estate transactions.

EXECUTIVE SUMMARY

Real estate transactions can be quite complex. For residential home buyers and sellers, this complexity is often compounded by lack of experience and the stress associated with making one of the most significant financial transactions in a person’s life. Not surprisingly, therefore, both real estate transactions and the role of real estate brokers have long been regulated by the State. People selling homes are required to make certain disclosures about the property to prospective buyers, for example, and, if real estate agents are involved in the deal, they have obligations to inspect the property, to disclose what they know about it, and to keep the records around in case disputes arise afterward. This bill, as it appears in print, makes a series of clarifications and minor modifications regarding those rules, which can be summarized as follows: (1) they require multiple-listing services to retain real estate transaction related documents for three years; (2) they permit sellers and their agents to omit information about the presence of non-compliant plumbing fixtures if they are not aware of them; (3) they clarify that specified disclosures and visual inspection requirements do not pertain to ordinary residential leases; (4) they clarify when the clock starts on the time that a prospective buyer has to rescind an offer after receiving certain disclosures; and (5) they indicate that a realtor’s duty to make a visual inspection of the property applies to residential buildings with up to four units in them.

The bill is sponsored by the California Association of Realtors (CAR), who view it as the next installment in their effort to modernize and clarify real estate laws. There is no known opposition.

PROPOSED CHANGES TO THE LAW

Existing state law:

1. Establishes the Department of Real Estate (DRE) within the Department of Consumer Affairs (DCA). (Gov. Code § 12804.)
2. Establishes the Real Estate Law to provide for the licensure and regulation of real estate brokers and sales persons by the DRE. (Bus. & Prof. Code § 10000 et seq.)
3. Charges the DRE with administering and enforcing the Real Estate Law. (Bus. & Prof. Code § 10050.)
4. Requires anyone selling residential property to provide prospective buyers with specified disclosures about the property using a statutorily prescribed form known as a Transfer Disclosure Statement (TDS). (Civ. Code §§ 1102 - 1102.6.)
5. Requires a seller of single-family residential real property to disclose:
   1. that California single-family residences must be equipped with water-conserving plumbing fixtures that are in compliance with current building standards applicable to newly-constructed residences of the same type; and
   2. whether the property being offered for sale includes any statutorily-noncompliant plumbing fixtures, defined as: a toilet manufactured to use more than 1.6 gallons of water per flush, a urinal manufactured to use more than one gallon of water per flush, a showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute, and an interior faucet that emits more than 2.2 gallons of water per minute. (Civ. Code §§ 1101.4 and 1102.155.)

This bill:

1. Requires a multiple listing service to retain all listing information and other information placed in the listed by an agent or appraiser for at least three years.
2. Eliminates the existing deadline, January 1, 2017, by which the owners of single-family residential real property were to have replaced plumbing fixtures that do not comply with low-flow fixture laws.
3. Replaces the requirement that the seller of single-family residential real property disclose whether the property includes any plumbing fixtures that do not comply with water conservation law, with a requirement that the seller only needs to disclose:
4. any plumbing fixtures that were installed in the property while the seller owned it, as well as whether these fixtures comply with water conservation laws; and
5. any noncompliant plumbing fixtures contained in the property of which the seller is aware.
6. Clarifies that the period of time in which a prospective buyer may terminate an offer for single-family residential real property commences when the applicable sections of the real estate TDS applicable to the particular transaction are completed.
7. Adds a definition of “single-family residential property” and “single-family residential real property” that includes dwellings with up to four units in order to give meaning to other Civil Code provisions that use these defined terms.
8. Makes other minor technical, non-substantive amendments to the Real Estate Law.

COMMENTS

1. Background to the Real Estate Law and modifications to it

Both real estate transactions and the role of real estate brokers have long been regulated by the State. California enacted its Real Estate Law a century ago. (SB 379, Gates, Ch. 605, Stats. 1919; Bus. & Prof. Code Sec. 10000 et seq.) The field has evolved significantly in the interim. In the process, some of the terminology contained in the Real Estate Law became outmoded. In addition, the use of terms across the existing law were not always consistent, breeding some unnecessary confusion among practitioners and consumers alike. With this in mind CAR has been engaged in a multi-year effort to update the laws. Last session, CAR sponsored both AB 1289 (Arambula, Ch. 907, Stats. 2018) and AB 2884 (Irwin, Ch. 285, Stats. 2018), which made numerous detailed and technical modifications to the Real Estate Law.

The challenge with the Real Estate Law is that it is convoluted and interlaced with cross-references. In addition, it contains several instances in which the same term or phrase is defined differently in different parts of the law. As a result, making a change in one place often sets off a chain of unintended consequences elsewhere.^[1] This bill’s primary purpose is to clean-up a number of the unintended consequences resulting from last year’s legislation in this area. At the same time, the bill addresses a few minor remaining points in the law that were in need of further clarification. Finally, as it appears in print, the bill would undermine some key aspects of water conservation legislation enacted in 2009. (SB 407, Padilla, Ch. 587, Stats. 2009.)

2. Changes to water conservation compliance disclosures

In 2009, in the midst of a major drought, California enacted SB 407 (Padilla, Ch. 587, Stats. 2009). CAR opposed early versions of the bill.^[2]

SB 407 required residential property owners to upgrade certain plumbing fixtures with low-flow versions in order to promote water conservation by January 1, 2017. (Civ. Code § 1101.4(b).) To help hold homeowners accountable for making the required upgrades, SB 407 also obligated them, after January 1, 2017, to do certain things upon selling their home. Specifically, people selling their home are supposed to notify prospective buyers about the obligation to have low-flow fixtures at the property, and they are supposed to disclose to the prospective buyers whether the property includes any non-compliant fixtures. (Civ. Code § 1101.4(c).)

The bill in print proposes to make two changes to these laws. First, it would eliminate the dates mentioned in the statute. In most instances, deleting these dates is perfectly innocuous, but in the case of Civil Code Section 1101.4(b), striking the date effectively removes the requirement that homeowners upgrade the fixtures in their home. More precisely, they are still supposed to do it at some point, but because there is no longer any deadline, they could put off doing it indefinitely without violating the statute. That would eviscerate the intended effect of SB 407. In order to prevent this result, the author has agreed to amend the bill to restore the existing January 1, 2017 deadline in Civil Code Section 1101.4(b).

Next, the bill would replace the existing requirement in Civil Code Section 1101.4(c) which obligates homeowners disclose to prospective buyers whether there are any non-compliant fixtures at the property before selling it. Instead, the bill would allow homeowners merely to state whether they have made any alterations to the relevant plumbing while living in the home, whether that change brought the fixture into compliance, and whether they are aware of any remaining fixtures that are non-compliant. The difference is subtle, but important. Civil Code Section 1101.4(c) clearly contemplates that homeowners will inventory the plumbing in their homes prior to sale. Indeed, the contention that this requirement would be “burdensome and unreasonable” for homeowners was a central component of CAR’s argument in opposition to SB 407.^[3] By permitting homeowners to state, in effect, “I don’t know,” in lieu of actually checking whether their fixtures are compliant, this bill would undo the structure established by SB 407 and facilitate the ongoing transfer of homes with non-compliant fixtures from one owner to the next. To prevent this outcome, the author has agreed to amend the bill to leave the substance of Civil Code Section 1101.4(c), and the corresponding provisions in Civil Code Section1102.155 in their present form.

3. Clarification about the scope of disclosure and visual inspection requirements

Existing law requires the seller of property consisting of four or fewer dwelling units to provide a Transfer Disclosure Statement (TDS) and a Natural Hazard Disclosure (NHD) to prospective buyers (Civ. Code §§ 1102 et seq. and 1103 et seq.) Because of changes made to the definition of “transfer by sale” in last year’s legislation, the law could now be construed to apply these disclosure requirements to standard residential leases. As this was not an intended effect of last year’s legislation, this bill would clarify that the disclosure and visual inspection requirements do not apply to standard residential leases.

Existing law also imposes on real estate agents representing clients in certain transactions the duty to make a competent visual inspection of the property to disclose to the prospective buyer or tenant all facts materially affecting the value or desirability of the property. (Civ. Code § 2079.) Because of changes made to the laws as part of last year’s legislation, this inspection requirement could be construed to apply only to single-family residences composed of a single unit. This was not an intended change, so this bill would restore the pre-existing duty for a real estate agent to make the competent visual inspection in any transaction involving a residential property with up to four units on it.

4. Clarification of when the clock starts on the buyer’s window to rescind an offer after receiving the TDS

In residential real estate sales, the delivery of the completed TDS triggers the start of a short period during which the prospective buyer, upon reviewing the conditions reported, may back out of the sale. (Civ. Code Sec. 1102.3(c).) Existing law does not specify precisely what constitutes a completed TDS, however, so some dispute has arisen about when the rescission period starts. In particular, the sponsor asserts that some agents try to prolong the rescission period by latching on to this ambiguity. Last year’s legislation attempted to resolve this problem by stating that a completed TDS means that certain sections of the form are filled out. However, section I of the form is not always filled out and section III of the form is not always applicable, complicating the situation. As proposed to be amended, this bill would add a check box to section I of the form, for people to fill out if they have nothing to declare in section I. Then the bill clarifies that the TDS is complete when sections I and II of the form have been filled out, and, if applicable, section III as well. This should help prevent disputes from arising over ambiguities about when the rescission period clock starts.

5. Amendment to add a multiple-listing services document retention obligation

Though not in the bill in print, the author proposes to amend the bill to add a new section relating to multiple-listing services, sometimes referred to as “MLS.” Multiple-listing services are databases containing information about properties for sale in a given area. Real estate agents and appraisers contribute the content and keep it updated. As proposed to be amended, this bill would newly require multiple-listing services to retain and make accessible on their computer systems all listing and other information placed on the multiple-listing service by an agent or appraiser for at least three years.

Since multiple-listing services are not regulated by the DRE and no consequence is mentioned for failure to comply, it is somewhat unclear how this provision will be enforced. Nonetheless, the documents in question constitute important records about a real estate transaction and could become evidence in a dispute about it, so there is no obvious harm in requiring the multiple-listing services to keep these documents around.

The length of the retention requirement – three years – is consistent with real estate brokers’ existing duty to retain records of a transaction. (Bus. & Prof. Code § 10148(a).). The bill’s new requirement that multiple listing services also keep these records would thus serve as a backstop to the existing requirement. To ensure that real estate brokers are not lulled into thinking that the new requirement absolves them of their existing duties, the author proposes to insert a sentence into this proposed amendment to the bill emphasizing that the multiple-listing services’ new document retention policy does not in any way alter the broker’s obligations under Business and Professions Code Section 10148(a).

6. Proposed amendments

In order to address the issues set forth in the Comments, above, the author proposes to incorporate amendments into the bill that would:

• restore the substance of all water conservation-related provisions to their form under existing law;
• add a requirement for multiple-listing services to retain specified documents for three years;
• add a check box to section I of the TDS to help avoid confusion over when that section has been completed;
• clarify that TDS and NHD requirements do not apply to leases, except as specified; and
• clarify that a realtor’s duty to conduct a visual inspection and communicate the result to the other party in the transaction extends to all residential dwellings of up to four units.

7. Arguments in support of the bill

According to the author:

The real estate law, which had not been updated in decades, needed updating in order to address a number of changes that had occurred over the years including: updating archaic terminology including gender, making changes to reflect the use of electronic transactions and e-licensing, updating the law to reflect current practice. This bill continues that process, helping to continue to clarify terminology and address outstanding concerns of those who practice in this area, while maintaining consumer protections.

As sponsor of the bill, the California Association of Realtors writes:

Last session’s bills represented significant changes to the real estate law and practitioners in the area have raised concerns about possible unintended ambiguities that may have been created by some of those changes. AB 892 primarily addresses and “cleans up” those issues while also addressing some other limited areas to reflect current practice. […]

All clarifications and changes to the law have been done with an eye toward ensuring that any changes do not negatively impact existing consumer protections.

SUPPORT

California Association of Realtors (sponsor)

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation: None known

Prior Legislation:

AB 1289 (Arambula, Ch. 907, Stats. 2018) made a series of modifications to the Real Estate Law provisions contained in the Civil Code.

AB 2884 (Irwin, Ch. 285, Stats. 2018) made a series of modifications to the Real Estate Law provisions contained in the Business and Professions Code.

SB 407 (Padilla, Ch. 587, Stats. 2009) required all single-family residential property owners to upgrade any non-compliant faucets, toilets, and showerheads in their homes with low-flow devices by January 1, 2017, in order to conserve water. After that deadline, the bill also required people, upon selling their homes, to notify the prospective buyer about the obligation to have low-flow fixtures in the home and whether or not the property in question contained any non-compliant fixtures.

SB 379 (Gates, Ch. 605, Stats. 1919) established California’s original laws governing real estate agents and real property transactions.

PRIOR VOTES:

Assembly Floor (Ayes 74, Noes 0)

Assembly Appropriations Committee (Ayes 18, Noes 0)

Assembly Judiciary Committee (Ayes 12, Noes 0)

**************

1. Given how hard it is, the Legislature may wish at some point to consider assigning the task of re-drafting these provisions to the California Law Revision Commission, rather than doing it bill-by-bill. ↑

2. See Sen. Judiciary Committee Analysis of SB 407 (2009-2010 Reg. Sess.) May 12, 2009 Hearing Date, at pg. 3. ↑

3. Ibid. ↑

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 892

Author:(Holden) – As Amended Ver:April 22, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires a seller of single-family residential real property to disclose any plumbing fixtures that were installed in a property while the seller owned it, as well as whether these fixtures are water-conserving, and any noncompliant plumbing fixtures contained in the property of which the seller is aware and makes minor clarifications and technical corrections to provisions of the Real Estate Law (REL).

FISCAL EFFECT:

Minor and absorbable costs (GF) to the Department of Real Estate (DRE) to update existing publications and manuals.

COMMENTS:

1. Purpose. According to the author:

The Real Estate Law, which had not been updated in decades, needed updating in order to address a number of changes that had occurred over the years including: updating archaic terminology including gender, making changes to reflect the use of electronic transactions and e-licensing, [and] updating the law to reflect current practice.

1. Background. Existing law requires a transferor (seller) of residential property to provide the transferee (buyer) with certain disclosures about the property in the Real Estate Transfer Disclosure Statement. This bill clarifies that sellers must disclose additional information about the plumbing, including whether it is water-conserving and adds definitions to the terms single-family residential property to the Civil Code because, although those terms are used in the REL, they are not defined.
2. Prior Legislation.
   1. AB 685 (Irwin) Chapter 177, Statutes of 2016, amended the REL to remove gender exclusive language and prohibit the issuance of a real estate license if the prospective licensee owed an unpaid assessed fine.
   2. AB 2884 (Irwin) Chapter 285, Statutes of 2018, amended the Business and Professions Code to add or amend numerous definitions related to real estate law, and to update various provisions to reflect current practice in the real estate profession.
   3. AB 1289 (Arambula) Chapter 907, Statutes of 2018, revised and recast dozens of provisions of the REL, including definitions of key terms such as “agent,” “transferor” and “broker.”

Analysis Prepared by: Kimberly Horiuchi / APPR. / (916) 319-2081