Various changes regarding the laws governing real estate practice, disclosures regarding real property wholesalers, and providing a penalty

Disclosures Current law imposes on a real estate firm providing brokerage services to a party to a transaction the duty to timely disclose in writing all material adverse facts that the firm knows and that the party does not know or cannot discover through reasonably vigilant observation, unless the disclosure of a material adverse fact is prohibited by law. The law defines both “adverse fact” and “material adverse fact.” Furthermore, each licensee associated with a firm owes the same duties to a party that the firm owes to that party. Separately, current law contains a requirement that a licensee disclose to the parties to a real estate transaction any facts known by the licensee that contradict any information included in a written real estate condition report. Current law further contains a list of specific types of information that a licensee is not required to disclose.

The bill 1) harmonizes the disclosure requirement and the duty described above; 2) clarifies that the “material adverse facts” that licensees have the duty to disclose do not include anything on the list of specified types of information that current law provides are exempt from needing to be disclosed; 3) prohibits the board from promulgating rules that conflict with these provisions or that mandate additional disclosures; and 4) provides that a licensee that in good faith provides information attributable to a state or local governmental or quasi-governmental entity may not be held civilly liable if that information is subsequently determined to be inaccurate.

Discipline and licenses The bill makes various changes pertaining to the discipline of licensees, including the following:

1. The bill requires the board to notify a real estate brokerage firm in writing as to all investigations and disciplinary proceedings and actions that are related to a licensee associated with that firm, including the contents of any administrative warning issued by the board. The bill also provides that if an application for renewal of a license issued to a licensee who is associated with a firm is not filed with the board on or before the renewal date or if the renewal is not granted, DSPS must notify the firm.

2. The bill expressly provides that a real estate brokerage firm is not responsible for ensuring compliance with, or for the monitoring of, any license limitations set forth by the board of a broker or salesperson associated with that firm.

3. Current law contains a list of prohibitions, violations of which subject a licensee to professional discipline. Current law further allows the board to assess a forfeiture of not more than $1,000 for such violations. The bill raises the maximum forfeiture that the board may assess for a number of these violations to $5,000.

Criminal penalties Under current law, any person who engages in or follows the business or occupation of, or advertises or holds himself or herself out as or acts temporarily or otherwise as, a broker or salesperson in this state without a license or who otherwise violates the real estate practice law may be fined not more than $1,000 or imprisoned for not more than six months or both. The bill raises the maximum criminal fine for violations to $5,000. The bill does not affect the maximum term of imprisonment.

Disclosures regarding real property wholesalers The bill requires a real property wholesaler to provide certain disclosures to other parties involved in a real property transaction. Under the bill, “real property wholesaler" is defined as a person that enters into a purchase agreement as a buyer and intends to sell the person's rights as buyer to a third party, and “purchase agreement” is defined as a contract for the sale, exchange, option, rental, or purchase of residential real property that includes one to four dwelling units.

The bill requires a real property wholesaler, no later than entering into a purchase agreement as a buyer, to provide written notice to the seller that the buyer is a real property wholesaler. Under the bill, if the real property wholesaler fails to provide the notice, the seller may rescind the purchase agreement at any time before the closing and retain any deposits or option fees paid by the real property wholesaler.

In addition, if the real property wholesaler contracts to sell its interest in the purchase agreement to a third party, the bill requires the real property wholesaler, no later than entering into the contract, to provide written notice to the third party that the real property wholesaler is a real property wholesaler that holds an equitable interest in the property as a buyer under the purchase agreement and that the real property wholesaler is conveying its interest in the purchase agreement, not title to the property. Under the bill, if the real property wholesaler fails to provide the notice, the third party may rescind the contract at any time before the closing and is entitled to the return of any deposits or option fees paid by the third party.

Because this bill creates a new crime or revises a penalty for an existing crime, the Joint Review Committee on Criminal Penalties may be requested to prepare a report.

Because this bill may increase or decrease, directly or indirectly, the cost of the development, construction, financing, purchasing, sale, ownership, or availability of housing in this state, the Department of Administration, as required by law, will prepare a report to be printed as an appendix to this bill.