Analysis and Response to Penal Code Sections 186.11 and 186.12

Asset Seizure

Click this link to view the text of Penal Code Sections 186.11 and 186.12 apparently pursued by the AG and County DAs. AB 1293 was Chaptered on September 30th, 2011. The seizing of assets of white-collar criminals as an enhancement in aggravated fact situations, as defined, may be dangerous for real estate and mortgage brokers, escrow holders, appraisers, developers, and principals of small to moderate sized hedge funds, among others.  Three to four potential felonies are low hanging fruit relatively easy to prove up and establish, e.g., comingling and conversion (even in the context of forming an entity with private parties to acquire interests in real property – equitable, fee, or mortgage and obtaining funds from the public not deposited in trust accounts as the licensee inappropriately claimed to be a principal when the licensee is acting as an agent within the course and scope of the real estate license); recording false documents (which occurs in various forms and fact situations); receiving advance fees (either when expressly prohibited under applicable law or not placed in trust accounts and handled in accordance with the requirements of the Real Estate Law); or issuing securities that have not been properly qualified by exemption or through application and permit. It is my understanding the consumer fraud units of County DAs and of the AG are actively pursuing real estate and mortgage fraud at this time.

Duties to Buyers by Sellers and their Agents

The law is settled in California that Sellers do have duties of disclosure of material facts to Buyers, particularly latent property defects.  The seminal cases include Lingsch v. Savage (1963) 213 Cal.App.2d 729 and Easton v. Strassburger (1984) 152 Cal. App. 3d 90, which gave rise to Civil Code Sections 1102 et seq. and 2079 et seq. Further, the DRE imposes standards on real estate licensees pursuant to B & P Code Sections 10176 and 10177 regardless of whether the licensee represents the principal to the transaction to whom the disclosures are made.  For example, a real estate broker may be the exclusive agent of the Seller but would owe disclosure duties to the Seller and to the Buyer and fiduciary duties in addition to the disclosure duties to the Seller.

Click this link to view a brief overview of the Realtors Code of Ethics. The Code of Ethics obligates Realtors to disclose material facts to both clients and customers. Realtors describe clients as those principals to whom fiduciary duties are owed and customers as those principals to whom disclosure duties are required but to whom fiduciary duties are not owed. The Code of Ethics also includes a section entitled “Duties to the Public”.  This section is intended to apply to any party to a real property or a real property secured transaction in which the real estate licensee is acting within the course and scope of the license. The expanded Code of Ethics and Standards of Practices as promulgated by the National Association of Realtors and should be reviewed to understand adequately the duties and obligations owed by Realtors in real property and in real property secured transactions. The Code of Ethics are instructive for all real estate licensees, whether or not they are a member of the National Association of Realtors.

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