Robert E. Muir

110 West A Street, Suite 625, San Diego, CA 92101-3707 (619)231-6500 rm@muirlaw.com

WHAT REAL ESTATE LICENSEES SHOULD KNOW ABOUT THE DEPARTMENT OF REAL ESTATE

By: Robert E. Muir

(Based on article author published in The San Diego Realtor, July 2013)

To avoid the scrutiny of the Department of Real Estate, real estate licensees should know what areas the DRE tends to investigate and what to do if the DRE makes an inquiry or takes other action.

TYPES OF CASES AND HOW TO RESPOND

Given the broad set of rules that licensees must comply with, it is not unusual for an investigation or audit to uncover Business and Professions Code violations. For example, violations can occur when an agentís license has lapsed, the exact name of business does not match the corporate license with the DRE, or a clientís check is not deposited on time.

The DRE tends to focus on fraud and misrepresentation, broker supervision, acts without a license, and trust fund violations. However, licensees should be prepared to comply with all areas of the law. The DREís website has useful information on broker evaluation and compliance, including manuals, checklists, and a trust fund guide covering accounting requirements, audits and examinations.

Licensees should have safeguards in place such as a policy and procedures manual. Calendaring the expiration dates for agentsí licenses is essential since it does not matter that the agent or brokerage intended to renew the agentís license or even made efforts to renew it. If the license has not been renewed, the agent cannot perform any activity requiring a license. The same goes for changing the corporate license. This can take time before it is effective, and it is a violation to do business before then. These are just some of the violations that can occur.

CONTACT BY THE DRE

The DRE investigator often calls the agent or broker with some questions or requests a meeting. You may also receive a letter requesting an interview and to produce documents. It is important to show that you are cooperating with the DRE. However, you should not be so eager to cooperate that you fail to give yourself enough time to prepare for the meeting. You should also consult with an attorney and consider having the attorney present with you at the meeting. It may also be helpful to retain a private auditor with DRE experience to help you prepare for this meeting or to conduct a pre-audit.

It is helpful to know why the DRE wants to meet with you. At this stage, before the DRE has filed an Accusation, the DRE does not need to tell you who lodged a complaint. However, you can often determine this if you recently dealt with a disgruntled client. Once an Accusation is filed, you can obtain a copy of the DREís file, including seeing who filed the complaint against you. The DRE also conducts random audits or investigations without a receiving a complaint.

INVESTIGATION AND AUDIT

It is important to deal with the DRE in a professional and cooperative manner while also protecting your rights. Be careful what you say to the auditor or investigator and remember that nothing is "just between you and me." Assume that nothing is off the record. Some agents later discover this by seeing in the Audit Report statements they made to the auditor that they didnít realize would be on the record.

At the end of the audit, there is an exit interview to allow the auditor to review a summary of what was found. It can be helpful to have your attorney or private auditor with you for this, as well as at meetings during the audit. Be sure there is no misunderstanding of your records. You may also be able to learn what violations were found so you can correct them before the Audit Report comes out. There would still be a violation, but the Report would reflect that the issue was corrected.

ACCUSATION

An Accusation is filed against the licensee after the DRE legal office determines there is sufficient information to indicate a violation has occurred. Upon receiving an Accusation, you should promptly consult with an attorney experienced in this area of law, if you have not already done so in the process. A response or Notice of Defense must be submitted to the DRE within 15 days to preserve your right to a hearing. Agents sometimes phone the DRE attorney to discuss their case only to later discover that their statements may constitute an admission which can hurt their case. The burden of proof is on the DRE to prove the elements of any violation. Along with submitting the Notice of Defense, it is essential to promptly submit a request to obtain a copy of the DREís file to see their evidence and list of witnesses.

SETTLEMENT OR HEARING

After the agent and attorney have reviewed the DRE file, and prepared a defense strategy, consideration should be given to try to resolve the case through a negotiated settlement know as a "Stipulation and Agreement in Settlement and Order." The advantages of settling are that you may be able to achieve a more favorable outcome than if you went to a hearing and you would save legal costs of preparing for and going through the hearing.

The Commissioner must agree to adopt the terms of the Stipulation and order it. The Stipulation is made a part of the public record which is accessible on the DREís website under the licenseeís record. For this reason, it is important to negotiate the best terms and language in the Stipulation.

In any settlement, the issues negotiated include any license sanctions, payment to the DRE for a fine, its investigation and audit costs, and attorney fees. License sanctions include license revocation or surrender, license suspension, stayed suspension or proceedings, restricted license, Cite and Fine, Professional Responsibility Exam, paying for current and follow-up audits, monetary fine, DREís costs and legal fees, etc. In a typical settlement, you would admit to some wrongdoing and accept disciplinary consequences in exchange for leniency and retention of your license.

Often, a settlement results after a detailed written offer from the agentís attorney setting forth the legal and factual basis for the settlement. This also helps the Commissioner understand the case from the licenseeís perspective and makes it more likely that the Commissioner will approve the settlement. If informal settlement discussions have not been successful, it is possible to file a request with the administrative law judge to order a settlement conference.

CONCLUSION

Protecting your license begins with staying informed of the laws, implementing a system to ensure compliance, and being prepared if the DRE takes action.

(This article was published in The San Diego Realtor, July 2013, and updated in August 2020.)

This article provides general information and is not intended to provide advice on any specific matter. Attorney Robert Muir can be reached at muirlaw.com