How to Avoid Accusations by the Department of Real Estate

As a licensed real estate professional, you have many responsibilities to your clients, and in order to keep your license in good standing, you must ensure that you uphold all of them. Unfortunately, however, there are many situations that can prompt the California Department of Real Estate (CalBRE) to make accusations against you that could put your license in jeopardy. Below we’ll tell you more about how to avoid these issues and when it’s time to seek legal help.

Uphold Your Fiduciary Duty to Clients

According to the California Code, Civil Code – CIV § 2923.1. (a), real estate brokers must act in accordance with their fiduciary duties to borrowers at all times. The clearest way to explain this is, as a licensed real estate broker, you must always put the borrower’s economic interests ahead of your own. Keeping the borrower’s interests a top priority is the best big-picture way to keep your license safe.

Properly Handle Investor Money and Lending

Handling investors’ money properly is essential to keeping your license in good standing. Never take or hold investor money until after the investor has both chosen a trust deed loan and signed a Lender-Purchase Disclosure Statement detailing all loan specifics. It is also important to remember that before you make the loan, the only fees you can collect are those for credit reports and appraisal fees. You must also always have a clearly specified investment before taking investor money.

While not technically a crime, it is never a good idea to lend money to investors as it will almost always lead to an audit. To ensure that you don’t get audited, at least 24 hours before recouping investor funds, submit a signed Lender/Purchaser Disclosure Statement and reference to Code 10231.

Avoid Trust Fund Violations

There are many actions that fall under the category of trust fund violations, and all must be avoided to prevent issues with CalBRE. First, remember that you should never collect fees in advance of a loan being made. When paying appraisers and other parties, only take funds from your operating account, and never use funds from a trust account.

Also, remember that only licensed staff can be listed on trust accounts. In terms of recordkeeping, don’t neglect to conduct required monthly reconciliations designating ownership of all trust fund amounts. In addition, it is imperative that you provide quarterly reports to the DRE as well as an annual report during CPA audits. Before you complete your monthly statements, withdraw all servicing fees, and if you notice a situation that could lead to a shortage or other discrepancy, take care of it as soon as possible.

Finally, remember that as a broker, you can have no more than $200 of your own money in a trust account.

Handle Mortgage Loan Disclosure Statements Properly

Completing all paperwork properly and completely is another good way to ensure that the DRE finds no reason to make accusations against your license. Always ensure that loans are accompanied by a Mortgage Loan Disclosure Statement signed by the borrower.

The protocol for private investors you have sold a loan to, or who have funded loans you have arranged, is slightly more complex. They must sign an Investor Questionnaire, and both yourself and the investor must sign a Lender/Purchaser Disclosure Statement. In addition, make sure the investor has provided you with a statement declaring that the trust deed investment is not more than 10 percent of their net worth, not including their home. Finally, for any securities exemption that applies to your loan, you must have written disclosure.

Stay on Top of Trust Deeds and Loan Volume Thresholds

When it comes to trust deeds and loan volume reporting, the key is to stay on top of paperwork and follow proper reporting protocol. For example, before you disburse funds for a new loan, all trust deeds must be recorded. As the broker, if you are the loan owner, you must immediately assign a deed of trust. And if you are selling an existing loan, you must record the trust deed within 10 business days.

Also, make sure to closely monitor the volume of loan originations and servicing. Once this exceeds a specific threshold, brokers must file a Threshold Notification with the DRE. In addition, you must produce quarterly trust fund reports. This is true even if you do not handle trust funds.

Avoid Business and Advertising Issues

Some simple issues such as your business name and advertising practices can also lead to trouble with the DRE. For starters, your business name must be identical to the name you have registered with the CalBRE. If you tend to abbreviate or otherwise alter your business name, you must also register this name with the DRE.

In addition, don’t forget to include your license number as well as the DRE’s name and a title such as “broker” or “agent” on all of your advertising materials. Many people forget that advertising includes not only your use of media promotion, but business cards, emails, letterhead, websites, and flyers. This information should be featured on these documents as well.

Be Aware of Criminal Code Violations

Among the most serious offenses that can get you in hot water with CalBRE are those that also violate California criminal code. Real estate fraud, foreclosure fraud, forging deeds, and rent skimming are all criminal code violations. Foreclosure fraud, including title transfer, as well as illegally flipping property and predatory lending, are among the most common forms of foreclosure fraud, so make sure you are acting ethically in these areas at all times.

When to Work with a License Defense Lawyer

If you have received an accusation from the California Department of Real Estate, it is in your best interest to work with an attorney. A good attorney may be able to help you retain your license if it is in jeopardy, find ways to help you continue practicing even if you must undergo license restrictions, and provide knowledgeable legal advice on your case. Scott J Harris has successfully helped many licensed professionals and he can help you as well.

Contact us today at (323) 894-1095.

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When dealing with these complex issues, you need legal representation that has a long track record of success in these types of cases. Scott Harris and the rest of our team at S J Harris Law will be ready to help you pursue any option available that allows you to keep your license and continue working, no matter what industry you are in.


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