A real estate license is a valuable license. It represents your right to make huge commissions and to provide for your family. When your license is on the line, things can get tense. Vondran Legal can help you get through the grueling DRE, DBO and BRE investigation, audit and accusation process.
What is a Bureau of Real Estate real estate licensing audit?
A real estate licensing audit is basically where the California Bureau of Real Estate (“BRE”) investigates the activities of a real estate licensee (either broker or salesperson). When you get a real estate license, you agree to allow the BRE to audit you: (a) at random and (b) when a complaint if filed against you by a real estate client or member of the public.
When you get the notice that you are being audited you can expect to have a 2-10 day audit at your real estate office. The length of the audit will depend on the type of audit being conducted and the number of files the BRE chooses to review.
You have a right to be represented by an Attorney during the process, or you can handle it yourself. As I tell most of my clients, hiring a lawyer is not an admission of guilt, and it is the same thing Donald Trump or Barbara Corcoran would do if their real estate licenses ever came under attack, investigation or scrutiny.
Do you have to agree to allow the DRE to perform the audit?
No. You can always “surrender” your real estate license or decline to be investigated. We discuss surrendering your real estate license in this blog. If you decline, you can be assured that in most cases an accusation will be filed to take your license. As a matter of due process, unless you have a restricted real estate license, you will be entitled to “due process rights” which is a notice and opportunity to be heard by a neutral law judge at a meaningful time. Sometimes seeking a continuance is part of due process rights especially if there is a medical reason you cannot appear.
Are the BRE audits driven by consumer complaints?
Sometimes yes, but not always. If a consumer makes a subdivider or licensee complaint, the BRE will likely investigate it by either calling your, asking for a written statement, or possibly scheduling a audit at your real estate office. The inside word has it that every property management company in California will be subject to a random audit over the next year or two. For this reason, it is essential that property managers consider a voluntary trust fund accounting self-audit to be conducted annually. We offer these on a low flat rate fee. It is much better if you find trust fund accounting violations before the Bureau of Real Estate does. Fill out our contact form below for more information.
What are the top 10 violations found in a DRE audit and investigation?
The most common violations I find when the BRE (or Department of Real Estate as it is called in Arizona) conducts a real estate licensee audit are:
1. Failure to keep all records of licensed real estate activities
2. Failure of the broker to supervise licensed activity
3. Failure to put real estate license number on business cards and websites
4. Using unlicensed DBA’S or fictitious business names not approved or recognized by the BRE
5. Broker or salesperson engaged in “dishonest dealing”
6. General broker negligence and incompetence
7. Misrepresentation in regard to licensed real estate activity
8. Trust fund accounting violations – failure to designate a client account as a trust account (when the broker accepts advance fees or trust funds)
9. Failure to maintain separate beneficiary records for the client trust account
10. Comingling or conversion in regard to client trust accounts
We have discussed many of these issues on our Real Estate Law & Compliance Youtube Channel. Click on the picture below to watch a great powerpoint presentation by Attorney Steve, the Real Estate Lawyer, which explains the audit and accusation process from a birds eye view.
Make sure to SUBSCRIBE to our channel for FREE business and real estate law updates! Simply click on the “RED V” in the corner of the video, or hit the subscribe button.
Should I hire a real estate law firm to represent me when I get asked to submit to an audit?
Yes you should. You are not required to, but when your license is on the line most business people would hire a real estate and business lawyer to represent them to make sure all the requests of the BRE are handled properly and that the case gets properly closed and resolved with the minimum damage to the real estate license and the records on the BRE public licensee database.
Top five tips to surviving a BRE real estate accusation
Is the BRE randomly auditing California real estate property managers?
From what we have been informed, yes. This is not to crack down on property manager per se, but the fact of the matter is real estate property managers collect and hold client trust funds (ex. security deposits and rents) and they have a duty to protect this money in a client trust account and to maintain appropriate accounting practices. The BRE’s primary job is to protect the public and real estate clients so random audits of California property managers best serve this purpose.
What is a real estate trust fund violation?
There are several types of trust fund accounting violations that routinely pop up in property management audits. These are as follows:
1. Failure to maintain trust fund control records (a general record of all trust funds coming in and going out)
2. Failure to maintain separate beneficiary records for each property owner
3. Failure to reconcile, on a monthly basis, the control records with the separate beneficiary records
4. Comingling – taking personal funds and mixing them with client trust funds
5. Conversion – intentional or deliberate conversion of trust funds diverting them to the brokers own use (basically stealing client trust funds)
These real estate records are required to be kept and maintained for three years under California Business & Professions Code section 10148.
Will I lose my California real estate license if I am non-compliant?
It is always possible that if you have serious real estate violations (of the commissioner’s regulations or the California real estate law) that you could lose your real estate license. However, in many cases we can show defenses, or mitigating circumstances that can help save your real estate license, and settle your case for less than a full revocation of your license. Click on the powerpoint photo above to watch a video that discusses the accusation process in general terms.
Does the BRE settle real estate non-compliance cases with a “cite and fine”?
There are several different possible outcomes to a BRE real estate investigation or audit, or ways to settle your case following the filing of a real estate accusation. Here are a few possible outcomes:
1. Cite and fine is issued – basically you could wind up paying $2,500 (or less) and the reasonable costs of investigation (ex. $1.000) and any audit fees that might have been incurred. Audit fees are basically an hourly fee charged by the BRe real estate auditor. It is essential to request that no record of the cite and fine be placed on the licensee’s DRE public records database. These blemishes can hurt your business when a potential real estate client looks you up online.
2. Public reproval – This is a correction letter and an informal public reproval. These might arise for minor real estate compliance violations, although nowadays it would probably be referred to the BRE cite and fine unit.
3. Suspended license – This can be a 90 day suspension with 60 days “stayed” and the potential to “buy out” the other 30 days of the suspension by paying a statutory penalty.
4. Restricted license – This can be a 1-4 year “restricted license” and this means that you lose your “due process rights” during the period agreed to in the settlement stipulation.
5. Revoked license – This is the usual result if you lose at a BRE accusation administrative hearing. This means you lose the right to engage in licensed real estate activity.
6. Bar order – this occurs when a licensee has committed serious consumer or real estate fraud. This “order” demands that the licensee not be engaged or associated with any licensed real estate activity, often for three years.
How much will I have to pay to settle a real estate accusation?
A typical settlement of a real estate license accusation will involve one or more of the following:
1. Payment of audit fees (ex. where the auditor found trust fund accounting violations) – these can range from a few thousand to upwards of $10,000 or more depending upon how much time the auditor spent reviewing your files. Normally you will have time to pay these fees after a settlement (for example you probably won’t have to pay for several months after your accusation or cite and fine case is settled).
2. Reasonable costs of investigation – this is a separate fee from above, and from my experience is generally in the $1,000 to $2,000 range.
3. As mentioned above, you will often get a suspended licenses and a chance to “buyout 30 days of your suspension” so that you may seamlessly continue your practice of real estate without interruption. This could run you another $2,500.
4. Restitution – if there were any “victims” in your case, part of settlement often involves proof that you have made restitution to any victims.
5. Costs of enforcement – this can vary from a few hundred to a few thousand.
NOTE: Normally the costs of enforcement and the costs of investigation must be paid immediately upon settling the case. The audit fees (which can be much higher, normally you will not have to pay for this for a couple of months, or 60 days upon receiving the invoice).
On top of these monetary penalties, settlement of a real estate licensing accusation in California can involve (a) having to take 45 continuing education units, (b) having to take and pass a professional responsibility exam, (c) taking trust fund accounting courses, and (d) other penalties specific to the case.
If the BRE files an accusation against me will I have to go to a hearing?
It is possible, but in many cases this can be avoided. Here is a real estate law video we did which provides an overview of the BRE accusation process. Some BRE defense lawyers like to scare the Bajeezus out of you and tell you all cases go to a hearing. This is simply not true. In most cases, with skillful negotiation and a good set of facts to work with, a OAH administrative hearing can be avoided, saving the time, expense, and pressures of that. Every case is different, however, so please fill out the contact form below so we can review your case.
What is a “Notice of Defense?”
If an accusation is filed against you, you have the right to contest the charges. You do this by filing a notice of defense. A notice of defense must be filed within 15 days of being served with the accusation. In my experience, the BRE has been good in extending these time frames for good cause shown but do not count on that as you could wind up waiving your legal rights to defend yourself in a hearing. To protect your rights, contact one of our real estate lawyers as soon as you get an accusation to protect your rights and get that document filed. If the document is not filed, you could lose your real estate license.
Is Vondran Legal the best real estate accusation defense firm in California?
It is hard to say who the “best BRE lawyer” is, and some lawyers like to tout that they are “Superlawyers” or Martindale Hubbell “Peer Rated” lawyers. All we can say for sure is that we know what we are doing when it comes to real estate license defense, and we have helped a large number of brokers and salespersons save their real estate licenses on terms they found most favorable over the past ten years. Our working relationships with the Bureau, we believe, are second to none. At the end of the day, since the process of investigation to audit, to accusation to settlement can take anywhere from several months up to a year or more, you want an attorney you can communicate and fee comfortable with. We believe we are the best real estate law firm in California to help you navigate this complicated legal issue.
To discuss your case in confidence, fill out the form below, or watch our numerous youtube videos we have put out regarding real estate accusations and judge for yourself. We believe, like many other clients, you will be pleased with the aggressive and tenacious representation and final outcome of your case.
What is the BRE real estate recovery account?
If a real estate licensee is held liable in a civil court for intentional fraud, and the Plaintiff goes to collect on the judgement and cannot collect after reasonable diligence, then the Plaintiff can apply to the California or Arizona real estate recovery account. If the BRE pays out for the losses (there are limits on a BRE recovery account case) the real estate licensee will lose their real estate license until they repay the recovery account.
Real Estate Law Resources
Contact our Real Estate Lawyers
To speak with us about your real estate audit, subpoena duces tecum, investigation response letter, or accusation contact one of our attorneys at (877) 276-5084, or complete the form below to have one of our lawyers contact you. We offer low flat rate fees for our real estate licensing, litigation and compliance services. We can help you whether your issue is with the Arizona DRE, California BRE, or the California Department of Business Oversight (“DBO”) which handles MLO and NMLS licensing issues along with CFL and RMLA licensing issues.
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