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Dangers of being a property management “rent-a-broker”

Jan 20th, 2015 | By | Category: Real Estate Broker Law

California property management compliance basics – Rent-a-Broker Issues

real estate property management duty to supervise law firm

Introduction

Many California real estate brokers got into the property management business “by accident,” basically just taking on and managing a property for a good client here and there.  After a while, the number of houses and rooftops started taking off.  At some point, the broker may have decided to bring on another broker called a “rent a broker” to “run” the company.  However, many of these new breed of property management brokers:

(a) didn’t know anything about California BRE property management compliance and

(b) didn’t really want to manage the day to day business, oversee the trust account, or other supervise licensed activity.

This, of course, was the birth of the licensed rent-a-broker whose only job function was to pick up a check or a sack of cash each month for allowing a broker, or salesperson (who owned the company) to “USE” their real estate license.”

 Duty of Broker Supervision

No matter what size the organization, there is a duty to supervise, and it is the broker who must assure compliance with this section.  The rule can be found under Commissioner’s Regulation 2725.  But just what does this section say?  Let take a look:

More information about the broker duty to supervise can be found here.  The Broker needs to know what’s going on, and needs to understand the basics of trust fund accounting.  Many audits we have been to the broker has no idea what’s going on, and cannot answer even basic questions about the real estate business.  This is a good way to get a 2725 charge and put the real estate license, and the brokerage business at risk,

We can help you fix this fundamental problem with a broker compliance pre-audit. Call us at (877) 276-5084 or fill out the form below for a free case assessment.

Broker as a signor on the property management trust account

The designated broker should be a signor on a “trust account.”  The account must be DESIGNATED as a TRUST ACCOUNT.  If it is not designated as a trust account you are going down the wrong road and will be facing a host of trust fund accounting violations under section 10045, and will lead to potential license discipline issues, cite and fine problems and potential costly fines.

The other issues is who is listed as a signor on the trust account and are proper trust fund records being kept.  From what we have seen, most brokers that have been subject to a random audit, (or at times a complaint driven audit) are not ready for what’s about to come their way.  The auditors, in our opinion, have become more relentless, and more aggressive and the legal fines and fees have become more costly.  When your license is at risk, you need a real estate law firm that is ready to help you clean up the mess.  Fill out the contact form below for a free analysis.

For some brokers, they have too many people listed as signors on the trust account, including unlicensed agents and un-bonded persons whose names should be eliminated from the trust account.  This creates problems for the brokerage that can be fixed.

Owner who will not give access to the property manager designated broker

The other serious legal issue that pops up in the “rent a broker” situation is the real estate broker-owner (sometimes a salesperson) who will not allow the designated broker to have access to the office, or access to the trust accounts, or access to the trust account records. When the BRE finds this out, they see the rent-a-broker for it is, a sham.  The designated broker is not actually overseeing anyone, and often has no clue what is going on in the organization.  Again, it is usually the case of just wanting a fee for doing nothing.

If this sounds like your property management company, consider calling us at the number below to help you get your ship in shape before real estate accusations and cease and desist orders start flying from the real estate regulators.

Risks of an BRE audit or DRE investigation

The risks of undertaking a property management audit when you have a rent-a-broker at the helm, is that if the Bureau of Real Estate gets wind of it (random or complaint driven audit) is that you will lose your license, particularly the absentee broker who should always consider retaining their own separate counsel to make their case that they are not provided access to the books, records, or trust account.

Potential charges and accusations for rent-a-brokers in California real estate can be costly.  Fines and fees can be high, and the potential to lose the real estate license, or to get a suspended or restricted real estate license are omnipresent.

California Real Estate Property Manager Legal Resources

1.  Trust fund accounting guides

2.  Broker self-audit guidelines (RE 540)

3. C.A.R. Legal hotline

These are just a few compliance resources for the California broker.  We have a wealth of experience dealing with both the BRE (in California) and DRE (In Arizona) and we can help you with telephone audits that run down the types of questions you can expect to field from the BRE auditors and investigators. If you do nothing else, you should contact us to do a “phone compliance review” so that we can try to help you identify compliance issues that will come back to bite you.  Our phone number is listed below.

Contact a California property manager law firm arbitration or real estate litigation firm

Our law firm has been through many real estate broker audits, including audits involving residential and commercial transactions, loan modifications, advance fees, property management audits etc.  We have helped settled many licensing accusations and are responsible for getting many real estate brokers into compliance.  For more information about what we can do for you please contact us at (877) 276-5084 or fill out the contact form below for a free case assessment.

When you are being put on the defense (i.e. facing an audit or investigation), your best bet is to go on the offensive and make sure your ship is as clean as possible.  Contact us today.  We offer flexible legal rates to fit your budget.

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