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Failure to disclose criminal convictions on real estate or insurance applications

Jul 10th, 2015 | By | Category: Real Estate Broker Law

Professional licensing lawyers – Challenging honest mistakes in failure to disclose prior felony or misdemeanors!

California real estate licensing law firm

Introduction

As a real estate licensing defense firm, we handle quite a few different types of licensing issues, from property management trust fund audits, to complaint and investigation response letters, accusations, and denial of real estate licenses.  This blog deals with the unfortunate situation of failing to disclose a prior criminal conviction when applying for a real estate salesperson or brokers license in the state of California.  We conclude this blog with some helpful tips to avoid the denial of your real estate license and avoid getting a statement of issues.

California Business and Professions Code section 10177(a)

This section (Cal B &P 10177(a)) states that

“The commissioner may suspend or revoke the license of any real estate licensee, or may deny the issuance of a license to an applicant, who has done any of the following:

“(a) Procured, or attempted to procure, a real estate license or license renewal, for himself or any salesman, by fraud, misrepresentation or deceit,

or

by making any material misstatement of fact in an application for a real estate license, license renewal or reinstatement.”

California Business & Professions Code Section 10177(b) – “substantially related crimes”

This section also provides a basis for denials of licensing which may appear in a “statement of issues” filed by the DRE, BRE, Insurance Commissioner or DBO:

“(b) Entered a plea of guilty or nolo contendere to, or been found guilty of, or been convicted of, a felony, or a crime substantially related to the qualifications, functions, or duties of a real estate licensee, and the time for appeal has elapsed or the judgment of conviction has been affirmed on appeal, irrespective of an order granting probation following that conviction, suspending the imposition of sentence, or of a subsequent order under Section 1203.4 of the Penal Code allowing that licensee to withdraw his or her plea of guilty and to enter a plea of not guilty, or dismissing the accusation or information.”

California Business & Professions Code Section 480(a)

This section of the code deals with agency denial of a license and states:

“(a) A board may deny a license regulated by this code on the grounds that the applicant has one of the following:

(1) Been convicted of a crime. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of nolo contendere. Any action that a board is permitted to take following the establishment of a conviction may be taken when the time for appeal has elapsed, or the judgment of conviction has been affirmed on appeal, or when an order granting probation is made suspending the imposition of sentence, irrespective of a subsequent order under the provisions of Section 1203.4, 1203.4a, or 1203.41 of the Penal Code.

(2) Done any act involving dishonesty, fraud, or deceit with the intent to substantially benefit himself or herself or another, or substantially injure another.

(3) (A) Done any act that if done by a licentiate of the business or profession in question, would be grounds for suspension or revocation of license.

(B) The board may deny a license pursuant to this subdivision only if the crime or act is substantially related to the qualifications, functions, or duties of the business or profession for which application is made.

(b) Notwithstanding any other provision of this code, a person shall not be denied a license solely on the basis that he or she has been convicted of a felony if he or she has obtained a certificate of rehabilitation under Chapter 3.5 (commencing with Section 4852.01) of Title 6 of Part 3 of the Penal Code or that he or she has been convicted of a misdemeanor if he or she has met all applicable requirements of the criteria of rehabilitation developed by the board to evaluate the rehabilitation of a person when considering the denial of a license under subdivision (a) of Section 482.

(c) Notwithstanding any other provisions of this code, a person shall not be denied a license solely on the basis of a conviction that has been dismissed pursuant to Section 1203.4, 1203.4a, or 1203.41 of the Penal Code. An applicant who has a conviction that has been dismissed pursuant to Section 1203.4, 1203.4a, or 1203.41 of the Penal Code shall provide proof of the dismissal.

(d) A board may deny a license regulated by this code on the ground that the applicant knowingly made a false statement of fact that is required to be revealed in the application for the license.

California Business and Professions Code Section 475(a)(2)

Cal B&P Section 475(a)(2) says:

“(a) Notwithstanding any other provisions of this code, the provisions of this division shall govern the denial of licenses on the grounds of:

(1) Knowingly making a false statement of material fact,

or

knowingly omitting to state a material fact, in an application for a license.”

These above two are the code sections that might be relied on to deny your real estate license if you failed to check the box on the application indicating you have a previously felony or misdemeanor conviction.  The licensee or potential licensee who fails to disclose, knowingly and willfully, and with intent to deceive is going to have a hard time convincing the BRE, DBO, or insurance commissioner that they should be entitled to have their license issued.  However, this is not absolute situation.  Read on.

San Francisco BRE Defense attorneys

Bonus Materials – Watch our real estate video on how to deal with prior criminal convictions with the CalBRE.  Make sure to “SUBSCRIBE” to our youtube channel by clicking on the RED “V” for Victory!!  Feel free to share this video on your social media networks!!

California case law dealing with failure to disclose prior criminal convictions

In one case,  Madrid v. Dep’t of Real Estate, 152 Cal. App. 3d 454, 455-56, 199 Cal. Rptr. 520, 520-21 (Ct. App. 1984), the California appeals court discussed a case on point:

“Appellant, a real estate salesman, was accused by the Real Estate Commissioner of the State of California of having fraudulently procured a real estate license by making a material misstatement of fact in his license application, a violation of California Business and Professions Code section 10177(a). Specifically, it was alleged that appellant had been convicted of bingo fraud in Arizona in 1975 and failed to list the conviction on his application. After an administrative hearing, appellant’s license was revoked. The superior court denied his petition for a writ of mandate, and this appeal followed. Appellant contends that there is not substantial evidence to support the finding that his license was fraudulently procured because respondent did not show that the application would have been denied had the Arizona conviction been disclosed.”
This was the case of the “I just plumb forgot” defense.  Here is another important part of the case wherein the Court discussed this defense:
When asked on direct examination why he had not disclosed the Arizona conviction on his application, appellant replied: “A stupid thing. I just plumb forgot, for one thing. I thought the application only was pertaining to the State of California.” Appellant also stated that he had not attempted to hide the conviction and discussed it freely with his friends at work.  Under cross-examination, appellant reiterated that he “plumb forgot” about the Arizona conviction when he filled out his license application. When asked why he thought the application pertained only to California convictions, appellant replied:
“I don’t know. I think it was my stress at the time; I don’t know.
“I was sick at the time, so, I probably—stress or pressure, whatever. I just plumb forgot.
“Also, too, up to now, I think I was not guilty on the fraud in Arizona, and then it might have helped me not to put that in the application.”
Appellant then stated that he had disclosed the Arizona conviction to his broker and his co-workers, but admitted that he had told his broker about it only after he (appellant) had been contacted by the Department of Real Estate. When asked why he did not disclose the conviction to the Department of Real Estate on his application, he replied:

“I plumb forgot. It just, you know—it’s really hard to explain to you my feeling. I still say I am not guilty in this thing, and the lawyers I had over there just didn’t represent me right.”

These are some of the common reason we hear in our real estate licensing practice, and it is often tough to explain why the criminal convictions box was not checked, but at the end of the day, we are all human, and even computers make mistakes.  However, this defense will not always save the day.  Read on.

The holding of Madrid v. Department of Real Estate:

How did the “I forgot” defense work out in this case?  Not well.  As the Court noted:

“Respondent contends that the non-disclosure of the [Arizona] conviction in his application does not constitute a willful misstatement in that when he answered Question No. 20 of the Application, he was confused and thought that only California convictions need be disclosed; and that in the alternative, he had forgotten about the 1975 Arizona conviction; and the omission of it from the application was merely inadvertent. Such contentions are likewise rejected as lacking credibility, nor supported by the facts, evidence, and inferences to be drawn therefrom in the record.”
The Court continued:
“It is found that respondent procured his real estate license by misrepresentation in knowingly making a material misstatement of fact in his application therefore the judge ordered that appellant’s license be revoked.  The Commissioner adopted the findings of the Administrative Law Judge and accepted the judge’s recommendation that appellant’s license be revoked.  In its order denying appellant’s petition for writ of mandate, the trial court found that the Commissioner’s findings were supported by the weight of the evidence.”
In affirming the judgement the Court noted:
“The crime of which Respondent was convicted bears a substantial relationship to the qualifications, functions, or duties of a real estate licensee. Respondent’s failure to reveal the criminal conviction alleged above in said application for licensure constitutes the procurement of a real estate license by fraud, misrepresentation or deceit, or by making a material misstatement of fact in said application, which failure is cause for suspension or revocation of Respondent’s real estate license under Sections 490 and 10177(a) of the Business and Professions Code. This is merely another way of stating that the license would not have been granted had the conviction been disclosed. Having so alleged in the accusation, the Department met its burden by proving:
(1) that the conviction occurred, and
(2) appellant’s failure to list it on the application was willful.

Attorney Steve Tip:  This case points out a few things. One, the DRE (now the BRE), has the burden to show the conviction occurred and that the failure to disclose it was “willful.”  This will depend upon the facts of the case, evidence provided, and inferences to be drawn from the same.  This case also suggests that it is also relevant whether the underlying conviction is one which would have resulted in a denial if disclosed (i.e. whether the prior felony or misdemeanor has a “substantial relationship to the duties, qualifications and functions” of the real estate business.  This is why each case must be presented in the best possible light, and thus, no guarantees can ever be made as to the outcome of any case.

Other California cases

1.  Jones v. Maloney, 106 Cal.App.2d at p. 85, 234 P.2d 666, the appellant, Jones, had failed to disclose two misdemeanor convictions on his applications for various insurance licenses. The convictions occurred nine and twenty years, respectively, before Jones made his applications. Jones stated that he did not mention the incidents because he considered them “very much in the past and immaterial,” (i.e. would not have caused a denial even if disclosed) and also thought that his business would be hurt if he admitted the arrests.   This case fell not under the real estate laws, but under the Insurance code, dealing with a similar disclosure statute that governs licensing of insurance brokers.  In this case the Court held that the non-disclosure of the prior criminal convictions was a “misstatement” but it was not an attempt to obtain an insurance broker’s license by “concealment or a knowing misrepresentation” because there was no reason to believe the commissioner would have denied the license even if disclosed.  Here is some language from that case:

“Jones was accused by the Insurance Commissioner of having violated Insurance Code section 1731, which provided that the Commissioner could suspend or revoke any license where the licensee had:
(1) knowingly or willfully made a misstatement in an application for a license,
or
(2) obtained his license by concealment or knowing misrepresentation.
Jones argued that the matters concealed were such that had they been disclosed, they would not have caused a denial of the licenses.
The court held that as far as the charge of misstatement was concerned, the type of matter concealed was immaterial: “It is the fact of wilful concealment that is important, rather than the matter concealed.” The court went on to state, however, that the materiality of the matter concealed or misrepresented became important with respect to the second charge of having obtained the license by concealment or misrepresentation:
“In determining this question it becomes important to ascertain whether the matter was such as, if known, would have caused a denial of the license. If it was not, then the license was not obtained by suppressing the truth on this subject.
Under this portion of [section 1731], two things are required: (1) the concealment or knowing misrepresentation [and] (2) a showing that this concealment or misrepresentation was of such a nature that it was the cause of the obtaining of a license which otherwise would have been denied.” (Id., at p. 89, 234 P.2d 666.) The court reasoned that there was nothing in the circumstances of the two convictions which would have justified the commissioner in denying Jones’ applications, and there was no evidence presented on the issue of whether disclosure of the convictions would have caused the applications to be denied.”

2.  DeRasmo v. Smith, 15 Cal. App. 3d 601, 610, 93 Cal. Rptr. 289, 295 (Ct. App. 1971), was a case construing Business & Professions Code section 10177(a), DeRasmo, a real estate salesman, had omitted from his 1967 real estate license application the fact that he had been convicted of possession of heroin in New York in 1953. He had been placed on probation, the terms of which he successfully completed. At the license revocation hearing, the hearing officer found that at the time DeRasmo executed the application he was under the impression that the 1953 conviction had been expunged and he did not have to list it on his application. The hearing officer also found that DeRasmo did not intend to deceive or mislead the commissioner, but acted in good faith when he omitted the conviction from his application.  On appeal, DeRasmo argued that his license should not have been revoked without a showing that it would have been denied if the misstatement had not been made. The court, following Jones v. Maloney, agreed with DeRasmo and held that his license had been improperly revoked:

“The response to the arrest question clearly remains a misstatement, but respondent does not contend that an arrest 15 years before would have been proper grounds for denial or revocation of a license.”

Which party bears the “Burden of Proof” on the issue of material misstatement upon which to base a license denial?

The applicant will need to raise the challenge and in some cases (such as challenging a “statement of issues” denial or suspension, in which the respondent will be required to show compliance) prove they should prevail.  However, there is good argument that in some cases the licensing authority bears the burden of proof to show attempt to procure, or procurement of the real estate license or insurance license on the grounds of fraud, deceit, or misrepresentation.  Support for this legal theory can be found in the Derasmo case cited above which noted:

“The trial court, however, reasoned that the answers to both questions were material misstatements because they deprived the respondent of complete information and the opportunity to fully investigate the application before petitioner was issued a license. The thrust of this theory is that even if the conviction or arrest itself could not have served as grounds for denial of a license, knowledge of a conviction or arrest could have led to an investigation, which might have revealed information demonstrating petitioner to be unsuitable as a real estate salesman. However, no evidence was introduced as to what such an investigation would have revealed in this case. In disciplinary administrative proceedings the burden of proof is on the party asserting the affirmative, and guilt cannot be based on surmise or conjecture”, citing Cornell v. Reilly, 127 Cal.App.2d 178, 184, 273 P.2d 572.
As the Court also held:
“However, even an unwarranted misunderstanding on DeRasmo’s part of the purport of the question or a lack of rational basis for his belief of the expungement, suggesting a personal trait of propensity toward negligence or misconstruction of directions, cannot serve as grounds for the revocation because there was no administrative finding regarding such an undesirable personal trait or any indication by the commissioner or the trial court that it served as grounds for the conclusion that the license had been procured by a material misstatement.”

Cornell v. Reilly, 127 Cal.App.2d 178 – Denials should not be based on suspicions or conjecture

This is another case that discussed the burden of proof in an administrative hearing in California.  This Court noted:
“It may be conceded that in disciplinary administrative proceedings the burden of proof is upon the party asserting the affirmative, Bley v. Board of Dental Examiners, 87 Cal.App. 193, 261 P. 1036, and that guilt must be established to a reasonable certainty, Furman v. State Bar, 12 Cal.2d 212, 83 P.2d 12; Coffman v. California State Board of Architectural Examiners, 130 Cal.App. 343, 19 P.2d 1002, and cannot be based on surmise or conjecture, suspicion or theoretical conclusions, or uncorroborated hearsay.”

Top 5 tips to avoid real estate license denials with the California Bureau of Real Estate (“BRE”)

Here are my top tips to avoid license denial for real estate, lending, appraisal and insurance licenses:

1.  Fill out the application when you are well rested and feeling good.  The application to obtain a real estate license has many questions, and you want to make sure you are in a good mood, and filling it out when you are not rushed, in a hurry, stressed out about something else or the like.  Setting aside a Saturday or Sunday (the whole day) to make sure you have time to fill out the forms is well advised.

2.  Read each and every part of the application closely and carefully (do not rush) and fill out all questions.  Failure to answer a question, or “checking the wrong box” may be treated as an act of “dishonesty,” or “deceit” and can result in denying your application.

3.  Make sure to DISCLOSE AL CRIMINAL CONVICTIONS, even if they were expunged and all pending criminal charges.  Omitting critical information can result in claims that you made a knowing material misrepresentation and can delay your attempts to obtain your license.  If you are not sure what convictions are out there, pull a Lexis-Nexus background report (which to my understanding is what the CalBRE itself pulls to determine what your background has in it.  When you retain our law firm, we can help you look into this which may not be easily accessible to you.  The California Department of Justice (“DOJ”) can also provide you a copy of your criminal background report, for a fee as can the FBI.

Here is an address you can use to send your request:

FBI/CJIS Division
Attn: SCU MOD2
1000 Custer Hollow Rd.
Clarksburg, WV 26306.  

NOTE: Do not relay on this address as it may have changed from the time you are reading this.  You must do your own due diligence on this.

Realize, however, that you CANNOT RELY on this background report in filling out your application, as the records may not be 100% accurate or correct.   Some convictions may be missing.  Therefore, you must make sure to disclose everything that they are asking for and make sure to be 100% complete.  Pulling these reports, and keeping them for your records, however, can show good faith on your end, but there is no substitute for being 100% accurate on the application.  If you are going to submit a letter of explanation with your application, it is even more important to have a BRE defense attorney experienced with BRE issues to assist you.  We can help you write a TRUTHFUL letter explaining “who you were then versus who you are now” and showing a change in “attitudes and associations” that evidence remorse, maturity and the good character and fitness required to hold a real estate license.  You should not trust this task to a firm that lacks the ability to tell your story.

4.  If you are not sure what a question calls for, call a real estate lawyer.  The BRE and DBO and other agencies will not help you fill out the application and they do not give you legal advice.  In addition, the C.A.R. legal hotline will not answer legal questions of this nature.  This is a good time to hire counsel to assist you.  The best money you can spend on lawyers is often times the up-front money to keep you OUT OF TROUBLE in the first place.

5.  Realize that any and all documents you turn into the BRE can and might be used against you in a future administrative proceeding if they move to deny you.  Therefore, BE CAREFUL what you turn in.

Attorney Steve Tip: If you have a criminal record, you should investigate whether or not you can have your conviction “expunged” under California Penal code section 1203.4 or other applicable statute (for example, the statutes in other states where the conviction occurred).

Contact a CalBRE, DBO, Appraisal or Insurance licensing lawyer

If you have been denied a real estate salesperson license, brokers license, insurance license, MLO (NMLS) mortgage lending or appraisal license contact us for a free initial case evaluation at (877) 276-5084 or fill out the contact form below.  We can discuss potential defenses, and position your legal arguments.  Also make sure to review our helpful blog on things to consider before hiring BRE defense counsel.  Click here to see our affordable and flexible legal fees page.

We handle cases in California and Arizona and have offices in San Diego, Newport Beach (handling Orange County, San Bernardino and Riverside), Beverly Hills (handling cases in the greater Los Angeles areas), San Francisco (handling cases in Silicon Valley, Marin County, East Bay, Oakland and San Jose), and Phoenix (handling cases in Maricopa County).

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