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How to respond to an ADRE cease and desist order

Nov 8th, 2015 | By | Category: Real Estate Broker Law

Arizona Real Estate Law Basics – ADRE defense lawyer discusses the C & D!

ADRE lawyers for licensing defense

Introduction

In Arizona, (as in California – we represent many real estate broker clients from San Diego to San Francisco) sometimes companies engage in licensed real estate activities when it does not have the license to do so.  For example, a non-licensed business may sell cemetery lots without a real estate license, or engage in property management without a proper license.  In these circumstances, when the AZ Dep’t of Real Estate gets wind of this, the commissioner’s office may send your company an ORDER to stop engaging in licensed activity unless and until you comply with application statutes and rules and basically, until properly licensed.   This creates a situation that you may want to discuss with your real estate counsel.  This blog discusses some of the main points and statutes that may be cited in a C&D letter.

A.R.S. 32-2154 (statutory authority for C&D orders)

The main statute in Arizona authorized the cease and desist letter is A.R.S. 32-2154.  This section states:

A. If it appears to the commissioner that any person has engaged, is engaging or is preparing to engage in any act, practice or transaction that constitutes a violation of this chapter or any rule adopted or order issued by the commissioner, the commissioner may issue an order directing any person to cease and desist from engaging in the act, practice or transaction or doing any act in furtherance of the act, practice or transaction, to make restitution or to take appropriate affirmative action, within a reasonable period of time as prescribed by the commissioner, to correct the conditions resulting from the act, practice or transaction.

B. A person aggrieved by a cease and desist order issued by the commissioner pursuant to this section may request a hearing pursuant to title 41, chapter 6, article 10 and the commissioner may issue the order or orders as the commissioner deems necessary to protect the public interest. The commissioner may also bring an action in any court of competent jurisdiction against the person to enjoin the person from continuing in violation of this chapter. These proceedings shall be promptly instituted and determined.

The order can be sent to both LICENSED real estate companies and UNLICENSED real estate businesses.

A.R.S. 32-2101 (licensed real estate activity)

The cease and desist order may demand that the licensee cease engaging in all licensed real estate activity in the state of Arizona.  Real estate activities are defined in A.R.S. 32-2101 which states what a “broker” is (which of course requires a real estate license):

48. “Real estate broker” means a person, other than a salesperson, who, for another and for compensation:

(a) Sells, exchanges, purchases, rents or leases real estate, businesses and business opportunities or timeshare interests.

(b) Offers to sell, exchange, purchase, rent or lease real estate, businesses and business opportunities or timeshare interests.

(c) Negotiates or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of real estate, businesses and business opportunities or timeshare interests.

(d) Lists or offers, attempts or agrees to list real estate, businesses and business opportunities or timeshare interests for sale, lease or exchange.

(e) Auctions or offers, attempts or agrees to auction real estate, businesses and business opportunities or timeshare interests.

(f) Buys, sells, offers to buy or sell or otherwise deals in options on real estate, businesses and business opportunities or timeshare interests or improvements to real estate, businesses and business opportunities or timeshare interests.

(g) Collects or offers, attempts or agrees to collect rent for the use of real estate, businesses and business opportunities or timeshare interests.

(h) Advertises or holds himself out as being engaged in the business of buying, selling, exchanging, renting or leasing real estate, businesses and business opportunities or timeshare interests or counseling or advising regarding real estate, businesses and business opportunities or timeshare interests.

(i) Assists or directs in the procuring of prospects, calculated to result in the sale, exchange, leasing or rental of real estate, businesses and business opportunities or timeshare interests.

(j) Assists or directs in the negotiation of any transaction calculated or intended to result in the sale, exchange, leasing or rental of real estate, businesses and business opportunities or timeshare interests.

(k) Incident to the sale of real estate, businesses and business opportunities negotiates or offers, attempts or agrees to negotiate a loan secured or to be secured by any mortgage or other encumbrance upon or transfer of real estate, businesses and business opportunities or timeshare interests subject to section 32-2155, subsection C. This subdivision does not apply to mortgage brokers as defined in and subject to title 6, chapter 9, article 1.

(l) Engages in the business of assisting or offering to assist another in filing an application for the purchase or lease of, or in locating or entering upon, lands owned by the state or federal government.

(m) Claims, demands, charges, receives, collects or contracts for the collection of an advance fee in connection with any employment enumerated in this section, including employment undertaken to promote the sale or lease of real property by advance fee listing, by furnishing rental information to a prospective tenant for a fee paid by the prospective tenant, by advertisement or by any other offering to sell, lease, exchange or rent real property or selling kits connected therewith. This shall not include the activities of any communications media of general circulation or coverage not primarily engaged in the advertisement of real estate or any communications media activities that are specifically exempt from applicability of this article under section 32-2121.

(n) Engages in any of the acts listed in subdivisions (a) through (m) of this paragraph for the sale or lease of other than real property if a real property sale or lease is a part of, contingent on or ancillary to the transaction.

(o) Performs any of the acts listed in subdivisions (a) through (m) of this paragraph as an employee of, or in behalf of, the owner of real estate, or interest in the real estate, or improvements affixed on the real estate, for compensation.

(p) Acts as a business broker.

If a Arizona business is doing any of these activities, without a real estate license and designated broker, a cease and desist order could issue.

A.R.S 32-2171 (property management activity)

One of the hottest new trends in both Arizona and California real estate is the rise of the property management company.  This also is a licensed real estate activity requiring a AZ real estate license and designated broker (who is NOT a “rent-a-broker“).  A.R.S. 32-2171 states:

“1. “Property management firm” means any corporation, partnership or limited liability company licensed pursuant to section 32-2125, subsection A or a designated broker that by written agreement, manages rental property or properties for compensation.

2. “Rental agreement” means a lease or leasing agreement.

Again, if your business is located in Maricopa, Pinal, Yuma, Coconino, or Yavapai county and charging property owners, land owners, landlords money to manage their properties, your business will need a valid real estate license and designated broker supervising the licensed activities of the business.

What is a “summary license suspension?

A summary license suspension in AZ is different from a “cease and desist” order.  A summary suspension involves an immediate suspension of a real estate license.  This topic is covered in A.R.S. 32-2157 which notes in section (B) and section (C):

B. If the commissioner finds that the public health, safety or welfare imperatively requires emergency action, and incorporates a finding to that effect in the commissioner’s order, summary suspension of a license or sales may be ordered. Grounds for issuance of an order of summary suspension include the violation of any of the provisions of A.R.S. 32-2153 and the termination of a license pursuant to section 32-2188, subsection I. A licensee, owner, including the current owner of the property, operator, agent or developer may request a hearing pursuant to title 41, chapter 6, article 10. A summary suspension shall be deemed to be final if a request for a hearing is not received within thirty days as provided by A.R.S. 41-1092.03.

C. The department may issue a summary suspension when the department receives notice that a person licensed pursuant to this chapter has been convicted of a felony offense and is currently incarcerated for the conviction, paroled or under the supervision of a parole or community supervision officer or is on probation as a result of the conviction. This subsection does not limit the commissioner’s authority to seek revocation of a license or other disciplinary action pursuant to this chapter.

Arizona case law supports the position that where an EMERGENCY situation arises, the AZDRE will have the power and authority to summarily suspend a real estate license as long as it at least allows a hearing to contest the action afterwards.  For example see Dahnad v. Buttrick, 201 Ariz. 394, 399, 36 P.3d 742, 747 (Ct. App. 2001) which held:

An agency may need to take emergency action. And although § 41-1092.11(B) does not explicitly define an emergency suspension as an exception to the requirement of prior notice and a hearing, it does state that, based on an emergency, “the agency may order summary suspension … pending proceedings for revocation or other action.” Section 32-1263.02(C) also provides in part “if the license has been summarily suspended pursuant to § 41-1092.11, the matter shall be immediately advanced to a formal board hearing as provided in title 41, chapter 6, article 10, at which time the evidence supporting the imposition of disciplinary actions shall be presented and formal board action shall be taken.” (Emphasis added and footnote omitted.) We interpret these statutes to contemplate and permit a summary suspension without notice or a pre-suspension hearing when emergency circumstances imperatively require such action before a hearing can be provided. In such circumstances, however, § 41-1092.11 requires a formal post-suspension hearing process to be “promptly instituted and determined.” And, lest there be any question how prompt is prompt, § 32-1263.02(C) requires the matter to be “immediately advanced” to a formal hearing.”
Again, if you are faced with a summary suspension notice, contact one of our real estate lawyers using the phone number or contact form provided below.

What to do if you receive a “cease and desist” or “summary suspension” order from the Arizona Department of Real Estate.

  1.  Contact an Arizona real estate lawyer to discuss your legal rights and potential responses.  Do not immediately think that you are “put out of business” just because you received an Order and copies of the Order may have been sent to your Clients (the DRE may have received your client list following an audit).  Do not jump to conclusions.
  2.  A cease and desist (C&D) is NOT an order to put your company out of business.  As noted above, if you feel the Order is unwarranted, you have a right to request a hearing.
  3. In some circumstances the AZRE may have filed legal action to bring an injunction against your business to STOP the offending activity.  They are not always right in their interpretations, and there may be some circumstances where you would want to oppose and challenge this.
  4. In some cases, you will want to make sure you COMPLY with the ORDER and immediately stop the offending activity and ensure all of your agents, employees and independent contractors are also ceasing the alleged illegal activity.
  5. In general, you will want to THINK TWICE about contacting the AZDRE and making statements, leaving phone messages, or sending emails that may be used against you.  An Order from the commissioner’s office is a serious matter and the wise brokerage would contact real estate counsel.
  6. If you contact the phone number on the C&D it may route you to a message which basically informs you that you have the right to direct the matter to your legal representative.  It may be wise to heed that advice and “lawyer up.”
  7. If you receive notice of a SUMMARY SUSPENSION you only have 30 days to file request for a hearing.  If you fail to file, you could be deemed to have waived all your rights.
  8. We can help you file an opposition, request for hearing, notice of appeal, or request for informal settlement conference.  The informal settlement conference will be requested to be held within 15 days.
  9. In some cases, the licensed portions of the business will be allowed to continue, and in other gray areas, you may be advised to desist and refrain until the matter is resolved with the AZRE.
  10. It is also important to realize that in property management cases where an audit has uncovered a SHORTAGE in the Client Trust Account, the DRE may determine that the property management company is not eligible to continue in its business.  We have represented many property management clients in both California and Arizona, and sometimes a shortage (following an audit) will lead to a C&D order.  This is done to protect the public.  Sometimes the broker invested the money and no longer has it.  In some cases, this may compel the conclusion to the DRE that the property management business should be shut down until compliance with trust fund accounting rules are complied with and the shortage in the trust account is cured.
  11. In some cases a legal opinion letter or position letter can be created for our clients.

We have represented numerous clients and we can help your business.  We can help with drafting a letter to your Clients to engage in “damage control” and to explain the situation and how it has been resolved.  We can also help set up the broker with annual self audits designed to ensure the issues will not arise again in the future.  The goal obviously is to preserve your Client base so that your legal exposure is limited to the extent possible.  We can help you resolve a C&D with a “Consent Order” that may involve the payment of fines, fees and may result in a “provisional license.”

Contact an Arizona Real Estate Law Firm

We can help real estate brokerages and unlicensed real estate companies respond to AZDRE complaints, investigations, subpoena response, accusations, cease and desist orders, summary suspension notices, property management compliance, licensing-admissions cases and license defense and other real estate arbitration and litigation matters.  We offer low flat rate fees for many of our services contact us to discuss at (877) 276-5084 or leave a message using the contact form below. Make sure to LEAVE YOUR PHONE NUMBER!

 

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