The State of California is looking to clean up the real estate profession and new rights to impose large fines against real estate licensees are now on the books.

SB 706 creates new requirements California DRE brokers and salespersons should be aware of in 2012 and going forward.  A new law, SB 706 sets forth some new rules for real estate licensees:

(1) SB 706 Requires the automatic suspension of any licensee who is incarcerated after conviction of a felony, regardless of whether the conviction has been appealed.

So, if you get a felony and are incarcerated your DRE real estate license will be suspended.

(2) SB 706 Requires the DRE or OREA to notify the licensee in writing of the suspension and of his or her right to elect to have the issue of penalty heard, as specified.

(3) Requires a  California real estate licensee  to submit a  written  report of any of the following to the DRE or OREA:

(a) The bringing of an indictment or information charging a felony against the licensee; (b) Arrest of the  licensee;

(c) conviction of the licensee, including any felony or misdemeanor; and,

(d) any disciplinary action taken by another licensing entity or authority of this state or of another state.

Common California felonies include but are not limited to: Murder, involuntary manslaughter, mayhem, sodomy by force, any felony punishable by death or imprisonment for life, attempted murder, rape, robbery, assault with a deadly weapon, arson, burglary, kidnapping, bank robbery, grand theft, sexual abuse of child, etc.

Common California misdemeanors include but are not limited to: DUI / DWI, Domestic Violence, Trespass, Petty Theft / Shoplifting, Assault and Battery, Disorderly Conduct, Reckless Driving / Exhibition of Speed, Obscene Matter, Probation Violations, Receipt of Stolen Property, Unlicensed Driver, Illegal Gambling, Public Drunkenness, Solicitation of Prostitution, Violation of Restraining Orders,

This section is fairly self explanatory.  The licensee should realize that under this law, it requires the report to be made in writing within 30 days; and that failure to make a report is a public offense punishable by a fine not to exceed $5,000 and shall constitute unprofessional conduct.

What else does SB 706 require?

SB 706 also requires a licensee to identify himself or herself as a licensee or registrant of the DRE or the OREA to law enforcement and the court upon an arrest or being charged with a crime and requires DRE and  OREA to inform licensees of this requirement.

The new law also requires the  clerk of the court  to do the following:

A.  Report to the DRE or OREA any judgment for a crime committed or for any judgment in excess of $30,000, for which a licensee is responsible due to negligence, error or omission in practice, or rendering unauthorized professional services.

B.   Transmit any felony preliminary hearing transcript concerning a defendant licensee of the DRE or OREA.

C.    SB 706 also requires the district attorney, city attorney, other prosecuting agency, or clerk of the court to notify the DRE or OREA if a licensee is charged with a felony immediately upon obtaining information that the defendant is a licensee of the DRE or OREA.

This bill thus gives the DRE greater disciplinary authority to protect the public. A licensed agent or broker will be required to report to the DRE within 30 days any disciplinary action taken by another licensing entity in California or another state, or by a federal governmental agency.  An indictment or information charging a felony against the license holder or a conviction of a felony or misdemeanor, including a plea of guilty or no contest, must also be reported.  Failure to report may be grounds for license discipline or a $5,000 penalty.

To get a California Real Estate Lawyer to keep you updated on new California laws, and to assist you in corporate compliance check out our newly launched BrokerCounsel.com California real estate licensee corporate counsel programs.  Sometimes the best money you can spend is to keep you out of trouble in the first place!

If you are a California real estate broker you should be aware of a new law SB 53 passed in 2011 that authorizes the DRE to issue fines and citations up to $2,500 for brokers and salespersons who violate the California Real Estate Law and even for non licensed persons who are found to have engaged in unlicensed real estate activity.

The citations will not be recorded as discipline to the license.  However, failure to pay the fine could lead to license discipline and non-renewal of the real estate license.

Licensees may appeal the findings of any such citation through an administrative hearing process conducted according to current law governing administrative hearings.

The fines will be funneled into the California Consumer Recovery Account which is used to pay out victims of real estate fraud committed by licensed agents.

If you do not have a corporate counsel on your team now helping you to comply with the plethora of state and federal laws and new case law that comes out each year, you could find yourself dealing with the DRE.  This is a good time to mention our California Real Estate Broker Counsel program.  Check it out and see how we have made it easy to afford your own corporate counsel to help you navigate these types of legal compliance issues in California and Arizona.

CALIFORNIA BREACH OF FIDUCIARY DUTY UPDATE

California real estate brokers often call us to discuss audits, investigations, and accusations they are facing with the California Department of Real Estate (“DRE”).

One of the issues that comes up in audits and investigations is the brokers duty to keep and maintain records of their real estate transactions.  Typically, we give the boilerplate answer under the code (California Business and Professions Code Section 10148):

(a) A licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction is not consummated. After notice, the books, accounts, and records shall be made available for examination, inspection, and copying by the commissioner or his or her designated representative during regular business hours; and shall, upon the appearance of sufficient cause, be subject to audit without further notice, except that the audit shall not be harassing in nature.

So, taking this, general compliance with the DRE would require maintaining real estate records for three years.  However, what about the situation where a California real estate company, or broker gets sued for a breach of fiduciary duty?  What is the statute of limitations on a breach of fiduciary duty claim in California?

The answer according to a new California court of appeal case is 4 years.  See Thompson v. Canyon, 198 Cal.App.4^th 594.  Here is what the court said in the case:

E. The cause of action for breach of fiduciary duty is timely under the applicable statute of limitations, Code of Civil Procedure section 343 (9) The Code of Civil Procedure does not specify a statute of limitations for breach of fiduciary duty. The cause of action is therefore governed by the residual four-year statute of limitations in Code of Civil Procedure section 343 governing “[a]n action for relief not hereinbefore provided for” in the code. (See Rylaarsdam, supra, ¶ 4:1791.).

Given the Thompson case, it may be wise for a California real estate professional to keep their real estate transaction files for a period of four or more years, in the event they become involved in a breach of fiduciary duty lawsuit, so that you are better able to defend yourself.  This article is general legal information only and not legal advice.  The case is subject to change.  If you are facing a breach of fiduciary duty lawsuit, and need a California Real Estate lawyer to represent you consider hiring Attorney Steve Vondran.  More information about general California Real Estate compliance can be found here.  Mr. Vondran is licensed to practice law in CA and AZ.

If you are convicted of a crime in California, this may have an impact on your California Real Estate license.  Especially if your license was already in restricted status.  If you are convicted of a crime (for example a DUI, assault, battery, shoplifting, forgery, fraud, marijuana possession etc.) there may come occasion that the DRE requests that you fill out RE form 515 and RE 515D (Conviction Detail Report).  These forms ask you to disclose the nature of convictions and details involving the crime.

If you are dealing with these types of issues, you may want to consider having a California DRE Defense lawyer review your case and assist you in preparing these forms.

Here is an article I just wrote that explains, in general terms, what you face in a real estate arbitration before the board in California.

Attorney Steve Primer on California Realtor Arbitration involving procuring cause, MLS violations, and Realtor Ethics Violations PDF

When a California DRE licensed broker or salesperson faces an administrative hearing involving their license (ex. a hearing to determine whether the broker’s license should be revoked or suspended) the California Adiministrative Procudure Act applies.

For example, say a California Real Estate Broker was charge with committing one or more of the following acts:

• Comingling broker trust account funds (California business and professions code section 10176(e))
• Improper use of unlicensed DBA (California business and professions code section 10159.5)
• Failure to apply for branch office license (California business and professions code section 10163)
• Accepting Advance Fees for Loan Modifications (Violation of California SB 94)
• Collecting Advance fees without an approved advance fee agreement (Califonia B&P 10085)
• Failure of broker to properly supervise licensed activity (commissioner regulation 2725)

Here is a video that discusses the general process a California real estate broker or licensee will face when dealing with a DRE accusation or license audit.

Here is another blog we just posted dealing with California SB 94, the MARS rule and Foreclosure Consultants.

We just posted a blog on the top 10 social media issues to consider when bringing on new real estate agents, and taking into account the brokers duty to supervise certain activities of its agents, employees, and contractors.

Here is a link to the social media lawyer blog post.

ISSUANCE OF A REAL ESTATE LICENSE IN CALIFORNIA FOLLOWING CRIMINAL CONVICTIONS

If you have been convicted of a crime and later you want to apply for a real estate license in California, will you be able to obtain your real estate license (assuming you pass the real estate exam)?  This is an important question that requires a look at the rules, laws and regulations that govern this situation.  This article will attempt to provide a general overview and general discussion of the factors the DRE may look at when determining whether or not they want to grant you a real estate license in California.

In California, the DRE will look at your application for a salesperson license to see what you have listed in Part D – “Background Information.”  Specifically, the following section which states “CRIMINAL CONVICTIONS“.  This is the section where you need to disclose ALL of your criminal convictions that have occurred in your past.  When I say ALL, I mean ALL.  Here is an example of what you must disclose if you want to try to secure your real estate license:

• All felonies that you have ever been convicted of (examples may include: murder, burglary, money laundering, any federal crime, tax evasion, rape, assault with deadly weapon, bribery, felony DUI, etc.)
• All misdemeanors you have ever been convicted of (examples may include:  shoplifting, drunk driving, larceny, writing bad checks, etc.)

Note that many people may ask or wonder “do I have to be convicted in order to have to report the crime on the DRE real estate application?”  NO is the short answer to that question.

In fact, here is what the CRIMINAL CONVICTION section of the DRE license application (form 435) reads:

“Convicted” as used in Item 1 includes a verdict of guilty by judge or jury, a plea of guilty, a plea of nolo contendere (i.e., “no contest”), or a forfeiture of bail in the courts (including military courts) of any state, commonwealth, possession or country. All convictions must be disclosed, no matter how long ago they occurred, even if the plea or verdict was set aside, the conviction dismissed or expunged, or you have been pardoned. Convictions occurring while you were a minor (under 18 years of age) must be disclosed unless the record of the conviction has been sealed under Section 1203.45 of the California Penal Code or Section 781 of the California Welfare and Institutions Code.

The DRE also has another publication that you can review that discusses the guidelines for reporting. You can find that in their Instructions to License Applicants handbook.

This handy booklet also addresses some of the issues relating to your disclosure requirements on the salesperson license application.

Specifically, in regard to reporting criminal convictions it states:

Honesty — License applicants must be honest and truthful. Conviction of a crime may result in the denial of a license. Failure to disclose any criminal violation or disciplinary action in an applicant’s entire history may also result in denial of a license.

This section makes it clear to the real estate applicant IF YOU ARE NOT SURE IF YOU SHOULD REPORT A CRIMINAL VIOLATION THEN YOU ARE BETTER OFF DISCLOSING IT.  If the DRE commissioner believes you are not being candid, this could cause you problems in getting a real estate license issued even after you pass your state examination.

In section XIII of the instructions to license applicants guide, the DRE offers this advice:

Answer truthfully and completely!

Read the questions on the application carefully and answer truthfully and completely. Provide ALL information requested. Failure to disclose disciplinary actions or crimes which occurred in your entire history may be considered an attempt to obtain a license by fraud or misrepresentation and could result in the denial of your license application. Irrespective of any advice that may be received from others, the license applicant alone is responsible for disclosing accurate and complete information.

When in doubt, disclose!

In the event you have one or more offenses to report, please take extra care to disclose all actions and convictions regardless of how long ago they occurred, or whether or not a conviction has been expunged under Penal Code Section 1203.4, or a similar statute. The failure to disclose charges/convictions will result in substantial delays in the processing of your application and may also result in denial of the license application.

“Convicted” includes a verdict of guilty by a judge or jury, a plea of guilty, a plea of nolo contendre, or a forfeiture of bail in the courts (including military courts) of any state, commonwealth possession or country). All convictions must be disclosed no matter how long ago they occurred, even if the plea or verdict was set aside, the conviction was dismissed or expunged or you have been pardoned. Convictions occurring while you were a minor (under 18 years of age) must be disclosed unless the record has been sealed under Section 1203.45 of the California Penal Code or Section 781 of the California Welfare and Institutions Code.

Carefully review your entire history and provide complete and accurate information.

___________________________________________________________________________________________________________________________

So that is a pretty comprehensive list of what you must disclose. If you get caught not disclosing something, expect big trouble in being able to obtain your real estate license.  You cannot say you weren’t warned.

Again, they are doing everything can to alert you of your obligation as a real estate license applicant.

__________________________________________________________________________

Now, there are some other things to look at in regard to the topic of what the DRE will be looking at, and what standards they may use in determining whether or not they will agree to issue a real estate sales or broker license to you.

California Business and Professions Code Section 10177 discusses grounds that may result in a denial or revocation of a real estate license in California:

Here one of the main points of this code section as it relates to criminal background:

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

(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.

But this begs the question, what is a “crime substantially

related to the qualifications, functions, or duties of a real estate
licensee?"

Commissioner's regulation 2910 helps illuminate the meaning of this phrase:

Article 18.5. Substantial Relationship and Rehabilitation Criteria 

2910. Criteria of Substantial Relationship.  

(a) When considering whether a license should be denied, suspended or revoked on the basis of the conviction of a crime, or on the basis of an act described in Section 480(a)(2) or 480(a)(3) of the Code, the crime or act shall be deemed to be substantially related to the qualifications, functions or duties of a licensee of the Department within the meaning of Sections 480 and 490 of the Code if it involves:

(1) The fraudulent taking, obtaining, appropriating or retaining of funds or property belonging to another person.

(2) Counterfeiting, forging or altering on of an instrument or the uttering of a false statement.

(3) Willfully attempting to derive a personal financial benefit through the nonpayment or underpayment of taxes, assessments or levies duly imposed upon the licensee or applicant by federal, state or local government.

(4) The employment of bribery, fraud, deceit, falsehood or misrepresentation to achieve an end. REGULATIONS OF THE REAL ESTATE COMMISSIONER 339 

(5) Sexually related conduct affecting a person who is an observer or non-consenting participant in the conduct or convictions which require registration pursuant to the provisions of Section 290 of the Penal Code.

(6) Willfully violating or failing to comply with a provision of Division 4 of the Business and Professions Code of the State of California.

(7) Willfully violating or failing to comply with a statutory requirement that a license, permit or other entitlement be obtained from a duly constituted public authority before engaging in a business or course of conduct.

(8) Doing of any unlawful act with the intent of conferring a financial or economic benefit upon the perpetrator or with the intent or threat of doing substantial injury to the person or property of another.

(9) Contempt of court or willful failure to comply with a court order.

(10) Conduct which demonstrates a pattern of repeated and willful disregard of law.

(11) Two or more convictions involving the consumption or use of alcohol or drugs when at least one of the convictions involve driving and the use or consumption of alcohol or drugs.

(b) The conviction of a crime constituting an attempt, solicitation or conspiracy to commit any of the above enumerated acts or omissions is also deemed to be substantially related to the qualifications, functions or duties of a licensee of the department.

(c) If the crime or act is substantially related to the qualifications, functions or duties of a licensee of the department, the context in which the crime or act were committed shall go only to the question of the weight to be accorded to the crime or acts in considering the action to be taken with respect to the applicant or licensee.

AS THIS SECTION POINTS OUT, THE DRE WILL LOOK INTO DRUG AND ALCOHOL ISSUES ESPECIALLY WHERE DRIVING IS INVOLVED.

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Section 2746 of the Commissioners Regulations discusses when a real estate broker may denied a real estate license.  This section states:

2746. Corporate Real Estate Brokers, Officers, Directors and Shareholders.  

(a) At the time of application for, or in the reinstatement of, an original real estate broker license, the designated officer shall file a background statement of information for each director, the chief executive officer, the president, first level vice presidents, secretary, chief financial officer, subordinate officers with responsibility for forming policy of the corporation and all natural persons owning or controlling more than ten percent of its shares, if such person has been the subject of any of the following:

(1) Received an order or judgment issued by a court or governmental agency during the preceding 10 years temporarily or permanently restraining or enjoining any business conduct, practice or employment;

(2) Has had a license to engage in or practice real estate or other regulated profession, occupation or vocation denied, suspended or revoked during the preceding 10 years;

(3) Engaged in acts requiring a real estate license of any state without the benefit of a valid license or permit authorizing that conduct during the preceding 10 years which have been enjoined by a court of law or administrative tribunal;

(4) Been convicted of a crime which is substantially related to the qualifications, functions or duties of a licensee of the Department as specified in Section 2910 of these Regulations (excluding drunk driving, reckless driving and speeding violations).

Hopefully this gives you an idea of what the DRE is looking for when deciding whether or not to issue a real estate license to a salesperson, or broker seeking licensing.

About Steve Vondran, Esq.

Mr. Vondran was a former mortgage loan officer prior to becoming an attorney.  He also has experience selling residential and commercial real estate (Daum Commercial Real Estate).   He has passed broker examinations in both Arizona and California and his practice centers around Business, Real Estate, and Social media legal matters with a particular focus on representing California and Arizona real estate brokers.

If you are facing a DRE hearing, audit, investigation, accusation, or simply seeking to have the DRE issue you a real estate license we are here to help.  We can help package your application up with a detailed history of all your criminal convictions, evidence of rehabilitation and submit you to the DRE.  Sometimes it is nice to have someone fighting for you and to tell your story in the best possible manner.  We can be reached at (877) 276-5084 for a discussion of your case.

Additional Resources

(1) DRE license applicant checklist

(2) Our firm website

(3) California Department of Real Estate website

(4) Here is a list of Frequently Asked Questions on this topic from the DRE website