Avoid a scandal – follow CalBRE guidance

A professional misstep can carry serious legal consequences. Read on for CalBRE guidance on how to avoid common licensee mistakes.

Trouble with public perception

As California-licensed real estate agents and brokers, you’re bound to follow California real estate law or face the consequences. The California Bureau of Real Estate (CalBRE) is here to guide you on this endeavor, as the consequences of unlawful activity can be destructive to your business and livelihood.

A common misconception about real estate agents is that they’re all untrustworthy, unethical and out to fleece clients out of their money. Since 1977, only 15%-20% of consumers have viewed the ethics of real estate professionals in a positive light, according to Gallup.

Bad eggs exist in every profession. Well-intentioned real estate professionals may be unaware they’re breaking any rules. To counter the negative perception of the industry and maintain your own professional ethics, turn to CalBRE for assistance.

Cheating on the exam: a major career misstep

Ethical standards are imposed even before you obtain your California salesperson or broker license.

As described in the Winter 2015 CalBRE Bulletin, an applicant for a broker license who cheated on their licensing exam found themselves in very hot water.

The salesperson had previously failed the broker exam six times, but was determined to pass no matter the means. This individual brought a camera in with them to photograph the broker exam questions so they would have a better chance of passing on their next attempt.

The CalBRE exam proctor caught them attempting to photograph the questions.

The consequences? The (now former) licensee was prohibited from:

• taking any real estate license exam for up to three years;
• holding an active real estate license for up to three years;
• being employed by, managing, controlling or participating in any real estate activity in a real estate business;
• participating in the business activity of another salesperson or broker; and
• participating in any real estate related business activity of a finance lender, residential mortgage lender, bank credit union, escrow company, title company or underwritten title company.

Their salesperson’s license and mortgage loan originator (MLO) endorsement were also revoked. In addition, criminal charges were filed and the former licensee was sentenced to three years of informal probation and ten days of Sheriff’s Work Project (community service).

Editor’s note – There are many completely legal ways to prepare for the broker exam. first tuesday offers an exam prep book for the salesperson and broker exams, online video crash courses and live crash courses.

Other recent disciplinary actions

Hundreds of real estate agents, brokers and applicants receive disciplinary action from the CalBRE every year. Nearly all of these individuals were disciplined for breaking multiple regulations each. These included failing to:

• obtain a mortgage loan originator (MLO) endorsement before they accepted a consumer mortgage application or arranged a consumer mortgage secured by a one-to-four unit residential property;
• obtain a real estate license before performing licensed real estate activity;
• keep proper trust fund records for the required three years;
• provide proper supervision of salespersons, as required by employing brokers [Gipsons Davis Realty Company (1963) 215 CA2d 190];
• authorize and add any fictitious business name to their license before conducting any licensed activity under that name; and
• notify CalBRE of past criminal convictions, as CalBRE requires the disclosure of:
  • any misdemeanor or felony criminal convictions, including military and foreign convictions;
  • all pending criminal charges;
  • pending disciplinary actions taken against a business, professional or occupational license currently held by the applicant; and
  • whether the applicant has had a license in California or any other state denied, suspended, restricted or revoked. [CalBRE Form 229: Avoid Potential Denial of Your License Application]

The penalties varied, with the most common penalty being loss of license outright.

How do licensees get caught?

Brokers are required to notify CalBRE when they fire a salesperson for violating real estate law. The penalty for failing to notify CalBRE ranges from a temporary license suspension to permanent revocation of the broker’s license. [Calif. Business & Professions Code §10178]

However, CalBRE recently noted that brokers rarely report these violations as required. Brokers fear (rightfully so in some cases) they will also be disciplined for failing to properly supervise their employee as required by law.

CalBRE assures these brokers they will not be automatically suspect as a result of their former employees’ actions. However, if the broker failed to oversee their employees or participated in unlawful activities, they will be subject to disciplinary action.

Of course, the best course of action for a broker is to supervise all employees to ensure they act within the law. Any unlawful activity uncovered needs to be reported to protect the broker’s own license.

The other way CalBRE may be alerted to unlawful activity is through a consumer complaint. An individual negatively affected by a licensee’s activity may submit a complaint directly to CalBRE, which then investigates that licensee.

Finally, CalBRE completes routine audits on select brokerages. These audits can be the result of unannounced office surveys, in which a representative of the CalBRE visits a brokerage and observes the broker’s business practices. If noncompliance is suspected, an official audit is ordered. In other cases, CalBRE audits are ordered on random brokerages engaged in activities with a high risk of financial loss, like:

• mortgage loan brokers;
• property managers; and
• broker-owned escrows.

In these random audits, CalBRE reviews the brokerage’s:

• trust fund records;
• licensing compliance;
• transaction files; and
• recordkeeping.

Disciplinary actions posted online

CalBRE is required to post online each licensee’s record of public information associated with any disciplinary action taken by CalBRE. When a consumer or other licensee looks up that licensee, their license history appears, along with notes about misconduct and disciplinary actions taken by CalBRE. [Bus & P C §10083.2]

Beginning January 1, 2018, a CalBRE licensee with a disciplinary action on their license may petition CalBRE for removal of the disciplinary action if:

• the disciplinary action has been posted for at least ten years;
• the licensee provides the CalBRE with proof they no longer pose a risk to the public; and
• the licensee pays a fee to the CalBRE with the petition, in an amount to be determined by CalBRE Regulations. [Bus & P C §10083.2]

Keeping up with CalBRE

You can view a list of disciplinary and enforcement actions at CalBRE’s website, updated monthly.

Want to learn more about what CalBRE does and how it oversees the 400,000+ real estate licensees in the state of California? Read A primer on the California Bureau of Real Estate.

Finally, the first tuesday Journal regularly reports important CalBRE updates. We also report revisions to California law affecting your practice. Sign up for our weekly newsletters so you don’t miss a thing. Also see:

• CalBRE Watch;
• New Laws;
• Pending Laws; and
• Recent Case Decisions.

This article was previously posted in 2015, and has been updated.