DRE Bulletin Digest Summer 2021

Welcome back! The Summer 2021 edition of the California Department of Real Estate (DRE) quarterly Real Estate Bulletin focuses on emerging transaction technologies, COVID-19 relief updates and Real Estate Law compliance reminders.

Read on for firsttuesday’s digest of this quarter’s most pertinent industry updates.

Commissioner’s message

DRE Commissioner Doug McCauley uses this quarterly update to lament the upcoming retirement of Joel Singer, CEO of the California Association of Realtors® (CAR). McCauley raves over the trade group CEO’s leadership and wishes him a happy retirement.

Commissioner McCauley also celebrates the expansion of the DRE Call Center, thanks to additional resources released by Governor Gavin Newsom. Callers can reach out to the DRE with questions at 877-373-4542, now with reduced wait times.

Electronic signatures

The COVID-19 pandemic has shifted real estate industry away from face-to-face contact, and technological advancements in security have accelerated this sea change. Given these developments, the DRE has updated its position on electronic signatures for some documents.

Electronic signatures are now acceptable in the Mortgage Loan Disclosure Statement (MLDS) in a loan application and the Lender/Purchaser Disclosure Statement (LPDS) in a private money loan transaction. This is a reversal of the DRE’s previous interpretation of Civil Code §1633.3(b), which excluded electronic signatures in those documents.

This new interpretation of California Real Estate Law does not change agents’ due diligence owed to clients. It is the agent’s fiduciary duty to ensure clients understand the real estate transaction documents they sign.

MLO applicant requirements

The DRE notes an uptick in mortgage loan originator (MLO) endorsement applications from people without a real estate license. A California real estate license is required for an MLO endorsement from the DRE.

Unless the prospective MLO is federally regulated — by being the employee of a federally-chartered bank, credit union or other company — they will need to apply at the state level. In California, this means obtaining an MLO endorsement, issued by the DRE, or an MLO license, issued by the Department of Financial Protection and Innovation (DFPI).

The DRE warns that applying for an MLO endorsement through the DRE without a California real estate license will lead to career-long consequences, including the requirement to disclose this action on future applications.

With record-low interest rates fueling refinances throughout the pandemic, many California agents have supplemented their incomes by securing an MLO endorsement. Click through to the related article below for more information on properly applying to become an MLO in California.

Related article:

Letter to the Editor: Explaining California MLO licensing and endorsement

Real estate exam capacity

Though COVID-19 intermittently closed the DRE’s testing centers, examinations are back in (somewhat) full force. The DRE is currently administering more exams than before the pandemic, despite running at 50% capacity in compliance with safety protocols.

The Bulletin reports at 41% increase in individual exams from May 2019 to May 2021. The DRE achieved this by opening additional centers, and offering evening and Saturday sessions at the Sacramento, Los Angeles and San Diego centers.

Ready to schedule your exam? Visit the Department’s eLicensing website to view real-time availability and scheduling options.

Trust fund audit issues

Trust fund violations have become an all-too common topic issue facing the DRE. The Department’s investigators completed 533 audits in the 2019-20 fiscal year, 69% of which revealed recordkeeping violations. More importantly, 31% of audits revealed trust fund shortages.

Related video:

Managing Trust Funds

The three most common issues auditors encounter involve trust fund recordkeeping, reconciliation and shortages. The Bulletin follows up with best practices to avoid each of these violations.

First, good trust fund recordkeeping practices include a control record, which documents all trust funds received and disbursed. Hand-in-hand with a control record is a separate record of trust funds for each beneficiary or transactions covering all funds deposited in the trust account.

Both records need to include in chronological order:

the date the funds were received;
the amount received;
the date of deposit;
the amount paid, check number and date; and
daily balances.

Second, brokers need to reconcile trust fund accounts on a monthly basis. This means comparing the sum of each separate beneficiary record to the balance in the control record. An unbalanced trust account record is a red flag for shortages and overages.

In addition, brokers also need to perform a separate bank reconciliation. This means comparing the control record to the bank statement. The trust account reconciliation needs to include:

the name of the bank account and account number;
the date the reconciliation was performed;
the name of the principals, beneficiaries or their account numbers; and
the amount of trust funds held by the principals or beneficiaries.

The third and final trust fund compliance tip involves trust fund shortages. When a disbursement threatens to drain a trust fund account below its liabilities, the broker needs written consent from each of the trust fund’s owners first.

To avoid shortages, the DRE recommends:

performing monthly reconciliations;
creating controls and procedures for trust fund collections, deposits and disbursements;
separating the duties of collecting and disbursing trust funds,
setting a threshold dollar amount over which disbursements require broker approval;
setting policies to prevent disbursements in accounts with insufficient balances; and
regularly reviewing monthly reconciliations or performing spot checks.

California anti-discrimination housing laws

Discrimination remains a serious issue in California’s housing landscape. As such, the DRE is reminding licensees to review three important anti-discrimination laws: the Unruh Civil Rights Act, the Fair Employment and Housing Act and the Holden Act.

Related video:

Different Treatment is Discrimination

The Unruh Civil Rights Act specifically prohibits discrimination in housing based on:

sex;
race;
color;
religion;
ancestry;
national origin;
disability;
medical condition;
genetic information;
marital status;
sexual orientation;
citizenship;
primary language; or
immigration status.

But the Supreme Court holds that the law’s protections are not limited to these factors. The Unruh Civil Rights Act covers all arbitrary and intentional discrimination by businesses on the basis of personal characteristics.

The California Fair Employment and Housing Act applies to anyone with a legal or equitable right of ownership, possession or right to rent or lease housing accommodations, including lessees, sublessees, assignees, managing agents, and licensed agents and brokers. It also creates the California Department of Fair Employment and Housing (DFEH), meant to enforce the law’s protections.

Lastly, the Holden Act outlaws discrimination in housing finance. It regulates licensees who provide financing, requiring them to post a fair lending notice in public view and furnish applicants with a copy of the same information.

Related article:

Survey says: One-in-four adults have experienced housing discrimination

COVID-19 rent relief

Governor Gavin Newsom signed Assembly Bill 832, better known as the Rental Housing Recovery Act, on July 28, 2021. It builds on previous legislation to keep tenants housed during the recovery from the 2020 recession and COVID-19 pandemic.

Most importantly, the Rental Housing Recovery Act extends a temporary moratorium on the eviction of residential tenants for the nonpayment of rent that became delinquent between March 1, 2020, and September 30, 2021, due to the tenant’s coronavirus (COVID-19)-related financial distress.

Click through to the related article below for the full scoop on California’s eviction moratorium, including updated RPI Forms.

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