This article is part of an ongoing series covering violations of real estate law. Here, the Department of Real Estate (DRE) withdrew the qualification of a real estate course provider and instructor who implemented an elaborate and multi-state educational scheme which fraudulently provided course completion certificates to hundreds of DRE licensees and mortgage loan originators (MLOs) without requiring them to pass — or even attempt — their courses and final exams.

Read on for a digest of one of the largest enforcements actions in the DRE’s history.  

In December 2021, the California Department of Real Estate (DRE) withdrew the qualification of Danny Yen, owner and sponsor of Real Estate Educational Services (REES), an approved continuing education (CE) provider operating out of Carlsbad, California.

The DRE investigated REES and Yen in May 2021. As part of their investigation, the DRE served a subpoena to Yen, which sought documents related to REES’ DRE-approved 45-hour CE courses.

Previously, when Yen submitted his course offerings to the DRE to obtain a renewal of the course approval, he submitted a physical copy of what he represented he will provide to his students.

These course offering materials included the:

  • course outline;
  • final exam;
  • quizzes;
  • enrollment agreements; and
  • instruction materials.

However, in response to the DRE’s subpoena, Yen failed to provide enrollment agreements, completed final exams or final exam grades to the DRE’s subpoena. Further, the course materials themselves were said to have been “inadvertently lost or misplaced.” The only related materials he was able to present the DRE were certificates of completions for students from July 2018 through June 2021.

In a stunning conclusion, the DRE’s investigation revealed that Yen:

  • failed to administer a final exam to students of his courses [DRE Regulations §3007.3];
  • failed to include incremental assessments designed to properly measure a licensee’s mastery of course content with case studies, quizzes or other forms of exercises within his courses [DRE Regs. §3006(p)];
  • issued course completion certificates to DRE licensees for real estate CE courses which falsely stated the licensees completed a final exam when none was actually provided to them [DRE Regs. §3006(d); DRE Regs. §3007.3];
  • provided course completion certificates more than 15 days after the date of completion [DRE Regs. §3006(n)]; and
  • created courses for students that significantly deviated from the materials he submitted for approval to the DRE, without reporting the deviations to the DRE for consideration and approval. [DRE Regs. §3007.2]

Yen perpetuated a fraudulent course that did not properly educate and prepare real estate licensees for engaging with members of the public.

As a result of their investigation, the DRE determined Yen is no longer qualified as an instructor to teach a course since several DRE regulations were violated. Further, he acted in a way that would warrant denial of an application for a real estate license. [DRE Regs. §3000(a)(8)(B); DRE Regs. §3000(a)(8)(D); DRE Regs. §3006(f)(2); DRE Regs. §3006(f)(4)]

Thus, the DRE withdrew Yen’s qualification as an instructor and course provider of real estate course offerings.

This, on its own, would be egregious conduct.

But this is just one component of a massive scheme, and the DRE is just one regulator (of just one state) who took issue with Yen’s San Diego County-based education fraud scheme.

Related article:

DFPI Bulletin Digest: February 2022

The second shoe drops — DFPI’s investigation into REES

The Department of Financial Protection and Innovation (DFPI), the state’s regulatory agency for residential mortgage loan originators (MLOs), created a multi-state taskforce after receiving a tip from an investigative committee that discovered a possible MLO cheating scheme orchestrated by Danny Yen.

As a result of the DFPI and DRE’s investigation that lasted nearly a year, more than 320 DRE licensees who also held MLO endorsements received settlements in which they agreed to:

  • surrender their licenses for a period of three months;
  • pay a $1,000 fine; and
  • take pre-licensing and CE courses beyond the requirements imposed by the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).

The DFPI’s taskforce led a nationwide investigation and determined Yen knowingly conducted an education fraud scheme by which he distributed course completion certificates to licensees for courses they did not actually attend or complete. Students were also not required to pass — or even attempt — their final exams before being provided fraudulent certificates of completion. Additionally, Yen himself completed courses on behalf of other MLOs under the guise that he was the MLO enrolled in the course.

As a result of their investigation, the DFPI issued a Desist and Refrain Order against Danny Yen in January 2022, ordering him to cease his operations to best protect the general public and mortgage borrowers, and avoid further violations of California law. Later, in February 2022, the DFPI and Yen consented to a Settlement Agreement, which imposed strict penalties and restrictions against Yen, according to the DFPI’s Real Estate Educational Services page.

The investigation into the education fraud scheme began in late 2020. The Conference of State Bank Supervisors (CSBS), which also operates the Nationwide Mortgage Licensing System (NMLS) and three-quarters of all U.S. banks, received a tip that Yen, the owner of REES, was engaging in suspicious activity.

As part of their initial investigation, the investigative committee at CSBS requested records of Yen’s 8-hour live NMLS-approved classes. Yen purportedly conducted 56 classes between 2017 and 2020 through his fictitious business name REES, for which he was approved by the NMLS as a course provider. Though he maintained that he had them, Yen never produced his records to the investigative committee.

The initial investigative committee’s opinion was that Yen had intentionally provided course credit to MLOs without them actually taking the in-person CE course. The committee also concluded Yen had taken online pre-licensure education and CE courses on behalf of numerous MLOs.

Thus, the REES Regulatory Taskforce was born, with the DFPI designated as the lead agency for investigation and enforcement.

The DFPI requested mandated records from Yen, but he refused to cooperate with the demand to produce records of his courses. Instead, he made factually flawed excuses such as an alleged flood that occurred in 2018 which destroyed all his records (astute readers would note this theoretical flood would not have destroyed the records that were meant to be held in the subsequent years of 2019 and 2020, unless the “flood” possessed some truly mystical qualities).

After the DFPI received a court order against Yen, Yen ultimately admitted he didn’t have any required records evidencing that any of the 56 purported courses ever took place.

Meanwhile, the REES Regulatory Taskforce communicated with the hundreds of MLOs who were involved with REES and knowingly participated in the deceptive behavior. Hundreds of MLOs admitted they received course credit from Yen despite never attending or completing their courses.

Further, Yen signed up for education courses he was not approved to teach from other course providers and pretended to be the MLO while completing the course. Yen then sent the certificates of completion to the MLO who paid several times higher than the normal rate for such an education course to Yen.

The DFPI found that Yen:

  • knowingly and actively coordinated with at least 600 MLOs across the U.S., of whom 187 were licensed by the DFPI, and implemented education fraud schemes during the relevant time period of 2017 through 2020;
  • uploaded course credit hours to the NMLS for courses he knew the MLOs never attended;
  • obtained course credit banked hours for MLOs by taking and completing courses on the MLO’s behalf in exchange for elevated fees;
  • received, along with his wife Wendy Yen, payments from MLOs involved in the MLO education fraud scheme;
  • fraudulently completed 319 pre-licensure and CE courses on behalf of MLOs from the IP address of his Carlsbad residential address, while the MLOs were not physically present to take the course themselves;
  • never actually taught the REES NMLS-approved live course;
  • did not require MLOs to attend a course for eight hours of instruction as required to receive course credit;
  • did not require MLOs to sign NMLS Rules of Conduct (ROC) Acknowledgements;
  • did not require a graded final exam with his NMLS courses; and
  • provided MLOs education credit for pay without requiring the student to ever complete actual education or coursework.

By knowingly — and willingly — implementing and coordinating the education fraud schemes, Yen violated the NMLS’ Standards of Conduct for Approved Course Providers (SOC), federal law and California law.

In response to Yen’s fraudulent actions, the DFPI issued a Desist and Refrain Order to prevent further violations of California law. [Calif. Financial Code §22109.2; Fin C §22109.5]

Arising from the DFPI’s investigation and their subsequent desist and refrain order, the California DFPI, along with other state mortgage regulation agencies of Maryland and Oregon, issued a Settlement Agreement against Danny Yen to receive administrative penalties and impose employment, teaching and course taking restrictions against him.

The state mortgage regulators of California, Maryland and Oregon levied a civil monetary penalty of $75,000 to be divided between the states in February 2022 that Yen is subject to pay.

Editor’s note — Yen timely filed his request for an administrative hearing with a five-day trial that was scheduled for February 14, 2022 with the Office of Administrative Hearings (OAH) in Los Angeles, California. Stay tuned to firsttuesday as the details of this case become publicly available.

Related article:

DRE Hot Seat: Mortgage lender mortgage fraud

MLOs also punished for education fraud

As a result of the DFPI and DRE’s year-long investigation, 324 DRE licensees who also held MLO endorsements received settlements in which they agreed to:

  • surrender their licenses for three months;
  • pay a $1,000 fine; and
  • take pre-licensing and CE courses beyond SAFE Act requirements.

The DRE will also be opening cases and proceeding with disciplinary action against MLOs that did not agree to the settlement terms, according to the Winter 2022 DRE Bulletin.

Nationally, more than 600 MLOs were identified as being involved with the education fraud schemes, falsely claiming to have completed either pre-licensing or CE courses as required by the 2008 SAFE Act. 441 of those identified MLOs signed and agreed to settlements for the states in which they hold a license. In total, this is one of the largest enforcement actions in the DRE’s history.

As the responsible representative entrusted with walking consumers through, in most instances, the largest singular financial transaction in their lifetimes, the DFPI and DRE holds MLOs to the absolute highest standards.

They are expected to abide by the SAFE Act which supports anti-fraud measures and provides increased accountability for MLOs and expected to sign ROC Acknowledgements ensuring their education will be completed with integrity and honesty.

The collective actions taken by the DRE and DFPI against Danny Yen, owner and operator of REES, a California-based school engaged in an education fraud scheme — and against the MLOs who took his courses in flagrant disregard of course requirements — are a reminder for the mortgage industry to always be ethical, honest and forthright with their obligations.

Otherwise, it’s only a matter of time before the proper regulatory entity — or entities — comes biting at your heels.

Editor’s note — firsttuesday is an NMLS-approved course provider offering on-time and late renewal courses for licensees who hold MLO endorsements.

Related Video: Mortgage Concepts: California MLO Licensing Laws

Click here for more information on DRE and DFPI MLO regulations.