This article is part of an ongoing series covering violations of real estate law. Here, the Department of Real Estate (DRE) revoked the real estate license of a broker acting as a property manager who collected trust funds on behalf of landlords they represented and failed to disburse the trust funds to the landlords as required.
In June 2022, the California Department of Real Estate (DRE) decided by order hearing to revoke the license of Christine Patricia Lee, a broker since 2004 operating out of Rancho Cucamonga, California. The decision became effective June 2023.
In October 2019, Lee entered into a property management agreement with a landlord to manage their multi-family property in Long Beach. In November and December 2019, the landlord did not receive rental payments for the property from Lee. The landlord attempted to contact Lee numerous times by phone, email and text. However, all of the landlord’s attempts to contact Lee went unanswered. [See RPI Form 590]
The landlord sent a letter to Lee by certified mail terminating the agreement and ending her employment. Lee responded to this communication yet failed to give the landlord the rental payments for November and December 2019, or for January 2020.
In March 2020, the landlord filed a case against Lee in small claims court for $5,625. In August 2020, the landlord filed a written complaint to the DRE against Lee for improperly withholding the landlord’s trust funds.
Another landlord who entered into a property management agreement with Lee around July 2019 filed a small claims action against Lee for withholding trust funds in September 2019. The landlord also filed a written complaint with the DRE against Lee in November 2020. In June 2020, the San Bernardino County Superior Court awarded the landlord $3,755 Lee was subject to pay.
The DRE found that Lee:
- failed to disburse trust funds to the owner of the funds [Calif. Business and Professions Code §§10145 and 10176(i)]; and
- breached her fiduciary duty owed to the landlord. [Bus & P C §§10177(d),(g); DRE Regulations §2830]
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DRE Hot Seat: Trust funds are held “in trust” and belong to another
A property manager’s handling of trust funds
Property management agreements authorize the property manager to act on behalf of the landlord to handle all income received and incur expenses in the operation of the property. [See RPI Form 590]
The property manager’s responsibilities regarding the property’s income and expenses include:
- collecting rents and other amounts due, such as common area maintenance charges (CAMs) and assessments for property insurance and real estate taxes;
- collecting, accounting for and refunding security deposits;
- paying expenses and mortgage payments from rents received from tenants; and
- complying with any local rent control ordinances.
A property management agreement spells out which maintenance expenses, insurance premiums, utilities, mortgage payments, management fees and property taxes are to be disbursed by the property manager, and which are to be separately paid by the landlord. [See RPI e-book Real Estate Property Management, Chapter 8]
The receipt and accounting for cash reserves, security deposits, rent and other sums received from tenants, coin-operated machines and concessions will be handled as trust funds owned by the landlord and held by the property manager.
Trust funds by their nature need to be deposited into a trust account in the name of the property manager as trustee.
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Full compliance with trust fund handling is crucial to proper brokerage practice. Further, the DRE always requires an agent or broker to uphold the fiduciary duties they owe to a client. Similarly, all licensees are expected to avoid any conduct constituting fraud or dishonest dealing.
When real estate law and regulations are willfully ignored, the DRE is entrusted with taking the appropriate action to protect the public at large.
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