This article is part of an ongoing series covering violations of real estate law. Here, a corporation refused to cooperate with the DRE’s audit request.
In November, the California Department of Real Estate (DRE) revoked the license of a Chino-based real estate corporation, Sitseefly, Inc., as well as its CEO and broker officer, Michael Leonis, for multiple violations of real estate law, including failure to retain records, undisclosed compensation and the use of an unlicensed “doing business as” name (DBA).
This isn’t the first time Leonis and his company have ended up in hot water; in 2016, Leonis’s broker license — as well as the Sitseefly corporate license — was suspended for trust fund mishandling.
In August 2018, the DRE conducted an audit of Sitseefly’s property management activities, partly to ensure compliance with the corporation’s earlier ruling.
However, Leonis failed to meet with DRE auditors or respond to their requests for appointment. When the auditors requested records necessary for the completion of their audit, Leonis failed to comply — even after being subpoenaed.
As if this wasn’t bad enough, the auditors learned, by checking out records kept by one of Sitseefly’s clients, the company had charged nearly $700 in undisclosed fees that the client neither authorized nor knew about.
Sitseefly also conducted these activities under a DBA — Real Property Management Residential — after the license for that name had already expired.
Sitseefly — and, by extension, Leonis — offered no defense to the accusation and thus the DRE revoked both licenses by default.
Going through the motions
There’s a lot to cover with this one, but the most significant takeaway is straightforward: noncompliance never works out.
Trust fund mishandling is a significant violation the DRE encounters on a regular basis — in the 2018-2019 fiscal year, the agency discovered more than $8.8 million in trust fund shortages in about 500 separate cases. While many of these violations are malicious, many still are the result of carelessness and poor record keeping.
However, failing to respond to a request for information as part of a routine audit is inarguably a move made in bad faith.
It looks even worse when you consider auditors were unable to verify from Sitseefly’s records the source of the undisclosed fees charged to a client as “maintenance fees.” Secret or undisclosed compensation without authorization is prohibited under California law, and that the company chose to shield its records from the DRE doesn’t frame Sitseefly or Michael Leonis in a particularly favorable light. [Calif. Business and Professions Code §10176(g)]
Further, that the corporation operated under an unlicensed DBA is a relatively procedural charge, but no less significant — it’s imperative that clients understand whom they’re doing business with, and an unlicensed DBA creates an extra layer of obfuscation in all real estate dealings. [Calif. Bus & P C §10159.5]
There’s a reason these oversights exist — the name of the game is consumer protection.
But the bottom line here is that cooperation with an investigation will consistently yield less punitive results than noncooperation. After all, the worst part isn’t the crime — it’s the cover-up.