This article is part of an ongoing series covering violations of real estate law. Here, a real estate corporation surrendered their broker license in connection with disciplinary action taken by the Department of Real Estate (DRE) regarding licensed activities performed while unlicensed, maintaining fund shortages totaling more than $300,000, and other related trust fund violations.

In April 2023, the California Department of Real Estate (DRE) accepted the voluntary surrender of the license of Coast Estate Real Estate Property Management, Inc. (Coast Estate), a corporate broker licensed to do business under this name since 2019 operating out of Carmel, California.

In December 2018, the DRE received a consumer complaint from a landlord alleging Coast Estate did not return trust funds on the expiration of a property management agreement entered into in 2016, all prior to obtaining a broker license.

This complaint triggered an audit by the DRE – unearthing numerous prior instances of misconduct and bad practice.

The DRE audit, covering the period of June 1, 2016 through January 31, 2019, revealed Coast Estate and various owners of rental properties entered into property management agreements hiring Coast Estate to conduct activities requiring a license. Under the terms of these property management agreements, Coast Estate:

  • leased and rented residential properties to tenants;
  • solicited prospective tenants; and
  • collected rents from tenants.

All these activities were undertaken before February 2019 – when Coast Estate first became licensed to perform licensing activities.

Further, the audit revealed Coast Estate:

  • had a trust fund shortage of $327,000 [Bus & P C §10145; DRE Regulations §2832.1];
  • commingled trust funds with broker funds [Bus & P C §10145; DRE Regs. §2835];
  • failed to place trust funds into a trust account in the name of the broker as trustee [Bus & P C §10145; DRE Regs. §2832];
  • failed to maintain complete and accurate control records for all trust funds received in the trust accounts [Bus & P C §10145; DRE Regs. §2831];
  • failed to maintain complete and accurate separate beneficiary records of trust funds received [Bus & P C §10145(g); DRE Regs. §2831.1];
  • failed to reconcile at least once per month the balance of all separate beneficiary records to the balance of the control records [Bus & P C §10145; DRE Regs. §2831.2]; and
  • permitted an unlicensed individual as a signatory on the trust accounts. [Bus & P C §10145; DRE Regs. §2834]

Licensing assures consumers of skill and diligence

Individuals who qualify to become real estate brokers in order to render DRE-regulated real estate services on behalf of clients for a fee are issued a broker license by the DRE. However, entry into the industry as gatekeepers to handle real estate transactions on behalf of others is only “licensed” by the DRE after the individual completes extensive real estate related course work and meets minimum experience requirements. [Bus & P C §10130]

Once licensed, the broker may qualify a corporation to be licensed as a broker.

On receiving a license, brokers are presumed to be competent in their degree of skill and diligence to competently manage transactions involving members of the public. Thus, the consumers of broker services in real estate licensed activities, may expect licensed individuals will conduct themselves in a manner which rises above the minimum level of duties owed to clientele and others involved in a transaction.

For these reasons, the individual or corporation which a buyer or seller, landlord or tenant, or borrower or lender retains to represent them in a real estate transaction – the transaction agent – may only be a licensed real estate broker. In turn, the broker may employ licensed agents and broker-associates to act as the broker’s agent in transactions. [See RPI e-book Real Estate Practice, Chapter 1]

A real estate broker is an individual or corporation who performs regulated activities in real estate transaction with the intention of receiving compensation, which include:

  • negotiating the sale, purchase or exchange of interests held in real estate, leases or business opportunities;
  • soliciting property listings, buyers or sellers;
  • leasing or renting, or offering to lease or rent, property on behalf of an owner or tenant;
  • collecting rent from real estate or business opportunities;
  • assisting in the purchase or lease of property owned by the state or federal government;
  • negotiating real property sales contracts or mortgages to be secured directly or collaterally by real estate or business opportunities on behalf of lenders or borrowers; and
  • negotiating the sale or purchase of a mobilehome. [Bus & P C §10131]

Further, no person without first being licensed as a broker may receive trust funds or hold funds in a trust account. In turn, licensing assures the public that competency and skill will be practiced by the licensee while handling trust funds in DRE-regulated real estate transactions.

Related video:

Trust Account Management

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