DRE Hot Seat: When mortgage originations go off the rails, repeatedly

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 who failed to disclose broker compensation received on mortgage origination forms, while also misrepresenting themselves as a lender and not as the buyer’s agent.

In March 2022, the California Department of Real Estate (DRE) accepted the voluntary surrender of Shooshig Susan Avakian’s license in connection with an enforcement investigation and disciplinary action against their license. Avakian was a broker since 2016 operating out of Montrose, California. The decision became effective December 2022.

Avakian was the designated officer (DO) of Your Legacy Financial, Inc. (YLFI), a corporation licensed as a real estate broker by the DRE since May 2017.

YLFI and Avakian both have a mortgage loan originator (MLO) license endorsement through the Nationwide Multistate Licensing System (NMLS).

The DRE inspected YLFI’s books and records around July 2019. A special investigator reviewed four mortgages originated under YLFI’s real estate corporation license and MLO endorsement.

The special investigator discovered YLFI:

failed to provide the buyers of three of the properties with a Mortgage Loan Disclosure Statement (MLDS) disclosing all amounts of broker compensation arising from the mortgage origination [Calif. Business and Professions Code §§10166.05(c), 10166.051(b), 10176(g), 10240];
falsely stated to all four buyer that YLFI is licensed by the California Department of Business Oversight (DBO) as a lender [Bus & P C §§10166.05(c), 10166.051(b), 10176(a)];
failed to secure a signed MLDS from all four buyers [Bus & P C §§10166.05(c), 10166.051(b), 10240];
stated in documents to buyers of three of the properties that “We are acting as an independent contractor and not as your agent” [Bus & P C §§10166.05(c), 10166.051(b), 10177(q); Calif. Civil Code §2923.1];
improperly named themselves as a beneficiary in the trust deed on three of the properties [Bus & P C §§10166.05(c), 10166.051(b), 10234];
maintained a real estate website soliciting borrowers without posting required identification numbers and statements [Bus & P C §§10235.5, 10236.4, DRE Regulations §§2773(a), 2847.3];
failed to have broker-salesperson agreements between YLFI and two of its salespersons [Regs. §2726];
provided a Fair Lending Notice to one of the buyers which did not include the DRE’s contact information and left the regulator contact section blank [Calif. Health and Safety Code §35830]; and
Avakian, as DO, failed to adequately supervise and control real estate activities conducted by YLFI’s salespersons and employees and failed to establish policies, rules, procedures and systems to review, oversee, inspect and manage transactions requiring a real estate license. [Bus & P C §§10159.2, 10177(h); Regs. §2725]

As a result of these numerous violations, the DRE found cause to suspend or revoke the license and license rights of:

Avakian’s broker license [Bus & P C §§10177(h), 10177(d), 10177(g)];
Avakian’s MLO license endorsement [Bus & P C §10166.051(b)];
YLFI’s corporate license [Bus & P C §§10177(d), 10177(g)]; and
YLFI’s MLO license endorsement. [Bus & P C §10166.051(b)]

An agent of the client is not an independent contractor

The DRE’s investigation revealed Avakian and YLFI violated numerous real estate laws — a varied assortment of misconduct. However, the broker’s attempt to relieve themselves as an agent of the client was one of the most egregious violations.

YLFI misrepresented its capacity as a broker. This misrepresentation continued on throughout the mortgage originations they secured: from not listing the total broker fee received on the origination, to making themselves the beneficiary of the trust deed, to misrepresenting themselves as a lender by using their DRE number as the Finance Lender license.

All disclosures, notices, identification numbers and statements on client-facing forms, solicitations and advertisements need to comply with real estate law. Further, a broker needs to timely provide clients with all forms and disclosures required by law, such as the disclosure of all the broker compensation received. [Bus & P C §10240]

Fundamental to real estate practice, agents and brokers owe a special fiduciary duty

to the clients they represent. This fiduciary relationship between an agent and principal is one of trustee and enshrined in real estate law. It not only imposes on the agent the duty of acting in the highest good faith toward their principal, but also prevents the agent from obtaining any advantage over the principal in transactions other than as disclosed. [George Ball Pacific, Inc. v. Coldwell Banker & Co. (1981) 117 CA3d 248; See RPI e-book Real Estate Principles, Chapter 3]

An independent contractor is one who, in rendering services, exercises an independent employment and is responsible to the principal only for the results of their work. A real estate licensee does not fall under this definition when performing tasks for members of the public consuming licensed services.

Simply put, an agent cannot shirk their fiduciary duties to their client, even when a client agrees they can in a provision or form. A licensed agent is required to handle the client’s dealings with the utmost care, trust, fidelity, integrity and confidence, for which they receive a fee.