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  • Writer's pictureSummer Goralik

Hey Broker: The DRE wants to give you the benefit of the doubt

Updated: Mar 8

by Summer Goralik



It’s true, the California Department of Real Estate (DRE) is willing to give responsible brokers the benefit of the doubt, but only if they know, and play by, the rules. Let me explain.

 

A “responsible broker” in California is charged with, and will be held accountable for, the supervision and management of its real estate brokerage and agents. Admittedly, this role comes with a long list of duties and responsibilities that must be diligently managed to ensure proper compliance across the company. As a Real Estate Compliance Consultant and former Department of Real Estate (DRE) investigator, I can tell you that there is one critical task or requirement that is often not known or gets missed by responsible brokers. The purpose of this piece is to make sure that every real estate broker acting in the capacity of a responsible broker under the California DRE is aware of the “Benefit of the Doubt” program.

 

 

The Underlying Requirements

 

I wrote an article last year about “rogue agents” and it occurred to me that a fundamental prelude to that conversation is the DRE’s Benefit of the Doubt (BOD) program. However, before diving into that discussion, we have to go back a few clicks and cover the underlying requirements bestowed upon responsible brokers.

 

Under California Business and Professions (B&P) Code Section 10178, enforced by the DRE, when any real estate salesperson is discharged by their responsible broker for violation of any provisions of the Real Estate Law which prescribe a ground for disciplinary action, the broker must file a “certified” written statement of the facts with the commissioner. On the other hand, if the responsible broker fails to file this report, the commissioner may temporarily suspend or permanently revoke the real estate license of the responsible broker.

 

In other words, if a salesperson engages in unlawful activity and/or goes “rogue,” and is terminated, then the responsible broker needs to immediately report this agent and information to the DRE. Think of this report as a “hot potato” that needs to be quickly tossed from the responsible broker to the DRE for their review and investigation. It’s serious business and a reporting requirement that should be known by every responsible broker on day one of their supervising gig.

 

With this reporting obligation, responsible brokers might be thinking, what is going to happen to them? It’s a valid question and a concern that I hear a lot when consulting with broker clients who encounter a rogue agent. But here’s the good news, according to B&P Code Section 10179, the license of the responsible broker shall not be revoked or suspended unless it appears upon a hearing by the commissioner that the responsible broker had guilty knowledge of the violation. Specifically, the law states:

 

“No violation of any of the provisions of this part relating to real estate or of Chapter 1 (commencing with Section 11000) of Part 2 of this division by any real estate salesperson or employee of any licensed real estate broker shall cause the revocation or suspension of the license of the responsible broker retaining the salesperson or the broker employing the employee unless it appears upon a hearing by the commissioner that the responsible broker or broker had guilty knowledge of the violation.”

 

That brings us to the BOD program which will be explored next.

 


The BOD Program

 

Notably, there isn’t any mention or reference to the BOD program in the actual Real Estate law, and that’s likely why some responsible brokers aren’t aware of its existence. Nonetheless, it is a real program that the DRE coined the “Benefit of the Doubt,” and it deals directly with the reporting requirements just discussed.

 

In the DRE’s Spring 2014 Real Estate Bulletin, the Department published an article which covers the BOD program. The now ten-year-old article states that because the DRE only receives a small number of notifications, it’s clear that few brokers are notifying them when they let a rogue agent go. They further state, “a significant reason for a broker’s noncompliance appears to be fear, based on the uncertainty that the broker will also be named in the accusation based on the rogue agent’s wrongdoing.”

 

The DRE was, and in my opinion, continues to be, spot on in their reasoning for the lack of reporting; many responsible brokers are fearful to report a terminated agent because they simply do not want an investigation of their firms and licensed activities. This appears to be true even when brokers feel confident that they didn’t do anything wrong related to the terminated agent.

 

Coincidentally, this is, in fact, why the BOD program came into effect. The 2014 bulletin article explains that the DRE created this program to address this apprehension and to assure brokers that they would not be “automatically” investigated for the failure to supervise the rogue agent. In essence, the mantra of the DRE’s BOD program is that investigations will be handled fairly, and a guilty agent doesn’t necessarily translate into a guilty broker.

 

With the BOD program comes an investigation which will be covered below.

 

 

The Investigation

 

According to the DRE, the BOD program involves an “isolated investigation” that will focus on the agent’s alleged misconduct. The investigative scope promises not to broaden, at least not unnecessarily, unless the facts dictate it. Naturally, the responsible broker will be contacted to verify their report and other information, as well as to cooperate with any requests by the Department to further the investigation along, but again, it doesn’t mean the broker is a suspect (at least not yet). By the way, prior brokers could easily be roped into this type of investigation as the DRE often wants to uncover any potential patterns of misconduct with respect to the salesperson’s activities.

 

The important takeaway here is unless the DRE finds that the responsible broker had guilty knowledge about the agent’s unlawful conduct, is grossly negligent or at fault, then there should be no enforcement action taken against them. Even more, if the broker has an appropriate system of supervision in place, with established policy and procedures, and can evidence these protocols along with their methods to monitor compliance, then they have a good chance of escaping any regulatory scrutiny or disciplinary action.

 

Actually, even if the DRE finds some minor or technical issues with the brokerage in the course of investigating the rogue agent, evidence of proper supervision by the responsible broker may protect them from formal discipline and mitigate any potential enforcement actions. Namely, if minor or technical non-compliance is discovered, the DRE’s disciplinary response might amount to a citation and fine or corrective action letter, which are more favorable outcomes for the responsible broker.

 

On the contrary, I would be remiss if I didn’t point out that responsible brokers could also be found in serious violation themselves. According to the DRE’s 2014 bulletin article:

 

“Formal disciplinary action against the reporting broker will be considered when he or she:

 

• Participates in unlawful acts or is found guilty when knowledge is substantiated.

• Is routinely absent from the office without designating an office manager.

• Fails to oversee the office manager or establish office procedures.

• Demonstrates a lack of oversight.”

 

If responsible brokers are taking notes, then they might also add the following offenses to the above list:

 

• Fails to supervise the brokerage and monitor compliance in accordance with Regulation 2725 which mandates “reasonable supervision” across the entire brokerage and its activities, including real estate advertising, transactions requiring a license, handling of trust funds, and making sure agents are knowledgeable about anti-discrimination laws.

• Is in violation of other serious misconduct discovered which may be unrelated to the actual agent termination.

 

 

The Bottom Line

 

Truthfully, a good responsible broker, and by good, I mean a knowledgeable broker who knows what they are required to do, effectively gets the job done, and is generally operating in a compliant manner, usually only benefits from the DRE’s BOD program when faced with a rogue agent situation. In my own experience, having investigated brokers for the DRE, as well as consulting with them for the last seven years, I have personally witnessed how the BOD program has shielded some responsible brokers from formal disciplinary action.

 

Conversely, it’s worth noting that there are definitely instances where responsible brokers were knowledgeable about a bad agent and purposely failed to report their termination. In turn, this blatant inaction and disregard for the law, eventually came back to bite them when the DRE ultimately discovered the agent’s unlawful activities. At that point, the responsible broker is part of the problem and could easily be named in a legal accusation filed by the Department for, among other things, lack of supervision. Remarkably, I have also seen responsible brokers decide not to terminate agents for their bad acts, and similarly, this passivity did not bode well in their favor.

 

Moreover, responsible brokers must not only be aware of these mandatory reporting requirements, but act upon them when the situation arises. Of course, brokers may want to work closely with legal counsel under these circumstances, and it would be prudent to do so. More importantly though, the responsible broker must confront these issues and take action in accordance with the law. Otherwise, to sit back and not take the appropriate measures essentially means a responsible broker is in violation of the law for failing to report a terminated agent; will surely be subject to a heftier investigation where they too may be treated as a suspect; and finally, their real estate license may be in jeopardy and suffer formal discipline depending on what the DRE discovers during their investigation.

 

 

Final Thoughts

 

If responsible brokers didn’t know it before, the ones reading this piece undoubtedly know now, the significance of the DRE’s BOD program. Trust me, as a former investigator for the State, you always want the benefit of the doubt whenever you are investigated by a regulatory body and your license (or livelihood) is on the line. Put another way, in my opinion, responsible brokers would be doubly negligent to miss out on the benefit of the DRE’s BOD program as it might afford them an important alibi when the facts warrant it. Moreover, the primary message of this piece is that responsible brokers would be wise to add this government mandated task to their long list of responsibilities and to strictly comply with it when required.

 

Author's Note: Any opinions or recommendations contained in this article are based on Summer Goralik's experience working for, and knowledge of the laws and regulations enforced by, the California Department of Real Estate, and must not be considered legal advice. Please consult with a licensed real estate attorney for legal support or clarification.


 

About the Author


Summer Goralik is a Real Estate Compliance Consultant and licensed Real Estate Broker (#02022805). Summer offers real estate brokers a variety of consulting services including assistance with California Department of Real Estate investigations and audit preparation, mock audits, brokerage compliance guidance, advertising review, and training. She helps licensees evaluate their regulatory compliance and correct any non-compliant activities. Summer has an extensive background in real estate which includes private sector, regulatory and law enforcement experience. Prior to opening her consulting business in 2016, she worked for the Orange County District Attorney's Office as a Civilian Economic Crimes Investigator in their Real Estate Fraud Unit. Before that, Summer was employed as a Special Investigator for the DRE for six years. Among many achievements, she wrote several articles for the DRE, four of which were co-authored with former Real Estate Commissioner Wayne Bell. Prior to her career in government and law enforcement, Summer also worked in the escrow industry for nearly five years. For more information about Summer's background and services, please visit her website, www.expertdrecompliance.com

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