The Corrective Action Letter: A licensee's first stop on the DRE's discipline train
Working in the area of real estate compliance, I often get asked, “Am I going to lose my license?”. Depending on the situation and degree of non-compliance involved, these questions are either easy or not so fun to answer. Having worked as a California Department of Real Estate (DRE) Investigator for several years, playing an active role in the regulation and enforcement of the Real Estate Law, I know first hand that with non-compliance comes a regulatory menu of progressive discipline. Put another way, the DRE has a few tools that they can use when they investigate and hold licensees accountable for violations of the law. The topic of this article is the “Corrective Action Letter”, the first stop on the DRE’s discipline train.
What is a Corrective Action Letter?
The DRE’s Corrective Action Letter, also known as a “CAL”, is just that; a letter, requesting corrective action. This type of letter is typically issued by the DRE after their investigation of a complaint or compliance matter has concluded. It identifies any violations found during their investigation and requests that the real estate broker and/or salesperson present evidence to the DRE that the violations have ceased and/or been corrected. Additionally, it requires written assurance from the real estate licensee that the violations will not recur.
Who might receive a Corrective Action Letter?
A real estate salesperson or broker may receive a corrective action letter from the DRE. If a salesperson, acting on behalf of a brokerage, is found to have violated the Real Estate Law, the responsible broker will likely be copied on the correspondence, and/or may even receive its own corrective action letter in connection with the matter.
Which violations rise to the level of a Corrective Action Letter?
The types of violations that typically result in the issuance of a corrective action letter are usually minor and/or did not cause any public harm. A CAL might be issued for advertising violations, such as failing to include your DRE license number or responsible broker identity in an advertisement, or for non-compliant team name advertising which is a common culprit. Another activity which might trigger a corrective action letter is the use of an unlicensed fictitious business name by a broker or salesperson.
Other situations which might call for a CAL are the failure to comply with basic DRE requirements like reporting a change in address or contact information. On the other hand, if a broker or salesperson is issued a CAL for something more serious, it’s usually because the licensee has already proven to the DRE that they corrected the violation and that there are new measures in place to avoid future compliance issues. For example, if a brokerage has undergone a DRE audit, oftentimes minor trust fund handling issues noted at the conclusion of the examination might lead to the issuance of a corrective action letter by the Enforcement Unit.
How do I respond to a Corrective Action Letter?
The first rule of thumb is to always respond. If you fail to respond to a CAL, you may actually find yourself on the next stop on the DRE’s discipline train, which could be a citation and fine or formal action. Thankfully, the CAL usually provides a clear, written disclaimer to licensees about the regulatory consequences of failing to respond to the DRE’s notice.
In order to avoid such unnecessary trouble, you will need to promptly acknowledge the violation in writing, provide the DRE with sufficient proof that the violation has ceased and/or been corrected, and identify the course of action you have taken or plan to take which will ensure that the violation will not occur again.
If you are a real estate salesperson and receive a corrective action letter, it is important to inform your affiliated brokerage about the notice right away. It might be wise to work closely with your affiliated brokerage in connection with your response, ensuring that your corrective actions and efforts are in sync with the firm’s policies and procedures.
As a “Responsible Broker”, tasked with overseeing the activities of your entire brokerage and agents, your call to action is multifaceted. In addition to addressing the specific violation directly, it is also important to think more “high level”, focusing on your firm’s overall risk management plan and asking the right questions.
For example, you might ask, was the CAL unavoidable or does your system of supervision need to be reassessed? Does the DRE matter and uncovered violation involve a “rogue agent”, a salesperson who disobeyed your firm’s policies, or is the violation a symptom of a larger problem such as ineffective policies, procedures or delegation of responsibility?
Pursuant to Commissioner’s Regulation 2725, a broker is responsible for establishing policies, procedures, rules and systems which review, oversee, inspect and manage, without limitation, agents’ activities, real estate transactions, file management and storage, advertising, and trust fund handling. Perhaps a CAL will inspire new rules, policies or systems which are needed to help avoid non-compliance, tighten business practices, and protect your brokerage not only from the DRE's scrutiny, but the relentless world of civil liability.
While a CAL could leave you feeling deflated about your business, it is actually the perfect push to start thinking more boldly and productively about compliance. It’s a regulatory “time out” where you can revisit your priorities and turn constructive words into action. Hopefully, an articulate and thoughtful response to the DRE, with sufficient proof of your corrective actions, will convince the State that you have properly and sufficiently complied with their corrective action letter.
How do I avoid a Corrective Action Letter?
Well, the answer is easy, it’s compliance, but wholeheartedly investing in your compliance is not without its challenges, especially if you are juggling too many tasks and priorities. As licensees, part of your job is to keep your daily real estate activities and craft in check with the laws and regulations enforced by the DRE. More than that, responsible brokers should be in a constant state of review and supervision over the brokerage in order to ensure regulatory compliance. It is prudent to regularly evaluate your policies and procedures, identify risk or violations, and correct issues in a timely manner.
Remember, a CAL is only the first rung on the disciplinary ladder. If any violation “tips the scale”, you could easily find your case subject to a citation and fine, or worse, a legal accusation filed by the Department. Unfortunately, I know too many brokers who put compliance on the back burner until it was too late and they could not unwind the damage done. It is those same brokers who would have gladly welcomed a corrective action letter and second chance on addressing compliance.
Some licensees reading this article have likely received a corrective action letter from the DRE at some point in their careers, while others may be learning about this type of discipline for the first time. Either way, remember this, a corrective action letter is a good thing. While it puts brokers and agents on formal notice about violations of the Real Estate Law, it also provides licensees with a golden opportunity to correct their non-compliance and without the risk of formal disciplinary action.
I hope that the DRE will continue to use this regulatory tool to enforce compliance; it affords deserving licensees, who try very hard to stay compliant, but sometimes make mistakes, the ability to reset, correct business practices, and return to the right side of compliance.
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 (DRE) audit preparation, mock audits, 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. Most recently, she worked for the Orange County District Attorney's Office as a Civilian Economic Crimes Investigator in their Real Estate Fraud Unit. Prior to that, Summer worked for the DRE for six years as an Investigator. Among many achievements, she wrote several articles for DRE, four of which were co-authored with former Commissioner Wayne Bell. Before she embarked on her career in government and law enforcement, Summer also worked in the escrow industry for nearly five years, for both an independent escrow company and broker-controlled escrow division. Finally, Summer is currently an Instructor for the Escrow Training Institute.