CA Principles 16_Presentation.ppt

Principles of California Real Estate Lesson 16: California Real Estate License Law © 2021 Rockwell Publishing Administration of Real Estate Law California’s Real Estate Law is administered by the California Department of Real Estate (DRE).  Chief officer of DRE is Real Estate Commissioner. © 2021 R...

Principles of California Real Estate Lesson 16: California Real Estate License Law © 2021 Rockwell Publishing Administration of Real Estate Law California’s Real Estate Law is administered by the California Department of Real Estate (DRE).  Chief officer of DRE is Real Estate Commissioner. © 2021 Rockwell Publishing Administration of Real Estate Law Real Estate Commissioner:  appointed by Governor  may not engage in real estate activities or have interest in real estate firm  must have been real estate broker actively engaged in business in California for 5 years (or related experience) © 2021 Rockwell Publishing Administration of Real Estate Law Commissioner’s powers and duties:  grants and denies licenses  enforces Real Estate Law  issues rules and regulations to implement law  regulates sale of subdivisions and business opportunities  investigates non-licensees performing real estate activities  holds disciplinary hearings on license violations © 2021 Rockwell Publishing Administration of Real Estate Law California attorney general provides legal advice to Commissioner regarding Real Estate Law.  Violations of Real Estate Law are prosecuted by district attorney of county in which they occur, not by state attorney general. © 2021 Rockwell Publishing When License is Required Anyone who is acting, advertising, or appearing to act as real estate broker or salesperson must have real estate license. © 2021 Rockwell Publishing When License is Required Definition of a broker Real estate broker: Person who does, or negotiates to do, certain (real estate-related) acts on behalf of another person, for compensation or promise of compensation.  Real Estate Law describes broad range of activities brokers may perform. © 2021 Rockwell Publishing When License is Required Broker activities Selling, buying, or exchanging real property or business opportunity. Leasing or collecting rents from real property or business opportunity; or buying, selling, or exchanging leases on real property or business opportunity. © 2021 Rockwell Publishing When License is Required Broker activities Soliciting prospective sellers, buyers, or tenants, or listing real property or business opportunity for sale or lease. Locating or filing application for the purchase or lease of state or federal lands. © 2021 Rockwell Publishing When License is Required Broker activities Collecting advance fee to promote the sale or lease of real property or business opportunity by advertising or listing it, by obtaining financing, or in some other way. © 2021 Rockwell Publishing When License is Required Broker activities Soliciting borrowers or lenders or negotiating loans secured by liens on real property or business opportunities, or collecting payments or performing other services in connection with such loans.  Brokers must obtain separate mortgage loan originator (MLO) endorsement before engaging in these activities in connection with residential mortgage loans. © 2021 Rockwell Publishing When License is Required Broker activities An MLO endorsement is:  obtained through Nationwide Mortgage Licensing System and Registry; requires its own prelicense and continuing education  a requirement for a real estate license to receive compensation from lender or mortgage originator (even if only performing non-loan real estate brokerage activities) © 2021 Rockwell Publishing When License is Required Broker activities Selling, buying, or exchanging real property securities, land contracts, or promissory notes secured by liens on real property or business opportunities, and performing services for holders of contracts or notes. © 2021 Rockwell Publishing When License is Required Broker activities Engaging as principal in business of making or selling loans secured by real property, defined as:  buying, selling, or exchanging eight or more land contracts or promissory notes secured by real property, or making eight or more real estate loans within one year.  Note that this refers to broker who is acting on her own behalf. © 2021 Rockwell Publishing Types of Licenses Salesperson’s license Salesperson: Someone who’s hired by broker to do one or more real estate activities allowed under law.  Can engage in real estate activities only under control and supervision of responsible broker.  Cannot act for principal directly. © 2021 Rockwell Publishing Types of Licenses Broker associate Licensed broker who works for another broker rather than starting her own brokerage is sometimes called broker associate.  No separate “broker associate’s license.”  Broker associates and salespersons may be referred to as “affiliated licensees” or “associate licensees.” © 2021 Rockwell Publishing Types of Licenses Business entities Real estate license can be issued to corporation:  if one corporate officer is designated to act as broker for corporation, and  that person meets qualifications for broker’s license. © 2021 Rockwell Publishing Types of Licenses Penalties for unlicensed activities Penalty for acting without license includes:  fine of up to $20,000 and/or 6 months prison for individuals  fine of up to $60,000 for corporation © 2021 Rockwell Publishing When License Not Required Law provides exceptions to licensing requirement for persons. These include: 1. Person buying or leasing property:  for himself, or  on behalf of group to which he belongs (such as partnership or corporation). © 2021 Rockwell Publishing When License Not Required 2. Attorney in fact authorized by power of attorney. 3. Attorney providing legal services to client. 4. Person acting under court order (such as receiver in bankruptcy). 5. Trustee under a deed of trust. © 2021 Rockwell Publishing When License Not Required 6. With respect to mortgage loan activities, representative or employee of:  financial institutions, insurance companies, pension funds, or credit unions  federally approved housing counseling service  cemetery authority  licensed finance lender or residential mortgage lender or servicer © 2021 Rockwell Publishing When License Not Required 7. With respect to business opportunities, mortgage loans, or securities, licensed securities broker-dealer. 8. Person performing purely clerical duties and not discussing price, terms, or condition of property. 9. Manager of hotel, motel, or trailer park, or employee of manager. © 2021 Rockwell Publishing When License Not Required 10. Resident apartment manager or employee of the manager. 11. Employee of property management company, supervised by licensee working for the company. 12. Film location or outdoor advertising representative. © 2021 Rockwell Publishing Summary Administration of Real Estate Law Department of Real Estate Real Estate Commissioner Broker Salesperson Broker associate When license not required © 2021 Rockwell Publishing License Qualifications Salesperson To obtain salesperson’s license, applicant must:  be at least 18 years old  be honest and truthful  pass state exam and pay license fee  be fingerprinted, provide social security number, and proof of legal presence in U.S.  complete 3 courses (9 semester units) © 2021 Rockwell Publishing License Qualifications Broker For broker’s license, applicant must:  be at least 18 years old  be honest and truthful  pass state exam and pay license fee  be fingerprinted, show social security number, and proof of legal presence  have at least 2 years of experience as salesperson in last 5 years, or equivalent  complete 8 courses (24 semester units) © 2021 Rockwell Publishing License Application and Term Applying for a license Applicant must apply for license within one year after date of passing exam (not the date notice was received). © 2021 Rockwell Publishing License Application and Term Renewing a license License valid for 4 years. Licensee renews by:  completing continuing education requirements  submitting application  paying renewal fee © 2021 Rockwell Publishing License Application and Term Late renewal License expires if licensee misses 4-year renewal deadline.  Grace period: License can be renewed within 2 years after expiration if late penalty is paid. © 2021 Rockwell Publishing License Application and Term Late renewal After 2-year grace period ends:  all license rights are lost  former licensee would have to retake state exam and apply for new license © 2021 Rockwell Publishing License Application and Term Renewals Real estate license can’t be renewed unless licensee has fulfilled continuing education requirements.  Salespersons and brokers must complete at least 45 hours of continuing education (over 4 years), with certain courses specified depending on whether it is first renewal or subsequent renewal.  Forms documenting attendance at courses must accompany renewal application. © 2021 Rockwell Publishing Summary License Qualifications/Application/Term Salesperson’s license Broker’s license License application and term Expiration and renewal Continuing education © 2021 Rockwell Publishing Other License Provisions Brokerage offices Broker licensed in California must have place of business in state.  Separate licenses issued for any branch offices.  Broker must notify DRE of any location changes within one business day.  Broker may appoint branch manager with written contract and delegate supervisory responsibilities to manager. © 2021 Rockwell Publishing Other License Provisions Brokerage offices Licenses of broker and any affiliated licensees must be kept at main office.  If affiliated licensee quits or is terminated, broker must return license within three business days and notify DRE within ten days.  If licensee is terminated for conduct constituting grounds for disciplinary action, broker must notify DRE. © 2021 Rockwell Publishing Other License Provisions Brokerage offices If broker’s license is suspended or revoked, all salespersons’ licenses are automatically canceled. If broker’s license expires, all salesperson’s licenses are placed on non-working status. © 2021 Rockwell Publishing Other License Provisions Fictitious names Broker may conduct business under fictitious name if broker:  files fictitious name statement with county clerk  publishes notice in newspaper at least once a week for four weeks  submits affidavit (written statement sworn before notary public) proving publication © 2021 Rockwell Publishing Other License Provisions Fictitious names Fictitious name may not be misleading, previously used, or include name of salesperson instead of broker. © 2021 Rockwell Publishing Other License Provisions Child support delinquency If licensee (or license applicant) is delinquent in child support payments, DRE may suspend license (or issue temporary license). © 2021 Rockwell Publishing Other License Provisions Prosecution or disciplinary action Licensee must notify DRE within 30 days if he is:  is indicted,  is charged with felony,  is convicted of crime or misdemeanor, or  has license suspension/revocation in another state. © 2021 Rockwell Publishing Special Activities Real property securities dealer Real property securities dealer: Person who sells real property securities.  Must have real estate broker’s license, unless licensed as securities brokerdealer. © 2021 Rockwell Publishing Business Opportunities Business opportunity: Sale or lease of a business, typically including inventory, fixtures, and goodwill.  Listing a business opportunity, or representing buyer, requires real estate license, even if no real property involved.  If shares of stock involved, agent may also need securities license. © 2021 Rockwell Publishing Business Opportunities Franchise agreements Franchise agreement: Purchaser (franchisee) buys right to sell goods under franchisor’s brand name and marketing system, in exchange for franchise fee.  Franchise may be sold by real estate licensee, securities licensee, or any person registered with Commissioner of Business Oversight. © 2021 Rockwell Publishing Business Opportunities In sale of business opportunity, bill of sale is typically used.  If sale involves real property and personal property, two sales agreements may be used. Escrow is typically used in sale of business opportunity.  Two separate escrows may be used if both personal and real property sold. © 2021 Rockwell Publishing Business Opportunities Sales tax Sales of business opportunities are subject to state sales tax, because they involve transfer of personal property. A buyer of wholesale or retail business should obtain Certificate of Clearance from state, certifying that seller’s sales taxes have been paid.  Otherwise buyer may have successor’s liability for unpaid sales taxes. © 2021 Rockwell Publishing Business Opportunities Bulk sales Bulk sale: Sale, not in the ordinary course of business, of more than half of seller’s inventory.  Uniform Commercial Code imposes requirements on bulk sales. © 2021 Rockwell Publishing Business Opportunities Bulk sales Before bulk sale occurs, buyer must:  notify seller’s creditors of plans by recording notice of intent to buy with county recorder  send notice to county tax collector  publish notice in newspaper If notice requirements aren’t met, buyer may become liable to seller’s creditors. © 2021 Rockwell Publishing Business Opportunities Liquor licenses Sale of business opportunity may involve a liquor license.  On-sale liquor license is one that may, subject to approval, be transferred from person to person, or to different premises.  During first 5 years after issuance of liquor license, on-sale license may not be resold for more than cost of initial application. © 2021 Rockwell Publishing Summary Special Activities/Business Opportunities Fictitious business name Real property securities dealer Business opportunity Franchise agreement Sales tax Bulk sale Liquor licenses © 2021 Rockwell Publishing Disciplinary Action Commissioner may take disciplinary action against licensee who violates Real Estate Law. Steps involved may include:  commissioner’s investigation  citation  written accusation  administrative hearing © 2021 Rockwell Publishing Disciplinary Procedures Commissioner’s investigation Commissioner must investigate all verified written complaints against licensees, and may also initiate investigation on her own (without formal complaint). If it appears that a violation has occurred, the Commissioner may either:  issue citation without formal hearing  file accusation and schedule hearing © 2021 Rockwell Publishing Disciplinary Procedures Citation Citations are appropriate for lesser violations where facts aren’t contested. May include:  fine of up to $2,500  order directing licensee to stop violation © 2021 Rockwell Publishing Disciplinary Procedures Accusation If investigation warrants formal action, Commissioner files accusation and schedules administrative hearing. Accusation: Written statement of charges.  Must be filed within 3 years of alleged violation (more time if charge involves fraud, misrepresentation, or false promise). © 2021 Rockwell Publishing Disciplinary Procedures Administrative hearing Hearing conducted by administrative law judge.  Judge makes proposed decision after hearing testimony.  Commissioner accepts or rejects proposed decision when making his final decision. © 2021 Rockwell Publishing Disciplinary Action Sanctions If accusation proved, Commissioner may:  suspend or revoke license, or  impose fine of up to $250 for each day license would have been suspended.  Maximum fine: $10,000 © 2021 Rockwell Publishing Disciplinary Action Appeal Disciplined licensee may:  petition for reconsideration from Commissioner, and/or  appeal Commissioner’s decision to superior court. © 2021 Rockwell Publishing Disciplinary Action Prosecution and civil liability Licensee disciplined by Commissioner may also face:  criminal prosecution by county prosecutor  civil suit by an injured party © 2021 Rockwell Publishing Grounds for Disciplinary Action Grounds for disciplinary action include—but are not limited to—any of following violations. © 2021 Rockwell Publishing Grounds for Disciplinary Action Misrepresentation: Deliberately or negligently making false statements or failing to disclose material facts to principal. False promise: Making false promise that is likely to persuade someone to do or refrain from doing something. © 2021 Rockwell Publishing Grounds for Disciplinary Action False advertising or running blind ads.  Blind ad: Advertisement placed by real estate licensee that does not include licensee designation and broker’s name. © 2021 Rockwell Publishing Grounds for Disciplinary Action Acting as dual agent without consent of both parties. Commingling general funds with trust funds. Failing to put definite termination date in exclusive listing agreement. Failing to disclose compensation in a transaction (secret profit). Fraud or dishonest dealing. Willfully or repeatedly failing to use real property transfer disclosure statement. © 2021 Rockwell Publishing Grounds for Disciplinary Action Being convicted of felony or misdemeanor involving moral turpitude. Willfully using any trade name of real estate organization that you are not member of. Performing licensee activities negligently or incompetently. As broker, failing to exercise reasonable supervision over salespersons. Failing to disclose personal interest in property to buyer. © 2021 Rockwell Publishing Grounds for Disciplinary Action As broker, failing to notify Commissioner of discharge of any salesperson based on violation of license law. Mobile home irregularities, including fraud in application for registration of a mobile home. As broker, failing to notify parties of selling price. Illegal compensation for referring customer to escrow, pest control, home warranty, or title insurance companies. © 2021 Rockwell Publishing Real Estate Fund All license fees go to state treasury, and are then credited to Real Estate Fund. Portions of Real Estate Fund are earmarked for:  the Education and Research Account  the Recovery Account © 2021 Rockwell Publishing Real Estate Fund Recovery account Recovery Account is used to reimburse parties injured by real estate agent’s:  fraud  misrepresentation  deceit  conversion of trust funds © 2021 Rockwell Publishing Recovery Account Requirements Injured party must:  obtain civil judgment (or arbitration award) against agent, and  show that agent has insufficient funds or assets that can be seized to pay judgment or award. © 2021 Rockwell Publishing Recovery Account Limitations Recovery Account will pay:  up to $50,000 for any one transaction  up to $250,000 for any one licensee Agent’s license suspended until amount paid out is repaid to Recovery Account, with interest. © 2021 Rockwell Publishing Summary Disciplinary Action Disciplinary procedures Grounds for disciplinary action Sanctions Real Estate Fund Recovery Account © 2021 Rockwell Publishing Trust Funds Trust funds: Money or other valuables received by licensee and held on behalf of client or customer.  May be cash, check, promissory note, or any other item of personal property. © 2021 Rockwell Publishing Trust Funds Funds that real estate brokers hold in trust for clients:  good faith deposits  tenant security deposits  collected rents  advance fees Advance fees: Fees seller pays in advance for expenses associated with a listing. © 2021 Rockwell Publishing Trust Accounts Separate from general account Broker must maintain one or more trust accounts to keep trust funds separate from broker’s own money. Trust accounts should be:  opened in broker’s name as licensed  specially designated as trust accounts © 2021 Rockwell Publishing Handling Trust Funds Funds should be deposited in trust account no later than third business day after they’re received. Broker may pass check directly to escrow agent, or to principal, without putting it in trust account.  Check should still be recorded in broker’s trust fund records. © 2021 Rockwell Publishing Handling Trust Funds If principal gives check directly to third party, such as title company, without it ever passing through broker’s hands, broker does not need to enter it into trust fund records. © 2021 Rockwell Publishing Handling Trust Funds Receipt by salesperson When trust funds are given to salesperson, salesperson should immediately:  deliver funds to her broker, or  as directed by broker, deliver funds to broker’s trust account, escrow account, or to principal. © 2021 Rockwell Publishing Handling Trust Funds Good faith deposits Exception to rule: Good faith deposit check can be held uncashed until buyer’s offer is accepted, so long as:  check is not negotiable by licensee or buyer has given written instructions not to deposit or cash check until acceptance, and  seller is informed that check is being held. © 2021 Rockwell Publishing Handling Trust Funds Good faith deposits Before seller accepts offer:  good faith deposit belongs to buyer  must be returned to buyer if he demands it © 2021 Rockwell Publishing Handling Trust Funds Good faith deposits After offer accepted:  broker may hold check only with seller’s written authorization (usually in purchase agreement)  no part of deposit can be refunded without seller’s written permission © 2021 Rockwell Publishing Handling Trust Funds Good faith deposits If transaction fails to close, and parties dispute who is entitled to deposit:  Broker (or escrow agent) files interpleader action and turns funds over to court.  Court decides which party gets deposit. © 2021 Rockwell Publishing Handling Trust Funds Commingling Commingling: Illegally mixing trust funds with other funds.  Licensee must never put trust funds into firm’s general account, or her funds into trust account, even if careful records kept. Conversion: Appropriating client funds for licensee’s own purposes.  Conversion is basis for theft charges. © 2021 Rockwell Publishing Handling Trust Funds Commingling Funds in trust account should always equal broker’s trust fund liability.  Shortage or overage are both violation of Real Estate Law. Exception: Broker may keep up to $200 of her own funds in trust account to pay bank’s service charges. © 2021 Rockwell Publishing Trust Accounts Commingling If broker is owed commission from trust funds, she may withdraw it directly from trust account.  Broker cannot make any other withdrawals from trust account for either personal or business reasons. © 2021 Rockwell Publishing Trust Accounts Commingling Rule against commingling makes it difficult for broker to dip into trust funds for her own benefit. It also protects trust funds from any legal action that may be taken against broker.  If trust funds were in broker’s general account, creditor with judgment against broker might seize the trust funds. © 2021 Rockwell Publishing Trust Accounts Reconciliation Reconciliation: Process of comparing trust fund balance to sum of individual transactions.  When reconciled, trust account balance must equal total of balances due to individual beneficiaries (clients and customers). © 2021 Rockwell Publishing Trust Accounts Withdrawals Broker may not deduct her commission from trust fund until after transaction closes. Once earned commission is transferred to broker’s general account, money may be used to pay obligations, such as salesperson’s commission. © 2021 Rockwell Publishing Trust Fund Records Broker’s records must include:  all trust fund receipts and disbursements  balance of each trust account  all receipts and disbursements affecting each client or customer’s account  balance owed to each client or customer Receipts and disbursements must be in chronological order. © 2021 Rockwell Publishing Trust Fund Records Trust fund records must be kept for at least 3 years after date of closing (or listing date, if transaction didn’t close). Records are subject to inspection by Commissioner. © 2021 Rockwell Publishing Trust Fund Records Advance fees Advance fees must be handled as trust funds. Salesperson/broker must obtain prior approval from DRE for: advertising, and advance fee agreement. © 2021 Rockwell Publishing Documentation Requirements Generally, broker must keep real estate transaction documents for at least 3 years after closing date (or listing date, if sale doesn’t close). They must be available for inspection by Commissioner. © 2021 Rockwell Publishing Documentation Requirements Three-year requirement applies to:  listing and buyer representation agreements  deposit receipts  rent collection receipts  bank deposit slips  canceled checks and supporting papers  agency disclosure statements  transfer disclosure statements  property management agreements © 2021 Rockwell Publishing Documentation Requirements Records that must be kept for 4 years:  disclosure statements given to noninstitutional lenders or trust deed purchasers  real property security statements © 2021 Rockwell Publishing Documentation Requirements Broker-salesperson agreement Broker-salesperson agreement must be:  in writing  kept on file at broker’s office  retained for at least three years after relationship is terminated © 2021 Rockwell Publishing Advertising Regulations False advertising and other violations of advertising laws are:  grounds for disciplinary action under Real Estate Law  misdemeanors (under California law) © 2021 Rockwell Publishing Advertising Regulations Licensee designation An advertisement published by real estate agent must include licensee designation:  some indication in ad that advertiser is licensee Ads without this designation are illegal, unless licensee is advertising his own property. © 2021 Rockwell Publishing Advertising Regulations First contact solicitation materials Licensee must include license ID number in any solicitation materials intended to be first point of contact with consumers (potential clients or customers). Includes:  business cards and stationery  advertising fliers © 2021 Rockwell Publishing Advertising Regulations Online advertising Broker who advertises on the internet must establish procedures to make sure that a real estate licensee responds to all inquiries from prospective clients resulting from ad. © 2021 Rockwell Publishing Advertising Regulations Loans and notes Ads for loan may not:  use phrase like “guaranteed” or “safe” without supporting statement of fact  imply that the loan: can be approved over the telephone is endorsed by a government agency has better terms than are actually available © 2021 Rockwell Publishing Advertising Regulations Loans and notes Ads for promissory note:  can’t promise yield or return different from rate specified on note, unless it also reveals note rate and discount at which note is being sold.  Discount: Difference between outstanding note balance and sales price of note. © 2021 Rockwell Publishing Advertising Regulations Inducements If attendance at sales presentation or compliance with other conditions is required in order to receive gift or prize, those terms must be disclosed. If inducement is given to one party in a transaction, this must be disclosed to all parties.  Note: Inducements are always forbidden as part of loan transactions. © 2021 Rockwell Publishing Other Brokerage Topics Desk cost Desk cost is brokerage’s operating cost per salesperson.  It is calculated by dividing firm’s operating expenses by the number of salespersons. In 100% brokerage, salesperson keeps all of his commissions but must pay desk fee to pay for firm’s operating costs. © 2021 Rockwell Publishing Other Brokerage Topics Company dollar The company dollar is money left over for brokerage firm to pay its operating expenses after all commissions have been paid.  Brokerage may need to pay business license tax based on its gross receipts. © 2021 Rockwell Publishing Summary Trust Funds/Documentation/Advertising Trust account Good faith deposit check Commingling Documentation requirements Advertising regulations Prohibited practices © 2021 Rockwell Publishing