California Real Estate Chapter 16

Blind ad

An advertisement that doesn't fulfill this requirement

Penalties - Antitrust Laws

A real estate agent or company that violates antitrust laws may be subject to both civil and criminal penalties. An individual guilty of violating the Sherman Act can be fined up to one million dollars and/or sentenced to ten years' imprisonment. A corporation can be fined up to one hundred million dollars.

Cartwright Act

Passed in 1907

Advertising Regulations

Real estate licensees need to be aware of the laws that regulate advertising in California—not just those that pertain specifically to real estate and loans, but also more general rules, such as the prohibition against false advertising. A violation of state laws against false advertising is a misdemeanor; it's also a violation of the Real Estate Law.

Advertising and listings

Soliciting prospective sellers, buyers, or tenants, or listing real property or a business opportunity for sale or lease.

15. The funds that support the Recovery Account come from: A. interest accruing on trust accounts B. a surcharge on real estate developers C. private donations D. real estate license fees

D. real estate license fees

Affiant

The person making the sworn statement is called the affiant

ABC

Department of Alcoholic Beverage Control

Examples of Unlawful Conduct — Sale, Lease, or Exchange

In a sale, lease, or exchange transaction, conduct such as the following may result in license discipline under Sections 10176 or 10177 of the Business and Professions Code: 1. Knowingly making a substantial misrepresentation of the likely value of real property to: A. Its owner, either for the purpose of securing a listing or for the purpose of acquiring an interest in the property for the licensees own account. B. A prospective buyer, for the purpose of inducing the buyer to make an offer to purchase the real property. 2. Representing to an owner of real property when seeking a listing that the licensee has obtained a bona fide written offer to purchase the property, unless at the time of the representation the licensee has possession of a bona fide written offer to purchase. 3. Stating or implying to an owner of real property during listing negotiations that the licensee is precluded by law, by regulation, or by the rules of any organization, other than the broker firm seeking the listing, from charging less than the commission or fee quoted to the owner by the licensee. 4. Knowingly making substantial misrepresentations regarding the licensees relationship with an individual broker, corporate broker, or franchised brokerage company or that entitys/persons responsibility for the licensees activities. 5. Knowingly underestimating the probable closing costs in a communication to the prospective buyer or seller of real property in order to induce that person to make or to accept an offer to purchase the property. 6. Knowingly making a false or misleading representation to the seller of real property as to the form, amount and/or treatment of a deposit toward the purchase of the property made by an offeror. 7. Knowingly making a false or misleading representation to a seller of real property, who has agreed to finance all or part of a purchase price by carrying back a loan, about a buyers ability to repay the loan in accordance with its terms and conditions. 8. Making an addition to or modification of the terms of an instrument previously signed or initialed by a party to a transaction without the knowledge and consent of the party. 9. Making a representation as a principal or agent to a prospective purchaser of a promissory note secured by real property about the market value of the securing property without a reasonable basis for believing the truth and accuracy of the representation. 10. Knowingly making a false or misleading representation or representing, without a reasonable basis for believing its truth, the nature and/or condition of the interior or exterior features of a property when soliciting an offer. 11. Knowingly making a false or misleading representation or representing, without a reasonable basis for believing its truth, the size of a parcel, square footage of improvements or the location of the boundary lines of real property being offered for sale, lease or exchange. 12. Knowingly making a false or misleading representation or representing to a prospective buyer or lessee of real property, without a reasonable basis to believe its truth, that the property can be used for certain purposes with the intent of inducing the prospective buyer or lessee to acquire an interest in the real property. 13. When acting in the capacity of an agent in a transaction for the sale, lease or exchange of real property, failing to disclose to a prospective purchaser or lessee facts known to the licensee materially affecting the value or desirability of the property, when the licensee has reason to believe that such facts are not known to nor readily observable by a prospective purchaser or lessee. 14. Willfully failing, when acting as a listing agent, to present or cause to be presented to the owner of the property any written offer to purchase received prior to the closing of a sale, unless expressly instructed by the owner not to present such an offer, or unless the offer is patently frivolous. 15. When acting as the listing agent, presenting competing written offers to purchase real property to the owner in such a manner as to induce the owner to accept the offer which will provide the greatest compensation to the listing broker without regard to the benefits, advantages and/or disadvantages to the owner. 16. Failing to explain to the parties or prospective parties to a real estate transaction for whom the licensee is acting as an agent the meaning and probable significance of a contingency in an offer or contract that the licensee knows or reasonably believes may affect the vacating of the property by the seller or its occupancy by the buyer. 17. Failing to disclose to the seller of real property in a transaction in which the licensee is an agent for the seller the nature and extent of any direct or indirect interest that the licensee expects to acquire as a result of the sale. (The licensee should disclose to the seller: prospective purchase of the property by a person related to the licensee by blood or marriage; purchase by an entity in which the licensee has an ownership interest; or purchase by any other person with whom the licensee occupies a special relationship where there is a reasonable probability that the licensee could be indirectly acquiring an interest in the property.) 18. Failing to disclose to the buyer of real property in a transaction in which the licensee is an agent for the buyer the nature and extent of a licensees direct or indirect ownership interest in such real property: Ex. The direct or indirect ownership interest in the property by a person related to the licensee by blood or marriage; by an entity in which the licensee has an ownership interest; or by any other person with whom the licensee occupies a special relationship. 19. Failing to disclose to a principal for whom the licensee is acting as an agent any significant interest the licensee has in a particular entity when the licensee recommends the use of the services or products of such entity.

Sales, purchases, and exchanges

Selling, buying, or exchanging real property or a business opportunity.

Affiliated licensees

The associate brokers and salespersons who work for a particular broker

Grounds for Disciplinary Action

The grounds for suspending, revoking, or denying a license are set forth in the Real Estate Law; the main list can be found in Sections 10176 and 10177 of the Business and Professions Code. While licensing and license renewal requirements attempt to ensure the licensees minimum competence, it is this list of acts or omissions that sets the standard for the licensees day-to-day behavior. The grounds for disciplinary action include all of the following actions and conduct: 1. Making a substantial misrepresentation (deliberately or negligently making a false statement of fact, or failing to disclose a material fact to a principal). 2. Making a false promise that is likely to persuade someone to do or refrain from doing something. 3. Embarking on a continued and flagrant course of misrepresentation or false promises. 4. Acting as a dual agent without the knowledge or consent of all of the parties involved. 5. Commingling your own money or property with money or property you received or are holding on behalf of a client or customer (trust funds). 6. Failing to put a definite termination date in an exclusive listing agreement. 7. Receiving an undisclosed amount of compensation on a transaction (a secret profit). 8. If you have a listing agreement that includes an option to purchase the listed property, exercising the option without revealing to the principal in writing the amount of profit to be made and obtaining the principals written consent. 9. Acting in any way, whether specifically prohibited by statute or not, that constitutes fraud or dishonest dealing. 10. Getting a purchasers written agreement to buy a business opportunity property and to pay a commission, without first obtaining the written authorization of the property owner (a listing agreement). 11. As a lender or mortgage broker, failing to disburse funds in accordance with a mortgage loan commitment. 12. Intentionally delaying the closing of a mortgage loan for the sole purpose of increasing the borrowers interest rate or other charges. 13. In connection with a residential short sale (debt forgiveness sale), generating an inaccurate opinion of the propertys value in order to manipulate the lender into rejecting the proposed sale, or to acquire a listing or other financial or business advantage. 14. Failing to comply with the law that requires a real property transfer disclosure statement in certain transactions. 15. Acquiring or renewing a license by fraud, misrepresentation, or deceit. 16. Being convicted of (or pleading not guilty or no contest to) a felony charge, or a crime that is substantially related to the qualifications, functions, or duties of a real estate licensee. 17. False advertising, such as a material false statement about property offered for sale, or a misrepresentation of the licensees credentials. 18. Willfully disregarding or violating the Real Estate Law or the Commissioners regulations. 19. Willfully using the term Realtor® or any trade name of a real estate organization that you are not actually a member of. 20. Having a real estate license denied, revoked, or suspended in another state for actions that would be grounds for denial, revocation, or suspension in California. 21. Performing activities requiring a real estate license negligently or incompetently. 22. As a broker, failing to exercise reasonable supervision over the activities of your salespersons. 23. Using government employment to gain access to private records, and improperly disclosing their confidential contents. 24. Violating the terms of a restricted license. 25. Using blockbusting tactics: soliciting business on the basis of statements regarding race, color, sex, religion, ancestry, marital status, or national origin. 26. Violating the Franchise Investment Law, the Corporate Securities Law, or regulations of the Commissioner of Corporations. 27. Violating the laws governing the sale of real property securities. 28. When selling property in which you have a direct or indirect ownership interest, failing to disclose the nature and extent of that interest to a buyer. 29. Violating any provision of RESPA, TILA, or HOEPA, or any regulations implementing those federal laws. 30. Having a final judgment entered against you in a civil suit for fraud, misrepresentation, or deceit in regard to a real estate transaction. 31. As a broker, failing to notify the Commissioner in writing of the discharge of a salesperson based on her violation of the Real Estate Law or the Commissioners regulations. 32. Committing fraud in an application for the registration of a mobile home, failing to provide for the delivery of a properly endorsed certificate of ownership of a mobile home from the seller to the buyer, or participating in the sale or disposal of a stolen mobile home. 33. Failing to indicate in an advertisement that you are a real estate licensee, or failing to include your license number in a purchase agreement or in solicitation materials such as business cards and advertising flyers. 34. As a broker, failing to notify the buyer and the seller, in writing, of the propertys selling price within one month after the sale closes, unless escrow issues a closing statement. 35. Employing or compensating an unlicensed person for an act that requires a license. 36. Failing to give a copy of a contract to a party who has just signed it. 37. Accepting compensation for referring a customer to any of these types of companies: escrow, pest control, home warranty, or title insurer. 38. Undertaking to arrange financing for a transaction in which you're already acting as a real estate agent, or vice versa, without disclosing that dual role in writing to all parties within 24 hours. In addition, Section 10087 of the Business and Professions Code authorizes the Commissioner to suspend a licensee or debar him from any position of employment, management, or control for up to 36 months if the licensee: -knew or should have known that he was violating the Real Estate Law or the Commissioners regulations, or has caused material damage to the public; or -was convicted of or pleaded no contest to a crime, or was held liable in a civil action or administrative proceeding, if the matter involved dishonesty, fraud, deceit, or any other offense reasonably related to the qualifications, functions, or duties of a real estate licensee.

Reconciliation

The process of comparing the trust fund balance to the sum of individual transactions

Termination of Broker's License

If a brokers license is suspended or revoked, the licenses of all of the brokers salespersons are automatically canceled. They may transfer their licenses to other brokers. If a brokers license expires, the licenses of his salespersons are immediately placed on non-working status. This means they cannot engage in any real estate activities. The broker can reactivate them after renewing his own license

Broker's Review of Documents

Broker's review: Brokers are responsible for reviewing all documents prepared or signed by their affiliated licensees that may have a material effect on the rights or obligations of any party to a transaction. Brokers are responsible for supervising their salespersons, and failure to do so is grounds for disciplinary action. The broker's supervisory responsibilities include reviewing any documents prepared by a salesperson that may have a material effect on the rights or obligations of a party to a transaction.

20. Trust funds: A. are always money, never items of personal property B. may be put into the broker's general account, as long as scrupulous records of the deposits and withdrawals are kept C. can be given to the Real Estate Commissioner for deposit D. must never be deposited into the broker's general account

D. must never be deposited into the broker's general account

Associate Brokers

(Broker-salesperson) A person licensed as a broker may choose to work for another broker instead of operating her own brokerage. Such a broker is subject to essentially the same limitations as a salesperson. The associate brokers and salespersons who work for a particular broker are sometimes referred to as the broker's affiliated licensees.

Government lands

Locating or filing an application for the purchase or lease of lands owned by the state or federal government.

Late Renewal

A license that has expired within the previous two years may be renewed without retaking the licensing examination. The licensee must file a renewal application and pay a late renewal fee. If the license isn't renewed within the two-year grace period, all license rights are lost. This means that in order to be licensed again, the former licensee must meet all the requirements for original license applicants, including passing the licensing exam AGAIN.

Selling, buying, or exchanging loans or securities

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 the holders of contracts or notes.

When a License is Required

The Real Estate Law requires anyone who is acting, advertising, or appearing to act as a real estate broker or as a real estate salesperson to have a real estate license.

Successor's liability

The buyer may have successors liability for the sellers unpaid sales tax and be required to pay it

Education and Research Account

Used to advance real estate education and research projects. Up to 12% of the money in the Real Estate Fund is credited to the Recovery Account. (Monetary penalties collected by the Commissioner also go into the Recovery Account.)

Accusation

An accusation is a written statement of the charges against the licensee. The accusation must be filed within 3 years of the allegedly unlawful act, unless the act involved fraud, misrepresentation, or a false promise. In that case, an accusation must be filed within one year after discovery by the injured party or within 3 years after the act (whichever is later), but in no case can it be filed more than 10 years after the act. The accusation is served on the licensee.

Uniform Commercial Code

Business opportunity buyers must comply with the Uniform Commercial Code, which imposes certain requirements on bulk sales. -The sale of a business opportunity must also comply with the provisions of the Uniform Commercial Code. This law has special rules that apply to bulk sales. A bulk sale is a sale, not in the ordinary course of the seller's business, of more than half of the seller's inventory. Before a bulk sale takes place, the buyer must: 1) record a notice with the county clerk... 2) send a notice to the county tax assessor...and 3) notify the seller's creditors by publishing a notice in the local newspaper. Otherwise, the buyer may become liable to the seller's creditors.

Franchise agreement

One common type of business opportunity is a franchise agreement, where the purchaser (franchisee) buys the right to sell goods under a brand name and marketing system offered by the franchisor in exchange for a franchise fee. A franchise may be sold by a real estate licensee, a securities licensee, or any person registered for that purpose with the California Corporations Commissioner.

Transfer of Salesperson's License

The Commissioner must also be notified when a salesperson transfers affiliation from one broker to another. The new broker is required to submit a notification form to the DRE within 5 days after the salesperson begins working for her. Before giving his license certificate to the new broker, the salesperson is supposed to cross out the name and address of the former broker, then write the name of the new broker and the address of the new broker's main office on the back of the certificate. The salesperson should also date and initial these changes.

Special Activities

-Prepaid Rental Listing Services -Mineral, Oil, and Gas Transactions -Real Property Securities -Out-of-State Subdivisions

Mortgage loan originator endorsement

A special endorsement to a real estate license that authorizes the licensee to engage in mortgage loan brokerage and origination activities for compensation. The requirements for obtaining an MLO endorsement include obtaining a license through the Nationwide Mortgage Licensing System and Registry. An MLO endorsement will involve separate prelicense and continuing education requirements, apart from those required for a real estate broker's license. In addition, a real estate broker isn't allowed to accept compensation from a lender or a mortgage loan originator in a transaction involving a residential mortgage loan unless the broker has an MLO endorsement.

Brokerage Offices

A real estate broker licensed in California is required to have a place of business in the state. A broker may also have one or more branch offices. A separate license must be issued for each branch office. The broker can add or cancel a branch office by filing a form with the Department of Real Estate. A broker is required to hold the licenses of all of her affiliated licensees. These licenses, and also the broker's own license, must be kept at the broker's main office.

Appeal

A licensee may ask the Real Estate Commissioner to reconsider a disciplinary sanction, or formally appeal to a superior court. After the Commissioner issues a formal decision in a disciplinary proceeding, the licensee may ask the Commissioner to reconsider the decision. Or the licensee may file an appeal with the superior court.

Business Entities

A real estate license can be issued to a corporation. At least one corporate officer must be designated to act as the broker under the corporate brokerage license. That officer must also be individually licensed as a broker, and can only act as a broker with respect to the corporate brokerage. While there is no "partnership license," a partnership may perform acts for which a broker's license is required, provided that every partner through whom the partnership acts is a licensed real estate broker.

Unreasonable restraint of trade

A restraint of trade is any act that prevents an individual or a company from doing business in a certain area or with certain people.

Out-of-State Subdivisions

A special permit from the DRE is required in order to sell shares in an out-of-state timeshare project. In addition, before a licensee may sell lots in any out-of-state subdivision, the subdivision must be registered with the DRE. Lots that are located in a subdivision in another state may be sold or offered for sale in California only if the subdivision has been registered with the Department of Real Estate. A real estate broker licensed in California may engage in transactions involving out-of-state property, as long as she remains physically in California while doing so. A California broker may also split a commission with an out-of-state broker.

Conspiracy

When two or more business entities participate in a common scheme which has the effect of a restraint of trade

Administrative hearing

Which an administrative law judge will consider the case -The hearing is ordinarily conducted by an administrative law judge. The licensee can be represented by an attorney in the hearing. After hearing testimony, the administrative law judge submits a proposed decision to the Commissioner. The Commissioner will consider the judge's proposed decision, accept or reject it, and then issue the formal decision.

Location of Licenses

Real estate licenses must be held by the broker and kept in the broker's main office. The Department of Real Estate must be notified of any changes in affiliation, name, or location. A broker is required to hold the licenses of all of her affiliated licensees. These licenses, and also the broker's own license, must be kept at the broker's main office.

Tie-in Arrangements

(Tying arrangement) A tie-in arrangement is defined as "an agreement to sell one product, only on the condition that the buyer also purchases a different (or tied) product..." Ex. Brown is a subdivision developer. Tyson, a builder, wants to buy a lot. Brown tells Tyson that he will sell him a lot only if Tyson enters into a list-back agreement. In other words, Tyson must sign a contract promising that after he builds a house on the lot, he will list the improved property with Brown. The developer's requirement in the example is an illegal tie-in arrangement. Note, however, that list-back agreements aren't necessarily illegal. A list-back agreement is illegal only if it's a required condition of the sale, creating a tie-in arrangement. Two parties may mutually agree on a list-back agreement without violating antitrust laws.

Rules for handling trust funds

-Must be deposited within 3 days following receipt. -Salesperson must deliver funds to broker or deposit them in compliance with broker's instructions. -Check for good faith deposit can be held uncashed before buyer's acceptance under certain circumstances. -Brokers must not commingle personal funds with trust funds.

Good faith deposit check

A broker may usually hold a good faith deposit check uncashed until the seller has accepted the buyer's offer.

Real Estate Broker

A broker under the license law is one who engages in certain activities for another person, for compensation. Those activities include selling, listing, or negotiating the sale of real property or business opportunities. Set forth in the license law is the key to understanding when a license is required. The law defines a real estate broker as someone who engages in certain activities: 1. on behalf of another person, AND 2. for commissions or other compensation, or the promise of compensation. A person who is licensed to represent others for compensation in real estate transactions. A real estate broker is a person who does or negotiates to do certain acts on behalf of another, for compensation or in the expectation of compensation. These acts include all of the following: 1. Sales, purchases, and exchanges 2. Leases 3. Advertising and listings 4. Government lands 5. Advance fees 6. Mortgage loan brokerage 7. Selling, buying, or exchanging loans or securities

Affidavit

A written statement sworn before a notary public

6. The Recovery Account will pay a maximum of ____________ per transaction. A. $50,000 B. $100,000 C. $250,000 D. There is no limit

A. $50,000

8. A broker's trust account records: A. can be kept by a columnar method B. must be kept in a safe deposit box at a financial institution in California C. can be kept by the principal D. should be discarded one year after the transaction closes

A. can be kept by a columnar method

16. Trust funds must be deposited into a broker's trust account: A. within three business days following receipt of the funds B. within 30 days of receipt of the funds C. by the broker's certified public accountant D. within three days after the transaction closes

A. within three business days following receipt of the funds

The Real Estate Fund

All license fees go to the state treasury and are then credited to a fund called the Real Estate Fund. Some of the money in the Real Estate Fund is then disbursed to other accounts. Up to 8% of the money is credited to the Education and Research Account and used to advance real estate education and research projects. Up to 12% of the money in the Real Estate Fund is credited to the Recovery Account. (Monetary penalties collected by the Commissioner also go into the Recovery Account.) The purpose of the Recovery Account is to help compensate parties who have been injured by real estate licensees. When an injured party gets a civil judgment (or arbitration award) against a licensee based on the licensee's intentional fraud, misrepresentation, or deceit, or conversion of trust funds, the injured party can apply to the Recovery Account for payment of the judgment. The injured party must be able to show that the licensee has no funds or assets that could be seized to pay the judgment. The Recovery Account will pay up to $50,000 for losses in a single transaction and up to $250,000 for losses caused by one licensee. Once payment is made from the Recovery Account on behalf of a licensee, his license is automatically suspended as of the day of payment. The license can't be reinstated until the amount disbursed from the Recovery Account is fully repaid, with interest. Even bankruptcy doesn't release the licensee from this obligation.

Kiosk

An information booth, such as the type in a shopping mall that real estate brokers sometimes use to gain exposure.

Types of violations - Antitrust Laws - Practices and Activities

Antitrust laws prohibit the following business practices and activities: -price fixing, -group boycotts, -tie-in arrangements, and -market allocation

3. Commingling is: A. the same as embezzlement B. mixing personal funds with trust funds C. any dishonest behavior related to trust funds D. paying a commission to a unlicensed person

B. mixing personal funds with trust funds

18. A resident apartment manager who manages the apartment complex he lives in: A. must have a real estate salesperson's license B. need not have a real estate license C. must be supervised by a real estate licensee D. must register with the Department of Real Estate

B. need not have a real estate license

12. The commission rate a listing broker can charge on a sale is determined by: A. the Real Estate Commissioner B. the seller and the broker C. the multiple listing service D. the buyer and the seller

B. the seller and the broker

11. The maximum amount of a broker's own funds allowed in her trust account is: A. none B. $50 C. $200 D. $500

C. $200

9. A broker may keep an earned commission in a trust account for no more than: A. one day B. seven days C. 25 days D. 60 days

C. 25 days

1. Someone applying to renew her real estate license usually must have completed ______ hours of approved courses within the four-year period preceding license renewal. A. 15 B. 20 C. 45 D. 90

C. 45

14. A salesperson's license is valid for: A. two years B. three years C. four years D. five years

C. four years

2. A corporation may engage in the real estate brokerage business if the officer acting for the corporation: A. is a licensed salesperson B. is given the proper authority from the Commissioner of Corporations C. is a licensed real estate broker D. is the president of the corporation

C. is a licensed real estate broker

13. A broker's license: A. must be carried by the broker at all times B. should be kept in a safe place, such as a home safe or a safe deposit box at a bank C. must be kept in the broker's main office D. is kept in the field office of the Department of Real Estate nearest the broker's main office

C. must be kept in the broker's main office

19. All of the following are grounds for disciplinary action except: A. commingling B. failing to put a termination date in an exclusive listing C. negotiating with a seller to establish the commission rate D. failing to supervise a salesperson

C. negotiating with a seller to establish the commission rate

Advance fee services

If a broker intends to collect advance fees for her services, any materials she's planning to use in advertising or promoting those services must first be submitted to the Department of Real Estate for approval, at least ten days before any agreement with a client is signed. The broker must also submit the advance fee agreement she will be entering into with her clients to the DRE. The DRE will review the broker's materials to make sure that they disclose key information about the advance fees and are not deceptive or misleading.

Real Estate Fund

In the state treasury, a special account into which all license fees are placed.

Broker Trust Accounts

In California, every broker must maintain one or more trust accounts, to keep trust funds separated from the broker's own money. This makes it less likely that the broker will accidentally or intentionally use clients' funds for her own purposes. It also protects the trust funds from the broker's creditors, in case the broker dies or is sued. A broker's trust accounts must be in a recognized financial institution located in this state. The accounts should be opened in the broker's name (as it appears on her license) and should be specifically designated as trust accounts. A bank account that a broker uses to keep trust funds segregated from the broker's personal or business funds. The primary reason for maintaining a separate account for trust funds is to avoid commingling. Commingling means mixing trust funds with personal funds. A broker must never put trust funds into his general account. Likewise, the broker must never put his own funds into a trust account. This is true even if careful records are kept of the deposits and withdrawals. Commingling shouldn't be confused with conversion, which is the actual misappropriation of a party's funds for the broker's own purposes. Conversion is a basis for theft charges under the California penal code. (Theft also includes wrongfully removing a piece of real or personal property, or defrauding another person of money, labor, or real or personal property.) The prohibition against commingling makes it more difficult for a broker to "borrow" trust funds. The prohibition also protects trust funds from any legal action that might be taken against the broker. Ex. Suppose a broker dies, or is sued by a client. The broker's general account could very well be frozen during the course of the probate or lawsuit. If trust funds were kept in the broker's general account, they would be unavailable to the owners of those funds until the probate was completed or the lawsuit concluded. Also, if trust funds were placed in the broker's general account, a judgment creditor might be able to seize those funds along with the broker's own funds

License Application and Term

License applicants must apply for their licenses within one year of the date they pass the exam (not the date they receive notice that they passed). Brokers' and salespersons' licenses must be renewed every four years. A mortgage loan originator endorsement for a real estate license must be renewed annually; the endorsement will expire each year on December 31.

Suspension - Temporary

Lasts for a specified number of days A hearing is usually required before sanctions can be imposed. However, under certain circumstances, such as when a license was obtained through fraud or deceit, the Commissioner can suspend a license even before a hearing takes place. This license suspension is effective only until the hearing is held and the Commissioner makes a formal decision. TEMPORARY SUSPENSION Valid until hearing on Month, Day.

Leases

Leasing or collecting rents from real property or a business opportunity; or buying, selling, or exchanging leases on real property or a business opportunity.

Advance fee

Money a broker receives from a client before providing services, either to cover anticipated expenses or as upfront compensation, which must be treated as trust funds.

Resident aliens - Renewing a License

Note that resident aliens who do not have permanent status must submit proof of legal presence each time they renew their licenses.

Internet Advertising

The Commissioner's regulations include some rules for advertising or disseminating information about real estate services on the Internet. A brokerage must make sure that if a prospective client inquires about real estate services online (on the firm's website, for example), the response will come only from a real estate licensee. Any online advertisement must state whether or not the person doing the advertising is licensed in California. Brokers who advertise or provide information about real estate services on the Internet are required to comply with a rule concerning contact with specific customers. There must be procedures in place to ensure that only a real estate licensee (or someone exempt from the licensing requirement) responds to inquiries from customers or otherwise contacts customers.

Examples of Unlawful Conduct

The Department of Real Estates Reference Book lists examples of unlawful conduct that would be grounds for disciplinary action. It's divided into two parts: 1. unlawful conduct in sale, lease, and exchange transactions, and 2. unlawful conduct in loan transactions. This list is reprinted here in full.

Disciplinary Action

The Real Estate Commissioner can begin disciplinary proceedings against a licensee who violates the license law. The licensee must be served with an accusation, ordinarily within 3 years of the unlawful act. The hearing is held before an administrative law judge. The Real Estate Commissioner then makes a formal decision based on the administrative law judge's proposed decision. To be effective, laws must be enforced. A real estate licensee who has violated the license law is subject to disciplinary action by the Real Estate Commissioner. The Commissioner is authorized to impose sanctions against the licensee, including suspending or revoking his or her license. The Real Estate Commissioner has the authority to investigate and discipline licensees who violate the Real Estate Law or the Commissioners regulations.

Attorney general - Administration of the License Law

The Real Estate Commissioner receives legal advice concerning the real estate license law from the state Attorney General. Each county's district attorney is charged with prosecuting those who violate the real estate license law within that county.

Recovery Account

The Recovery Account is used to compensate people injured by the actions of a real estate licensee who can't collect a judgment against the licensee. If funds are paid out of the Recovery Account because of a licensee, his license is suspended until he can reimburse the Recovery Account for the full amount, plus interest. All license fees (including exam fees, application fees, renewal fees, and so on) are placed in the state treasury's Real Estate Fund. A portion of this money is distributed to the Education and Research Account, to advance real estate education and research. Another portion of the fund is distributed to the Recovery Account. Monetary penalties collected by the Commissioner also go into the Recovery Account. The Recovery Account is used to help compensate parties who have been injured by the actions of a real estate agent and have obtained a judgment against the agent. For the Recovery Account to kick in, the licensee must not have any funds or assets that could be seized to pay the judgment. Ex. The Chans buy a home from Broker Houlihan only to discover that Houlihan made a secret profit from the transaction. They get a judgment against Houlihan, but Houlihan has transferred all his assets to a foreign country. Since they can't collect their judgment from Houlihan, the Chans could apply to the Recovery Account for compensation. The Recovery Account will pay up to $50,000 for any one transaction and up to $250,000 for any one licensee. When the Recovery Account makes a payment to an injured party, the license of the erring real estate agent is automatically suspended until the account is completely repaid, with interest. An account funded by license fees, used to compensate members of the public injured by the unlawful acts of real estate licensees, when other compensation isn't available. A portion of real estate license fees is put into an account to protect the geneeral public when a judgement or arbitration award against a licensee is uncollectable. Recovery is limited to $20,000. Per transaction, $100,000 per licensee.

Desk cost

The cost of each salesperson to the broker—is calculated by dividing the firm's operating expenses by the number of salespeople.

Business Opportunities

The sale or lease of a business, including inventory, fixtures, and goodwill, is referred to as a business opportunity. An agent involved in a business opportunity transaction generally must have a real estate license, but no special permit is required. A business opportunity is the sale or lease of a business, typically including inventory, fixtures, lease assignments, and goodwill. As a general rule, listing a business opportunity or representing the buyer of a business opportunity requires a real estate license, even if there's no real property involved. If shares of stock in a corporation are involved in the sale, the agent may also need a securities license. One common type of business opportunity is a franchise agreement, where the purchaser (franchisee) buys the right to sell goods under a brand name and marketing system offered by the franchisor in exchange for a franchise fee. A franchise may be sold by a real estate licensee, a securities licensee, or any person registered for that purpose with the California Corporations Commissioner. Business opportunity transactions typically involve the transfer of personal property (such as furniture and equipment used in the business), so the seller gives the buyer a bill of sale. The bill of sale must contain the names of the transferor and transferee, the location of the business, and a description of the personal property, including any trade fixtures and equipment and the trade name. If the sale also involves real property, two purchase agreements might be used, one for the real property and one for the personal property. There will often be two separate escrows for the real property and the "personal property. And, of course, the seller will give the buyer a deed as well as a bill of sale. -A business opportunity is the sale or lease of a business, including inventory, fixtures, lease assignments, and goodwill. The sale or lease of a business opportunity does not require a special permit, but it does require a real estate license, even if there is no real property involved in the transaction. If shares of stock in a corporation are transferred as part of the transaction, a securities license may be necessary. When a business opportunity is sold, a bill of sale is typically used, because the transaction almost always involves the transfer of personal property. The bill of sale must contain the names of the transferee and the transferor (the buyer and the seller), the location of the business, and a description of the personal property being sold, including the trade name and any fixtures and equipment. If the sale also involves real property, two purchase agreements might be used, one for the real property and one for the personal property. There may also be separate escrows for the real property and the personal property.

Avoiding Antitrust Violations

There are several things real estate brokers can do or avoid doing in order to prevent antitrust violations. Brokers should: -always establish their fees and other listing policies independently, without consulting competing firms; -never use listing forms that contain preprinted commission rates; -never imply to a client that the commission rate is fixed or nonnegotiable, or refer to a competitor's commission policies when discussing commission rates; -never discuss their business plans with competitors; -never tell clients or competitors that they won't do business with a competing firm, or tell them not to work with that firm because of doubts about its competence or integrity; and -train their affiliated licensees to be aware of and avoid actions that may violate antitrust laws.

Grounds

Violating any provision of the license law—including the rules discussed so far in this lesson—is grounds for disciplinary action. In addition, the license law sets forth a detailed list of specific conduct that is considered grounds for disciplinary action. Keep in mind that as a licensee, you're subject to disciplinary action even for license law violations that occur when you're buying or selling your own property. The Commissioner's authority extends to any real estate transaction involving a licensee, not only those in which a licensee is representing another person. Anyone planning to become a real estate agent should read through the entire list of grounds for disciplinary action. Grounds for Disciplinary Action 1. Making a substantial misrepresentation: knowingly or negligently making a false statement or failing to disclose a material fact to a principal. 2. Making a false promise that is likely to persuade a party to do something or refrain from doing something. 3. Embarking on a continued and flagrant course of misrepresentations or false promises. 4. Acting as a dual agent without the knowledge and consent of all the parties. 5. Commingling your own money or property with trust funds or property held in trust. 6. Failing to put a definite termination date in an exclusive listing agreement. 7. Receiving an undisclosed amount of compensation from a transaction (a secret profit). 8. If you have a listing with a purchase option, exercising the option without revealing to the principal in writing the amount of profit to be made and without obtaining the principal's written consent. 9. Acting in any way that constitutes fraud or dishonest dealing. 10. Getting a purchaser's written agreement to buy a business opportunity and to pay a commission, without first obtaining a listing agreement. 11. As a lender or mortgage broker, failing to disburse funds in accordance with a loan commitment. 12. Intentionally delaying the closing of a mortgage loan to drive up the borrower's charges. 13. In connection with a residential short sale, generating an inaccurate opinion of the property's value to manipulate the lender into rejecting the proposed sale or to gain a financial advantage. 14. Failing to provide a real property transfer disclosure statement in a transaction in which one is legally required. 15. Acquiring or renewing a license by fraud, misrepresentation, or deceit. 16. Being convicted of or pleading guilty to a felony, or a misdemeanor substantially related to the qualifications, functions, or duties of a real estate licensee. 17. False advertising, such as any material false statement about property offered for sale, or any misrepresentation of the licensee's credentials. 18. Wilfully disregarding or violating the Real Estate Law or the Commissioner's regulations. 19. Representing that you belong to a real estate organization that you are not actually a member of. 20. Having a real estate license denied, revoked, or suspended in another state for actions that would be grounds for denial, revocation, or suspension in California. 21. Performing activities requiring a real estate license negligently or incompetently. 22. As a broker, failing to exercise reasonable supervision over the real estate activities of affiliated licensees. 23. Using government employment to gain access to private records and improperly disclosing their contents. 24. Violating the terms of a restricted license. 25. Discriminating by using blockbusting tactics. 26. Violating the Franchise Investment Law, the Corporate Securities Law, or regulations of the Commissioner of Corporations. 27. Violating the laws governing the sale of real property securities. 28. Failing to disclose your direct or indirect ownership interest in property you're selling. 29. Violating the Real Estate Settlement Procedures Act or the Truth in Lending Act. 30. Having a final judgment entered against you in a civil suit for fraud, misrepresentation, or deceit regarding a real estate transaction. 31. As a broker, failing to notify the Commissioner in writing of the discharge of a licensee based on a violation of the license law or regulations. 32. Misconduct in connection with mobile home transactions. 33. Advertising in any manner without indicating that you are a real estate licensee, or failing to include your license number in a purchase agreement or in solicitation materials such as business cards and flyers. 34. As a broker, failing to give the buyer and the seller written notice of the property's selling price within one month after closing, unless escrow issues a closing statement. 35. Employing or compensating an unlicensed person for any act that requires a license. 36. Failing to furnish a copy of any contract to all those who sign it, at the time it is executed. 37. Accepting compensation for referring a customer to an escrow, pest control, home warranty, or title insurance company. 38. Undertaking to arrange financing for a transaction in which you're already acting as a real estate agent, or vice versa, without disclosing your dual role in writing to all parties within 24 hours. The Department of Real Estate has also compiled detailed lists of examples of unlawful conduct, in both sales and loan transactions.

Good Faith Deposits - Trust Funds

There's an exception to the deadline for depositing trust funds. When a broker receives a good faith deposit check from a buyer, usually that check can be held uncashed until the buyer's offer is accepted. Once the offer is accepted, the check must be deposited into the trust account unless the seller directs the broker in writing not to do so. Before acceptance, the good faith deposit belongs solely to the buyer, and must be returned to him according to his instructions. After acceptance, though, ownership is less clear-cut, and the deposit should be handled in the following manner: -A check held uncashed by the broker before acceptance may continue to be held uncashed only under written authorization from the seller. -The check may be given to the seller only if both parties so provide in writing. -No part of the deposit money can be refunded without the express written permission of the seller. If a sales transaction falls through, there may be a dispute over whether the buyer or seller is the rightful owner of the good faith deposit. In such a situation, the broker holding the funds in trust may file an interpleader action, turning the funds over to a court. The court will decide which party is the rightful owner of the funds.

Trust Fund Records

A broker is required to keep detailed trust account records. He should balance his trust account records against the bank balance on a monthly basis. This process is known as reconciliation. Trust account records can take one of two forms: simple columnar records or records from a general accounting system. Regardless of the method chosen, the broker must keep records of all of the following: 1. all trust fund receipts and disbursements in chronological order; 2.the daily balance of each trust account; 3. all receipts and disbursements affecting each client or customer's account in chronological order; and 4. the balance owing to each client or customer. Trust account records are subject to inspection by the Commissioner and must be kept for at least three years, beginning with the date of closing (or the date of the listing, if the deal doesn't close). Advance fees are funds given to a broker by a client to cover expenses that will be incurred on the client's behalf, such as unusual marketing expenses. Advance fees must be handled like trust funds: they cannot be commingled with the broker's funds, and must be deposited within three days after receipt. In addition, advance fees generally can't be withdrawn until they've actually been expended for the client's benefit, or until five days after an accounting has been sent to the client. Transaction records: A variety of other documents connected with a transaction must also be available for inspection for three years after the closing date (or listing date, if the transaction never closed). These documents include: -listings and buyer agency agreements... -purchase agreements -rent collection receipts -bank deposit slips -canceled checks -supporting papers -agency disclosure statements -transfer disclosure statements -property management agreements -mortgage loan disclosure statements -real property security statements Mortgage loan disclosure statements and real property security statements must be kept for four years, not three. A broker may opt to use an electronic storage system for records. One condition of using such a system, though, is that the broker must be able to produce, upon the Department of Real Estate's request, paper copies of any documents at the broker's expense. The records only need to be stored for three years, as with paper records, but they must be stored using a non-erasable medium. It's very important to keep proper records of all trust funds, including trust fund checks that are held uncashed, trust funds that are sent directly to escrow, and trust funds that have been released to the owner. Thorough trust fund records enable the broker to prepare accurate accountings for clients, to calculate the amounts owed to clients at any given time, and to see if there's an imbalance in the trust account. The broker should reconcile his trust account records on a monthly basis. A broker can use one of two types of accounting systems to keep track of trust funds: 1. a simple columnar system or 2. an alternative system that complies with general accounting practices. Regardless of which method is used, the accounting system must show the following: 1. all trust fund receipts and disbursements with pertinent details in chronological order; 2. the balance of each trust account based on all recorded transactions; 3. all receipts and disbursements affecting each client or customer's account in chronological order; and 4. the balance owing to each beneficiary based on recorded transactions.

Do Not Call Registry

Licensees who solicit business by making "cold calls" to strangers must comply with the Federal Trade Commission's telemarketing rules. It's against the law to make this type of call to someone whose name appears on the National "Do Not Call" Registry, so licensees must check the registry before placing calls.

Miscellaneous information about the real estate business

-A real estate brokerage may be taxed by a city, based on its gross receipts, through a business license tax. -The money retained by a real estate brokerage after commissions have been paid, from which operating expenses will be paid, is known as the company dollar. -In a 100% brokerage, each salesperson pays the brokerage a desk fee to pay for operating expenses, but does not have to share his or her commissions with the brokerage. -Most advertising done by real estate brokerages will be classified ads (online or in print publications). Brokerages rarely use large display ads.

Handling Trust Funds

"When a real estate broker accepts trust funds from a client or customer, she must deposit them into: 1. a neutral escrow account, 2. the hands of the principal, or 3. a trust account maintained by the broker in a bank or other recognized depository Which of these alternatives is the appropriate one depends on the circumstances and on the broker's instructions. In any case, however, the trust funds must be deposited no later than three business days following receipt of the funds. If the funds are deposited into escrow or the hands of the principal rather than into the broker's trust account, the transfer must be noted in the broker's trust fund records. If trust funds are given to a salesperson instead of directly to the broker, the salesperson must immediately deliver the funds to the broker, or, if so directed by the broker, to one of the three places listed above. There is one exception to these rules. When a broker receives a good faith deposit check from a buyer, the broker can hold the check uncashed before the buyer's offer is accepted, if: the check isn't negotiable by the licensee, or the buyer has given written instructions that the check isn't to be deposited or cashed until the offer is accepted; and the seller is informed (before or when the offer is presented) that the check is being held. Once the offer is accepted, the broker can continue to hold the uncashed deposit check only if he receives written authorization from the seller to do so. Trust funds must stay in the trust account until their owner directs otherwise. While the owner of the trust funds is usually easy to identify, it should be noted that the ownership of trust funds may change as the real estate transaction progresses. Ex. The ownership of a good faith deposit varies depending on whether or not the buyer's offer has been accepted. Before acceptance, the funds belong to the buyer and must be handled according to her instructions. After acceptance, however, ownership isn't so clear-cut, and the funds must be handled as follows: -A check held uncashed by the broker before acceptance of the offer may continue to be held uncashed only on written authorization from the seller. -The check may be given to the seller only if both parties agree to that in writing. -No part of the deposit money can be refunded without the express written permission of the seller. If a transaction falls through after the good faith deposit has been deposited into escrow or a broker's trust account, there may be a dispute over the money; the buyer and the seller may each feel entitled to it. In this situation, the escrow agent or broker who holds the funds in trust may file an interpleader action, turning the matter over to a court. The court will decide which party is the rightful owner of the funds.

5. All of the following can make a withdrawal from a broker's trust account except: A. a salesperson in the broker's employ who has been authorized by the broker B. the broker's secretary, who has been authorized by the broker and is covered by a fiduciary bond C. a corporate officer of a corporation licensed as a broker D. the unlicensed, unbonded spouse of a broker who has been authorized by the broker

D. the unlicensed, unbonded spouse of a broker who has been authorized by the broker

Penalties - When a License is Required

An unlicensed person who has performed acts that fall within the broker definition may be fined up to $20,000 and imprisoned for up to six months. A corporation that has engaged in real estate activities without a license may be fined up to $60,000. And a broker who employs or compensates an unlicensed person for real estate activities will be subject to disciplinary action. She could have her license suspended or revoked. Individual violations: -up to $20,000 fine -up to 6 months' imprisonment Corporate violations: -up to $60,000 fine

Sherman Antitrust Act

Dates back to 1890 A federal law that committed the American government to opposing monopolies, it prohibits contracts, combinations and conspiracies in restraint of trade.

Licensee Designation in Advertising

Advertisements placed by a real estate licensee must include a licensee designation, some indication that the advertiser is a licensed real estate agent. An advertisement that doesn't fulfill this requirement is sometimes called a blind ad. This rule applies to almost all advertising related to acts requiring a real estate license. However, if a licensee is offering her own property for sale, she is not performing an act that requires a real estate license. Therefore, she doesn't have to include a licensee designation in the ad. Advertisements published or distributed by a real estate licensee must include a licensee designation, some indication that the advertiser is a licensee. (An advertisement that doesn't fulfill this requirement is sometimes referred to as a blind ad.) A single word such as "broker," "agent," or "Realtor®" is sufficient, or even an abbreviation such as "bro." or "agt." This rule generally applies to advertising concerning any matter for which a real estate license is required. There's an exception for classified ads for rental properties: if the ad gives the phone number or address of the rental property, a licensee designation isn't necessary. A licensee designation doesn't have to be included when a licensee advertises his own property for sale or lease, since that isn't an act for which a real estate license is required.

Broker-Salesperson Agreements

All broker-salesperson agreements must be in writing and kept on file at the broker's office. Broker-salesperson agreements must be retained for three years after the relationship terminates. Broker-salesperson agreement: The Real Estate Commissioner requires that all broker-salesperson agreements must be: 1) in writing, 2) kept on file in the broker's office, and 3) retained by the broker for three years after the relationship terminates. Whenever a broker hires a real estate salesperson, there must be a written agreement that documents their relationship. The broker must keep the agreement on file at the broker's office, and then retain the agreement for three years after the relationship is terminated.

Child Support Delinquency

An applicant who has not complied with a court order regarding child support payments cannot obtain a full-term real estate license. The California Department of Child Support Services (DCSS) maintains a list of individuals who are delinquent on child support payments. If the applicant is on this list, the Department of Real Estate can only issue a temporary 150-day license. The applicant must obtain a release from the DCSS during the 150-day period to qualify for a full-term license. A current licensee whose name appears on the list has 150 days to get it removed. Otherwise, the Department of Real Estate may suspend the license, and the suspension will remain in place until the licensee has cleared up the delinquency. The California Department of Child Support Services (DCSS) maintains a list of individuals who haven't complied with a court order concerning child support payments. The Department of Real Estate can't issue or renew a full-term real estate license for an applicant whose name appears on the DCSS list. Instead, the DRE will issue a 150-day license and notify the applicant that a full-term license will be issued only if the applicant obtains a release from the DCSS during the 150-day period. Also, if a current licensees name appears on the DCSS list and isn't removed within 150 days, the Department of Real Estate may suspend his or her license. The suspension will remain in effect until the delinquency has been cleared up.

Types of licensees

BROKER: -Individual, corporation, or partnership -Authorized to operate brokerage and represent clients -Authorizes the licensee to engage in real estate activities on behalf of another person for compensation. -It also authorizes the licensee to operate a brokerage business. -A broker's license authorizes the broker to employ other licensees (salespersons) to help her engage in real estate activities. -A broker licensed in California may negotiate in California regarding a transaction for out-of-state land. -She may also share a commission split with an out-of-state broker. SALESPERSON: -A salesperson is someone who engages in the activities listed in the broker definition, but only as a broker's representative. -Works with and represents broker -Can't represent client directly without a broker -A salesperson must always receive compensation directly from her broker. -A salesperson may never receive compensation from a cooperating broker or a client. -The cooperating broker or client must pay the employing broker, and the broker then pays the salesperson.

7. The bill of sale used in a business opportunity transaction must contain all of the following, except: A. names of transferor and transferee B. description of the personal property C. location of the business D. names and addresses of any creditors

D. names and addresses of any creditors

Commingling

Brokers must keep their clients' trust funds separate from their own money. Mixing personal or business funds with trust funds is called commingling, and it is a violation of the license law. There's one exception to this rule against commingling: a broker may keep $200 of her own funds in a trust account to pay bank service charges. No funds other than trust funds may be maintained in a broker's trust account. The broker should not put any of her own money into the trust account. Nor should she put trust funds into her personal account or general business account. Illegally mixing trust funds with personal funds is called commingling. Commingling should not be confused with conversion, which is actually misappropriating a client's funds for the broker's own purposes. One important exception to the prohibition against commingling is that a broker may keep up to $200 of his own funds in a trust account in order to pay the account's service charges. And if a broker is owed a commission from trust funds, he may withdraw that amount directly from the trust account. However, a broker can never pay business or personal expenses out of a trust account, even if the broker treats the payments as a draw against a commission. Rather, the broker must withdraw the commission amount from the trust account, deposit it into a business or personal account, and then use the funds to pay expenses. Mixing trust funds with broker's personal funds or business funds. A broker must never put trust funds into his general account. Likewise, the broker must never put his own funds into a trust account. This is true even if careful records are kept of the deposits and withdrawals. Commingling shouldn't be confused with conversion, which is the actual misappropriation of a party's funds for the broker's own purposes

4. Brokers must retain copies of all listings, purchase agreements, and trust account records for: A. one year B. two years C. three years D. four years

C. three years

Broker's Qualifications

For a broker's license, the applicant must be at least 18, be honest and trustworthy, pass the broker's exam, have two years' experience, and complete all the required education. To obtain a broker's license, an applicant must: 1. have two years of full-time experience as a real estate licensee within the past five years; 2. be at least eighteen years old; 3. be honest and truthful; 4 .pass the licensing exam; 5. apply on the prescribed form; 6. pay the license fee; 7. be fingerprinted; 8. provide his social security number to the DRE; 9. submit proof of legal presence (documentation showing that he is in the United States legally); and 10. complete 24 semester units (eight courses) of education, including: A. five required courses: -Real Estate Practice; -Real Estate Appraisal; -Legal Aspects of Real Estate; -Real Estate Financing; and either -Real Estate Economics or -Accounting; and three other courses chosen from this list: -Advanced Legal Aspects of Real Estate; -Advanced Appraisal; -Advanced Financing; -Real Estate Principles; -Property Management; -Escrow; -Business Law; -Real Estate Office Administration; -Mortgage Loan Brokering and Lending; -Common Interest Developments; or -Computer Applications in Real Estate. A broker's license applicant who takes both Real Estate Economics and Accounting has to complete only two additional elective courses, not three. The experience requirement (item one on the list above) may be waived if the applicant either has the equivalent of two years of general real estate experience, or has a degree from a four-year college or university in a course of study that included specialization in real estate. To obtain a waiver, an applicant must submit a written petition to the DRE.

Salesperson's Qualifications

For a salesperson's license, the applicant must be at least 18, be honest and trustworthy, complete the required education, and pass the salesperson's exam. To obtain a salesperson's license, an applicant must: 1. be at least eighteen years old; 2. be honest and truthful; 3. pass the licensing exam; 4. apply on the prescribed form; 5. pay the license fee; 6. be fingerprinted; 7. provide her social security number to the DRE; 8. submit proof of legal presence (documentation showing that she is in the United States legally); and 9. complete nine semester units of education, including -Real Estate Principles, -Real Estate Practice, and an elective chosen from the following list: -Legal Aspects of Real Estate; -Real Estate Appraisal; -Real Estate Financing; -Real Estate Economics; -General Accounting; -Business Law; -Escrow; -Property Management; -Real Estate Office Administration; -Mortgage Loan Brokering and Lending; -Common Interest Developments; or -Computer Applications in Real Estate.

Salesperson's License Qualifications

Here are the requirements an applicant for a salesperson's license has to meet: 1. The applicant must be at least 18 years old. 2. The applicant must be honest and truthful. 3. The applicant must pass the salesperson's examination. 4. Complete application: The applicant must apply on the prescribed form, pay the license fee, be fingerprinted, and provide the Department of Real Estate with a social security number and proof of legal presence in the United States. 5. Complete 3 courses: The applicant must complete 3 courses (nine semester units) of education: -two required courses, real estate principles and real estate practice; -one elective course chosen from a list of courses approved by the Department of Real Estate. Naturally, there's no experience requirement for a salesperson's license. There's also no education requirement, aside from the required real estate courses; it is not necessary to be a high school graduate in order to obtain a salesperson's license. An applicant for a broker's license must satisfy all of the following requirements. 1. The applicant must be at least 18 years old. 2. He must be honest and truthful. 3. He must pass the qualifying exam. 4. He must apply for the license. This includes applying on the proper form, paying the license fee, and being fingerprinted. The applicant also must provide the Department of Real Estate with a social security number and proof of legal presence in the United States. 5. The broker's license applicant must also have at least two years of full-time experience as a real estate licensee within the past five years. The DRE may waive this requirement if the applicant has either the equivalent of two years of general real estate experience or a degree from a four-year college with a specialization in real estate. 6. The broker's license applicant must successfully complete eight approved real estate courses (24 semester units). -Five courses are required, including: -real estate practice, -appraisal, -legal aspects of real estate, -real estate finance, and -either real estate economics or accounting. -In addition, 3 elective courses must be chosen from the following list: -advanced legal aspects of real estate, -advanced appraisal, -advanced financing, -real estate principles, -property management, -escrow, -real estate office administration, -business law, -mortgage loan brokering and lending, -common interest developments, or computer applications in real estate. (An applicant who takes both real estate economics and accounting is required to take only two additional electives, not three.)

Debarment

In especially serious cases, the Commissioner can impose a special sanction called debarment. A debarred licensee is prohibited from: -acting as a real estate broker or salesperson; -engaging in real estate related business activities on the premises of a brokerage; and -participating in real estate related activities of a lender, escrow company, or title company. The Commissioner can debar a licensee for up to 36 months. When a licensee has knowingly or recklessly violated the Real Estate Law or the Commissioners regulations, has caused material damage to the public, or has been convicted of a crime or held liable in a civil action for conduct that involves dishonesty or is related to the qualifications or duties of a real estate licensee, the Commissioner can bar the licensee from any position of employment, management, or control for up to 36 months. A debarred licensee is prohibited from acting as a real estate broker or salesperson; from engaging in real estate related business activities on the premises of a brokerage; and from participating in real estate related business activities of a financial institution, a lender, an escrow company, or a title company.

Address Changes

Licensees are required to maintain current addresses on file with the Department of Real Estate. A broker must provide a mailing address, the address of her principal place of business, and the addresses of any branch offices. A salesperson must provide a mailing address and the address of his brokers principal place of business. When a broker changes the location or address of her main office or a branch office, she must send written notice to the DRE within one business day. All licensees affected by the change should correct their license certificates by crossing out the oldaddress and writing the new one on the back, and dating and initialing the changes. If a licensee's name changes (for example, because of marriage), the DRE should be notified. If a licensee marries with no name change, notification is unnecessary.

Price Fixing

Price fixing is defined as the cooperative setting of prices or price ranges by competing firms. To avoid the appearance of price fixing, real estate agents from different brokerages should never discuss their commission rates. (It's a discussion between competing brokers or salespersons that could violate the law. A broker can discuss commission rates with his own affiliated agents, and agents who work for the same broker can discuss rates with each other.) One exception to this general prohibition is that competing brokers involved in a cooperative sale are allowed to discuss a commission split—the division of the commission between the listing broker and the selling broker. Even a casual announcement that a broker is planning on raising his commission rates could lead to antitrust problems. Ex. Broker Wood goes to a dinner given by his local MLS, and he's asked to discuss current market conditions. In the middle of his speech, he mentions that he's going to raise his commission rates, no matter what anyone else does. This statement could be viewed as an invitation to conspire to fix prices. If any other MLS members raise their rates in response to Wood's statement, they could be held to have accepted his invitation to conspire. Brokers must understand that they don't have to actually consult with each other to be charged with conspiring to fix commission rates. The kind of scenario described in the previous example is enough to lead to an antitrust lawsuit. Publications that appear to fix prices are prohibited as well. A multiple listing service or other real estate association that publishes "recommended" or "going" rates for commissions could be sued.

Trust Account Withdrawals

Prior written notice cannot be required for withdrawals from a broker's trust account; the funds must be immediately available. Withdrawals from a trust account generally require the signature of the broker (or in the case of a corporation licensed as a broker, the signature of the designated broker-officer). However, a broker may also authorize the following individuals to withdraw trust funds: 1. Affiliated licensees, a salesperson or an associate broker employed by the broker; or 2. any unlicensed employee, provided that he is covered by a fiduciary bond equal to the total amount held in trust. While a broker can authorize others to withdraw trust funds, she can't delegate responsibility for the funds. The broker is always accountable for any trust fund violation, even one caused by the negligence or irresponsibility of an employee. There's a special rule regarding withdrawal of advance fees. Once advance fees have been deposited into a broker's trust account, they generally can't be withdrawn until they are actually expended for the client's benefit, or until five days after the broker has sent the client an accounting.

Shortages or Overages

Since a broker can't put his own funds into a trust account or use trust funds for his own purposes, the trust account balance must always equal the broker's total trust fund liability. Either a shortage or an overage in a trust account is a violation of the license law. Generally, a trust account cannot be an interest-bearing account. This is true unless the owner of the trust funds requests that the funds be placed in an interest-bearing account. The broker must pay the service fees for the account and disclose information about how the interest is to be calculated and disbursed. None of the interest from such an account can accrue to the broker. The total amount of funds in the trust account must always equal the broker's aggregate trust fund liability. The process of comparing the trust fund balance to the sum of individual transactions is called reconciliation. When reconciled, the trust account balance must equal the total of the balances due to individual clients and customers. If the trust account balance is less than the total liability, there is a trust fund shortage. Such a shortage is a violation of the Real Estate Commissioner's regulations. If the trust account balance is greater than the total liability, there is a trust fund overage. This is also a violation of the regulations, since non-trust funds can't be commingled with trust funds. A broker should always make sure that a check deposited into the trust account has cleared before disbursing any funds against the check. If funds are disbursed and the check hasn't cleared, or the check bounces, a trust fund shortage will occur.

Prepaid Rental Listing Services

Someone who is looking for rental housing will sometimes enter into a prepaid rental listing service agreement. The prospective tenant pays a fee and in return gets a list of housing that is availabe for rent. The listing service only provides information about the rentals; it doesn't negotiate the lease or rental agreement. A real estate licensee may operate a prepaid rental listing service without any additional license or permit. Someone who doesn't have a real estate license must obtain a prepaid rental listing service license from the DRE before offering the service. A prepaid rental listing service provides prospective tenants with listings of residential property available for rent. Tenants are charged a fee before or at the same time that the listing service provides the listings. The listing service isn't involved in negotiating leases or rental agreements. Licensed real estate brokers may operate a prepaid rental listing service without an additional license or a special permit. Other individuals or companies must obtain a prepaid rental listing service license from the Department of Real Estate.

Real Estate Commissioner

The Commissioner grants or denies licenses, issues rules governing licenses, and enforces the license law. The Real Estate Commissioner is appointed by the Governor. The Commissioner may not engage in real estate activities or have any interest in a real estate firm. To qualify to be Commissioner, a person must have been a real estate broker actively engaged in business for five years in California. The Real Estate Commissioner's job is to implement and enforce the provisions of the Real Estate Law in a way that will provide the maximum protection possible to members of the public who deal with real estate licensees. The Commissioner is given many broad powers to accomplish this end. The Commissioner has the power to adopt, amend, or repeal regulations necessary to enforce the Real Estate Law. These regulations have the force and effect of law. The Commissioner's regulations can be found in sections 2705 to 3109 of Title 10 in the California Code of Regulations. The Commissioner also has the authority to: -grant and deny licenses, -issue rules and regulations, -enforce the license law, -regulate some aspects of the sale of subdivisions and business opportunities, -investigate non-licensees alleged to be performing real estate activities, and -hold disciplinary hearings on license law violations -investigate non-licensees alleged to be performing activities for which a license is required; -screen and qualify applicants for a license; -investigate complaints against licensees; and -regulate some aspects of the sale of subdivisions, franchises, and real property securities. In addition, the Commissioner may: -hold formal hearings to determine issues involving a licensee, a license applicant, or a subdivider and, after such a hearing, suspend, revoke, or deny a license or stop sales in a subdivision; -bring actions for injunctions and claims for restitution on behalf of those injured by licensees who violate the Real Estate Law; and -bring actions to stop trust fund violations The Real Estate Commissioner is advised on legal matters by the state attorney general. County district attorneys are responsible for prosecuting violations of the Real Estate Law that occur in their county. The Real Estate Commissioner is appointed by the governor and serves at his or her pleasure. To qualify for the position of Real Estate Commissioner, a person must have been a real estate broker actively engaged in business for five years in California, or must have related experience associated with real estate activity in California for five of the previous ten years. The Commissioner and DRE employees are prohibited from engaging in professional real estate activities, and from having an interest in any real estate firm.

Documentation Requirements

Trust fund and transaction records must be kept for at least three years. Mortgage loan disclosure statements and real property security statements must be kept for at least four years. Broker-salesperson agreement: The Real Estate Commissioner requires that all broker-salesperson agreements must be: 1) in writing, 2) kept on file in the broker's office, and 3) retained by the broker for three years after the relationship terminates. Book: In addition to the trust fund records described above, the Department of Real Estate also requires brokers to keep all of the documents connected with a real estate transaction. These documents include: -listings and buyer agency agreements; -purchase agreements; -rent collection receipts; -bank deposit slips; -canceled checks; supporting papers for checks, such as invoices, escrow statements, or receipts; -agency disclosure statements; -transfer disclosure statements; and -property management agreements These documents must be kept for at least three years, beginning with the date of closing (or the date of listing, if the transaction doesn't close), and they must be available for inspection by the Commissioner. If there is sufficient cause, these records may be audited. The following documents must be kept for four years instead of three: real property security statements, and disclosure statements given to noninstitutional lenders or deed of trust purchasers

Prosecution & civil liability

Violation of the license law can lead to punishment beyond the Commissioner's disciplinary sanctions. For instance, a violation of the license law may be prosecuted by the district attorney in the county where the violation occurred. A criminal prosecution following an administrative sanction would not be considered "double jeopardy." In addition, if a violation of the license law results in harm to a client or customer, the injured party may sue the licensee for civil damages.

Real Estate Law

(California's real estate license law) (License law) The law that requires real estate agents to be licensed and that regulates their activities. A California statute that governs the licensing and business practices of real estate agents. Contained in sections 10000 to 10580 of the Business and Professions Code. The purpose of the law is to regulate the real estate profession and protect the public from incompetent, unethical, or dishonest real estate agents. The license law is made up of state statutes and administrative regulations issued by the Department of Real Estate. -The fundamental purpose of the license law is to protect buyers and sellers in real estate transactions. The license law is an exercise of the state's police power. The license law regulates the professional activities of real estate agents. It also establishes disciplinary procedures to penalize agents who engage in dishonest practices or who otherwise break the rules. The first part of this lesson describes who administers the license law and discusses licensing requirements. It covers the activities for which a real estate license is required, the different types of licenses, and license expiration and renewal. The second part of this lesson discusses the regulation of business activities. We'll discuss grounds and procedures for disciplinary action, as well as regulations concerning trust accounts, recordkeeping, and advertising. Finally, in the last part of the lesson, you'll learn about antitrust laws. Administration of License Law Real Estate Licenses -When Required -Types -Expiration & Renewal Rules & Regulations -Disciplinary Action -Business Practices -Antitrust Laws

Department of Real Estate

(DRE) California's real estate license law is administered by the Department of Real Estate, under the supervision of the Real Estate Commissioner. The state agency that administers the Real Estate Law. The Real Estate Law is administered by the Department of Real Estate (DRE), which is a division of the California Business, Transportation, and Housing Agency. The law is enforced by the chief officer of the DRE, the Real Estate Commissioner.

Restricted Licenses

(Probationary license) The Commissioner may issue a restricted license to replace a license that was suspended or revoked. The restricted license is, in effect, a probationary license. It may have a limited term, restrict the licensee to certain types of activities, require affiliation with a particular broker or the filing of a surety bond, or impose other limitations. A restricted license may also require the licensee to be affiliated with a particular broker. Ex. The Commissioner may grant Smith, who has been subject to disciplinary action twice already, a restricted license. Under the terms of the license, Smith can work only for Broker Martinez, who has an excellent reputation for training and supervising agents. The Commissioner may feel confident that as long as Smith works for Martinez, he won't get into any more trouble.

Miscellaneous License Provisions

-Brokerage Offices -Location of Licenses -Termination of Affiliation -Transfer of Salesperson's License -Discharge for Disciplinary Cause -Termination of Broker's License -Address Changes -Fictitious Names -Child Support Delinquency

Corporations - Types of Licenses

A broker's license can be issued to an individual, or to a corporation. A corporate license is issued in the name of the firm, and one officer of the corporation must be licensed as its designated broker. (Note: There is no special license for partnerships. Partners may be licensed as individual brokers and engage in brokerage activities on behalf of the partnership.) The designated broker, who must be a corporate officer, is required to meet all of the qualifications for an ordinary broker's license. Any other members of the firm who engage in real estate activities on its behalf must be individually licensed.

Bulk Sales

A bulk sale is a sale, not in the ordinary course of the seller's business, of more than half of the seller's inventory. Business opportunity buyers must comply with the Uniform Commercial Code, which imposes certain requirements on bulk sales. A bulk sale is a sale, not in the ordinary course of the sellers business, of more than half of the sellers inventory. A buyer who's interested in a bulk sale must notify the sellers creditors by recording a notice of the transaction with the county recorder, sending a notice to the county tax collector by certified or registered mail, and publishing a notice in the local newspaper. If these requirements aren't met, the buyer may become liable to the sellers creditors.

Real Estate Licenses

A common way of regulating an industry or profession is to require its members to be licensed. The state can try to ensure a licensed person's competence and exercise control over his professional activities by requiring education, testing, and recordkeeping, and by enforcing minimum standards of business conduct. -Rules and regulations that apply to real estate licenses. It's important for a licensee to know the following: 1) when a real estate license is required, 2) the difference between the various types of licenses, 3) individuals who are exempted from license requirements, 4) the qualifications for each type of license, and 5) the application and renewal process.

Inducements

A gift, prize, or rebate offered for purchasing property or attending a sales presentation is known as an inducement. If receiving the gift, prize, or rebate depends on compliance with certain terms and conditions (such as attendance at a sales presentation), the terms and conditions must be disclosed. In addition, if an inducement is given to one party in a transaction, that's a material fact that must be disclosed to all parties. Note that inducements are always forbidden in loan transactions. Sometimes a gift, prize, or rebate will be offered as an inducement, either for attending a sales presentation or for purchasing property. (Inducements are always forbidden as part of loan transactions.) If attendance at a sales presentation is required to obtain a gift, that must be disclosed in the advertisement or solicitation. Any other conditions for receiving gifts or prizes must also be disclosed. Note that if an inducement is given to one of the parties in a transaction, that's a material fact that must be disclosed to all of the parties.

Group Boycotts

A group boycott is an agreement between two or more business competitors (such as real estate brokers from different firms) to exclude another competitor from fair participation in business activities. Ex. Becker and Jordan are brokers from competing real estate companies. Over lunch together, they discuss the business practices of a third broker, Harley. Becker says she thinks Harley is dishonest. Jordan agrees. He says that he's decided not to do business with Harley. He avoids Harley whenever possible, and just doesn't call back if Harley calls to ask about a listed property. He suggests that Becker should do the same. Jordan and Becker could be found guilty of a conspiracy to boycott. If a real estate broker feels that another broker is dishonest or unethical, she may choose not to do business with him. However, that broker can't encourage other brokers to follow suit.

70/30 Continuing Education Exemption

A licensee 70 years old or older isn't required to fulfill the continuing education requirement if he's been a real estate licensee in good standing in California for at least 30 years. (Any period during which the license was expired doesn't count toward the 30 years.) The licensee must submit proof that he qualifies for this exemption to the Department of Real Estate.

Fictitious Names

A real estate broker can conduct business under a fictitious business name, as long as it is the name he is licensed under. However, the Commissioner may refuse to issue a license under a fictitious business name if the name is confusing, misleading, or fraudulent. A fictitious business name statement must be filed with the clerk of the county where the business is located. Notice of the fictitious business name must also be published in a newspaper at least once a week for four weeks, and an affidavit verifying publication must be filed with the county clerk. (An affidavit is a written statement sworn before a notary public. The person making the sworn statement is called the affiant.) A fictitious business name statement expires five years after it was filed. A real estate broker may obtain a license under a fictitious business name, unless the name: -is misleading or would constitute false advertising; -implies a partnership or corporation that does not exist; -includes the name of a real estate salesperson; -violates certain statutory provisions; or -is the name formerly used by a licensee whose license has been revoked There are also some restrictions on fictitious business names that include the word "escrow" or imply that the broker provides escrow services. A fictitious business name statement must be filed with the clerk of the county where the business is located. In addition, the statement must be published at least once a week for four weeks in a newspaper in the county. An affidavit (a written statement sworn before a notary public) indicating that the publication requirement has been fulfilled must also be submitted to the county clerk. The statement expires five years after it was initially filed.

License Expiration

A real estate license is canceled if not renewed within two years after it expires.

Termination of Affiliation

A salesperson is allowed to work only under the supervision of a broker. A salesperson's license is issued for a particular broker, and the broker has custody of the license while that person is affiliated with him or her. An affiliation may be terminated by either party—the broker or the affiliated licensee—at any time If a salesperson quits or is discharged by his broker, the broker is required to return the salesperson's license certificate to the salesperson within 3 business days. The broker must notify the Commissioner of the termination by submitting a form to the Department of Real Estate within 10 days. If a salesperson is discharged for conduct that is grounds for disciplinary action, the broker must also provide a statement of facts to the Commissioner. The broker's license may be suspended or revoked if she fails to report the termination.

Account Requirements

A trust account must be opened in the broker's name as it appears on the broker's license, in a recognized financial institution in California. The account must be specifically designated as a trust account, with the broker as trustee. The financial institution can't require prior written notice before allowing withdrawals from the account. The trust account can't be an interest-bearing account, with one exception: at the request of the owner of the trust funds, the broker can deposit the funds into a separate interest-bearing trust account, as long as the broker discloses how the interest is calculated, who pays the service charges, and how the interest is to be paid. The broker may not receive any of the interest or benefit from it directly or indirectly.

Trust account

All trust funds must be deposited into a trust account or neutral escrow within three business days after their receipt.

Antitrust Laws and Real Estate Licensees

Antitrust laws prohibit any agreement that has the effect of an unreasonable restraint of trade. The main federal antitrust law is the Sherman Act (1890). The main state antitrust law in California is the Cartwright Act (1907). Like the license law, federal and state antitrust laws impose restrictions on the business practices and conduct of real estate licensees. Antitrust laws affect a real estate agent's relationships with clients, customers, and other agents by limiting anticompetitive behavior. Antitrust laws are based on the idea that free enterprise is an important element of a democratic society, and that competition is good for both the economy and society as a whole. To promote competition, antitrust laws prohibit agreements that have the effect of an unreasonable restraint of trade. A restraint of trade is any act that prevents a person or company from doing business in a certain area or with certain people. When two or more businesses participate in a common scheme that has the effect of creating an unreasonable restraint of trade, it's referred to as a conspiracy in antitrust law. Antitrust laws have been around for a long time. The preeminent federal law, the Sherman Act, was passed in 1890. California's Cartwright Act was passed in 1907. Online: Most people associate antitrust laws with breakups in the oil or telecommunication industries. However, the United States Supreme Court has held that antitrust laws are applicable to the real estate industry. In 1950, the Supreme Court decided in a landmark case that mandatory fee schedules established and enforced by a real estate board violated the Sherman Act. Book: Picture of man standing in front of government building. In addition to the Real Estate Law, federal and state antitrust laws impose certain restrictions on a real estate agent's behavior towards clients, customers, and other agents. At the foundation of antitrust laws is the idea that free enterprise is an important element of a democratic society, and that competition is good for both the economy and society as a whole. Antitrust laws prohibit any agreement that has the effect of creating an unreasonable restraint of trade. A restraint of trade is any act that prevents an individual or a company from doing business in a certain area or with certain people. When two or more business entities participate in a common scheme which has the effect of a restraint of trade, it's called a conspiracy. Antitrust laws have a long history. The foremost federal law, the Sherman Antitrust Act, dates back to 1890. California's main state antitrust law, the Cartwright Act, was passed in 1907. While antitrust issues are commonly associated with big steel mills, oil companies, and telephone services, in 1950 antitrust laws were held to apply to the real estate industry as well. In a landmark case, the U.S. Supreme Court held that mandatory fee schedules, established and enforced by a real estate board, violated the Sherman Act (United States v. National Association of Real Estate Boards). A real estate agent who violates antitrust laws may be subject to both civil and criminal actions. An individual found guilty of violating the Sherman Act can be fined up to one million dollars and/or sentenced to ten years' imprisonment. A corporation can be fined up to one hundred million dollars.

First Contact Solicitation Materials

Any solicitation materials intended to be a licensee's first point of contact with potential clients or customers must include his license identification number. This requirement applies to business cards, stationery, advertising fliers, and other materials designed to solicit the creation of a professional relationship with a consumer. A licensee's identification number is not required on "For Sale" signs or in ads that appear in print or electronic media, however. A licensee must include her license identification number in any solicitation materials that are intended to be the first point of contact with consumers (potential clients or customers). First contact solicitation materials include business cards, stationery, advertising fliers, and other materials designed to solicit the creation of a professional relationship with a consumer. The law specifically states that identification numbers are not required on "For Sale" signs or in ads that appear in print or electronic media. First contact solicitation materials used by a real estate licensee who has a mortgage loan originator endorsement must include the identification number issued by the Nationwide Mortgage Licensing System and Registry, in addition to the real estate license number.

License Qualifications

Applicants for real estate licenses in California must meet several qualifications. By imposing these requirements, particularly the education requirements, the state tries to ensure at least a minimum level of competence for all real estate professionals.

Licensing Exemptions

As a general rule, anyone who acts as a real estate broker or salesperson must have a license. However, certain people are exempt from the licensing requirement, even though they're engaged in activities that fall within the definition of real estate broker given in the license law. There are certain exceptions to the rule that anyone acting as or on behalf of a real estate broker must be licensed. The license law has a list of persons who are exempt from the licensing requirement. 1. A person acting on her own behalf with respect to her own property. 2. A corporate officer or a general partner acting on behalf of a corporation or partnership, with respect to property owned, purchased, or leased by the business. 3. An attorney in fact—someone authorized by a power of attorney to act as another person's agent. 4. An attorney at law, in the performance of his or her duties as a lawyer. 5. Any person acting under court order, including: -a receiver, -a trustee in bankruptcy, -an executor, -a probate administrator, or -a guardian. 6. A trustee acting pursuant to the power of sale in a deed of trust. 7. With respect to mortgage loan activities, an employee or representative of a financial institution, insurance company, pension fund, federally approved housing counseling service, or cemetery authority; a licensed finance lender; or a licensed residential mortgage lender or servicer. 8. With respect to activities related to business opportunities, mortgage loans, or real property securities, a licensed securities broker-dealer. 9. A secretary, bookkeeper, accountant, or other real estate office personnel performing purely clerical duties, and not discussing prices, terms of sale, or the condition of property. 10. An employee of a property management company who is supervised by a real estate licensee working for the company. 11. The manager of a hotel, motel, or trailer park, or an employee of the manager. 12. The resident manager of an apartment complex, or an employee of the resident manager. 13. Film location representatives, who negotiate for the use of property for photographic purposes. In each of the situations we've just listed, the exempt individual is not required to have a real estate license. This is true even though he or she may be engaging in acts that are included in the definition of a real estate broker.

Making or Selling Loans as a Principal

As we said, the broker definition generally applies to acts performed on behalf of another. (Ex. Someone who is helping to sell another person's property is acting as a real estate broker, but someone selling her own property is not.) The broker definition also covers certain acts performed on one's own behalf, rather than on behalf of another. Specifically, it covers engaging as a principal in the business of making or selling loans secured by real property. You are considered to be "in the business" if, during the course of one calendar year, you: -buy for resale, sell, or exchange eight or more land contracts or promissory notes secured by real property; or -make eight or more loans secured by one- to four-unit residential property using your own funds.

Mineral, Oil, and Gas Transactions

At one time, the Department of Real Estate issued special mineral, oil, and gas (MOG) licenses. Someone who had an MOG license could act as an agent in transactions concerning mineral, oil, or gas rights, even if he didn't have a real estate license. While some MOG licenses are still in effect, no new ones have been issued since 1994. Since then, a real estate license has been required. Only a real estate license is required to sell mineral, oil, & gas rights. A special permit is no longer required.

Sanctions

Available sanctions include suspension or revocation of the agent's license, a fine in lieu of suspension, or debarment. Violation of the license law can also lead to criminal prosecution and civil court actions. If the accusation is proved, the Commissioner decides what sanctions to impose on the licensee Possible sanctions include license suspension or license revocation. Or, in lieu of a suspension, a licensee may be fined up to $250 for each day the license would have been suspended, up to a maximum of $10,000. A suspension lasts for a specified number of days. A revocation lasts indefinitely, unless the license is reinstated. The licensee can't apply for reinstatement for at least one year. Discipline against a licensee may also result in revocation or suspension of the licensee's mortgage loan originator endorsement, through the same disciplinary process. -License suspension -License revocation -Fine up to $10,000

17. Applicants for a broker's license must have: A. six years of experience as a real estate licensee B. 24 semester units of real estate education C. a sponsoring broker willing to testify to the applicant's honesty D. All of the above

B. 24 semester units of real estate education

Administration of the Real Estate Law

California's Real Estate Law (also known as the license law) is contained in sections 10000 to 10580 of the Business and Professions Code. The purpose of the law is to regulate the real estate profession and protect the public from incompetent, unethical, or dishonest real estate agents. The Real Estate Law is administered by the Department of Real Estate (DRE), which is a division of the California Business, Transportation, and Housing Agency. The law is enforced by the chief officer of the DRE, the Real Estate Commissioner. The Real Estate Commissioner's job is to implement and enforce the provisions of the Real Estate Law in a way that will provide the maximum protection possible to members of the public who deal with real estate licensees. The Commissioner is given many broad powers to accomplish this end. The Commissioner has the power to adopt, amend, or repeal regulations necessary to enforce the Real Estate Law. These regulations have the force and effect of law. The Commissioner's regulations can be found in sections 2705 to 3109 of Title 10 in the California Code of Regulations. The Commissioner also has the authority to: -investigate non-licensees alleged to be performing activities for which a license is required; -screen and qualify applicants for a license; -investigate complaints against licensees; and -regulate some aspects of the sale of subdivisions, franchises, and real property securities. In addition, the Commissioner may: -hold formal hearings to determine issues involving a licensee, a license applicant, or a subdivider and, after such a hearing, suspend, revoke, or deny a license or stop sales in a subdivision; -bring actions for injunctions and claims for restitution on behalf of those injured by licensees who violate the Real Estate Law; and -bring actions to stop trust fund violations The Real Estate Commissioner is advised on legal matters by the state attorney general. County district attorneys are responsible for prosecuting violations of the Real Estate Law that occur in their county. The Real Estate Commissioner is appointed by the governor and serves at his or her pleasure. To qualify for the position of Real Estate Commissioner, a person must have been a real estate broker actively engaged in business for five years in California, or must have related experience associated with real estate activity in California for five of the previous ten years. The Commissioner and DRE employees are prohibited from engaging in professional real estate activities, and from having an interest in any real estate firm.

Advance fees

Charging or collecting an advance fee to promote the sale or lease of real property or a business opportunity (by advertising or listing it, by obtaining financing, or in some other way). Are also considered trust funds. These are fees that a client may pay a broker in advance to defray anticipated costs, such as the advertising expenses associated with a listing, or as upfront compensation for services the broker will provide. While funds collected upfront for appraisal fees or credit report fees are not considered advance fees, they still must be treated as trust funds. Other types of funds in a broker's possession, such as general operating funds, earned real estate commissions, or rent from the broker's own real estate, aren't trust funds, because the broker isn't holding them on behalf of someone else. -An advance fee is money that a real estate broker collects from a client in advance to cover expenses she expects to incur on the client's behalf, or as upfront compensation for services she has yet to provide. Advance fees must be handled in compliance with the trust funds rules we've discussed so far. They must not be commingled with the broker's own funds, and they must be deposited into the broker's trust account within three days after receipt. Before collecting advance fees in connection with any services, however, a broker must submit all of the materials she's planning to use in advertising or promoting those services to the Department of Real Estate for approval, along with the advance fee agreement she will be entering into with her clients. The DRE will review the materials to make sure that they give a full description of the services to be provided; state the total amount of the advance fee and when it must be paid; specify a termination date for the agreement; do not contain deceptive guarantees; and are not otherwise misleading. Once placed in a broker's trust account, advance fees generally can't be withdrawn until they're actually expended for the client's benefit or until five days after an accounting has been sent to the client. (This may be either a quarterly accounting or a final accounting after the agency has ended.)

10. It's legal for a broker to place a good faith deposit: A. in a trust account B. in a neutral escrow C. in the hands of the broker's principal D. Any of the above

D. Any of the above

Subsequent Renewals

Each of a licensee's subsequent renewals (after the initial renewal) will also require 45 hours of continuing education within the previous four years. As with the initial renewal, the 45 hours must include at least 18 hours in consumer protection courses The five mandatory topics must also be covered for every subsequent renewal, but five separate courses are not required; they may be combined into one survey course. The specific course requirements are slightly different from the ones for the initial renewal, however. The 45 hours must include: 1. either 12 hours in separate courses on -ethics, -agency, -trust fund handling, and -fair housing, -or a six-hour survey course covering those four subjects; 2. one three-hour course in risk management; and 3. at least 18 hours of consumer protection courses. As with the initial renewal, the remaining hours may be in consumer service courses or additional consumer protection courses. For subsequent renewals that will be effective on or after July 1, 2011, items one and two on the list just given will be replaced with a single eight-hour survey course covering all five mandatory subjects (ethics, agency, trust fund handling, fair housing, and risk management). So a licensee will have to take the eight-hour survey course and at least 18 hours of consumer protection courses, with the remaining hours in consumer service courses or additional consumer protection courses.

Real estate Salesperson

For a salesperson's license, the applicant must be at least 18, be honest and trustworthy, complete the required education, and pass the salesperson's exam. A salesperson is one who works for a broker and performs these same activities under the broker's supervision. A person who is licensed to work for and represent a broker in real estate transactions. A real estate salesperson is a person hired by a broker to do one or more of the acts listed in the broker definition given above. A salesperson's license permits real estate activity only while under the control and supervision of a broker. A salesperson can't act directly for a principal in a real estate transaction. Furthermore, a salesperson may receive compensation only from his own broker. Neither clients nor cooperating brokers may pay the salesperson directly. Instead, they are required to pay the salesperson's broker, who then pays the salesperson. "An MLO endorsement is required for salespersons (as well as brokers) who engage in residential mortgage loan brokerage activities. -A salesperson is someone who engages in the activities listed in the broker definition, but only as a broker's representative. -Works with and represents broker -Can't represent client directly without a broker -A salesperson must always receive compensation directly from her broker. -A salesperson may never receive compensation from a cooperating broker or a client. -The cooperating broker or client must pay the employing broker, and the broker then pays the salesperson.

Penalties for Unlicensed Activities

For any act that requires a real estate license, the penalty for acting without a license is a fine of up to $20,000 and/or six months' imprisonment for an individual, or a fine of up to $60,000 for a corporation. Note that it's unlawful for a broker to employ or compensate any unlicensed person for performing acts that require a real estate license. A broker who did so would be subject to disciplinary action and could have his license suspended or revoked.

Continuing Education for MLO Endorsement

For the annual renewal of a real estate licensee's mortgage loan originator endorsement, the licensee is required to complete at least eight hours of continuing education every year. The eight hours must include -at least three hours on federal laws, -two hours on ethics issues (fraud, consumer protection, and fair lending), and -two hours on lending standards for nontraditional or subprime mortgage loans. Although a real estate license only has to be renewed every four years, a licensee with a mortgage loan originator endorsement must renew the endorsement annually. MLO endorsements will expire on December 31 every year. To renew an MLO endorsement, the licensee will be required to complete eight hours of continuing education each year. This must include at least three hours on federal laws, two hours on ethics issues (fraud, consumer protection, and fair lending), and two hours on lending standards for nontraditional or subprime mortgages.

Columnar System

If a broker chooses to use the columnar recordkeeping system, there are three types of records she must keep: 1. A record of all trust funds received and disbursed. This record is used to list all trust funds deposited to and disbursed from the trust account. It must include the following information: a. the date the funds were received; b. from whom they were received; c. the amount received; d. the date of deposit; e. for disbursements, the party to whom the funds were paid; f. the amount paid out; g. the check number and date; and h. the daily balance of the bank account. 2. A record for each client/customer or transaction. This record lists the funds received from or for each client or customer. It must include the following information: a. the date of the deposit; b. the amount of the deposit; c. the name of the payee or the payor; d. for funds paid out, the check number, date, and amount; and e. the daily balance of the individual account. 3. A record of trust funds received but not deposited into the trust account. This record must show: a. the date the funds were received; b. the form of the payment; c. the amount received; d. a description of any property received in lieu of funds; e. where the funds were forwarded to; and f. the date of disposition.

Suspension Without a Hearing

If a person obtains a license through fraud, misrepresentation, deceit, or material misstatements of fact, the license can be suspended without a hearing. The Commissioners power to do this expires 90 days after the license is issued, and the suspension is effective only until a hearing is held and the Commissioner makes a formal decision.

Discharge for Disciplinary Cause

If a salesperson is discharged for conduct that is grounds for disciplinary action, her broker must file a certified written statement of facts with the Commissioner. If the broker fails to do so, his own license could be suspended or revoked.

Accusation and Hearing

If it appears that a violation of the law has occurred, an accusation is filed. An accusation is a written statement of the charges against the licensee. The accusation must be filed within 3 years of the allegedly unlawful act, unless the act involved fraud, misrepresentation, or a false promise. In that case, an accusation must be filed within one year after discovery by the injured party or within 3 years after the act (whichever is later), but in no case can it be filed more than 10 years after the act. The accusation is served on the licensee. A date is set for an administrative hearing, in which an administrative law judge will consider the case. The accused licensee will also be given an an explanation of her rights. The licensee may appear at the hearing with or without an attorney. Testimony is taken under oath, and a record is made of the proceedings. Based on the hearing, the administrative law judge submits a proposed decision to the Commissioner, who may accept or reject it. The formal decision is made by the Commissioner. If the decision is adverse, the licensee may petition for reconsideration. The licensee also has the right to appeal the formal decision to superior court.

Possible Penalties

If the evidence at the hearing substantiates the charges against the licensee, her license may be suspended or revoked. A suspension lasts for a specified number of days. A revocation lasts indefinitely, unless the license is reinstated; the licensee may not apply for reinstatement for one year. When it's in the public interest to do so, the Commissioner may impose a monetary penalty—a fine—in lieu of license suspension. The fine can't exceed $250 for each day the license would have been suspended, up to a maximum of $10,000. Imposition of a fine or other disciplinary penalty by the Commissioner doesn't protect a licensee from criminal prosecution or from liability in a civil suit. This criminal or civil liability would not be considered & quot; double jeopardy & quot; Discipline against a real estate licensee may also lead to revocation or suspension of the licensees mortgage loan originator license. Revocation or suspension of an MLO endorsement will be handled through the same disciplinary process.

Trust fund overage

If the trust account balance is greater than the total liability, there is a trust fund overage. This is also a violation of the regulations, since non-trust funds can't be commingled with trust funds.

Interpleader

If there is a dispute over who is the rightful owner of trust funds, the broker may file an interpleader action, which allows a court to decide who receives the funds. Claimant can file for interpleader, asking judge to decide who is entitled to property that is the subject of competing claims.

Trust Funds Received by salesperson

If trust funds are given to a salesperson rather than a broker, the salesperson should promptly deliver the funds to the broker. Alternatively, if so directed by the broker, the salesperson can deposit the trust funds into: 1) a neutral escrow account... 2.) the hands of the Principal 3.) Broker's trust account Again, the deposit generally must be made within three days after receipt of the funds.

Continuing Education

In addition to paying the renewal fee, licensees must submit proof that they have satisfied the continuing education requirements. All licensees (salespersons and brokers) are generally required to have completed 45 hours of DRE-approved continuing education courses within the four years preceding renewal. The specific course requirements depend on whether it's the licensee's first renewal after the license was issued, or it's a subsequent renewal. A real estate license can't be renewed unless the licensee fulfills the continuing education requirement. A special form that confirms attendance at the required courses must accompany the renewal application. A salesperson or broker renewing her license generally must have completed a total of 45 hours of continuing education courses during the previous four years.* The specific course requirements depend on whether it's the licensee's initial renewal or a subsequent renewal. ______________________________ * There's an exception for sales persons who were licensed before October 1, 2007; their initial renewal requires only 15 hours of continuing education (five three-hour courses covering the mandatory subjects: -ethics, -agency, -trust fund handling, -fair housing, -risk management)

Unlicensed Property Management Assistants

In addition to performing clerical functions, property management company employees supervised by a licensee are allowed to -show property to prospective tenants, -provide information about rental rates and lease provisions, -handle rental applications, -accept security deposits, and -collect rents. A broker may delegate responsibility for the supervision of a property management assistant to a salesperson with at least two years of full-time experience as a real estate licensee.

Qualifications - Real Estate Licenses

In order to obtain a real estate license, it's necessary to pass an examination. Before applying to take the exam, an individual must meet certain age and educational requirements. For a broker's license, there are experience requirements as well.

General Accounting Practices System

Instead of a columnar system, a broker may use an alternative system that complies with generally accepted accounting practices. That system must include a journal, a cash ledger, and beneficiary records for each trust account. 1. Journal. A journal is a daily chronological record of trust fund receipts and disbursements that shows: a. all trust fund transactions in chronological order; b. enough information to identify the transaction (Ex. date, amount received, name of payee, etc.); and c. the total receipts and total disbursements at least once a month. 2. Cash ledger. This shows, usually in summary form, the increases and decreases in the trust account and the resulting account balance. 3. Beneficiary ledger. A beneficiary ledger must be maintained for each client or customer, or for each transaction or series of transactions. It shows, in chronological order, the details of all receipts and disbursements relating to the individual account, and the resulting account balance. All trust fund records are subject to inspection by the Commissioner. The broker must keep copies of all trust records (including canceled checks) for each transaction for three years. The three-year period begins on the date the transaction closes, or on the date of the listing if the transaction doesn't close.

Document Copies

It is the agent's responsibility to provide each party signing a document with a copy of that document. Copies for the parties: When clients or customers sign any document, it's the licensee's responsibility to provide each party who signed with a copy. Many document forms include multiple carbon copies, which makes this rule easy to comply with. Whenever a licensee prepares a document for signature, she must give a copy of the document to the person signing it when the signature is obtained. The Real Estate Law makes this mandatory for contractual documents (including listing agreements, buyer representation agreements, purchase agreements, property management agreements, all contract addenda, and any later amendments), while other laws require it for disclosure statements, settlement statements, and various other documents.

Revocation

Lasts indefinitely, unless the license is reinstated; the licensee may not apply for reinstatement for one year

Market Allocation

Occurs when businesses agree not to compete with each other in certain areas or segments of their market. An agreement between competitors to divide up a market, in which the parties agree that one or both won't sell certain products or services in specified areas, or won't sell to certain customers in specified areas. Another type of business practice that violates antitrust laws is market allocation, when competitors divide up a market. It's illegal for competing businesses to agree not to sell certain products or services in specified areas, or to agree not to sell to certain customers in specified areas. As with group boycotts, only collective action or agreement constitutes illegal market allocation. It's perfectly acceptable for an individual business to limit the market area it serves, or to limit its business to certain types of customers. So it wouldn't violate antitrust laws if ABC Realty decided to specialize in luxury homes, or if XYZ Realty decided to specialize in mid-priced homes. But it would be a violation for ABC and XYZ to enter into an agreement allocating their area's luxury market to ABC and the mid-priced market to XYZ.

Trust Funds

One of the most common causes of disciplinary action is the mishandling of trust funds. Real estate agents routinely handle trust funds on behalf of their clients. Trust funds include good faith deposits, tenant security deposits, and collected rents. Advance fees should also be held in trust for clients. An advance fee is money a client pays in advance either to defray anticipated costs (such as special advertising costs) or as upfront compensation for services the broker will provide. Note that funds collected upfront from a buyer, like credit report or appraisal fees, are not considered advance fees, but they too should be handled as trust funds. Funds held by a broker on behalf of clients or customers. The most common cause of disciplinary action is the mishandling of trust funds. This is largely due to confusion about what trust funds are and what must be done with them. California law is very specific about how trust funds are to be handled, and it's imperative for licensees to be thoroughly acquainted with these rules. Even an honest mistake could result not only in a violation of the Real Estate Law, but also in a breach of the agency duties that licensees owe their clients and customers

Real Property Securities

One way of financing a real estate purchase or project is to form an investment syndicate, such as a limited partnership. When investors provide capital for a real estate investment but aren't actively involved in management of the property or its development, their interests are considered to be real property securities. As a general rule, someone whos involved in issuing or selling real property securities or soliciting investors must be licensed as a real estate broker or as a securities broker-dealer. (The California Department of Corporations regulates securities and issues securities licenses.)

Unlicensed Real Estate Assistants

Real estate brokers and salespersons sometimes hire a real estate assistant to help them with their work. It's not necessary for a real estate assistant to have a real estate license, as long as the assistant's duties fall within the exemption for a person performing clerical functions Unlicensed real estate assistants may provide factual information about a property to prospective buyers, but they aren't permitted to show the property or discuss the terms of a possible sale. They may prepare documents and advertising, as long as the licensee they work for reviews and approves the documents or ads before they're used. The Department of Real Estate has issued guidelines (currently available on the DRE website) explaining what unlicensed real estate assistants are allowed to do. Generally, they may provide factual information about a property to prospective buyers, but they aren't permitted to show the property or discuss the terms of a possible sale. They may prepare documents and advertising, as long as the licensee they work for reviews and approves the documents or ads before they're used.

MLO Endorsement

Real estate brokers may not engage in the activities listed in (Mortgage loan brokerage. Soliciting borrowers or lenders for or negotiating loans secured by liens on real property or business opportunities, or collecting payments or performing other services in connection with such loans), in connection with residential mortgage loans, unless the Department of Real Estate has added a special mortgage loan originator endorsement to their real estate license. The requirements for obtaining an MLO endorsement include obtaining a license through the Nationwide Mortgage Licensing System and Registry. An MLO endorsement will involve separate prelicense and continuing education requirements, apart from those required for a real estate broker's license. In addition, a real estate broker isn't allowed to accept compensation from a lender or a mortgage loan originator in a transaction involving a residential mortgage loan unless the broker has an MLO endorsement. That restriction applies even if the broker provides only real estate brokerage services, not mortgage loan brokerage services. A real estate broker may still take certain steps, like providing an application form and collecting information needed to process a loan application, without triggering the MLO endorsement requirements; the MLO requirements apply only to brokers who offer or negotiate loans for compensation. For the purposes of these MLO rules, a residential mortgage loan is a loan primarily for personal, family, or household use that is secured by a dwelling with up to four units -As the list indicates, real estate licensees may engage in mortgage loan brokerage activities. However, licensees are no longer allowed to act as residential mortgage loan brokers unless they have a mortgage loan originator endorsement added to their license. The requirements for the MLO endorsement include being licensed through the Nationwide Mortgage Licensing System and Registry. Unless she has an MLO endorsement, a real estate broker can't accept compensation from a lender or other loan originator in a transaction involving a mortgage loan. This is true even if she only provides real estate brokerage services. If she isn't being compensated, the broker may still take certain steps, like helping fill out a loan application form, without needing the MLO endorsement.

Advertising Loans and Notes

Real estate licensees' advertisements for mortgage loan products or the resale of promissory notes are also regulated by the Commissioner. Any ad of this type must be approved by the Department of Real Estate before it can be used. Potentially deceptive or misleading advertisements will not be approved. For instance, if an ad is offering a promissory note for resale, it cannot promise a yield or return that is different from the rate specified in the note, unless it also reveals the note rate and the amount of the discount at which the note is being sold. The discount is the difference between the outstanding note balance and the sales price of the note. An ad for a loan may not use a term like "guaranteed" without describing to what extent the loan is secured. And an ad may not imply that a loan can be approved over the telephone, or that any government body has endorsed the lender's activities. California imposes additional regulations on a licensee's advertisements for loans secured by real property. Any ad of this type must receive prior approval from the Department of Real Estate before it's published. Naturally, any ad that is misleading or deceptive won't be approved. Ads for loans may not use a phrase like "guaranteed" without explaining how the loan is secured. They also may not imply that a loan can or will be approved over the telephone; that any government agency has endorsed the licensee's business activities; or that loans are available on terms more favorable than those generally available in the community, unless the advertiser can show that those terms would be available without undisclosed restrictions or conditions. Similar regulations apply to ads concerning the resale of promissory notes. Ex. An advertisement may not guarantee a yield on a note other than the interest rate specified in the note, unless it also includes the note rate and the amount of the discount. (The discount is the difference between the outstanding note balance and the sales price of the note.)

License Renewals

Real estate licenses must be renewed every four years. There is a 45-hour continuing education requirement for renewal. Once an applicant has met all the license qualifications, including passing the exam, the next step is to apply for the license. License exam results are valid for one year. If the applicant doesn't become licensed within one year after the exam date, she will have to pass the exam again in order to obtain a license. Licenses are valid for 4 years. To renew her license, a licensee has to submit an application for renewal and pay a renewal fee. It isn't necessary to take another examination for renewal. Licenses are renewed by 1. completing the continuing education requirement, 2. applying to the Department of Real Estate, and 3. paying the appropriate fees. The licensee doesn't have to take another examination. The renewal application must be postmarked prior to midnight of the expiration date to prevent the license from expiring. However, the renewal application may not be filed earlier than 90 days before the expiration date. Resident aliens who don't have permanent status must submit proof of legal presence in the United States to the DRE every time they renew their license.

Disciplinary Procedures

Since disciplinary action under the real estate license law can have serious consequences for a licensee, the constitutional right to due process of law applies. The license law's disciplinary procedures give the licensee an opportunity to present a defense against the charges. The Commissioner is required to investigate the actions of a licensee when someone submits a written complaint. The Commissioner may also investigate a licensee on his or her own motion, even when no formal complaint has been made. The investigation usually consists of getting statements from witnesses and the licensee; checking records (public records, bank records, and title company records, as appropriate); and perhaps calling an informal meeting of everyone concerned.

Mortgage loan brokerage

Soliciting borrowers or lenders for or negotiating loans secured by liens on real property or business opportunities, or collecting payments or performing other services in connection with such loans.

Desist and Refrain Orders

The Commissioner has the power to issue a desist and refrain order, ordering a licensee who is engaged in activities that violate the Real Estate Law to stop the violation. The licensee must stop immediately, but then may request a hearing on the matter.

Conversion

The actual misappropriation of a party's funds for the broker's own purposes. Conversion is a basis for theft charges under the California penal code, just as if the broker had stolen someone else's property, or defrauded someone out of money or property. (Theft also includes wrongfully removing a piece of real or personal property, or defrauding another person of money, labor, or real or personal property.)

Making or selling loans as a principal - When a License is Required

The broker definition generally applies to acts performed on behalf of another person. Ex. Someone who is helping to sell another person's property is acting as a real estate broker, but someone selling his own property is not. The broker definition also covers certain acts performed on one's own behalf, rather than on behalf of another. Specifically, it covers engaging as a principal in the business of making or selling loans secured by real property. You are considered to be "in the business of making or selling loans" if, during the course of one calendar year, you: -buy for resale, sell, or exchange eight or more land contracts or promissory notes secured by real property; or -use your own funds to make eight or more loans secured by residential property with up to four units. These activities require a real estate license even though you're a principal instead of an agent in the transactions.

Commissioner's investigation - Disciplinary Procedures

The first step in the process is an investigation by the Commissioner. If someone files a verified written complaint against a licensee, the Commissioner is required to investigate. The Commissioner is also authorized to start an investigation even in the absence of a formal complaint. -If the investigation indicates that formal action is justified, the Commissioner will file an accusation (a written statement of charges). The licensee is served with the accusation, and an administrative hearing is scheduled. An accusation must be filed within three years of the alleged unlawful act. If the act involved fraud or misrepresentation, the accusation must be filed within three years of the act, or one year of the discovery of the act (whichever is later). In any case, the accusation must be filed, at the latest, within ten years of the act. ACCUSATION: -Must be filed within 3 years of act FOR FRAUD OR MISREPRESENTATION: -Must be filed within: 3 years of act, or 1 year of discovery of act, but always within 10 years of act

Definition of Trust Funds

The first step toward properly handling trust funds is learning to recognize them. Simply stated, trust funds are money or other valuables a licensee is holding on behalf of someone else. Trust funds can be cash, a check, a promissory note, or any other item of personal property. The licensee merely holds the money or property on behalf of another party (usually a client or customer) while a real estate transaction is in progress. The DRE's Reference Book provides this definition of trust funds: Money or other things of value that are received by a broker or salesperson on behalf of a principal or any other person, and which are held for the benefit of others in the performance of any acts for which a real estate license is required. The most common example of trust funds is the good faith deposit that a buyer gives to a broker along with the buyer's offer to purchase a listed property. The broker holds the buyer's deposit "in trust" while the seller decides whether or not to accept the buyer's offer. Another example is rent that a broker providing property management services collects from tenants and holds temporarily before passing it on to her client.

Transfer of Liquor License

The sale of a business opportunity may include the transfer of an alcoholic beverage license, or liquor license. Before a license is transferred, the Department of Alcoholic Beverage Control must investigate and approve the applicant and the proposed business location. Liquor sales are strictly regulated, and state law limits the number of licenses that can be issued in a given county based on its population. As a general rule, an existing liquor license may be transferred from person to person or from premises to premises, subject to approval from the Department of Alcoholic Beverage Control (ABC). To obtain approval, the seller and the buyer must submit an application to ABC and post a public notice concerning the application on the premises. ABC will investigate the buyer and the proposed location before approving the transfer. The rules governing issuance and transfer of liquor licenses vary depending on the type of establishment, the type of license, and other factors. There are several different types of liquor licenses, and many rules governing their issuance and transfer. For instance, the law generally prohibits issuance of a license to a private club that has existed for less than one year. And when a liquor license is transferred, there may be a limit on how much the seller is allowed to charge the buyer for the license, depending on what type of license it is and how long ago it was issued. Ex. If a certain type of license is transferred within five years after it was issued, the seller isn't allowed to charge the buyer more than the fee originally paid to obtain the license.

Sales Tax

The transfer of personal property in a business opportunity transaction is subject to sales tax. As in an ordinary purchase at a store, the buyer usually pays the sales tax to the seller, and the seller in turn pays the Board of Equalization. There's an another sales tax issue when the business being sold is a wholesale or retail business: liability for unpaid taxes on previous sales of goods to customers. The buyer should obtain a Certificate of Clearance from the state Board of Equalization, certifying that the seller has paid all sales tax owed on previous wholesale or retail transactions. Otherwise, the buyer may have successors liability for the sellers unpaid sales tax and be required to pay it. Also, to start operating the business, the buyer will have to obtain a sellers permit from the Board of Equalization.

When a License Is Not Required

There are numerous exemptions from the real estate licensing requirements. The exemptions generally cover those who are acting on their own behalf, those who are regulated by another agency (such as securities brokers), and those who are performing functions that don't require expertise. All of the following, among others, are exempt: 1. Those acting on their own behalf with respect to their own property. 2. A corporate officer acting on behalf of a corporation, or a general partner acting on behalf of a partnership, with respect to property owned, leased, or to be purchased or leased by the corporation or partnership. 3. A person acting under a properly executed power of attorney from the owner of the property. 4. An attorney at law providing legal services to a client. 5. A person acting under court order (for example, a receiver in bankruptcy or a trustee). 6. A trustee under a deed of trust. 7. With respect to mortgage loan activities, an employee or representative of a financial institution, insurance company, pension fund, federally approved housing counseling service, or cemetery authority; a licensed finance lender; or a licensed residential mortgage lender or servicer. 8. With respect to activities related to business opportunities, mortgage loans, or real property securities, a licensed securities broker-dealer. 9. A person performing clerical functions and not discussing the price, terms, or condition of property. 10. A manager of a hotel, motel, or trailer park, or employees of the manager. 11. A resident apartment manager, who manages the apartment complex in which she lives, or employees of the resident manager. 12. An employee of a property management company who is supervised by a real estate licensee working for the company. 13. Film location representatives, who negotiate for the use of property for photographic purposes.

Exceptions to Commingling Rule

There are two exceptions to the rule against commingling. 1. The broker must pay the service charges on the trust account out of her general funds. The broker can have up to $200 of personal funds in a trust account for this purpose. However, a better arrangement is to have the bank deduct the trust account service fees directly from the broker's general account. 2. Sometimes a broker is entitled to deduct her commission from trust funds. In this case, the broker should promptly transfer the commission out of the trust account into her general account. If it isn't practical to transfer the commission immediately, it can stay in the trust account for no more than 25 days. The broker should never pay personal obligations out of the trust account, even if the payments are a draw against the broker's commission. The earned commission must be transferred to the broker's general account before it can be used to pay personal obligations.

Deadline for deposit

Trust funds given to a broker or an affiliated licensee should generally take the form of a check made out to the broker, as licensed. The funds have to be deposited in the appropriate trust account no later than the third business day after they were received. But trust funds don't always have to pass through the broker's trust account. A broker may pass a check directly from a principal to a neutral escrow agent, or to the other principal. However, such a transfer must still be recorded in the broker's trust fund records. On the other hand, if funds pass directly from the client to the escrow agent, without passing through the broker's hands, the broker doesn't have to keep a record of the funds. Note that the three-day deadline for depositing funds into a broker's trust account doesn't apply to good faith deposit checks.

Finder's fees - Licensing Exemptions

We should mention one other situation where an unlicensed person may receive compensation from a broker. A person who is a "middleman" or "finder"—someone who introduces a prospective buyer or seller to a broker without performing any duties that require a license—may receive a referral fee from that broker.

Initial Renewal

When a salesperson or broker renews her license for the first time after it was issued, the 45 hours of continuing education must include: 1. five separate three-hour courses (15 hours total) on these mandatory subjects: -ethics, -agency, -trust fund handling, -fair housing, and -risk management; -and at least 18 hours of courses designated as consumer protection courses. -The remaining hours may be in consumer service courses (courses covering business skills that enable licensees to competently serve customers), or the licensee may take additional consumer protection courses. There is one exception to these requirements: they don't apply to salespersons originally licensed before October 1, 2007. For their initial renewal, those salespersons only have to take the five mandatory courses (15 credits total).

Trust fund shortage

When reconciled, the trust account balance must equal the total of the balances due to individual clients and customers. If the trust account balance is less than the total liability, there is a trust fund shortage. Such a shortage is a violation of the Real Estate Commissioner's regulations

Examples of Unlawful Conduct — Loan Transactions

When soliciting, negotiating or arranging a loan secured by real property or the sale of a promissory note secured by real property, conduct such as the following may result in license discipline: 1. Knowingly misrepresenting to a prospective borrower of a loan to be secured by real property or to an assignor/endorser of a promissory note secured by real property that there is an existing lender willing to make the loan or that there is a purchaser for the note, for the purpose of inducing the borrower or assignor/endorser to utilize the services of the licensee. 2. Knowingly making a false or misleading representation to a prospective lender or purchaser of a loan secured directly or collaterally by real property about a borrower's ability to repay the loan in accordance with its terms and conditions. 3. Failing to disclose to a prospective lender or note purchaser information about the prospective borrower's identity, occupation, employment, income and credit data as represented to the broker by the prospective borrower. 4. Failing to disclose information known to the broker relative to the ability of the borrower to meet his or her potential or existing contractual obligations under the note or contract, including information known about the borrower's payment history on an existing note, whether the note is in default or the borrower in bankruptcy. 5. Knowingly underestimating the probable closing costs in a communication to a prospective borrower or lender of a loan to be secured by a lien on real property for the purpose of inducing the borrower or lender to enter into the loan transaction. 6. When soliciting a prospective lender to make a loan to be secured by real property, falsely representing or representing without a reasonable basis to believe its truth, the priority of the security, as a lien against the real property securing the loan, i.e., a first, second or third deed of trust. 7. Knowingly misrepresenting in any transaction that a specific service is free when the licensee knows or has a reasonable basis to know that it's covered by a fee to be charged as part of the transaction. 8. Knowingly making a false or misleading representation to a lender or assignee/endorsee of a lender of a loan secured directly or collaterally by a lien on real property about the amount and treatment of loan payments, including loan payoffs, and the failure to account to the lender or the assignee/endorsee of a lender as to the disposition of such payments. 9. When acting as a licensee in a transaction for the purpose of obtaining a loan, and in receipt of an advance fee from the borrower for this purpose, failing to account to the borrower for the disposition of the advance fee. 10.Knowingly making a false or misleading representation about the terms and conditions of a loan to be secured by a lien on real property when soliciting a borrower or negotiating the loan. 11. Knowingly making a false or misleading representation or representing, without a reasonable basis for believing its truth, when soliciting a lender or negotiating a loan to be secured by a lien on real property, about the market value of the securing real property, the nature and/or condition of the interior or exterior features of the securing real property, its size or the square footage of any improvements on the securing real property. As you can see, there are many grounds for disciplinary action in California. These provisions are the state's attempt to prevent unscrupulous behavior by real estate licensees. But suspending a real estate license after the fact doesn't help someone who lost money because of a licensee's unlawful actions. The injured party can take the licensee to court, but what if the licensee has no money or other assets? In that case, a judgment would be worthless. Under those circumstances, the state has provided an additional means of redress, through the Real Estate Fund.