Beginning this June, any loan owned or securitized by Fannie Mae or Freddie Mac will be subject to a new federal policy change. Under the policy change, a borrower seeking to sell their home by means of a short sale process can expect a response from their lender within 30 days and final decision making within 60 days. If the bank does not respond to the borrower within the first 30 days, they will be required to send weekly updates explaining the reasons for the delay. Those that fail to comply will be subject to penalties, including monetary fines. The mandatory time-lines will be imposed by the Federal Housing Finance Agency – now the regulatory overseer of Fannie and Freddie. This is welcome relief to the real estate industry since short sales currently comprise a large portion of activity in the residential sales arena – for example, there were more short sales in California during January 2012 than sales of foreclosed property. The Federal Housing Finance Agency will take further steps during the next few months to help streamline the approval process. The steps will include offering guidelines on borrower eligibility, valuation of property and issues pertaining to junior liens.

California Governor Jerry Brown signed SB 510 into law on 10/9/11.  This legislation will allow brokers to designate branch managers as directly responsible for the licensee activities of those real estate salespersons under their supervision.  This will require filing paperwork with the Dept. of Real Estate (DRE) notifying the DRE of the designation.  Standby for further updates.

Current law and regulations require the Department of Real Estate (DRE) to engage in formal disciplinary action against licensees for any infraction, even a minor one and even if the violation was promptly corrected.  Once accused, the licensee must defend themselves against the allegation or else risk losing their license.  This could end up costing a considerable amount of time and money.  Furthermore, regardless of the licensee’s decision to defend the accusation, a public notice of the violation will be posted on the DRE’s website.  This public notice will remain on the DRE’s website indefinitely as there currently is no process available to have the entry removed.

Many other administrative agencies in California have the ability to issue a citation and/or a fine for minor infractions instead of proceeding to trial.  Within those agencies, licensees facing disciplinary action for relatively minor offenses still retain the option of defending themselves in a hearing if they choose, or they can opt to just pay a fine, with the assurance that in many cases, there will be no public posting of the minor offense.

However, the only way for the DRE to have the authority required to impose a citation is for AB 278 to be implemented (for an explanation of AB 278, click here).  If enacted, this bill would authorize the Real Estate Commissioner to adopt a system for the issuance of citations to licensees who engage in minor violations of the Real Estate Law rather than going through the lengthy and costly trial process.  AB 278 would require citations to be in writing, to indicate the provisions of law violated by a licensee, and to inform a licensee that the licensee may request a hearing to contest the citation. The bill would authorize citations to include an order of abatement or an order to pay an administrative fine of up to $1,000. It would authorize the commissioner to take disciplinary action against a licensee who fails to pay a fine within 30 days of assessment of the fine, as specified. The bill would also authorize the commissioner to adopt regulations to establish a similar system for the issuance of administrative citations to unlicensed persons acting in the capacity of a licensee. Serious violations will continue to be subject to the formal action process.

All in all, the passage of AB 278 will benefit the real estate industry because a minor violation will no longer lead to a blemish to one’s license history.

To understand the effect a restricted real estate license will have on your real estate career, you must first understand the rights associated with an “un”restricted real estate license.

Unrestricted Licenses Are Your Property:

Your license to practice real estate, either as a real estate sales broker or agent, is considered to be a piece of property under the law.  As such, the license gets the same protection all property gets as guaranteed by the United States Constitution.  As you may remember from social studies class, the 5^th amendment of the Constitution forbids the government from depriving you of “Life, Liberty or Property without Due Process of Law.”  What this means is that the state of California, through the Department of Real Estate (DRE), cannot take away or suspend your license to work in real estate without first notifying you of its intention to do so AND providing you with an opportunity to defend your right to the license.  Both the notice and the opportunity to be heard must occur before the DRE can take your real estate license away.

Cause:

However, this does not mean your right to your real estate license is absolute.   The DRE is still entitled to enforce certain regulations and standards relating to your status as a real estate licensee which may result in the issuance of a restricted real estate license.  Misrepresentations to the department, negligent acts or dishonest acts amid a real estate transaction are just a few examples.

Additional situations which might also result in the initiation of a disciplinary action leading to a restricted real estate license are:  conduct demonstrating  a lack of honesty and integrity, a felony or misdemeanor conviction that is deemed to be “substantially related” to the qualifications, functions, or duties of a real estate licensee.

Effect:

An agent with a restricted license can do all of the same tasks as a regularly licensed salesperson, but has lost the property right he or she formerly held to the license.  This means that the license could be suspended without a hearing leaving the licensee unable to work in real estate until after a formal trial occurs and there is a final decision in the matter.

For example, the DRE will suspend a restricted license prior to a hearing if:

1. the restricted licensee is convicted of a crime substantially related to his or her fitness or capacity to act as a real estate licensee; or
2. there is satisfactory evidence that the restricted licensee has violated provisions of the California Real Estate Law, the Subdivided Lands Law, Regulations of the Real Estate Commissioner, or conditions attaching to the restricted license.

Additionally, restricted licenses are sometimes subjected to certain conditions and limitations.  Typically a restricted licensee will need to:

1. take and pass a continuing education course within nine (9) months; and
2. in the event of an arrest, the licensee must notify the Department within 72 hours by sending a certified letter to the DRE.

Restriction Removal:

Lastly, the restriction is not automatically removed from your license; you must take affirmative steps to have the restriction lifted.  Furthermore, the petition process is not a speedy one.  It can take anywhere from 6 to 24 months for the DRE to review your petition to remove the restriction.  So realistically, the restriction, and thus your loss of property interest, can remain on your license for longer than you might think.

*Please note: This article refers to the current rules of California’s Department of Real Estate.  If you have been disciplined in another state, the real estate laws of that state will control.

Are you thinking about applying for a real estate salesperson license in California? If so, review these
tips below.

1. DON’T Omit Information

Failing to disclose pertinent information can cause substantial delays in the processing of your license application and may result in the denial of your application. Also keep in mind that Applicants should answer all questions truthfully and thoroughly. Any material misrepresentation in an application for a real estate license may be grounds for denial under Business and Professions Code §10177(a). READ ALL QUESTIONS CAREFULLY.

2. DON’T Leave Out Criminal Convictions, No Matter How Old.

An Applicant must disclose all information regarding past license discipline, convictions, pending criminal charges etc. Failure to inform the DRE of these offenses is a definite ground for denial.

In the event you have one or more offenses to report, please take extra care to disclose all actions and convictions regardless of how long ago they occurred, or whether or not a conviction has been expunged under Penal Code Section 1203.4, or a similar statute.

The bad news is that convictions for crimes “substantially related to the qualifications, functions, or duties or a real estate licensee,” the DRE Commissioner may deny the issuance of a license to an applicant even if it was disclosed. (Business and Professions Code §10177(b)). For this reason, it is important to try to get your conviction(s) expunged prior to submitting your application.

3. DO Disclose Juvenile Convictions.

As explained in Tip 2, the DRE expects Applicants to disclose ALL criminal violations. Even convictions that occurred while you were a minor must be disclosed unless the record has been sealed under Section 1203.45 of the California Penal Code or Section 781 of the California Welfare and Institutions Code.

4. DO Keep in Mind the DRE Completes Background Checks on ALL License Applicants.

Before issuing your license, the DRE will conduct a thorough background check including on all license applicants. This includes reports from the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI). Keep in mind that the DRE will continue to receive reports on criminal violations committed even after your license is issued. Subsequent violations may result in disciplinary action being taken against the license after you’ve received it.

Remember, it’s better, safer and more cost efficient to complete the application correctly the first time. If you need help, CALL OUR OFFICE! (310) 416-9800.

Check back next month for an article  explaining what it means to hold a “Restricted” real estate license from the California DRE and how restricted real estate licenses differ from non restricted licenses.

Good news for vigilant brokers throughout California!

This past summer the Department of Real Estate started a new “Benefit of the Doubt Program” which is now in practice on a trial basis.

In the past, the Department required brokers to report when they fired a salesperson if the discharge was because the salesperson had violated a Real Estate Law. Not surprisingly, most brokers ignored the requirement because they didn’t want their report to trigger a DRE investigation and/or audit.

But under the “Benefit of the Doubt Program” a reporting broker is shielded from an automatic investigation. Instead, the department promises to conduct an isolated investigation focused on the fired salesperson, not the broker or his/her agency.

You may be wondering: “What’s in it for the department?” The answer is simple – the program’s purpose is to encourage brokers to expose rogue agents before those bad actors have a chance to repeat their violations. The Department hopes that the number of reported violations will increase, which promotes the department’s overall goal of consumer protection. It also benefits supervising brokers by making following the rules less risky. This looks like a win/win situation because everybody benefits when bad or incompetent agents are put out of business.

But watch out! The program will only isolate the initial investigation to the salesperson. If the department determines the facts warrant a further, more expansive investigation, THE DEPARTMENT WILL INVESTIGATE THAT BROKER. But don’t fret. Formal disciplinary action against the reporting broker would only be considered when just cause exists, such as active broker participation in the unlawful acts or there is a demonstrated lack of proper oversight.

So that’s the “Benefit of the Doubt Program” in a nutshell. I for one hope the program is a success.

Check back at dredefenselawyer.com for future DRE updates!

Jillian Irvin, J.D.

For more details on the Benefit of the Doubt Program, see the Summer 2010 Real Estate Bulletin and the Broker Compliance Evaluation Manual, available online at www.dre.ca.gov and http://www.dre.ca.gov/pdf_docs/brkrcomp.pdf

A new bill (H.R.6133) has been filed in Congress that would require lenders and servicers of home mortgages to respond within 45 days of a short sale request.

A short sale occurs when a homeowner sells their house for less money than is owed on the mortgage. In order to conduct such a sale, the seller needs the permission of the lender. Once approved, the lender basically agrees to forgive the difference between the sale price and the value of the mortgage. The current downside to requesting a short sale, however, is the amount of time it can take to receive approval. In the current market, it can take 120 days (or more) to get approval, by which time the potential buyer may have lost interest.

The bipartisan bill, dubbed the “Prompt Decision for Qualification of Short Sale Act of 2010,” was offered earlier this month by Reps. Robert Andrews (D-N.J.) and Tom Rooney (R-Fla.). It has since been referred to the House Financial Services Committee for consideration. The Obama administration made a similar attempt to promote short sales with the Home Affordable Foreclosure Alternative Program in 2009. But to date this program has not been successful because it allows lenders to participate voluntarily, which many refuse to do.

If passed, this new legislation may provide a form of relief, other than foreclosure, for homeowners who owe more on their loan than their home is currently worth.

But, although the current proposed bill may seem appealing, it is unclear if it will have the desired effect once in practice. The bill may simply result in more declined offers by lenders; it takes time for banks to decide if there is a financial benefit in a short sale and obligating them to make a decision too quickly may force them to reject the offer.

The current lag in processing is most likely the result of the bloated number of distressed homes on the market. Banks do not have the staff needed to handle the volume of short sales they are currently facing. Once the housing panic subsides, however, the bill’s effect may be inconsequential. Despite this, the National Association of Realtors (NAR) has come out in support of the bill.

- Jillian Irvin, J.D.

Information gathered in part from:
www.govtrack.us/congress/bill.xpd?bill=h111-6133