During 2025, the CA Department of Real Estate provided its licensees with an advisory that identified the most common violations of the Real Estate Law. The violations listed in the advisory are virtually identical to the violations noted by the DRE in years past.
Despite the issuance of advisories by the DRE, the same sorts of violations continue to crop up year after year among those licensed by the agency. There are brokers who continue to disregard or who remain unaware of the need to ensure compliance with the CA Real Estate Law and the Regulations of the Real Estate Commissioner. This is not a winning business strategy.
The first area that the DRE addressed in its most recent advisory pertains to Trust Fund Handling and Record Keeping violations related to the handling of trust funds.
Trust fund shortages are usually due to record keeping problems. The DRE requires that records for the receipt of trust fund records are maintained in a columnar format. Trust funds must be maintained so that there are separate records for each beneficiary handled by the broker. Trust fund handling records must be reconciled every month. When trust fund shortages are noted, they must be addressed right away and not carried forward month after month.
A common violation found during DRE audits is one involving unauthorized signatories to the broker’s trust account. Brokers often rely on bank representatives for advice when establishing a broker trust account. The unfortunate truth is that bank employees often have had no training on the requirements for establishing a broker trust account that complies with the law and regulations enforced by the DRE. For this reason, it is essential to conduct due diligence when selecting a bank to handle your broker trust account.
How to avoid the most common problems related to the handling of trust accounts
- Understand that the broker must establish a separate account that only handles trust funds (this account is different from a general business account or brokerage operating account). The websites of the DRE and CAR offer examples of how to title the account so that it reflects that the account is a bona fide broker trust account. The title will depend on whether the brokerage is conducted under a licensed corporation or is operated under the personal license of the broker.
- Trust funds cannot be commingled with other funds (such as broker funds).
- In general, a broker must deposit trust funds within 3 business days of receipt (See B & PC 10145 for details).
- Responsibility for trust fund handling cannot be assigned to someone other than the broker of record.
- When the DRE determines that a brokerage has violated the Real Estate Law or the Commissioner’s Regulations, the broker cannot shift responsibility to managers, support staff, or accountants unless the broker can demonstrate that an established system of checks and balances was in place to monitor compliance. The broker must also show that appropriate, ongoing training was provided to everyone involved in the brokerage’s operations and that, despite these efforts, the violations occurred without the broker’s knowledge.
- Other than situations where a broker will handle a small number of properties, property management activity requires the use of specialized software. Property Management Software must have features that will support compliance with the specific recordkeeping requirements enforced by the DRE.
Other types of violations that can lead to DRE investigations and enforcement actions
The DRE receives complaints against unlicensed individuals and companies. At times, the unlicensed status occurred because the license was not renewed on time.
There are occasions where persons and corporations licensed by the DRE forget to renew on time. To prevent this error, it is essential that licensees use multiple reminders (think of Google Calendaring, smartphone alerts, routine check of license status posted on the DRE website – as ways to keep the renewal date in mind). Since most renewals will require 45 hours of coursework that meets DRE requirements, the process to renew needs to begin 30-45 days ahead of the expiration date.
The DRE advises licensees that renewals are processed in date order received. Renewals can be submitted no more than 90 days before the license expiration date. The submission, with required renewal documents and fees, must be postmarked no later than midnight of the four-year license expiration date to be deemed as received on time. DRE recommends using eLicensing for faster renewals. After submitting the renewal, monitor the status of your payment. Has your credit card been processed? Has your check cleared?
Other situations involving unlicensed activity
At times, brokers are unaware of the limits placed on unlicensed assistants. In other situations, the broker responsible for compliance has failed to provide guidance about the use of assistants and other office support to the real estate salespersons and broker associates who hang their licenses with the broker. There are strict limits on the activities that an unlicensed assistant can provide. See the DRE website for an advisory on this topic titled: “Guidelines for Unlicensed Assistants Who Work in the Real Estate Industry.”
Designated Officers/Brokers of Record, Owners of Licensed Brokerages, Real Estate Brokerage Compliance Departments, a good start for the New Year is to undergo a compliance review of your operations. To schedule an introduction call, please contact us here.
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