RISK MANAGEMENT TIP
The Department of Real Estate (“DRE”) takes complaints seriously and investigates virtually every complaint that is filed, no matter how absurd the complaint may seem to you. Nothing is scarier as a real estate agent than receiving an inquiry from the DRE. The following is a discussion of handling a DRE inquiry and recommendations.
- THE COMPLAINT: A DRE inquiry begins with a complaint filed by someone, generally a consumer, but it can also be another agent, competitor, or a third party. The complaint can be filed with the DRE telephonically, through the DRE website, or by sending a letter to the DRE. The DRE will then assign an investigator to investigate the claims. The investigator will speak with the complainant and then undertake whatever investigation the investigator deems appropriate.
- CONTACT FROM THE DRE: At some point, the investigator will contact the agent by a telephone call, letter, or an email. The investigator may ask for specific documents or information. Unless an Accusation is filed, the DRE will keep the complainant’s identity confidential; and often will not share the basis of the complaint. However, many times, an agent has already received a complaint from a client they know, based on the DRE’s inquiry, what the issue is. Sometimes, the investigation can be undertaken without any warning, leaving the agent in the dark as to the basis.
The DRE will generally ask for specific documents, including the transaction file, and may ask for a declaration (statement under the penalty of perjury). The DRE can also ask that the agent prepare a timeline or a summary of what occurred in a specific transaction or with regard to a specific issue.
If the DRE contacts you, it is imperative that you immediately speak with your manager. If you attempt to provide the DRE with information yourself without getting legal advice, you can make serious mistakes which could lead a miscommunication with the DRE and possibly unnecessary discipline. In many instances, agents are embarrassed or scared and respond directly to the DRE. Agents do not understand how to properly respond to the DRE and many times provide information that is not being requested or that can be harmful to the agent. Many times, the responding agent does not realize the significance of the information that they are providing. This is particularly important if the agent is preparing and submitting a declaration.
The DRE may also ask the agent for an interview. Interviews should not be undertaken without having legal counsel present to manage the situation and to prepare the agent for that interview in advance.
- DRE’s Investigation: After the investigation is complete, the investigator will make a decision as to whether to close the investigation, because there is a finding of no violation, or to take action. If the investigation is closed, the agent may receive correspondence from the DRE advising them that the matter has been closed. Some investigators do not respond at all and the matter simply “goes away.”
- DRE ACTION: If the DRE decides to take further action, there are a range of actions the DRE can take. If it is a minor violation, t
he DRE can issue a warning letter. If it is more significant, the DRE can issue a cite and fine, directive, which is a letter advising the agent of the wrongdoing and issuing a fine of up to $2,500, which the agent can choose to either pay or challenge in which case the matter will go to a hearing. If the fine is paid, the citation does not appear on the agents’ public record.
If the violation is more significant, the DRE can file an “Accusation,” which is a complaint filed in the Administrative law court which is similar to a lawsuit. If this occurs, the agent should immediately notify their manager or broker and retain counsel. Please note that many insurance policies will provide coverage for attorney’s fees without a retention.
- THE HEARING: A response is due to the DRE Office of Administrative Hearing (“OAH”) within approximately 20 days, so time is of the essence if an agent is served with an Accusation. Either the matter will be settled, or it will go to trial before an Administrative law judge. After a hearing, the judge will make a recommendation. Which can be a finding in favor of the agent, or against the agent and recommend penalties. If penalties are recommended, the recommendation is sent to the Real Estate Commissioner, who either agrees with the recommendation or modifies it, and an order will subsequently be issued by the DRE.
- APPEAL: If the agent is not satisfied with the order, a writ of mandate can be filed with the local Superior Court and the matter can be reviewed by a civil judge. If the agent remains unsatisfied, the agent can appeal the decision to a California appellate court and eventually to the California Supreme Court.
PRACTICE TIPS:
- If the DRE contacts you, immediately refer the matter to your manager. Your manager can contact us or counsel to assist you.
- Do not talk to a DRE investigator without obtaining assistance from your manager or company counsel. If the DRE investigator calls you and you answer the phone, advise the investigator that you need to speak with company manager and counsel before talking to the investigator. Take the investigator’s name and number and immediately contact your manager.
- Do not provide documents to the DRE without consultation from your manager and/or company counsel.
- Do not prepare or submit a declaration to the DRE without consultation with your broker or manager.
- If the DRE files an Accusation against you, immediately notify your manager and ensure counsel is retained to respond to it.
- Your broker or manager should make sure that your legal counsel reviews your insurance policy to determine whether you have insurance coverage to cover the attorney’s fees for defending the DRE action.
- Have a serious conversation with your attorney about settling the matter or whether to go to a hearing. That conversation should also include a discussion of the pros, cons, and costs of proceeding to a hearing, and the stress and time affiliated with that hearing. Please note that the cost of proceeding through trial can exceed $50,000 in attorney’s fees and costs.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices