6.13 State Real Estate Regulator, Commission or Department Audits

Company policy is to cooperate fully with any audit from any State regulator or real estate commission and provide records in a timely fashion.

Below are the methods and procedures typically that take place in the event of an audit. You need to read through this section in its entirety.Each State may have unique methods of auditing. The information in the sections below is general to all audits nationwide. If there are unique procedures in your particular State please familiarize yourself with them.

Real Estate Audits

The Company must make all books, records, and accounts available for examination during regular business hours. An audit may be triggered by a complaint initiated by a member of the public or as a result of the real estate regulatory agency’s ongoing audit program. The result of the audit is typically one of four outcomes:

• No Action Necessary. Most audits conducted result in no action necessary. Suggestions may be made by the regulator as to how to better maintain records and documents, but nothing serious enough regarding compliance with the law warrants further action.

• Citation - Warning Letter. A citation - warning letter may be given to a broker or licensee for minor or "technical" violations, such as clerical errors or a slight unintentional error in a record form. The purpose of the letter is to formally prompt more meticulous efforts in the future and to prevent letting small errors, if continued to go unchecked, rise to the level of more serious law or regulation violation.

• Informal Conference. Certain audits may result in an informal conference. The conference follows the audit and involves the broker sitting down with the auditor to review corrections that should take place in the licensee’s brokerage to avoid minor errors in record keeping and in procedural matters.

• Accusation - Administrative Hearing Procedures - Penalties. Violations that are more serious will result in an accusation being filed by the regulator against the broker or licensee. An accusation is the first step in the administrative disciplinary procedure adopted by licensing agencies. An accusation is a written statement of charges, setting forth the acts that constitute violation of the law. The accusation must be served upon the licensee by registered mail or by other means provided for under the administrative rules. No adverse action may be taken against a licensee without proper service.

No action may be taken if compliance with the cited regulation would have resulted in the violation of another regulation.

If a licensee files a Notice of Defense within a specified time period (varies by State) after service of the accusation, the licensee is entitled to a hearing on the matter. Typically, within a specified time period such as 30 days (varies by State) after being served with the accusation, the licensee is entitled to request and obtain names and address of all witnesses and is entitled to inspect and make copies of any of the following:

• Statement of complaining parties.

• Statements of parties to the proceeding or witnesses.

• Writings which are relevant and admissible as evidence.

• Investigative reports.

If the above information cannot be obtained voluntarily, the licensee may subpoena the information. It should be noted that the administrative hearing rules of evidence are much less formal than traditional court rules and procedures. A hearing before an Administrative Law Judge will usually occur in the county in which the transaction giving rise to the alleged violation of law occurred. Within a specified time period such as 30 days (varies by State) after the case has been submitted to the Administrative Law Judge, a proposed decision will be released to the regulator. The regulator must serve a copy of the proposed decision on the licensee within a specified time period such as 30 days (varies by State) after being received by the regulator. The proposed decision comes within a specified time period such as 30 days (varies by State) after delivered or mailed to the licensee. In serious cases, the regulator has the authority to make the effective date of the proposed decision earlier.

Depending on the nature and severity of the violation, the proposed decision and final order will usually involve one of the following:

• License suspension for a stated period.

• A fine imposed instead of suspension.

• License revocation and issuance of a "restricted" license for the remaining term of the original license. The terms of the restricted license will be that which the regulator deems necessary, taking into consideration the violations of the particular case that gave rise to the accusation.

• Revocation.

If the licensee disagrees with the proposed decision, the licensee has the option of filing a petition for reconsideration, which takes the case back through the administrative hearing process. The licensee also has the option of filing a petition for judicial review that will move the case to the state’s court system. In this event, Company Associates will be required to obtain and pay for their own legal counsel if they wish to appeal the decision and file a petition for reconsideration. **
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Within a specified time period such as one-five years (varies by State) after the effective date of the decision, the licensee may apply to the regulator for reinstatement or reduction in penalty. Any decision regarding reinstatement or reduction of penalty is up to the regulator. The regulator may, as a condition of reinstatement, require the applicant (licensee) to fulfill certain education requirements such as retaking the broker’s or salesperson’s examination, or completing continuing education requirements, and passing the professional responsibility examination.

The regulator’s disciplinary authority is based upon violations of the State Real Estate Law and the Department or Commissioner’s Regulations. These violations statutorily have their basis in each States licensing and administrative laws, business and professions code, statute or chapters. The real estate regulators have no authority to bring criminal charges. They do have the authority to make a referral of a potential criminal matter to the appropriate district attorney.