As experts in the California real estate market, it is essential to understand and avoid the most common violations of Real Estate Law to ensure an ethical and successful professional operation and practice. The California Department receives and processes numerous complaints each year, many of which could have been avoided with proper procedures. Here, we'll look at the six most common violations that result in disciplinary action and how to prevent them.

Violations in the Handling of Funds in Escrow

Managing and recording funds in escrow is one of the most common problem areas. In many cases, brokers manage escrow funds on behalf of others and either convert them for their own use or do not have the expertise to maintain proper accounting records, resulting in shortages of funds. To avoid problems in this area, all real estate brokers must know the laws and regulations that govern the management of funds in escrow.

• Section 10145: General statute that regulates the management of funds in escrow.
• Regulation 2831: Maintenance of columnar records of escrow funds received.
• Regulation 2831.1: Maintaining separate records for each beneficiary.
• Regulation 2831.2: Monthly reconciliation of escrow fund accounts.
• Regulation 2834: Allows unlicensed, bondless signers on an escrow account.

Remedy: Deficiencies in recording funds in escrow often originate from two common problems among brokers. Lack of knowledge about the laws and lack of accounting skills are common. Brokers should understand that although they may have the ability to handle large amounts of escrow funds due to their license, they do not necessarily have to do so without proper training.

Escrow Shortage of Funds Violations

Section 10145: General statute that regulates the management of funds in escrow.

Regulation 2832: Management of funds in escrow.

Regulation 2832.1: Shortage of funds in escrow.

Remedy: Shortages in escrow funds are often caused by poor accounting records and lack of broker control. Deliberate failure to escrow funds for personal use is taken seriously and may result in disciplinary action and criminal prosecution.

Lack of supervision

Section 10177(h): Failure to exercise reasonable supervision over the activities of sellers, or failure to exercise reasonable supervision over the activities of a corporation for which a real estate license is required.

Remedy: The lack of supervision by the broker is a recurring problem. Brokers must understand their responsibility when becoming the designated officer of a corporation. Constant supervision is key to complying with the law.

Unlicensed Activity

Section 10130: Unlicensed activity.

Section 10137: Illegal employment or payment to an unlicensed person or a real estate salesperson not employed by the broker.

Remedy: Establish systems to ensure that salespeople complete their continuing education, renew their licenses on time, and do not work if their license is expired.

Falsehood in Representation

Section 10176(a): Making a material misrepresentation in a transaction requiring a real estate license.

Remedy: Avoid making false statements to the principals in a transaction. When in doubt, make disclosures in writing.

Criminal Convictions

In addition to the violations listed, omissions of criminal convictions on license applications may also result in denial or discipline.

Remedy: Disclose all past convictions on the license application. Failure to do so may reduce your chances of obtaining a license.

Conclusion

As real estate experts, it is essential to understand these common violations and how to avoid them to maintain an ethical and successful practice in the California real estate market. Diligence in the management of escrow funds, proper supervision, and compliance with laws and regulations are essential to protect both real estate professionals and consumers.