B UREAU of R eal E state f orum

1. BUREAU of Real Estate forum Long Beach Convention Center Long Beach, CA September 29, 2016

2. Today’s Agenda • Opening Remarks – Commissioner Wayne Bell • Operations Report – • Sandra Knau, Assistant Commissioner • Licensing & Administration • Enforcement Update- • Rick Fong, Assistant Commissioner, Enforcement • Audit Report and Update – • Dan Sandri, Assistant Commissioner, Audits • Consumer Recovery Account– • Steve Lerner, Assistant Commissioner, Legal Affairs • Q & A- • Wayne Bell and Panel

3. CalBRE Operations • Five District/Exam Offices • Fresno • Los Angeles • Oakland • Sacramento • San Diego • Authorized Positions: 326

4. BUREAU of Real Estate Operations Report Sandra Knau Assistant Commissioner Licensing & Administration

5. Financial StatisticsFY 2015-2016CalBRE’s Budget $52, 295,000 Revenues • Licensing-$36,671,954 • Subdivisions-$8,387,758 • Examinations-$4,010,334 • Other- $2,401,120 • Total Revenues-$51,471,166

6. Financial StatisticsFY 2015-2016CalBRE’s Budget $52, 295,000 Expenditures • Personnel-$30,191,602 • DCA Pro Rata-$4,940,000 • Facilities-$3,943,925 • Other-$11,619,406 • Total Expenditures-$50,694,933

7. Financial StatisticsFY 2015-2016CalBRE’s Budget $52, 295,000 • Total Revenues - $51,471,166 • Total Expenditures -$50,694,933 • CalBRE’s revenues exceeded expenditures by $776,233

8. Licensing Workload

9. Licensing Population

10. Subdivision Workload

11. Additional Reasons to use eLicensing • The Bureau receives an average of 8,700 pieces of Licensing mail per month • Over 104,400 pieces of mail per year • 3 full time staff opening and processing mail

12. Important Things to Remember • Always use the correct PO Box Number • If completing a form, use the fill in features on the document from CalBRE website • Make sure you review and sign the form

13. Bureau of Real EstateLicensing and Administration Contact: Sandra Knau– Assistant Commissioner, Licensing & Administration Sandra.Knau@dre.ca.gov 916 263-7300

14. EnforcementUpdate Rick FongAssistant CommissionerEnforcement

15. Enforcement Activities and Legal Actions For Fiscal Year 2015/2016 • Complaint Resolution Program Cases 322 • Desist and Refrain Orders 57 • Investigations 2,692 • License Denials 184 • Licenses Surrendered 114 • License Suspended 120 • License Revoked 411 • Pro-Active Outreach Visits 957 • Public Reprovals 13

16. Complaint Resolution Program (CRP)Top 5 Issues/Complaints - Communication Break-Down During Short Sale Negotiations - Earnest Money Deposit Disputes - Failure to Communicate Offers by Listing Agents - Property Management Contracts • Security Deposits Issues • Lack of Record Keeping

17. Enforcement Program InvestigationTop 5 Violations • Dishonest Dealings and Fraud • Licensing Compliance • Misrepresentation • Negligence or Incompetence • Unlicensed Activity

18. Citation and Fine ProgramMost Frequent Violations for Fiscal Year 2015/2016 • Advertisement Issues • Audit Related • Co-mingling of funds • Failure to establish trust account(s) • Failure to maintain proper records • Failure to reconcile trust accounts monthly • Minor trust fund shortages • Improper trust fund handling • Unlicensed signatories on trust accounts

19. Citation and Fine ProgramMost Frequent Violations for Fiscal Year 2015/2016 • Broker Supervision • Failure to provide • Inadequate • Licensing Compliance • Misrepresentation • Mortgage Loan Activity • Failure to timely file quarterly and/or annual activity reports • Negligence • Non-existent DBA or Branch Office

20. Bureauof Real Estate Audits Dan Sandri Chief Auditor

21. Audits Closed by Activities Statewide – 7/1/15 – 6/30/16

22. Findings of Audits Closed, 7/1/15 – 6/30/16

23. Shortage Findings of Audits Closed

24. Violations Found on CalBRE Audits, 7/1/15– 6/30/16

25. B&P Code §10145, Commissioner’s Regulation 2832: Trust Fund Handling Common Violations on Audits • Trust funds must be deposited within 3 business days into trust account. • Account designation often the issue – we look to the signature card. • §10145 now spells out who can sign on a trust account

26. Common Violations on Audits • Trust Fund Shortage • If using a trust account for more than one beneficiary, you must obtain all owners’ written permission PRIOR TO each disbursement that results in the use of their funds to cover the expenses of someone else. Commissioner’s Regulation 2832.1: Trust Fund Handling For Multiple Beneficiaries

27. Ways to avoid trust fund shortages: Common Violations on Audits • Have adequate separation of duties between money handlers and accounting function. • Be actively involved in accounting function. • Establish written policies and procedures regarding supervision and monitor compliance. • Do not allow negative balances. • Be tough on the issue of NSF Checks

28. Common Violations on Audits Commissioner’s Reg. 2831: Trust Fund Records To Be Maintained • Usually related to incomplete or inaccurate Record of All Trust Funds Received and Disbursed. • Must have the detail referenced in Reg. 2831(a).

29. Commissioner’s Reg. 2831.1: Separate Record for Each Beneficiary or Transaction Common Violations on Audits • Usually related to incomplete or inaccurate Separate Records. • Must have the detail referenced in Reg. 2831.1(a). • Must account for Unidentified Funds

30. Commissioner’s Reg. 2831.2: Trust Account Reconciliation Common Violations on Audits • This is a monthly reconciliation of Control Record to Separate Records. • Do your monthly reconciliation between books and bank, THEN perform this REQUIRED reconciliation. • See our PowerPoint demonstration on our website!

31. Common Violations on Audits B&P Code §10159.2, Commissioner’s Regulation 2725: Officer/Broker Supervision Responsibility • A broker may use the services of brokers and salespersons to assist… so long as the broker does not relinquish overall responsibility for supervision • Policies, rules, procedures and systems to review, oversee, inspect and manage… • a system for monitoring compliance with such policies, rules, procedures and systems.

32. Remember the Basics Current real estate license Including your salespeople Salespeople are registered under the broker’s license Agents have broker/salesperson agreements All real estate records are maintained for at least 3 years. Each business location is licensed Fictitious business name is licensed Broker Supervision is Intact!

33. What Audits is Seeing We continue to find: • Trust Fund Shortages, Commingling and some Conversion on PM, BE audits • Lack of Broker oversight • Advance Fee Violations • Falsification of bank records

34. What Audits is Doing Investigative Audits Property Management and Broker Escrow Audits Restricted Licensee Audits – Results from 42 Recently Completed: Major Violations: 26% Minor Violations: 50% No Violations: 24% 20 of these audits had shortage findings

35. Bureau of Real EstateAudit Section Contact: Dan Sandri – Assistant Commissioner, Audits Dan.Sandri@dre.ca.gov 916 263-8704

36. Legal and Consumer Recovery account Stephen Lerner Assistant Commissioner Legal Affairs

37. CalBRE – Legal Affairs Disposition of Cases

38. CalBRE – Legal Affairs

39. CALIFORNIA BUREAU OF REAL ESTATE’S CONSUMER RECOVERY ACCOUNT

40. CalBRE – Legal AffairsConsumer Recovery Account – FY 2015/2016

41. CalBRE – Legal AffairsConsumer Recovery Account – FY 2015/2016

42. CalBRE – Legal Affairs Signed and Pending Legislation

43. CalBRE – Legal Affairs AB 1381 Exemption from Real Estate Law for Outdoor Advertisers • 1. Still pending Governor’s review • 2. Existing law requires broker’s license for buying/selling or leasing/renting of real property for another in expectation of compensation • 3. Proposed legislation would exempt outdoor advertising representations

44. CalBRE – Legal Affairs AB 1381 (Continued) • 4. Outdoor advertising representative defined as: • An employee of a corporation, LLC, or partnership; • The employer holds a CalTrans license to engage in the business of outdoor advertising; • The employee arranges for the lease/transfer of real property for his or her employer; • The real estate transaction is solely for the placement of, access to, or operation of an advertising display.

45. CalBRE – Legal Affairs AB 1807/2330 Removal of Discipline from Website • 1. Signed by the Governor; • 2. Existing law requires CalBRE to post status of every license on its website; • Including all discipline. 3. Legislation authorizes the Commissioner to set up a petition process to remove license discipline from website;

46. CalBRE – Legal Affairs AB 1807/2330 (Continued) • 4. License discipline may be removed if: • Licensee petitioners for removal; • Pays a specified fee; • 10+ years since discipline was imposed; • Licensee has been rehabilitated and no longer poses a credible risk to the public.

47. CalBRE – Legal Affairs AB 1807/2330 (Continued) • 5. The Commissioner will adopt regulations: • To set the fee; • Create a petition process; • Establish criteria to determine if the licensee has been rehabilitated and no longer poses a credible risk to the public. 6. Implementation date of January 1, 2018.

48. CalBRE – Legal Affairs AB 2330 – Broker Associate • 1. Signed by the Governor; • 2. Existing law requires CalBRE to post status of every license on its website: • Including identifying salespersons affiliated with a broker. • 3. Legislation will require brokers associated with and acting as salespersons for other brokers to notify CalBRE of their association or termination of association

49. CalBRE – Legal Affairs AB 2330 Broker Associate 4. CalBRE will be required to display on its website the names of broker associates, including the brokers that they are associated with; 5. Implementation date of January 1, 2018.

50. CalBRE – Legal Affairs SB 710 Team Names • Signed by the Governor; • Existing law permits use of team names provided: • The name is used by two or more real estate licensees; • The licensees represent themselves to the public as being part of a team, group or association; • The name includes the surname of at least one of the licensee members of the team, group or association;