Trust Funds Segment 5: California Department of Real Estate Audits

Trust Funds Segment 5: California Department of Real Estate Audits

Flashcards After the DRE receives a proposed decison from an administrative law judge regarding a licensee's accusation, The DRE must notify the licensee within 30 days. The DRE must serve a copy of the proposed decision on the licensee no later than 30 days after it is received from the ALJ by the DRE.Columnar Records, Accounting Records (required by DRE

concerning all real estate transaction):

• Columnar Record of All Trust Funds Received and Paid

Out* Separate Record for Each Beneficiary or Transaction* Record of Trust Funds Received but Not Deposited to the Trust Fund Account.* Separate Record for Each Property Managed* Trust Fund Bank Account Statements, deposit slips, cancelled checks, check register.The DRE Audit. After obtaining and examining the broker's record any one of a number of possible actions may be

taken:

• No Action Necessary - most common* Citation - warning

letter - A citation - warning letter may be given to the broker or licensee for minor or technical violations, clerical errors or slight unintentional error in a record form* Informal Conference - DRE audits may result in an informal conference.* Accusation - Administrative Hearing Procedures - Penalties. Violations that are more serious will result in an accusation being filed by the DRE against the broker or licensee.Use of False or Fictitious Name- Ten most common violations found in DRE Audit Always use DRE-licensed names and business names when doing real estate business. To register with the county is not sufficient.

The DRE Audit: Most audits conducted by the DRE result

in No action necessary.Trust Account Withdrawals - Ten most common violations DRE audit Withdrawals may only be made by the broker, authorized licensees and unlicensed bonded employees.Violation of

Regulation 2834(a) relate to the following:* The FAILURE

of the broker or designated corporate broker to be a signatory on the trust account, which may indicate account supervision and monitoring problems.* The PRESENCE of an UNLICENSED SIGNATORY on the trust account who does not have fidelity bond coverage.* Fidelity bond coverage in an inadequate amount and/or with a deductible.* The FAILURE of the broker or designated corporate broker officer to give written authorization permitting a salesperson, broker or unlicensed person to sign on the trust account.Commissioner's Regulation 2725 - Broker Supervision requires the the responsible broker must exercise reasonable supervision over the activities of their

salespersons, including establishing policies to review a salesperson's transactions, documents, and the handling of trust funds.As long as the broker does not relinquish the overall responsibility for supervision of salespersons licensed to

the broker, responsibility or authority may be delegated:* to

any licensed real estate broker who has entered into a written agreement with the broker relating to the delegation.* To a real estate salesperson licensed to the broker if the salesperson has at least two years full-time experience as a salesperson licensee in the preceding five years and has a written agreement with the broker regarding delegation of responsibility.Record Retention (10 most common violations DRE audits)Real estate records and documents are required to be kept for a period of at least THREE YEARS. Section 10148 of the Business and Professions codes requires records relating to real estate transaction to be stored for at least three years.The DRE requires that the broker maintain the following

records concerning all real estate transactions:

Accounting Records, Non-Accounting Records, Additional Requirements A Reason why the DRE would audit a broker's trust account to ensure licensees are properly handing client trust funds.A major concern of the California DRE relates to trust fund handling. Whenever funds of clients or third parties are being handled, there is concern that this fiduciary duty is carried out properly and according to the Real Estate Law.The potential for economic harm to a client in the mishandling of funds is the basis for the DRE's concern.Trust Fund Records to be maintained - Ten most common violations found in DRE audit The majority of DRE audit citations for violation of

Regulation 2831 relate to the following:* The broker did not

maintain any trust fund records.* Trust fund record were not maintained in columnar form or required column of information was missing.* The broker used a standard checkbook as the sole trust fund record.* The broker's trust fund records reflected inaccurate postings of dates or amounts.* The broker did not maintain a daily running balance of the Bank Account Record.* The broker did not maintain a record of trust funds received but not deposited.Separate Record for Each Beneficiary or Transaction - Ten most common violations found in DRE audit.Commissioner's Regulations 2831.1 requires the broker to maintain, in columnar form. The majority of DRE audit

citations for violation relates to the following:* The broker

did not maintain separate records for each beneficiary.* Required information was missing.* Posted items were inaccurate.* The required daily balance for each record was either not calculated or was inaccurate.Additional Requirements required by DRE that the broker

maintains concerning all real estate transactions:

The following are some requirements of the Real Estate Law and Commissioner's Regulations relating to the preparation and management of real estate transaction

documents:Business and Professional Code Section 10142

- Copies of Signed Documents:" When a licensee prepares

or has prepared an agreement authorizing or employing such licensee to perform any of the acts for which he is

required to hold a license, or when such licensee secures the signature of any person to any contract pertaining to such services or transaction, he shall deliver a copy of the agreement to the person signing it at the time the signature

is obtained.Examples:* Listing agreements* Receipt for

deposit forms* Real estate purchase contracts* Addenda to contracts* Property management agreement Non-Accounting Records required by DRE that the broker maintains concerning all real estate transaction Additional records required to be made available to DRE, if

requested:* Real estate licenses - to confirm that licensees

had a valid license during the performance of licensed acts.* Broker - salesperson contracts - statutory requirement.* Written authorizations from broker delegating