In The Dock
Monday, July 09, 2012
At The Closing Table
From the July/August 2012 issue
A look behind the rising tide
of brokerage inspections
Nancy Campiglia, an attorney with Your Towne Law, P.A., previously served as general counsel of Florida Department of Business and Professional Regulation and chief prosecutor for the Florida Real Estate Commission and Appraisal Board. Orlando REALTOR® asked her about the recent surge in office inspections conducted by the DBPR Division of Real Estate.
Q. Anecdotal evidence suggests that the Division of Real Estate has stepped up the number of brokerage office inspections it is performing. Have you found this to be true, and if so what factors have led to the increase?
A. Yes, that is true. In January of this year, the division reinstated its policy to attempt the audit and inspection of each registered real estate brokerage every two years. The goal is ambitious; however, even the potential for such inspection is likely to put licensees on notice that they should adhere consistently to the laws and rules and regulations governing their conduct.
Q. Has the proliferation of short sales and foreclosures in Florida contributed to the increase in office inspections?
A. Indirectly, yes. Foreclosures and short sales, while prolific in our state, are not directly the cause of fraud and mishandling of escrow funds. Lack of experience, improper training and, in some cases, poor ethics, have historically contributed to harm to the public in real estate transactions.
Q. What can an office expect following notice that it will be inspected?
A. Generally, inspectors look at files and records of one full year; however, the division may inspect and audit records for up to five years. If the brokerage has an escrow account, including property management escrow accounts, the division will likely perform an audit, during which the division will seek to establish whether the broker complied with account reconciliation requirements.
Q. What violations are offices most likely to be cited for, and what are the repercussions?
A. Escrow violations are the most egregious: improper use of escrow funds; failure to make timely deposits; failure to reimburse a party when the circumstances called for reimbursement; failure to maintain records to ascertain proper reconciliation of escrow accounts; and failure to reconcile. The consequences can range from letter of non-compliance to a revocation of licenses. Other frequent violations are licensees that are not current and active performing services of real estate; hence, unlicensed activity. This activity may result in criminal prosecution and is punishable as a third degree felony.
Q. How does the division select an office to inspect?
A. Randomly, via computerized system.
Q. What should associates do in order to ensure they are not the cause of an office violation?
A. Be familiar with and comply with the laws that govern their conduct. Just as important, they should be intimate with the office policies and fully comply with them.
Q. What should brokers do in order to ensure their offices are prepared for an inspection?
»Maintain accurate and consistent accounting, including monthly reconciliation, for any escrow account.
»Maintain a file on each transaction, as required by Section 475.5015, Florida Statutes, which states:
- Each broker shall keep and make available to the department such books, accounts, and records as will enable the department to determine whether such broker is in compliance with the provisions of this chapter.
- Each broker shall preserve at least one legible copy of all books, accounts, and records pertaining to her or his real estate brokerage business for at least five years from the date of receipt of any money, fund, deposit, check, or draft entrusted to the broker or, in the event no funds are entrusted to the broker, for at least five years from the date of execution by any party of any listing agreement, offer to purchase, rental property management agreement, rental or lease agreement, or any other written or verbal agreement which engages the services of the broker.
- If any brokerage record has been the subject of or has served as evidence for litigation, relevant books, accounts, and records must be retained for at least two years after the conclusion of the civil action or the conclusion of any appellate proceeding, whichever is later, but in no case less than a total of 5 years as set above.
- Disclosure documents required under ss. 475.2755 and 475.278 shall be retained by the real estate licensee in all transactions that result in a written contract to purchase and sell real property.
»Notwithstanding the requirements of the statute, brokers should be aware that while they are required to make records available, they have no obligation to answer questions or provide written responses. Brokers often feel under pressure to comply with the investigator’s demands. For this reason, as a matter of course in conducting business, brokers should have on their team professionals such as accountants and attorneys that will assist in proper handling of the business and the inspection/audit procedure.
»Brokers should have a system in place to ascertain that licensees are properly and actively licensed in Florida and authorized to work in this country. A copy of the license is not enough. The broker should review the Department of Business and Professional Regulation website for licensure information. When hiring, the broker should have the licensee complete an I-9 (IRS Form) and obtain the required information for the associate’s employment file. While the division is not likely to inspect for the I-9 requirements, the federal government may. Violations of laws other than Chapter 475, Florida Statutes, may subject a licensee to discipline by the FREC.
»Comply with office and signage regulations.
»Maintain a current and effective policy manual for the licensed personnel. The manual will likely serve as mitigation in the event that an associate violates license law implicating the broker’s liability.