Here is a question that has been coming up more and more with our changing economy. It seems more and more California DRE licensed real estate brokers are obtaining "virtual offices" to help them grow their real estate empires. A virtual office is basically an office where someone will answer your phone calls, and forward you mail and may provide other services. Typically, you would also be able to book office space and a conference room if needed. The question arises during DRE audits as to whether or not a broker needs to file for the branch office application. Here are a few general guidelines a California Real Estate Broker should bear in mind:
1. If you conduct any type of real estate business in your virtual office (ex. meet clients there, discuss interest rates there, discuss real estate deals, etc.) you should apply for the DRE branch office license.
Here is the form to apply for that. (RE 203 DRE Branch office application form)
2. If you are advertising the virtual office on your business cards, marketing materials, or websites or blogs, you should fill out the RE 203 form.
3. If MLO licensed activities are performed at a branch office, you must have a DRE branch office license on file with the Department and, you must file Form MU3 on the NMLS system for each branch office to obtain the branch office license endorsement. NMLS Branch office checklist.
Our firm is able to manage the NMLS filing on your behalf, if you do not wish to be bothered with all the technical requirements. Check out our broker counsel programs. After all, your time is best spent generating and servicing real estate business.
4. You need to think about who is running the branch office, and how you will manage the duty to supervise licensed real estate activity. Also, are there any unlicensed DBA's being used by the branch? Is there any unsupervised licensed activity taking place at the branch office? What about trust accounts, who is handling that, is there a separate account being used? Is there proper reconciliations and beneficiary records being made?
Note: A new law has been passed (California SB 510) that allows a broker to delegate authority to a branch office manager where certain conditions are met. We have talked about this in other blog posts.
Basically, the designated office manager (who can be a sales licensee or broker license) must hold an unrestricted license, and if a sales licensee, must have a minimum of two years real estate experience in the past five years and never been subject to a debarment order. There must be a contract in place with the office manager and the DRE must be notified of who the office manager is, and when they are changed, or terminated. Under this scenario, the DRE could look to the branch office manager to hold accountable for a DRE audit, or accusation and that can lead to license discipline action against either the broker and/or the office manager. SB 510 is effective July 1, 2012.
5. As far as potential legal liabilities to opening up a mortgage branch office, or real estate branch office, you can hopefully see some of the different types of issues at play here. You may want to consider hiring a California DRE real estate lawyer (who is also a broker himself) to assist you in managing these vary important issues which include:
- Ensuring compliance with DRE branch office rules
- Ensuring compliance with NMLS / MLO branch office rules
- Ensuring there is an agreement in place with your branch office manager
- Making sure you have a handle on the duty of supervision and knowing what is going on in the branch office
- Where you have independent contractors working out of the branch office, to ensure compliance with the NMLS and DRE rules
- If you need a partnership agreement, to have one in place (we have talked about oral partnerships in California and how this can lead to legal headaches after a dispute with a branch manager).
- We can update independent contractor agreements
- We can manage NMLS issues and filings
- We can assist you in arbitration and litigation
- We can help with DBA filings
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