California Business and Professions Code Section 10130:
“It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker or a real estate salesman within this state without first obtaining a real estate license from the department. (emphasis added)
The commissioner may prefer a complaint for violation of this section before any court of competent jurisdiction, and the commissioner and his counsel, deputies or assistants may assist in presenting the law or facts at the trial.
It is the duty of the district attorney of each county in this state to prosecute all violations of this section in their respective counties in which the violations occur.” (emphasis added)
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QUESTIONS:
(1) What does it mean to “engage in the business” of a real estate broker?
(2) What does it mean to “advertise” as a real estate broker?
(3) What does it mean to “assume to act as a real estate broker”?
(4) Are district attorneys adhering to their legal duty and actively prosecuting all the people that have been subject to cease and desist orders (for unlicensed activity) that are routinely filed by the California Department of Real Estate?
California Business & Professions Code Section 10031 attempts to define what a “real estate broker” is in California (ex. if you are engaged in acts that constitute being a real estate broker, then you need a license, or you are engaged in unlicensed real estate activity as the argument goes, and theoretically the district attorney has a duty to prosecute you regardless of which California county you live in). This section as also used the DRE as a basis for desist and refrain orders (D&R’s).
“A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: (emphasis added)
10031(a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity.
10031(b) Leases or rents or offers to lease or rent, or places for
rent, or solicits listings of places for rent, or solicits for
prospective tenants, or negotiates the sale, purchase or exchanges of
leases on real property, or on a business opportunity, or collects
rents from real property, or improvements thereon, or from business
opportunities.
10031(c) Assists or offers to assist in filing an application for the
purchase or lease of, or in locating or entering upon, lands owned by
the state or federal government.
10031(d) Solicits borrowers or lenders for or negotiates loans or
collects payments or performs services for borrowers or lenders or
note owners in connection with loans secured directly or collaterally
by liens on real property or on a business opportunity. (emphasis added).
(e) Sells or offers to sell, buys or offers to buy, or exchanges
or offers to exchange a real property sales contract, or a promissory
note secured directly or collaterally by a lien on real property or
on a business opportunity, and performs services for the holders
thereof.
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As you can see, B & P Section 10131(d) is the section that the California Department of Real Estate is relying in to determine that loan modification companies are engaged in a licensed real estate activity (even lawyers who are not acting in the course of their law practice can be held to be engaged in unlicensed real estate activity when performing loan modifications and even if not engaged in licensed real estate activity must comply with both SB94 and the FTC MARS Rule).
Proof of this position can be found on the DRE website which links to a whole host of cease and desist orders for alleged unlicensed loan modification activities.
In short, It is unlawful for any person to engage in conduct requiring a real estate broker's or salesman's license unless he is licensed. See Anderson v. Department of Real Estate (1979) 93 Cal.App.3d 696 [155 Cal.Rptr. 307]
NOTE: California Business & Professions Code Section 10139 also criminalizes the unauthorized practice of real estate. This section states:
“Any person acting as a real estate broker, real estate
salesperson, or mortgage loan originator without a license or license
endorsement, or who advertises using words indicating that he or she
is a real estate broker, real estate salesperson, or mortgage loan
originator without being so licensed or without having obtained a
license endorsement, shall be guilty of a public offense punishable
by a fine not exceeding twenty thousand dollars ($20,000), or by
imprisonment in the county jail for a term not to exceed six months,
or by both fine and imprisonment; or if a corporation, be punished by
a fine not exceeding sixty thousand dollars ($60,000). If a Real
Estate Fraud Prosecution Trust Fund, as described in Section 27388 of
the Government Code, exists in the county where a person or
corporation is convicted, any fine collected from the person in
excess of ten thousand dollars ($10,000) or any fine collected from
the corporation in excess of fifty thousand dollars ($50,000) shall
be deposited in that Real Estate Fraud Prosecution Trust Fund.”
Obviously, it is a serious issue for any person, or company in California to engage in licensed real estate activity without first having a proper license to do so.
It must be noted, however, that the California Department of Real Estate (“DRE”) has also published articles discussing, in general terms, certain types of activities and conduct that are NOT activities of a “real estate broker” (meaning, there are some things an unlicensed person can do in relation to the practice of real estate, that would not be deemed to come within the 10030 prohibition and would not trigger a desist and refrain order, at least theoretically). Such items set forth in the article above include:
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Cold calling
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Open houses
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Comparative marketing analysis
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Communicating with the public
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Arranging appointments
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Access to property
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Advertising
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Preparation of documents
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Delivery and signing documents
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Trust funds
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Communicating with principals, etc.
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Document review
However, if you review the document provided in the link you will see that these areas are not always crystal clear (i.e. there are “grey areas”) as to what’s permissible and what’s not permissible. So you are best advised to seek legal advice when trying to make these critical determinations, especially when criminal prosecution is stated to be a “duty” of the county prosecutor. This is not therefore, something to leave to chance.
There are other publications that seek to make this distinction between what is and is not licensed real estate activity requiring a real estate license. We can look for guidance at the California Association of Realtors (“CAR”) publications which seek to clarify some of the grey areas in their “DRE guidelines for Unlicensed Assistants” document. Again, sometimes answering one question only raises another one. Some areas seem to be clear while others seem open to interpretation. There is also another DRE mortgage loan bulletin that discusses Regulation 2841 that clarifies (to a certain extent anyway) the use of non-licensed employees in real estate loan transactions.
FORENSIC LOAN AUDITS AND SECURITIZED LOAN AUDITS
With the rise of residential loan modification companies, foreclosure consultants, and the like, we now see both licensed real estate brokers and salespersons, as well as unlicensed persons and companies that are performing services that may be deemed both legal in nature, and may also constitute the practice of real estate, requiring a real estate license.
As we have said before, there is a time and place for a “forensic loan audit,” (that seeks to uncover mortgage lending violations and state and federal legal violations) and there may be a time and place for a securitized loan audit (that seeks in most cases to understand who the owner of your loan is). The real questions that arise in these types of transactions is: (a) does the service amount to a “legal” service requiring a law license; (b) does the service amount to a real estate service requiring a real estate license; (c), is the loan audit service or securitized loan audit service marketed and represented in a fraudulent and deceptive manner (i.e. “this audit will save your house from foreclosure” or will “help you get your house for free”), which I believe is happening in all too many cases, and (d) if the loan audit is marketed and performed by an unlicensed company or individual in California, did the loan audit company violate the California Foreclosure Consultant Law. There are undoubtedly a large number of companies that may have good intentions, but have no clue on whether or not their actions are violating both federal and state laws that open them up to civil lawsuits, and potentially criminal prosecutions. We have recently learned that the California Department of Real Estate considers forensic loan audits to be a licensed activity. Again, they appear to be taking a broad views of the types of acts that constitute licensed activity. So again, if you are considering engaging in this type of activity, it would be very wise to consult with a California real estate and business lawyer to ensure you are not putting yourself at risk. If you are a victim of loan audit fraud, or securitized loan audit fraud, contact Attorney Steve Vondran to discuss whether you have a civil case against the perpetrator who is making false promises and deceptively marketing the service. We have seen in some cases where homeowners have paid thousands of dollars for a report that appears to be little more than looking up a MERS min number and providing a manifesto on the nature of securitized MERS loans.
Because these types of audit reports often involve residential mortgage loans, and since the DRE has manifested their position on these types of loans (which I will not currently comment on) if you are involved in a DRE investigation, or accusation, you need to consider hiring a California real estate defense lawyer to assist you in your case. These are very fact-specific inquiries that require careful attention to detail. Victims of loan audit fraud should also seek out a real estate attorney to review their legal rights.
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