Caution! Dangerous Road Ahead!

Feb 02, 2017

Real Estate Licensees are regulated by the Department of State under Article 12A of the Real Property Law of the State of New York. An old legal maxim states, "Ignorance of the law is no excuse," and, if licensees are caught violating the law, they will be held to account, whether nor not they realized that what they had done was prohibited. Real Estate Salespersons and Brokers are held to a higher standard than the general public since they are presumed to possess a greater understanding of the process involved in a purchase and sale. Since they are licensed, they are accountable to the governing agency for their behavior. Lately there have been a number of licensees who have contacted me and other attorneys because they have found themselves the subject of complaints made to the Department of State by members of the public.

When a salesperson has received notice of a complaint, the broker is also involved, and may be liable for failure to supervise the agent. When the parties are initially contacted, it is through an investigator, whose job it is to notify the licensee of the complaint and to give the licensee an opportunity to explain the situation in his or her own words. The agent and broker should contact their E&O insurance carrier immediately! At that point, it would also be prudent for the agent to contact an attorney, before he or she sends a statement into the DOS which is self-incriminating! Often the agent gives information to the investigator that is outside the scope of the original investigation but reveals another infraction which the Department is now inclined to include as an amendment to the original complaint. What I have observed is that agents often slit their throats with their own pens! An attorney would be able to advise the agent to limit the response to the matter at hand. 

If the investigator does not believe there was wrongdoing on the part of the agent, the agent may not hear anything! If the inspector believes there was a violation, the next correspondence the agent receives will be from a DOS attorney stating there will be a hearing. In this paperwork, as part of the Department's obligation to give due process to the agent, it will alert the agent to the potential penalties, which include fines, restitution to wronged parties, education, suspension or revocation of the agent's license. The letter ends with information regarding a negotiated settlement which can be discussed with the DOS attorney, and a number for the agent or the agent's attorney to call. If the agent has not done so before, at this point an attorney (preferably one who has previously worked with the DOS) should be consulted.  

The world has not come to an end just because there has been a complaint made against an agent, although the agent often believes it has! In most instances, the licensee's attorney can work out a settlement with the DOS. Although the idea of having to deal with the matter leaves most licensees weak at the knees, the process, although disconcerting and certainly serious, is not a witch hunt. The primary concern of the DOS is to remove untrustworthy agents from a position whereby they can cause harm to the general public. The attorneys at the DOS, however, know that most complaints are the result of negligence or inadvertent error on the part of the agent rather than malice or dishonesty. Therefore, they are willing to negotiate a settlement wherein the agent admits the mistake and promises not to allow it to happen again. If no settlement can be reached, or the agent wishes to have a day in Court, a Hearing will be held and a Judge will decide the outcome, which is, of course, subject to appeal. This process can become quite costly.

Fines have gone up and now start at $2,000.00. The classes that a licensee may have to take will not be counted toward the 22 1/2 hour continuing education requirement. If a licensee has been ordered to make restitution, it will often be because someone has paid the licensee a commission the DOS deems was unearned. If a license is suspended, it will generally be for a period of time certain (up to one year) set by the DOS or until the agent has shown that an activity specified by the DOS (perhaps the payment of a judgment against the agent) has been performed. If a license is revoked, that will be for a period of a year, at which time the licensee may apply for a new license. There is no guarantee the request will be granted.

Finally, it would be beneficial if agents understood that the DOS will probably ask for agency disclosure forms and proof that the agent has complied with the 22 1/2-hour education requirement every two years. It is my experience that agents often do not have an agency disclosure form or, if they do have one, they have filled it out incorrectly and that some agents have applied for new licenses, checking off the box that says the education requirements have been met, when they have not been, either because the agent has failed to take any courses or has not completed all of them before applying for the renewal license! 

Be careful!