Florida Broker Pre-License: Office Inspections, Disciplinary Process, and Real Estate Recovery Fund

Chapter Learning Objectives and Key Terms

• Chapter Learning Objectives:

  • Describe the office inspection process.

  • Recognize what information and records must be made available to the inspector during a routine inspection and escrow account audit.

  • Describe the steps involved in the complaint process.

  • Explain the grounds for denial of an application and the result of a revocation without prejudice.

  • Explain the various types of administrative penalties, the use and purpose of a notice of non-compliance, and describe the grounds and penalties for suspension and revocation.

  • Distinguish between a first-degree and second-degree misdemeanor.

  • Identify which real estate violation is a misdemeanor of the first degree and identify third-degree felonies.

  • Describe the purpose and requirements associated with the Real Estate Recovery Fund, including payment limits for claims and assessments of fees.

  • Identify persons not qualified to make a claim to the recovery fund.

  • Explain the requirements for self-reporting criminal convictions.

• Key Terms:

  • Appeal: A request to a higher court to review a decision made by a lower court or administrative body.

  • Citation: A monetary penalty issued for minor infractions of rules.

  • Complaint: A formal allegation that a licensee has violated a law or rule.

  • Emergency Suspension Order (ESO): A summary suspension issued when the public is in immediate danger.

  • Final Order: The final decision and directive of the FREC regarding a disciplinary case.

  • Formal Complaint: Also known as an administrative complaint; it outlines the specific charges against a licensee.

  • Formal Hearing: A hearing held before an administrative law judge when facts are in dispute.

  • Informal Hearing: A hearing held before the FREC when no facts are in dispute.

  • Judicial Review: The process by which a court reviews the legality of a decision or action by a public body.

  • Legally Sufficient: A complaint that contains ultimate facts showing a violation of Florida Statute, DBPR rule, or FREC rule.

  • Notice of Non-compliance: An initial warning for a minor violation that does not endanger public health or safety.

  • Probable Cause: Reasonable grounds for believing that a violation has occurred.

  • Probable Cause Panel: A panel of two FREC members tasked with determining if there is enough evidence to file a formal complaint.

  • Recommended Order: A proposed decision issued by an administrative law judge after a formal hearing.

  • Revocation: The permanent (in most cases) removal of a real estate license.

  • Revocation Without Prejudice: A license cancellation due to Department error that does not prevent future licensure.

  • Self-reporting: The requirement for licensees to report criminal convictions or pleas to the Commission.

  • Stipulation: A voluntary agreement between the DRE and the respondent to resolve a case.

  • Subpoena: A legal order compelling a person to appear and provide testimony or evidence.

Authority to Inspect and Audit

• Regulatory Agency: The Department of Business and Professional Regulation (DBPR) licenses and regulates more than $1,000,000$ businesses and professionals in Florida, including over $250,000$ real estate licensees.

• Legal Authority: Authorized employees of the Department have the right to inspect or audit any broker or brokerage office to ensure compliance with Florida Statutes (Chapters $455$ and $475$) and the Florida Administrative Code (61J2).

• Items Subject to Inspection:

  • Office Basics: Minimum office requirements and proper office entrance signs.

  • Licensure: Verification that all licenses are current and valid, and that licensees have met continuing education (CE) and renewal requirements.

  • Agency Disclosures: Review for current and correct agency disclosure notices.

  • Financial and Operational Records:

    • Monthly reconciliation statements.

    • Bank statements and canceled checks.

    • Checkbooks, deposit books, and bank deposit receipts.

    • Ledger books or computer records for sale and/or property management.

    • Pending sale contracts and closed files (required to be retained for $5\,years$).

    • Voided contracts/offers involving escrow funds currently being held.

    • Paperwork related to earnest money disputes.

    • Team rosters for broker review and updates.

    • Property management contracts, agreements, and leases, including brokerage relationship disclosures.

• Operational Standards: Records must be available during regular business hours. For virtual or online files, the broker must provide the inspector with necessary access for proper review.

• Investigative Authority for Minor Infractions: During an audit, investigators can:

  • Issue a Notice of Noncompliance.

  • Issue a Citation.

  • Field/Open a Complaint.

The Complaint Process and Investigation

• Complaint Filing: Any person (complainant) can file a complaint against a licensee (respondent) with the DBPR.

• Legal Sufficiency: To be investigated, a complaint must be legally sufficient, meaning it alleges a violation of a Florida Statute or DBPR/FREC rule. The DBPR must investigate if the complaint is in writing and signed.

  • The DBPR may investigate anonymous (unsigned) complaints if circumstances dictate.

  • The DBPR may continue an investigation even if the complainant withdraws the charges.

• Emergency Protection: The Commission can issue an emergency or summary suspension if charges are serious and the public requires immediate protection.

• Confidentiality: All information obtained during an investigation remains confidential until $10\,days$ after probable cause has been determined, at which point it becomes public record.

• Investigation Powers:

  • Investigators have subpoena power to request information from any party and compel witnesses or records.

  • Finding are compiled into a written report provided to the Probable Cause Panel along with Department recommendations.

The Probable Cause Panel

• Panel Composition: Two members of the FREC are appointed by the Chairperson. At least one must be a current licensed member; the other can be an unlicensed member or a former member.

• Role and Function: The panel acts as a grand jury. They determine if evidence suggests a law/rule violation occurred, but they do not determine guilt or innocence.

• Timeline: The Panel must act within $30\,days$ of being empaneled.

• Deliberations: The hearings are closed to the public. Other FREC members do not attend to avoid bias in future proceedings.

• Outcomes:

  • Dismissal: Lack of evidence results in case dismissal.

  • Letter of Guidance: Issued for minor instances as a warning/instruction.

  • Formal Complaint: Directed if probable cause is found.

• DBPR Override: If the panel does not meet in time or cannot find probable cause, the DBPR has $10\,days$ to override the decision and file its own charges.

Formal Complaints and Hearings

• Notification: The respondent is notified in writing (registered mail or email) and has $20\,days$ to file an answer. The Department can file an administrative complaint for up to $5\,years$ from the original violation date.

• Respondents Choice: The licensee chooses between a formal and informal hearing. If any charges are disputed, a formal hearing must be requested.

• Stipulation: A voluntary agreement between the respondent's counsel and the Division of Real Estate (DRE). If agreed upon, a nolle prosequi (No Prosecution) may be entered on the record. This does not mean "not guilty," but it ends the prosecution of that matter. The FREC must approve the final stipulation.

• Informal Hearing: Held during regular FREC meetings for cases with no disputed facts. The respondent can bring witnesses and present their case to those FREC members who did not serve on the Probable Cause Panel.

• Formal Hearing:

  • Held before an Administrative Law Judge (ALJ) from the Division of Administrative Hearings (DOAH).

  • ALJ requirements: Must be a Florida Bar member with at least $5\,years$ of legal experience.

  • Process: Includes subpoenas, testimony under oath, and cross-examination.

  • Notice of hearing must include the date, time, place, jurisdiction, legal authority, the laws/rules broken, and a summary of the case.

Final Orders and Judicial Review

• Recommended Order: The ALJ prepares this document based on findings of fact and law. The respondent has $15\,days$ to file exceptions.

• Final Order:

  • The Final Order Panel (FREC members not on the Probable Cause Panel) reviews the Recommended Order.

  • FREC can accept, reject, reduce, or modify the order within $90\,days$.

  • the final document, the Certificate, is signed by the Chair, Vice-Chair, or Director of the DRE and serves as prima facie evidence (appearing true on its face) in civil suits.

• Voluntary Relinquish: A licensee can voluntarily give up their license for permanent revocation to stop proceedings.

• Judicial Review (Appeal):

  • The licensee has $30\,days$ to appeal to the District Court of Appeals.

  • A supersedeas (stay enforcement) can be requested to stop suspension/revocation during the appeal process.

  • The court reviews for procedural errors, findings of fact, or rulings of law. If errors are found, the case is sent back for corrective action.

Administrative Penalties and Violations

• FREC Authorities:

  • Deny/Refuse to renew a license.

  • Suspend a license (temporary, up to $10\,years$).

  • Revoke a license (permanent).

  • Issue citations and notices of noncompliance.

  • Impose probation (usually $90\,days$; prohibits real estate business during the term).

  • Impose administrative fines up to $5,000$ per count.

• Denial of License: Applicants have $21\,days$ from receipt of notice to request a hearing. Causes include failure to correct errors, cheating on exams, bad reputation, or investigation in another state.

• Revocation without Prejudice: Occurs when a license is issued by mistake; does not bar future licensure.

• Revocation: Traditionally permanent. However, following the Sloban v. Florida Board of Pharmacy case, licensees can re-apply after $5\,years$ (or less if specified in the Final Order) if they prove good conduct and honesty.

• Noncompliance Notice: Issued for initial minor offenses (e.g., failure to register a trade name). The licensee has $15\,days$ to correct the issue to avoid further discipline.

• Citations: For minor infractions (e.g., failed to maintain entrance sign). The licensee has $30\,days$ to pay the fine (typically $500$ to $1,000$) or request a hearing.

Criminal Penalties and Civil Actions

• Criminal Prosecution: DBPR reports criminal activity to the State Attorney.

  • First-Degree Misdemeanor: Includes publishing false information or failing to provide accurate rental lists for a fee. Penalty: fine up to $1,000$ and/or up to $1\,year$ in jail.

  • Second-Degree Misdemeanor: Most other Chapter $475$ violations. Penalty: fine up to $500$ and/or up to $60\,days$ in jail.

  • Third-Degree Felony: Includes unlicensed real estate activity.

• Self-Reporting: Licensees must report criminal convictions, guilty findings, or pleas of nolo contendere within $30\,days$.

• Civil Penalties: FREC cannot order repayment of commissions or compensatory damages. This must be handled in civil courts.

  • Commercial Lien Acts: Parts III and IV of Chapter $475$ allow brokers to lien commercial properties for unpaid commissions if specified in the contract.

Real Estate Recovery Fund

• Purpose: Consumer protection to pay compensatory damages awarded by a court that a licensee cannot or will not pay. Does not cover punitive damages.

• Funding: Fees collected via administrative fines and surcharges on licenses ($3.50$ annually for brokers; $1.50$ for sales associates).

• Fund Limits:

  • Maximum balance: $1,000,000$. Collection stops at this limit and resumes if the balance falls below $500,000$.

  • Claim limits: Maximum of $50,000$ per transaction or the unsatisfied portion of the judgment; maximum total of $150,000$ for multiple judgments against one licensee.

• Impact on License: Once a payment is made from the fund, the licensee's license is automatically suspended until they repay the fund in full plus interest.

• Escrow Disbursement Order (EDO) Exception: If a broker follows an EDO and is later sued and loses in court, the Recovery Fund will pay the judgment and both the plaintiff's and defendant's legal fees/costs. In this specific case, the broker's license will not be suspended.

• Ineligible Persons:

  • The spouse of the judgment debtor.

  • A licensee who acted as an agent in the transaction.

  • A person suing a licensee who was not acting in their capacity as a licensee (e.g., owner-investor).

  • A person suing a brokerage entity (Corporation, Partnership, LLC, etc.) rather than an individual licensee.

Declaratory Statements

• Definition: A method to obtain a binding interpretation from the DBPR regarding the applicability of statutes or rules (Chapters $455$, $468$, or $61G-3$).

• Usage: Only used to resolve doubts for a specific business or entity regarding special exceptions. It is not for determining the conduct of another person or setting general policy changes.

• Filing: Requirements are set forth in Florida Statute $120.565$ and FAC $28.105$.