DRE Broker Office Survey

By Pamela J. Strickland
California Compliance Consulting

The Special Investigators from the DRE (especially those in the Mortgage Loan Activities Section) are conducting more and more Broker Office Surveys (generally by phone at this time due to continuing COVID protocols). It seems I am getting calls at least once a week from a mortgage/private money broker who has had a call, e-mail or letter from the DRE requesting an appointment for the Survey. Whatever you do, DO NOT ignore the communication from the DRE, regardless of the form it takes. You are required to reply and to cooperate with the Special Investigator during this call/visit. Depending on the Special Investigator and the scope of your business activities, these Surveys can take from less than an hour to over three hours. Whether it is on the lower or higher side of the time taken sometimes depends on your answers and/ or the Special Investigator him/herself. They have a set of questions that they must ask and will be either entering your answers directly into their computerized form or will be writing down the answers to type in later.

The Survey starts out by asking you (the Broker of Record) for general information about your company. This includes questions about the business activities of the company (e.g. Conventional Loans, Private Money Loans, Real Estate Listings/Sales, Property Management, and/or Broker Controlled Escrow). They confirm the office address, any branch offices, any fictitious business names, and if you are a corporation, whether you are in good standing with the Secretary of State. The Special Investigator will go over your list of licensed agents (Salespersons or Broker Associates) and will request a copy of their contracts/commission agreements. (Note: If your company is a corporation, it is important to check whether all of your agents, including the Broker-Associates, are showing up on your DRE database for your corporation and none are under your personal Broker license. Also, make sure you have contracts and commission agreements with ALL licensees under your license, whether or not they are simply clerical personnel or family members. If they have a license and it hangs under your corporate/company license, they MUST have a contract, regardless of their job description or family affiliation.)

There will be many questions regarding Trust Accounts (and perhaps requests for copies of bank statements, signature cards and reconciliations, depending on the Special Investigator). Right now is a very good time to do a self-audit of your Trust Accounts before you get the call (a word to the wise!). Quite a bit of time is spent going over Broker Supervision. This is of prime importance to the DRE and the Special Investigators and they are very serious about the requirements necessary for a broker to demonstrate that he or she is supervising the activities of the company, the employees and the licensees. The following areas are discussed in-depth (and you had best be prepared with the answers):

  • Do you have an established file review system?
  • What steps do you take if errors are found in files?
  • Where are the files maintained?
  • How are the files protected (locked cabinets or computer password)?
  • How available is the broker to the agents? How often is the broker in the office/branch?
  • How far does the broker live from the office/branch in miles?
  • How often are meetings held between the broker and licensees?
  • How much training is provided by the broker?
  • Is this training documented?
  • What are the topics covered in the training?
  • How does the broker communicate with his/her licensees?
  • Who interviews new employees/licensees?
  • Do you employ a manager at the main or branch office?
  • Have you filed the forms with the DRE to add a division or branch manager?
  • Do you have a specific management agreement with division or branch managers?
  • Who pays the office rent and other expenses?
  • Do you have the required Policy and Procedures Manual in writing?
  • Do you have an established policy for monitoring your policies and procedures?
  • Explain your policy for monitoring your policies and procedures.
  • How do you monitor renewals for your licensed agents?
  • Do you and your agents understand the requirements and laws for Fair Housing/Fair Lending?
  • How do you make sure that your agents understand the requirements?
  • Explain the requirements for Fair Housing/Fair Lending (yes, this is the TEST part of the Survey!).
  • Do you have the Fair Housing/Fair Lending laws covered in your Compliance Manual?
  • What is your destruction policy for documents/files?
  • Do you keep your files for at least three (3) years?
  • Do you retain certain documents in private money files that are required to be retained for four (4) years? Do you know what documents require the extra year retention?

The Special Investigator will request that you send him/her certain documents (such as copies of loan or real estate transaction files, trust account information, contracts, etc.) and will give you from several days to several weeks to provide the requested items. They will either choose the files from closed transaction logs that you send to him/her or will ask you to pick files at random (anywhere from 3-10 files has been my experience).

The outcome of the Broker Office Survey can be a letter thanking you for your cooperation, a referral to the Audit Section for an audit, a cite and fine invoice for hundreds or thousands of dollars, or an accusation. These are not to be taken lightly and you should be prepared well before you receive the notification that you are chosen for the Survey!

Pam Strickland of California Compliance Consulting spends all of her time helping California DRE brokers prepare for and survive audits and office surveys. You can reach her at pam@pamstrickland.com