By: Ryan D. Miller
The “Benefit of the Doubt Program” as it has been called, represents the California Real Estate Commissioner’s latest efforts to encourage the reporting of real estate professionals who violate the law. The Benefit of the Doubt Program was a pilot program now set to become law effective January of 2011. The Benefit of the Doubt Program seeks to provide a safe harbor for reporting brokers as well as motivation for brokers reporting misconduct in the future. Prior to the Benefit of the Doubt Program being implemented, reporting an associate for violating the law was a risky proposition as it would automatically lead to the broker being named as a respondent. This led to investigation of the broker automatically. The new program seeks to remedy any reluctance on the part of brokers to adhere to reporting laws.
The Benefit of the Doubt Program employs two new features to motivate a broker to report misconduct on the part of an associate. One is a carrot, the other a stick. The carrot is a safe harbour provision so that reporting a “bad agent” does not automatically lead to the broker being named as a respondent. The stick is that an investigation going back two years may be conducted if a “bad agent” is later discovered. For example, if a “bad agent” is disassociated from Broker A for violating DRE rules and subsequently associates with Broker B, but no report to the DRE was made, and then that “bad agent” is disassociated by Broker B for violating DRE rules, the DRE may go back two years to investigate, including investigating Broker A.
These two motivators are expected to increase reporting of “bad agents.” However, they do not completely resolve the problems faced by brokers. First, if a broker reports a “bad agent” to the DRE, that broker has to assume he or she will be investigated. It’s like asking for the IRS to find something wrong with your taxes or asking a highway patrolman to find something to ticket you for. Brokers may try to comply with every law, but the DRE may still find something. Who wants to open up that can of worms?
Additionally, if a “bad agent” violates the rules, what broker wants to risk being sued by buyers or sellers who later learn that their agent fudged their transaction. Plaintiffs, please line up! Furthermore, it is rare that a broker has to disassociate a “bad agent.,” It is more likely that a broker must decide what to do with a pretty good agent who makes a mistake.
Remember that the law requires two things to obligate a broker to report to the DRE: (1) disassociation of the “bad agent”, and (2) for violating a rule/law. This means that if there is a violation, but no disassociation, the reporting requirement is not triggered. Or, it means that if there was a disassociation for something other than violation of a DRE rule/law, again the reporting requirement is not triggered. Some brokers may think this creates the perfect loophole. Threaten the “bad agent” who violated a law with disassociation, or let them quit. If they quit, the reporting requirement is not triggered. While this may appear to some as a good solution to comply with the letter of the law, it may still lead to liability later. If the stick provision (the two-year period for investigating) kicks in later, the fact that the broker did not disassociate the “bad agent” and report it to the DRE won’t look good.
What about the agent who is a great producer, but occasionally breaks a rule? Can a broker help rehabilitate the agent instead of disassociating and reporting that agent? A broker must know that he or she risks liability for continuing to associate an agent when it is known that agent violates laws. The broker’s good judgment needs to be employed with care in this situation.
So what is a broker to do to prevent the problems associated with a “bad agent?” The best solution is a thorough vetting process prior to associating an agent. I have heard it said that the main questions asked an agent prior to association have to do with production. A wise broker will be more thorough in the questions asked. One brokerage counsel indicated they use a similar form to that of the DRE licensing application when vetting potential associates. This strategy seems reasonable as one could argue that to hold a broker to a higher standard than what the state requires would be unreasonable.
The Benefit of the Doubt Program is not a perfect solution, but it would be difficult to say it isn’t better than the process currently employed. Since it will be the law starting in January of 2011, brokers should examine their association policies and procedures, as well as their disciplinary policies and procedures, to prepare themselves for this upcoming change.