Mortgage Industry Information, Opinions & Tips

DRE Audits and You: Part 4
The Aftermath

Over the past few months, I have gone over the items that the DRE reviews in a typical audit: Contracts, Disclosures, Trust Accounts. Once they have visited your office, done their fieldwork, and conducted the exit interview (basically going over any findings), what happens next?

Simply put, the waiting begins. You might never hear from them again (that’s the good news), or six months or a year or even 18 months later, you might open the mail and receive one of the following:

Corrective Action Letter (CAL). This is a letter from the auditor’s supervisor or the Special Investigator who was assigned to your case. The letter details the findings from the audit and asks for a written response from the Broker acknowledging that he/she understands the findings and will take the appropriate actions to ensure that the violations do not continue. It is a good idea to list the actual policies and procedures that the Broker has/will employ going forward. This CAL does not go on a Broker’s public record, but does go into the Broker’s permanent file with the DRE so that any future auditors/investigators will have a copy. There is no fine or penalty attached to a CAL.

Desist and Refrain (D&R). This is a bit more serious, but still has no fine or penalty attached. It is written notice that violations were found that require immediate correction. The D&R does become a part of the Broker’s public record and shows up on the Broker’s DRE printout. (Note: Generally, in the case of a Corporation, the D&R is placed against both the Broker’s personal license and the Corporate license.) This letter requires immediate action, a complete and thorough explanation of the steps the Broker has taken to remedy the violations found during the audit, and generally should be answered by an attorney for the Broker. A follow-up audit is generally assured once a D&R has been issued, and, by all means, everything found in the first audit needs to be completely cured!

Cite and Fine. When the DRE finds multiple minor violations, but decides that there is not enough to warrant an accusation, they have the option of citing and fining the broker (which is usually $2500). This does not go on the broker’s public record, but will definitely trigger a subsequent audit to make sure the broker has corrected the violations.

Accusation. If the DRE finds violations during an audit that rise above a mere warning (either a CAL or a Cite and Fine), they file an accusation. The reason for the filing of an accusation usually occurs due to violations in licensing (or lack of same) or Trust Accounting (unlicensed signers, overages, shortages, lack of reconciliation, NO Trust Account when one is needed, etc.). This goes on the Broker’s public record, requires a response (which definitely should come from an attorney), will require a settlement or a hearing, and most usually ends with fines and even suspension, restriction or revocation. Once a Broker is served with an accusation, there is no time to waste. An attorney should be retained and a dialogue should be established immediately with the DRE’s legal section. Working through an accusation can take months or even years. Monetary penalties can range from the low thousands to six figures. Additionally, unless there is a revocation, the Broker will be subject to at least one follow-up chargeable audit. If the violations involved Trust Accounting, both the original audit and the subsequent audit(s) will be chargeable.

Pam Strickland is a compliance consultant who helps DRE brokers prepare for and survive DRE audits and office surveys. She can be reached at pam@pamstrickland.com.