The Commission's powers: investigations, hearings, discipline, the Recovery Fund

Bottom line: the Colorado Real Estate Commission is the licensing board. It can investigate you, make you hand over records, hold a hearing, and punish you. The punishments run from a letter up to taking your license for good. Acting as a broker with no license is a crime.

Who they are

The Commission has five members appointed by the governor: three real estate brokers with at least five years of Colorado experience (one with substantial property management experience) and two public members, serving three-year terms. The governor may remove a member for misconduct, neglect of duty or incompetence (C.R.S. 12-10-206(1)). Members and witnesses are immune from civil suits over good-faith disciplinary acts (C.R.S. 12-10-206(3)). The Commission votes, and no license may be denied, suspended or revoked except by a majority vote (C.R.S. 12-10-206(4)).

The Division of Real Estate is the staff. The director hires attorneys, deputies and investigators, helps enforce the law, and conducts audits (a check of your business accounts) of licensees (C.R.S. 12-10-207(1), (2)).

Investigations and audits

The Commission may investigate on its own motion, and must investigate on a written complaint from any person. It can look at licensees and also at anyone who acts like a licensee (C.R.S. 12-10-217(1)). You get written notice. A complaint copy comes if a person complained; a summary comes if the Commission started it; or you are told you were picked for an audit. You must send a written response by the deadline in the letter. Failing to respond on time is itself grounds for discipline, even if the complaint is thin (Rule 6.25.A). Extensions are granted on reasonable request (Rule 6.25.B). You must keep and produce records on request (Rule 6.25.C). Complaints and investigation files are closed to the public. Stipulations and final orders are public records (C.R.S. 12-10-217(6)). If a case also looks criminal, the Division sends it to law enforcement (C.R.S. 12-10-217(10)).

A subpoena is a legal order to appear and testify or hand over records. The Commission, the director or the administrative law judge may issue them. If you ignore one, the Commission asks a district court to enforce it (C.R.S. 12-10-224). Willfully failing to appear or produce is a petty offense, and each day counts as a separate offense (C.R.S. 12-10-225). The Commission may also go to court for an injunction, a court order to stop an illegal act (C.R.S. 12-10-226).

Hearings and appeals

Discipline hearings are run by an administrative law judge (ALJ), a state hearing officer, under the state administrative procedure sections 24-4-104 and 24-4-105. The ALJ runs the hearing, but the Commission makes the decision by majority vote (C.R.S. 12-10-219(1), (3)). If the licensee is an employed broker, the employing broker is mailed notice too (C.R.S. 12-10-219(2)). A Commission decision can be reviewed by the Colorado Court of Appeals; a court may stay (pause) the order after a hearing and may require a bond (C.R.S. 12-10-219(4), (5)). Where a felony or crime of moral turpitude may be the reason, the Commission follows section 24-5-101 (C.R.S. 12-10-219(6)).

Penalties the Commission can use

• Administrative fine up to $2,500 for each separate offense.
• Censure: a formal public scolding.
• Probation with terms the Commission sets.
• Temporary suspension of the license.
• Permanent revocation.

(All from C.R.S. 12-10-217(1).) Fines go to the Division of Real Estate cash fund (C.R.S. 12-10-217(8)). After revocation, a person cannot be considered for a new license until one year has passed (C.R.S. 12-10-217(9)). For small problems the Commission may send a letter of admonition by certified mail; the licensee has 20 days after receipt to demand a formal hearing instead, and then the letter is vacated (C.R.S. 12-10-217(7)). For an affiliated-business violation the penalty is the amount of improper remuneration (C.R.S. 12-10-217(1)(z)(II)). A firm can lose its right to do business under a broker's license even if the designated broker did not know (C.R.S. 12-10-217(3)). A broker is not disciplined for an employee's violation unless the broker knew or was negligent in supervising (C.R.S. 12-10-222). Discipline does not shield you from civil suits or criminal charges (C.R.S. 12-10-217(5)).

Grounds for discipline, grouped (C.R.S. 12-10-217(1))

• Lying and false promises: knowingly making misrepresentations or misleading ads (a), promises you could not or did not intend to keep (b), false promises through agents (c), violating the Colorado Consumer Protection Act (d), fraud in getting or renewing a license (s), other dishonest dealing (w).
• Loyalty and secret money: acting for more than one party without everyone's knowledge (e), representing a broker other than your employer without the employer's consent (f), secret or undisclosed compensation or profit (t), using an option to purchase without written disclosure of profit and written consent (u).
• Handling other people's money: not turning deposits over to your employing broker promptly (g), failing to account for or remit money (h), converting, diverting or commingling funds or not using a proper trust account (i), fraud or conversion that leads to a civil judgment (v).
• Paperwork: no closing statement or signed duplicate listing and contract (j), not keeping records 4 years (k), not keeping CE proof 4 years (y).
• Paying unlicensed people: paying a commission or value for broker work to someone unlicensed, except a share to a broker licensed in another state or country (l).
• Breaking rules and law: violating the license law, Commission rules or orders, or aiding another to (m); violating the affiliated business rules (z).
• Crimes and other licenses: conviction, guilty plea or no-contest plea to listed crimes, including a deferred judgment (n); failing to notify the Commission in writing (p; Rule 6.23 says within 30 calendar days); discipline in another state (x); a recent revocation elsewhere for fraud, theft or breach of fiduciary duty (aa).
• Fair housing: violating or aiding a violation of Colorado or federal fair housing laws (o).
• Competence and supervision: demonstrated unworthiness or incompetence that endangers the public (q); failing to reasonably supervise licensed employees (r).

Criminal penalty for unlicensed activity

Anyone, a person or a business, who acts as a real estate broker in Colorado without a license, or after revocation, or during a suspension, commits a class 2 misdemeanor (C.R.S. 12-10-223). Also, an employed broker may take pay for brokerage only from the employing broker (C.R.S. 12-10-221).

Other protections for consumers

A person harmed by a referral fee violation may sue for actual damages plus, at the court's discretion, up to three times actual damages and attorney fees (C.R.S. 12-10-304(3)). A person who is hurt by a broker's mistake may also claim on the broker's E&O policy (see lesson c2-14). Older materials describe a Real Estate Recovery Fund that paid people who won judgments against licensees. The sources for this course contain no Recovery Fund statute and no dollar limits, so this course does not teach any. Treat the fund as something to verify on the Division of Real Estate website. (Rule 1.30 only mentions fees for a recovery fund.)

Example with real numbers

A broker sells a $500,000 house. The commission is 3 percent, or $15,000. The broker secretly takes a $4,000 kickback from a lender and does not tell the seller, and also puts $2,000 of the seller's deposit into the broker's own account for a week. After a hearing, the Commission finds three separate offenses: secret compensation (t), commingling (i), and failing to account (h).

1. Maximum fine: 3 offenses x $2,500 = $7,500.
2. It may add probation or suspension.
3. If the kickback is also a violation of a referral-fee rule and the seller sues under 12-10-304(3): actual damages $4,000, plus up to 3 x $4,000 = $12,000 more, so up to $16,000, plus attorney fees.
4. The broker's firm may lose its right to operate under that broker's license even if the designated broker did not know (C.R.S. 12-10-217(3)).