The following remarks excerpted from Commission Executive Director Phillip T. Fisher's recent presentation to the Consumer Protection Study Commission of the North Carolina General Assembly. Mr. Fisher was invited to appear before the Study Commission to describe the Real Estate Commission's approach and efforts towards enforcing the Real Estate License Law and Commission Rules. Study Commission Chairman John C. "Pete" Hasty commended the Real Estate Commission on its enforcement program.
Before discussing the Real Estate Commission's enforcement program, I thought that it may be helpful for you to have some brief background information to place our program in perspective. The operations of occupational licensing boards vary depending upon the number of licensees which they are responsible for, the limits of their jurisdiction, their resources, etc. In the case of the Real Estate Commission, I believe that we have more licensees than any other occupational licensing board. At last count, we have nearly 47,000 licensed brokers, more than 31,000 salesmen, 3,600 corporations, nearly 50 time share projects, and soon we will be licensing and regulating real estate appraisers. Each month more than 800 persons apply for licenses, so our licensee base is constantly increasing.
Like most other occupational licensing boards, our operation is divided into two general areas: Licensing and Regulation. Although the focus of your inquiry is on our regulatory functions, it should be pointed out that our Education and Licensing Division also plays an important role in our regulatory activities. We believe that education and regulation go hand in hand. That is to say, the more informed our licensees are about real estate practices, the less likely they are to harm consumers through their incompetent or negligent acts. But, as we an know, education has its limits. It is, of course, the conscientious and well-intentioned licensee who generally seeks advice and assistance. The persons who need assistance the most are generally the ones who are least likely to ask for it. And this is where our investigative and legal staff come into the picture.
In addition to two non-attorneys who work in the Information Section of our Legal Division, we have.three attorneys and a support staff. Our Legal Counsel is actually a member of the Attorney General's staff who, through an arrangement approved by the General Assembly in 1975, works almost exclusively for the Real Estate Commission. This arrangement has worked extremely well. In addition to providing general legal counsel to the Real Estate Commission, our attorneys also play an active role in our enforcement program. During Calendar Year 1989, the Commission received 864 formal complaints against real estate brokers and salesmen, and this year we are anticipating approximately 1,000 complaints.
Complaints come to us from several sources: We, of course, receive complaints directly from consumers; complaints are referred to us by other governmental agencies such as the Consumer Protection Section of the Attorney General's Office, and from private trade organizations such as the local Boards of REALTORS; and we uncover violations as a result of auditing real estate trust accounts and from investigating consumer complaints on totally unrelated charges.
With regard to complaints from consumers, the Commission believes that in order to carry out its responsibilities to the public, the public must be aware of the existence of the Real Estate Commission and its functions. That is not to say that the Commission seeks publicity. However, we do try to maintain contact with consumer organizations such as the Better Business Bureaus; we publish materials which are furnished to consumers; and we try to maintain a cooperative working relationship with the media. Also, in order to increase public awareness of our efforts to regulate the real estate business, we issue a news release and notify local Better Business Bureaus whenever we suspend or revoke a real estate license.
As to complaints referred to us from other organizations' I should mention that, although the Real. Estate C - mission is careful to maintain an "arms length" relationship with real estate trade organizations, the Commission recognizes the need to have the cooperation of these organizations in order to identify those practitioners—their members—who are engaging in questionable practices Likewise, we notify local trade associations regarding any hearings which are scheduled in their area as well as the outcome of the hearings.
Perhaps the most serious violations which we have encountered are a result of our trust account auditing activities and our investigation of complaints alleging other, unrelated violations. As I previously mentioned, the most common and serious problems which confront us involve the improper handling of client funds. As a result, the General Assembly in 1979 authorized us to perform unannounced "spot inspections" of real estate trust or escrow accounts (those accounts into which brokers are required to deposit earnest money deposits, tenant security deposits, rents and other client funds). We believe that "spot inspections" serve two purposes: First of all, by knowing that their trust accounts are subject to inspection by a Commission representative at any time, we feel that brokers are deterred from mishandling their trust funds. And secondly, by auditing the accounts, we can help brokers to correct any minor recordkeeping errors as well as uncover serious incidents of embezzlement or misapplication of funds.
Perhaps the most instructive way to explain our enforcement program is to briefly trace the processing of a complaint from the time it is received in our of lice until it is resolved:
Whenever a complaint is received in our office (whether directly from a consumer or otherwise) the complaint is analyzed by one of our attorneys to determine whether the subject matter of the complaint is within our jurisdiction, the seriousness of the allegations, and the nature and extent of any additional information which may be needed. If we conclude that a field investigation is warranted, our legal staff refers the case to our Director of Audits and Investigations. The Director of Audits and Investigations reviews the file and adds any special instructions to assist the investigator and/or auditor in investigating the complaint, and then assigns it to one of our two auditors or four investigators for investigation. During Calendar Year 1989, 157 complaints were investigated by the Commission's investigators and auditors.
Once the investigation is completed, the investigator or auditor prepares and files a full report with the Director of Audits and Investigations who reviews the file and returns it to the legal staff for final evaluation. Each week, the Legal Staff meets with the Director of Audits and Investigations and me to review the status of pending cases, and each month the Commission is furnished a complete complaint status report. The Commission then determines whether, based upon the information at hand, probable cause exists of a violation of the Real Estate License Law or Commission Rules. [I might add that at this point, when the Commission is deciding whether to order a hearing, the names and addresses of the complaining parties and the Respondent brokers and salesmen are withheld to avoid the perception that the Commission members may be showing favoritism to a friend, a colleague, or themselves.]
If probable cause is found, a form is sent to the Respondent broker or salesman notifying him that the Commission has ordered a hearing and giving him preliminary information regarding the hearing procedures and related information. This is then followed by a formal Notice of Hearing prepared by our legal staff detailing the charges against the Respondent and indicating the time, date and place of hearing.
Between the time that the Respondent has been notified of the hearing and the hearing date itself, the Commission's attorneys will generally enter into negotiations with the Respondent or the Respondent's attorney to hopefully settle the case. Approximately 80% of the cases before the Real Estate Commission last year were settled without hearing. Only the Commission can accept a Settlement Stipulation, and this is done only if the Commission is convinced that the settlement is in the best interest of the public. If the Respondent or the legal staff is unwilling or unable to arrive at a settlement proposal, a hearing is held at which the Commission members act as a hearing panel. The proceedings am governed by the Administrative Procedures Act.
At the conclusion of the hearing, the Commission members consider the evidence and render their decision, ranging from dismissal of the charges, to reprimanding the licensee, or suspending or invoking the agent's mat estate license. The Legal Staff then prepays an Order which is, of course, subject to judicial review. During the past 3 years, the Commission has averaged taking 90 disciplinary actions per year.
In summary, we believe that the following should be a part of any effective enforcement program:
1. A comprehensive education program for persons entering the occupation or profession.
2. Education and information programs for persons already in the business which are targeted at specific areas.
3. A staff member or members available to answer questions from licensees and the public.
4. A willingness to raise the profile of the agency in order to increase the public awareness of its activities.
5. An "arms length" but cooperative working relationship with industry groups and open lines of communication with consumer organizations.
6. An efficient procedure for processing complaints.
7. A mechanism for screening complaints to determine the appropriate ways to resolve them.
8. Ready access to legal counsel.
9. A well-trained investigator or investigators with the authority to make random inspections of business of flees and practices.
10. A willingness to negotiate settlements of complaints, provided that they do not compromise the integrity of the enforcement program. ~