The Increasing Cost of Misconduct (#544)

Prior to September 30, 2016 the Real Estate Service Act (Act) limited monetary penalties for brokerages and licensees to $20,000 and $10,000 respectively. However, as of September 30, 2016, the Legislature amended section 43(2)(ii) of the Act to allow for monetary penalties of up to $500,000 in the case of brokerages and $250,000 in any other case. In previous articles, I wondered when we would start to see the impact of these increased penalty limits. A review of the most recent discipline decisions of the BC Financial Services Authority (BCFSA) (formerly the Real Estate Council of BC) suggests that time is now.

Here is a list of some of these recent decisions revealing significant monetary penalties, suspensions and license cancellations:

  1. A licensee, by way of consent order, was given a six month suspension with a discipline penalty of $16,268 and enforcement expenses of $1,500.1

  2. A licensee’s license was cancelled with a prohibition against reapplying for a minimum of two years.2 In addition, the licensee was ordered to pay their clients $17,015 in commissions received and a further $1,500 in enforcement expense.

  3. A licensee whose licence had already been under suspension for four years was prohibited from re-applying for a new license for an additional year, was required to pay a discipline penalty of $45,000 and $50,000 in enforcement expenses.3

  4. A licensee had their license cancelled with no ability to reapply for five years, a discipline penalty of $23250 and enforcement expenses of $51,563.4

What can be learned from these decisions?

The enforcement expenses of the last two examples were significantly higher because they went to a full hearing rather than resolution by consent order. In the latter two cases, the Discipline Committee posted written reasons for the sanctions and penalties imposed which provide some insight into how appropriate sanctions and penalties are arrived at.

Although the facts and circumstances of each individual discipline case differ, the BCFSA has published Sanction Guidelines which assist individual Discipline Committees in their deliberations and decisions.

The Sanction Guidelines make it clear that the overriding principle behind licensee discipline is the protection of the public by:

  1. Discouraging misconduct
  2. Preventing future misconduct by specific licensees through
    1. corrective measures
    2. punitive measure
  3. Preventing future misconduct by other licensees through example

The Sanction Guidelines also suggest that a Discipline Committee may consider a variety of aggravating and mitigating factors including:

  1. Licensees age and experience
  2. Discipline history
  3. Nature and gravity of misconduct
    1. did misconduct involve fraud, dishonesty or deception
    2. vulnerability of affected persons
    3. was conduct knowingly, recklessly or wilfully blind to rules or standards
    4. duration or pattern of misconduct (ie. isolated or repeated, pervasive or systemic)
    5. if and to what extent licensee has obtained or attempted to obtain a financial benefit
  4. Extent of harm to client or public
  5. If licensee relied on legal or professional advice
  6. If the licensee has
    1. acknowledged and accepted responsibility
    2. voluntarily taken measures to compensate or mitigate impact on others

Consequences are not just monetary

In addition to the discipline cases cited above, there were several qualification hearings where an applicant must convince the BCFSA that they were “of good reputation and suitable to be licensed.” It is apparent from these decisions that becoming licensed again after a period of cancellation is by no means a certainty. One was refused5, and one was accepted on their second attempt with a series of significant restrictions6 (ie. direct supervision, weekly reporting to their managing broker, prior approval of managing broker before providing some real estate services and quarterly reports from managing broker to BCFSA).

It is apparent from these recent decisions that the cost of misconduct is increasing. Of course, the simplest way of avoiding disciplinary problems and the possibility of significant fines, suspensions or even license cancellation is to know the law, the Act and the Real Estate Rules, to keep abreast of changes to BCFSA guidelines and policies and to always conduct yourself in a manner that is beyond reproach, particularly with vulnerable clients and consumers. In addition, it might be instructive to review the BCFSA discipline decisions as they are released to give you an idea of what conduct is unacceptable and what sanctions and penalties you might expect if you engaged in such conduct. Remember that one of the underlying principles of licensee discipline is so that licensees might learn from the mistakes of others.

Finally, if you are found to have conducted yourself inappropriately, acknowledge and accept responsibility for your actions and hope that BCFSA will choose to address your misconduct through corrective rather than punitive measures.

  1. BCFSA Consent Order June 9, 2021 Lau
  2. BCFSA Consent Order October, 22 2021 Ayala
  3. BCFSA Discipline Decision September 13, 2021 Bratch
  4. BCFSA Discipline Decision September 22, 2021 Chonn
  5. BCFSA Qualification Hearing September 16, 2021 Applicant 2
  6. BCFSA Qualification Hearing September 16, 2021 Applicant 1

Land Owner Transparency Registry Filing Extended to 2022

The Land Owner Transparency Registry (LOTR) filing deadline has been extended to November 30, 2022, without incurring penalties. This extension gives reporting bodies with interests in land more time to file a transparency report. 

According to the BC government, they “heard from legal professionals in BC that pre-existing owners need more time to gather information about ownership and prepare to file with the registry.” 

In addition to the new deadline, Realtors should be aware of these requirements and advise their clients to speak to legal professionals for more details. 

Since April 30, 2021, the LOTR has been a publicly searchable registry of records about individuals who have an indirect interest in land held through corporations, trusts and partnerships. LOTR aims to address housing affordability, end hidden ownership and crack down on fraud and money laundering in the province. The Land Title and Survey Authority administers the LOTR under the Land Owner Transparency Act (LOTA). 

For more information about the LOTR and LOTA, here are some resources: 

Conflicts of Interest: Sound Judgment Required #543

 

 

As Brian Taylor summarized in his February 26, 2021 Legally Speaking article, Learning from an RECBC Discipline Decision #535, the disciplinary landscape for real estate professionals changed dramatically in September 2016.

Most starkly, fines and penalties were greatly increased by the then regulator, the Real Estate Council of BC (RECBC).

But there is no need for panic. 

As Brian rightly cautions, very few real estate transactions end up in any type of discipline action.  When they do, they are no doubt of great importance to the licensees involved and can provide learning points for licensees across the province. 

Often, a disciplinary decision, or a consent order (now handed out by the new regulator the BC Financial Services Authority) offers a look into what the regulator expects of licensees.  I theorize, perhaps not that scientifically mind you, that conflicts of interest matter to the regulator, due in no small part because of it being of importance to the public. Furthermore, it appears if a licensee is found to be in a conflict, that may impact the level of sanction imposed.

Three disciplinary decisions of note were released in September 2021. They each had large sanctions and a common thread. Let’s explore these decisions.

1. Acting in conflict

First, a licensee had their licence canceled, with no ability to reapply for five years, incurred a disciplinary penalty of $23,250, was ordered to pay enforcement expenses in the sum of $51,563.45, and had various other orders imposed including a requirement to be the subject of enhanced supervision for a period of two years if they became re-licensed[i].

Let’s examine the findings of the discipline committee.

The licensee was involved in the sale of a multi-use property in 2016.  He listed the property at that time through his brokerage. During the course of the listing, he moved brokerages.  He did not report the sale to the relevant brokerage at the time. Effectively, he completed the transaction outside of the brokerage.  

He did not inform the sellers of his role as a limited dual agent, nor did he have them sign the related Limited Dual Agency Agreement.

He did not clearly explain his role, the remuneration, or other matters to the sellers particularly where there was a conflict of interest.

He did not recommend the clients get legal advice (see my Legally Speaking article Beyond Your Expertise: When to Recommend Clients Get Legal Advice #531).

The discipline decision held, amongst other things, that the licensee had committed professional misconduct, committed conduct unbecoming of a licensee and brought the real estate industry into disrepute.  In doing so the licensee was found to be acting in his own interests and not in the best interests of each of his clients.

The decision and stiff sanction were likely aggravated by the fact that in originally acting for the sellers and then becoming an undisclosed dual agent:

  • he prepared a contract of purchase and sale for the property with his wife as the buyer,
  • the deal called for a vendor take back mortgage in this unique situation, and
  • the licensee and his wife moved into the property prior to completion, without paying rent and while the seller still lived at the property.

The decision provides a clear example of a classic (and avoidable) conflict of interest and conduct unbecoming a licensee.

2. Putting consumers at risk

Second, a recent decision of the discipline committee ordered a disciplinary penalty in the amount of $45,000, enforcement expenses of $50,000, a one-year suspension and further administrative orders and sanctions.[ii]

The findings?

In short, the sanctions were ordered as the licensee was found in multiple transactions to be acting in a conflict of interest and committed misconduct and conduct unbecoming of a licensee where they:

  • approached and convinced owners facing foreclosure to engage in a rent to own program on terms that were disadvantageous for the owners;
  • purchased the properties at a price less than the assessed value;
  • purchased the properties in the licensee’s or his wife’s, or her company’s name;
  • rented the properties back at higher than market rental; and
  • had the owners execute an option agreement where default meant the option to repurchase was lost.

All without recommending legal advice in writing.

The decision was clear that the program was not illegal but simply disadvantageous to the owners, many did not receive legal advice, and many believed the licensee was acting on their behalf or were at least confused on representation.

The decision recounted that the regulator’s primary mandate is to protect the public and that the type of conduct the licensee engaged in put consumers at risk in a situation where the licensee stood to profit from the program while the owners took on the majority of the risk.

Can you spot the common thread of conflict of interest and conduct unbecoming of a licensee being a magnet for sanctions?

3. Acting for yourself

Third, a decision with sanctions of a one-year suspension, enforcement expenses in the sum of $150,000 and related administrative sanctions[iii]

The findings?

In this case the disciplinary findings were that the licensee labelled herself as seller’s agent despite there being a dual agency agreement, failed to disclose to buyers the full amount of commission, failed to disclose everyone on the team, and, most importantly, amended listing documents for the brokerage without its consent and without providing copies to the brokerage.

The decision held that the licensee had provided services for two different brokerages during the relevant time and had entered into listing agreements for several properties. The decision found that the licensee failed to follow the instructions of sellers to cancel several listings, signed cancellations of listings on behalf of sellers without their consent, and did not explain the impact of such cancellations – including that the property cannot be relisted within 60 days of cancellation.

The licensee was found to have altered listing agreements without the consent or knowledge of the managing broker. Specifically, she was suspected of either using a photocopy of the managing broker signature or the managing broker’s signature on a blank amendment form to amend listings

In finding, again, professional misconduct and conduct unbecoming a licensee, the decision touches on the fact that the licensee was switching brokerages during the course of the listings, was in a dispute with the old brokerage and wanted to take the listings with her so she amended listing forms largely to accomplish that purpose.

Again, a situation of conflict of interest that could easily have been avoided.

Conclusions

You can and should review these decisions and come to your own conclusions.

My conclusion is the penalty for simple errors, as evidenced by reviewing discipline decisions and consent orders for the past year, is far exceeded by the penalty and sanctions for matters where a licensee puts themselves in a conflict placing their own interests ahead of their client, the industry, or the public (a looking glass into what the regulator likely values).

Conflicts of interest hurt clients and appear to be a source of higher sanctions from the regulator.

Put simply, clients come first.  As a professional your interests are always secondary.

[i] RECBC Decision re Chonn September 22, 2021
[ii] RECBC Decision re Bratch September 13, 2021
[iii] RECBC Decision re Yang September 8, 2021