California is well known for its strict licensing compliance requirements for real estate brokers and lenders. The DRE Compliance Manual outlines key regulations, including the requirement that each loan involving a California property must be made or arranged by either CFL licensed lender or a DRE licensed broker. DRE brokers who work outside of this scope must also consider other licensing requirements, including an originator endorsement to be able to originate loans and licensing for any DBAs they use. A DRE license is also location-specific, so brokers working at multiple locations must obtain a license for each.
Brokers cannot do it all, so many brokers also must consider licensing regulations for their employees and contractors, including broker associates, salespersons, and independent contractors. In general, if the employee is involved with negotiations or works independently of the broker, then they must also hold a real estate license. Only true employees, who are not involved in negotiations and whom the broker supervises and exercises direction and control over, can proceed without a real estate license.
The DRE Compliance Manual: Business and Reporting Requirements
Licensing is just one portion of a broker’s business that the DRE controls. The DRE Compliance Manual also provides guidelines for other business aspects, including document retention, advertising, business activity, and mortgage call reports. Brokers must retain all documents involved in a transaction for at least three years under the DRE guidelines, except self-dealing statements, investor qualification statements for hard money loans, and information used to determine investor suitability for private lenders, which brokers must retain for at least four years.
Brokers may also advertise their services, so long as the advertisements are not false, misleading, or deceptive, and include their DRE license number. Other information, such as the loan APR, loan amount, and loan term associated with a certain advertisement may be required, depending on the content being advertised.
The DRE Compliance Manual additionally requires brokers to submit certain reports annually, including a Business Activity Report. If a broker also originates loan, they must also submit a Mortgage Call Report on a quarterly basis.
Brokers may choose to also act as a lender for certain loans they originate. Generally, California requires any person who makes eight or more loans from their own funds in a calendar year to hold a broker license when the loans are held or resold and secured by a 1-to-4 residential dwelling. Certain transactions are not counted towards this though, if the negotiating broker qualifies as a threshold broker. Brokers acting as lenders must also comply with the requirements of Regulation 2844, which covers lending practices related to risk management, underwriting standards, control systems, and consumer protections.
Brokers acting as a lender also have additional reporting requirements imposed by the DRE. If the broker, acting in a lender capacity, (1) has assets of $10 million or less; (2) regularly funds real estate loans; and (3) makes 10% or more in qualified loans, they are likely obligated to file a Residential Mortgage Loan Report (RE857) with the DRE on an annual basis. The reporting deadline for each year is March 31 of the following calendar year. Some brokers may be exempt from this filing if they file a similar report on the federal level under Regulation C of the Home Mortgage Disclosure Act (HMDA).
How Geraci Can Help with DRE Compliance
Navigating the complex DRE requirements can be a challenge that Geraci is here to help with, whether working with our attorneys or utilizing our Compliance Toolkit. Contact our team today if you have any questions or concerns about your compliance with the requirements outlined in the DRE Compliance Manual.
