TOP 12 FREQUENTLY ASKED QUESTIONS ABOUT THE CALIFORNIA DRE CONSUMER RECOVERY ACCOUNT.
Okay, here’s the situation. You got into a dealing with a California real estate licensee (broker or salesperson) in a transaction requiring a real estate license (for example a mortgage loan refinance, or purchase or sale of a residential or commercial property). During the transaction, let’s say the broker commits various acts of intentional fraud (ex. intentionally failing to disclose serious defects in the property so the house could be sold).
Afterwards, the aggrieved party files a civil lawsuit or arbitration to seek redress for the broker’s breach of fiduciary duty, fraud, and other causes of action typical in a real estate fraud lawsuit. Next, the case moves to final judgment (sometimes on a default judgment) and the Plaintiff seeks to collect on their damage award.
However, there is a glitch, the Plaintiff is not able to locate any assets of the broker or to find any way to collect on the judgment. What is the Plaintiff to do? This is just one type of scenario.
This is where the California DRE Consumer Recovery Account MAY come in to assist you in collecting on at least part of your judgment.
What is the DRE Consumer Recovery Account?
The California DRE consumer recovery account was established in California in the year 1964. It was designed as a means to help people who were victims of California fraud or misappropriation of trust funds to find a way to recover some of their damages suffered in the event a civil money judgment (following a civil lawsuit or real estate arbitration).
You can find information about the DRE recovery account here at the DRE website.
Who pays into the DRE Consumer Recovery Account (i.e. where does the recovery account money come from)?
When people become licensed brokers and sales agents in the State of California a portion of their fees goes into the DRE consumer recovery account. This helps keep the well filled with water for fraud victims. One other way money goes into this account, is when a broker or salesperson is charged with an “Accusation” (a legal complaint against a California real estate licensee that seeks to revoke or suspend a DRE real estate license) and they end up settling the case with the DRE, certain fines and monetary penalties may go to fund the DRE recovery account.
How much can be recovered from the California DRE Consumer Recovery Account?
Currently, the set amount is $50,000 per transaction and $250,000 maximum per licensee. These numbers are always subject to charge.
NOTE: As set forth in the statute (California Business & Professions Code Section 10471), the applicant can only recover losses that:
“represents an actual and direct loss to the claimant in the transaction.”
Also, this is pulled directly from the RE 807 application for the DRE recovery account:
“By statute and decisional case law, only a claimant’s “actual and direct loss,” plus interest at the legal rate from the date of loss, and court costs, are payable from the Consumer Recovery Account. Therefore the actual and direct loss may differ from the amounts awarded in the judgment. Actual and direct loss usually does not include such things as loss of anticipated profits and attorney’s fees, and never includes punitive damages. The following questions must be answered in order that it may be determined whether the amounts sought to be paid from the Consumer Recovery Account are allowable.”
Where can I find the application to apply for the DRE consumer recovery account?
Here is a link to the instructions for applying for the DRE recovery account. To avoid hassles, you may want to consider hiring a California Real Estate lawyer to assist you in preparing the paperwork and dealing with the DRE on your case. Typically, we can set up a hybrid fee arrangement, but it depends on the facts of your case.
Does the DRE have a phone number to get more information about the recovery account process?
Absolutely! Try this number which is pulled off the DRE information sheet for DRE recovery account applicants.
What are the basic requirements to determine whether or not I qualify to seek a consumer recovery from the DRE consumer recovery account?
This was pulled off the client instruction sheet and gives you a general idea of the types of things you will need to show:
- A final judgment or criminal restitution order (CRO) based on fraud, misrepresentation, deceit, made with intent to defraud; or conversion of trust funds;
- The judgment must be based on a transaction in which the judgment debtor/licensee was licensed at the time, and was performing acts for which a real estate license was required;
- Diligent pursuit of any assets of all judgment debtors;
- Diligent pursuit of any other person who may have been liable in the transaction;
- Filing of the application with the Department of Real Estate no more than one year after the judgment became final or the CRO was issued;
- The underlying judgment and debt must not have been discharged in bankruptcy; in the case of a bankruptcy proceeding that is open at the time of filing of the application, the judgment and debt must be declared to be nondischargeable; and
- A statement by the claimant, signed under penalty of perjury, that the complaint upon which the underlying judgment is based was prosecuted conscientiously and in good faith or that, in the case of a CRO, claimant has not failed to pursue in a civil action all persons liable to the claimant in the transaction, except a criminal defendant subject to the CRO. See Part IX of the attached Instructions to Claimants (RE 807) for a definition of the phrase “conscientiously and in good faith.”
NOTE: there are TWO important things to take into account here.
(1) if you get a judgment against a California real estate licensee and they go into bankruptcy to try to discharge the debt, and if you are listed as a creditor (or even if you are not), you will want to challenge the debt as non-dischargeable, most likely in an adversary proceeding in the bankruptcy court. If you don’t, and if the debt is discharged in bankruptcy, you will find yourself in a very tough situation. So this is something to consider. If you are not listed on the schedules as a creditor, you may have an opportunity to challenge this, but keep in mind, you are talking more legal week, and probably more legal fees. So this is just something to be aware of.
(2) There is a statute of limitations (time limits on which you must file your claim). If you miss the deadline, you will most likely be out of luck. As set forth above, you must file your DRE consumer recovery account action within one year of the final award/order/judgment. Do not lose sight of this critical deadline.
Is there a California statute that deals with the DRE consumer recovery account?
But of course. Check California Business & Professions Code Section 10471.
Should I hire a California Real Estate Lawyer to represent me in seeking to recover form the California DRE recovery account?
That is your choice. Normally, an Attorney will be more adept in dealing with the types of things the DRE is looking for. For example, in 10471, some specific requirements for recovery are set forth:
(b) The application shall be delivered in person or by certified mail to an office of the department not later than one year after the judgment has become final.
(c) The application shall be made on a form prescribed by the department, verified by the claimant, and shall include the following:
(1) The name and address of the claimant.
(2) If the claimant is represented by an attorney, the name, business address, and telephone number of the attorney.
(3) The identification of the judgment, the amount of the claim and an explanation of its computation.
(4) A detailed narrative statement of the facts in explanation of the allegations of the complaint upon which the underlying judgment is based.
(5) (A) Except as provided in subparagraph (B), a statement by the claimant, signed under penalty of perjury, that the complaint upon which the underlying judgment is based was prosecuted conscientiously and in good faith. As used in this section, “conscientiously and in good faith” means that no party potentially liable to the claimant in the underlying transaction was intentionally and without good cause omitted from the complaint, that no party named in the complaint who
otherwise reasonably appeared capable of responding in damages was dismissed from the complaint intentionally and without good cause, and that the claimant employed no other procedural means contrary to the diligent prosecution of the complaint in order to seek to qualify for the Consumer Recovery Account.
Many people would rather have an attorney handle all of this. Contact us to discuss a potential fee arrangement and to see if your case qualifies to pursue a recovery account.
Is there a statute of limitations for seeking to recover money damages from the California DRE recovery account?
Yes, as mentioned above, you have ONE YEAR to file your claim from the date of the final judgment/order. Make sure you do NOT MISS this date.
What other types of things will an applicant have to show to try to recover from the California DRE recovery account?
Here is more language pulled directly from B & P 10471:
(C) That the judgment underlying the claim meets the requirements of subdivision (a).
(D) A description of searches and inquiries conducted by or on behalf of the claimant with respect to the judgment debtor’s assets liable to be sold or applied to satisfaction of the judgment, an itemized valuation of the assets discovered, and the results of
actions by the claimant to have the assets applied to satisfaction of the judgment.
(E) That he or she has diligently pursued collection efforts against all judgment debtors and all other persons liable to the claimant in the transaction that is the basis for the underlying judgment.
(F) That the underlying judgment and debt have not been discharged in bankruptcy, or, in the case of a bankruptcy proceeding that is open at or after the time of the filing of the application, that the judgment and debt have been declared to be nondischargeable.
(G) That the application was mailed or delivered to the department no later than one year after the underlying judgment became final.
(d) If the claimant is basing his or her application upon a judgment against a salesperson, and the claimant has not obtained a judgment against that salesperson’s employing broker, if any, or has not diligently pursued the assets of that broker, the application shall be denied for failure to diligently pursue the assets of all other persons liable to the claimant in the transaction unless the claimant can demonstrate, by clear and convincing evidence, either that the salesperson was not employed by a broker at the time of the transaction, or that the salesperson’s employing broker would not have been liable to the claimant because the salesperson was acting outside the scope of his or her employment by the broker in the
Is this judgment debtor / licensee notified that I am filing an application to the DRE recovery account?
Yes. You are required to serve your application on the real estate licensee (who must have had a real estate license at the time of the transaction giving rise to the claim). And they have an opportunity to respond. The reason for this is simple, the licensee will LOSE THEIR LICENSE if the DRE pays out of the recovery account, and they cannot re-obtain their license unless and until they repay the recovery account funds + 10%. So yes, they have a chance to respond as outlined in their instruction sheet:
Judgment Debtor Response
The judgment debtor has the opportunity to respond and object to any payment. If the judgment debtor files a response, which must also be served on the claimant, the claimant and judgment debtor will be given the opportunity to submit written argument.
What happens after an application to the California DRE consumer recovery account is made?
The Department has 15 days within which to notify the claimant of any deficiencies in the application. Once the application is substantially complete, the Department has 90 days in which to make a decision whether and how much of the amount claimed should be paid. The claimant will be notified by the Department when the application is substantially complete, and will also be notified of the final decision on the application.
Do I have any other recourse of the DRE denies my claim for money from the consumer recovery account?
Yes. According to their instruction sheet:
“If the application is denied, the claimant will have six months from mailing of the notice of the denial to file a verified application in court. If the decision is to make a payment, a judgment debtor who has filed a response has 30 days after receipt of the notice to petition for a writ of mandamus for a judicial review of the suspension of his or her real estate license which would result from a payment.”
This should give you a basic understanding of how the California DRE Consumer Recovery Account works. If you have obtained a final judgment against a California real estate broker or licensee, and have tried to identify assets and sought to recover from all parties that may be liable in the real estate transaction and you are within one year of the final judgment, (and assuming the debt has not been discharged in a bankruptcy court) then the DRE consumer recovery account may be one option to look at.