The Inactive Licensee, the Cash Referral, and the Commingled Deposits
Dana is the principal broker of a 14-agent firm with a property-management division. Evan, one of her agents, let his license go inactive in March after skipping his continuing education, but he still hosts open houses and negotiates buyer offers, splitting his usual 3% with the firm. Tia, Dana's unlicensed marketing assistant, fills out a state-approved REPC for a buyer and tells him, 'Commission is negotiable, but we usually get the seller to pay 3% for Evan.' Evan pays Tia $250 cash from his commission for each buyer she brings in. Separately, the property manager deposits $38,000 in tenant security deposits and last month's rent into the firm's operating account, saying the trust account's bank fees are 'not worth it.' A cooperating broker also claims a commission on a listing that expired in June but that Evan keeps advertising.
1. Identify the violations and who bears responsibility for each.
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- Unlicensed activity - Evan. With an inactive license he may not perform any act requiring a license: hosting open houses as an agent, negotiating, or accepting a commission split for brokerage activity.
- Permitting unlicensed activity - Dana. A principal broker is responsible for the acts of everyone in the office, licensed or not, and must not allow an inactive licensee to practice.
- Paying compensation to an unlicensed person - Evan and Tia. An unlicensed assistant may do clerical work (delivery, scheduling, advertising, data entry) but may not be paid a per-transaction fee for brokerage services. $250 per buyer is a referral fee to an unlicensed person.
- Unlicensed exercise of judgment - Tia. Completing a REPC for a buyer and quoting who pays what commission is not clerical; contract preparation and commission terms are brokerage acts.
- Commingling - the property manager, imputed to Dana. Trust funds held in the operating account.
Exposure runs to a complaint at the Division of Real Estate (under DOPL), investigation, fines, reprimand, suspension or revocation, restitution, and civil liability. Renewing the license later does not cure past unlicensed acts.
2. What must happen with the $38,000, and how should the firm correct it?
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Tenant security deposits and rents are trust funds. They belong in the broker's real estate trust account, not the operating account, and they are never the broker's money to spend. The 'bank fees' rationale is irrelevant - the cost of compliance is a cost of doing business.
Correction: (1) open or properly designate a trust account with the bank and the broker as trustee; (2) move the full $38,000 immediately and do not use operating funds to paper over shortfalls; (3) build a per-tenant, per-property ledger showing deposits, rents, and any lawful deductions, reconciled monthly to the bank statement; (4) document the correction, dates, and amounts; (5) consult the firm's attorney and consider self-reporting to the Division; (6) keep security deposits segregated from owner operating funds so a tenant's deposit is never spent on the owner's expenses. Deposits must be returned per the lease and Utah's deposit-return and itemization rules.
3. What should Dana do about the expired listing and the cooperating broker's commission claim?
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Stop advertising now. The seller's written authorization ended with the listing; continuing to market the property misrepresents the firm's authority and interferes with the new listing broker's exclusive right to sell. Pull the ads and MLS remnants, and confirm in writing to the new broker that marketing has ceased.
On the commission: procuring cause is a fact question, not a license-law question. Ask (a) whether the expired listing had a protection/extension clause and whether this buyer falls inside it; (b) whether Evan actually introduced the buyer and the purchase was the uninterrupted result; (c) what the seller's new listing agreement says about the fee and cooperating compensation. Resolve broker-to-broker first, in writing; if both firms are REALTORS®, use the local board's arbitration; litigation is the last resort. The Division of Real Estate does not arbitrate commission disputes, but it does care about advertising without authority and misrepresenting the firm's agency.