The California Department of Real Estate (DRE) and the Department of Financial Protection & Innovation (DFPI) just issued a joint bulletin warning real estate brokers and escrow companies about improper commission disbursements.
What’s the Issue?
Some brokers are asking escrow companies to pay their personal or business expenses directly out of their commissions. These payments have included credit card bills, tuition, rent, utilities, and even entertainment costs.
Why It’s a Problem
Escrow companies are only allowed to follow written instructions from the principals to the transaction—the buyer and seller. Brokers are not principals in an escrow. Sending commission funds to third parties (even with a CDA) may violate the Real Estate Law, Escrow Law, and federal RESPA rules.
What Brokers Need to Know
-
Commission payments should go directly to the broker.
-
Brokers must not direct payments to unlicensed individuals or businesses.
-
Escrow agents cannot change instructions or include blanks in signed escrow documents.
-
Broker-controlled escrows must follow the same rules—trust funds must only be disbursed as directed by the party who deposited them.
What Happens if the Rules Are Broken?
The DRE and DFPI say they will investigate violations and referral fee arrangements that may be unlawful.
To stay compliant and protect your license, ensure that all commission payments follow written instructions from the principals and go to you, not outside vendors or individuals.