What triggers a compliance audit by a regulator? Well, based upon over 30 years of experience we feel it can start with a disgruntled employee that is no longer with your company.
This is almost a gold plated guarantee since the employee is an insider and has great credibility with a regulator like the California Bureau of Real Estate coming from an insider.
Trust accounts are a very vulnerable spot and a majority of violations are found for noncompliance.
We have seen checks deposited into general accounts as opposed to trust accounts for appraisals and other third party costs. I have even had an audit where the broker was writing checks from the trust account to pay personal bills and the audit was triggered because he was attempting to renew his license with a trust account check which was rejected and the regulator at the time set his company for an audit.
For example, in California, the trust account must have the words "Trust Account" or "name of beneficiary then Trust Account." This must be on the signature card as well as on the checks.
Additionally without exception the designated officer-broker for the company must be a signatory to the trust account. Others can be added but only according to certain guidelines as set forth in the CalBRE commissioners' regulations.
When it comes to marketing compliance, check to make certain loan originators are not creating marketing tools that are not pre-approved by the internal compliance officer.
Remember, whether you know about it or not, the corporate broker and the designated officer are completely responsible for all forms of advertising. For example, loan originators representing themselves as bankers or direct lenders is false advertising and whether the owners know it or not, if done the company will be disciplined.
Google your company name to verify all advertising has been pre-approved and is not in violation. Better you do it first before the Bureau of Real Estate or the Division of Corporations does and they issue a violation against the company.
Validate through the CalBRE website that all salespersons on the website are still with your company and that the ones with your company are all on the website, It is one of the first things the auditors look for before they contact you.
These are a few of the causes for an audit.
A mock compliance audit by us or anyone else is the best way for your company to proceed. It costs are based upon the size objectives of your company but is certainly less expensive than losing the company's license to originate mortgage loans and being put out of business.
Depending on the size of your company you should absolutely have an internal compliance officer with a manual to work from. This can be prepared by the attorney for the company.
Use a manual as a guide and at least go through it every three months and recheck. Better to spend the time checking for compliance than paying an attorney to defend the license that allows you to make a living.
Be aware, the rules are in a continual state of flux. For example the new loan estimate and closing statement go into effect on Aug. 1, 2015. Are you prepared? Do you know the content? Do you know if the broker is completing the loan estimate and the creditor is unknown, then the entry at top of page 1 is blank? This is just the start.
