6 Jan

Whether you are a real estate broker or agent, appraiser or other professional licensed through a state agency, such as the Department of Commerce, knowledgeable representation is critical once you are notified of a pending investigation.  A single conversation, whether over the phone or in-person with a state investigator, can have serious consequences which can ultimately lead to the loss of a professional license.

Agencies such as the Minnesota Department of Commerce (“DOC”) are responsible for the licensing of many professionals and enforcing the statutes governing those professionals.  The DOC has wide-ranging powers, such as subpoena powers, ability to compel attendance at interviews under oath, and unannounced visits to a licensee’s business. Failure to comply with the investigation is in and of itself a violation of statute which can lead to penalties such as license suspension or revocation.  Agents or brokers called upon to respond to a DOC investigation need to immediately contact legal counsel, as every statement made to a DOC investigator can be used by the investigator to support their case against the broker or agent. An innocent admission as a way of showing sincerity to the investigator can be used against the professional in a subsequent proceeding.

A broker should inform agents that if they are contacted directly by a DOC investigator, to immediately state that they want their broker to participate in the conversation. The agent, or in a subsequent conversation the broker, should ask the investigator what transaction is the subject of their inquiry.   The broker should then retrieve that file and then review it with legal counsel to determine which areas could be subject to inquiry by the DOC. Neither the broker or agent should communicate with the investigator without first reviewing the transaction file nor speaking to legal counsel as even an innocent omission or misstatement can be used in a subsequent proceeding.  If the investigator requests the file the broker should provide it but retaining the original or a copy of the entire file is essential.

Legal counsel can assist in outlining the possible ramifications of the investigation and also act as a conduit of information to assisting in communicating accurate and requested information. Legal counsel can also make sure the investigative process is not abused.  The attorney can also assist in negotiations and provide advice of what could occur moving forward if the investigation reveals an alleged violation of Minnesota law.

In many cases, the DOC investigator has already done some level of inquiry prior to making contact with the broker or agent.  The contact may be made to confirm a fact or seek an admission. It is important to understand the implications of what may be said before it is actually said. Therefore, it is important for the broker- and agent to be aware that the communication from the DOC investigator is not just an innocent phone call.

The DOC has the authority to pursue the suspension or revocation of a broker or agent’s license.  Without a license the broker and agent are out of work. It is surprising that given the potential harsh outcome of an investigation by the DOC how many brokers and agents “go it alone” and do not seek legal counsel’s assistance. They may believe that they did nothing wrong and that will always save them. It sometimes is the belief that if they have an attorney the DOC will think they did something wrong. Or possibly, my personal favorite, the DOC works for brokers and agents and they will not do anything bad to them.  This is made even more surprising by the fact that brokers and agents do not feel any reluctance to contact legal counsel when they are sued by a disgruntled seller or buyer in a transaction when the worst possible consequence in that instance is the award of money.  Usually the award is covered by E&O insurance but they can still continue to have their license.

With the DOC investigation, the stakes are higher but brokers and agents appear to have less of a sense of the importance in having legal counsel involved. This, I can tell from my over 20 years of experience, is a mistake. The revelation to a broker or agent that the DOC proceeding may result in their losing their license makes them realize that the consequences cannot be any greater. This is enhanced further when they learn that their statement (i.e. “I could have done that better” or “If I had to do it over I would have done it differently”) during a phone conversation the day they learned of the investigation is being used to support the DOC’s action seeking revocation of their license.

Brokers and agents should not try to go it alone.  Proper representation immediately upon contact by the DOC is critical to making sure that the matter is handled in the best possible manner for the broker, agent and brokerage.

David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).


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