State Agencies Issue Communications on Real Estate Commission Disbursements

On June 30th, the Department of Financial Protection and Innovation (DFPI) and Department of Real Estate (DRE) issued a joint notice expressing concern about a business practice in which a real estate broker instructs a settlement agent through a Commission Disbursement Authorization (CDA) to pay the real estate broker’s personal or business expenses or an unlicensed entity or individual who may have engaged in activity requiring a license in a real estate transaction.

The notice stated that California’s Real Estate Law and Escrow Law protects the interests of all parties and ensures transparency, fairness, and integrity in real estate and escrow transactions, but that disbursements of earned commissions to pay a real estate broker’s personal or business expense, or to pay someone who may have engaged in unlicensed activity, contravenes those core principles and may violate provisions of the Real Estate Law and Escrow Law. Thus, if a seller or buyer authorizes an escrow agent to pay a real estate broker commission on a written commission authorization, the escrow agent should follow the principal’s instructions to pay the commission to the broker. To do otherwise is a violation of the Escrow Law.
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On July 24th, the DFPI and DRE announced they would be following up with more information pursuant to questions/concerns the agencies had received regarding the initial notice.