California DBO Statement of Issues Overview - Call us at (877) 276-5084!
The California Department of Business Oversight oversees CFL licensing (California Finance Lender) and also California Residential Mortgage Lending. For persons and companies seeking CFL licensing, some hurdles to licensing may be:
- Making false statements on the application
- Being previously disciplined by the California Bureau of Real Estate ("BRE") - having a previous license restriction or revoked license.
- Having prior criminal convictions (felony or misdemeanor). Ex. DUI, drugs, drunk in public, etc.
The "general rule" is you cannot get a CFL license with a prior criminal conviction as DBO FAQ re CFL, the publication notes:
HOW DO I APLPY FOR A CALIFORNIA FINANCE LENDER LICENSE? For Companies Engaged in Residential Lending or Brokering:
In general, an applicant/licensee must: Broker must have and maintain a $50,000 net worth; Lender/Broker must have and maintain a $250,000 net worth Obtain and maintain a minimum of $25,000 surety bond.
The bond amount will be based on the amount of origination activities conducted by the licensee.
Have a history absent any criminal history or history of sanctions by any regulatory agency resulting from dishonesty, fraud or deceit.
Have a plan of business consistent with the business of finance lender. An application for a license under the California Finance Lenders Law for persons engaging in residential lending or brokering must be filed through the Nationwide Mortgage Licensing System (NMLS)."
But if you want to challenge this (and especially where there is no evidence of fraud, dishonesty, deceit), and are able to show the proper rehabilitation factors and compelling reasons why you should be entitled to a CFL, MLO, NMLS, brokers or salespersons license then hiring counsel may be your best bet. While we can never guarantee the outcome, you are entitled to set a hearing and fight for your license. If you don't challenge a statement of issues or denial, the outcome is certain - NO LICENSE!
Typical process (a hypothetical scenario)
Here is a sample case that provides a general overview of how these types of cases might arise with the DBO or BRE.
- A persons is convicted of a crime in California, or in another jurisdiction (ex. drunk driving, which may have been charged as a felony or misdemeanor "wet reckless."
- The licensee has a broker's license with the BRE and pursuant to the duty to disclose criminal convictions discloses the conviction.
- Based on the conviction, the BRE "restricts" the broker's real estate license (let's say the broker never challenges the restriction by requesting an administrative hearing after filing a notice of defense). Let's say the BRE finds the conviction to be "substantially related to the duties, qualifications and functions of real estate."
- The licensee then seeks a California Finance Lender's license ("CFL").
- The California Department of Business Oversight (formerly the Department of Corporations) oversee the CFL licensing process. Based on the action taken by the BRE, the DBO moves to deny the CFL license and issues a statement of issues and intent to dent.
- The broker is entitled to file a notice of defense and seek a hearing on the issue of denial. This is usually when our office would get a call for help from a real estate licensing lawyer.
What is a "statement of issues?"
The statement of issues is a document that the DBO will use to spell out what the issues are and the grounds want them wanting to deny you the CFL license. For example, the document may lay out grounds such as "violating consumer protection statutes." One statement of information I reviewed recently stated the broker had violated California business and professions code sections including:
475. (a) Notwithstanding any other provisions of this code, the provisions of this division shall govern the denial of licenses on the grounds of: (1) Knowingly making a false statement of material fact, or knowingly omitting to state a material fact, in an application for a license. (2) Conviction of a crime.
480. (a) A board may deny a license regulated by this code on the grounds that the applicant has one of the following:
(1) Been convicted of a crime. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of nolo contendere. Any action that a board is permitted to take following the establishment of a conviction may be taken when the time for appeal has elapsed, or the judgment of conviction has been affirmed on appeal, or when an order granting probation is made suspending the imposition of sentence, irrespective of a subsequent order under the provisions of Section 1203.4, 1203.4a, or 1203.41 of the Penal Code.
(2) Done any act involving dishonesty, fraud, or deceit with the intent to substantially benefit himself or herself or another, or substantially injure another.
(3) (A) Done any act that if done by a licentiate of the business or profession in question, would be grounds for suspension or revocation of license. (B) The board may deny a license pursuant to this subdivision only if the crime or act is substantially related to the qualifications, functions, or duties of the business or profession for which application is made.
10177. The commissioner may suspend or revoke the license of a real estate licensee, delay the renewal of a license of a real estate licensee, or deny the issuance of a license to an applicant, who has done any of the following, or may suspend or revoke the license of a corporation, delay the renewal of a license of a corporation, or deny the issuance of a license to a corporation, if an officer, director, or person owning or controlling 10 percent or more of the corporation's stock has done any of the following:
(a) Procured, or attempted to procure, a real estate license or license renewal, for himself or herself or a salesperson, by fraud, misrepresentation, or deceit, or by making a material misstatement of fact in an application for a real estate license, license renewal, or reinstatement.
(b) Entered a plea of guilty or nolo contendere to, or been found guilty of, or been convicted of, a felony, or a crime substantially related to the qualifications, functions, or duties of a real estate licensee, and the time for appeal has elapsed or the judgment of conviction has been affirmed on appeal, irrespective of an order granting probation following that conviction, suspending the imposition of sentence, or of a subsequent order under Section 1203.4 of the Penal Code allowing that licensee to withdraw his or her plea of guilty and to enter a plea of not guilty, or dismissing the accusation or information.
These are just some of the laws that may be cited. The statement of issues may then go on to state that they are taking into account the BRE findings of "substantially related" and argue that since the BRE made the finding, the DBO in essence adopts their findings and that this further supports denial of the CFL.
What crimes are "substantially related" to real estate?
Bonus Materials: Click on the picture above to be taken to the CalDBO website. As their website indicates, they look back 10 years at prior crimes and look to see if it is "substantially related" to the qualifications, duties and functions of a real estate lending licensee. To quote from their page:
“An application may be denied if any officer, director, general partner, or person owning or controlling, directly or indirectly, 10% or more of the outstanding interests or equity securities of the applicant has, within the last 10 years: (A) been convicted of or pleaded nolo contendere to a crime, or (B) committed any act involving dishonesty, fraud, or deceit, IF the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in the business of deferred deposit transactions.”
Fighting allegations of "substantially related is a key to success
When you are fighting for your real estate or lending license before the BRE or DBO (when you have a prior criminal conviction), you will often be dealing with an argument as to whether or not your crime was "substantially related" to the "duties, qualifications and functions" of the real estate profession. For example, if you committed forgery, the licensing authority may say "wow, this means you may forge real estate documents in the future....this is substantially related." This is just one example. If you have multiple DUI's or drunk driving convictions the regulatory agency may say "oh my, you will be driving clients if you get a real estate license, so this is substantially related to real estate." You can see there are some things that are closer than other, and in every licensing case involving a prior criminal conviction you will need to be prepared to address this argument.
DRUGS: There is a case from California, Brandt v. Fox, 90 Cal.App.3d 737 which discusses that there must be some "NEXUS" between the prior crime and the practice of real estate. Here is a critical holding from the case:
Section 480, subdivision (a), specifies the grounds for denial of a license and states in subdivision (a)(3) that "The board may deny a license pursuant to this subdivision only if the crime ... is substantially related to the qualifications, functions or duties of the business or profession for which application is made." (4) In view of the italicized language of section 475, subdivision (a), it is evident that the limitations imposed by section 480, subdivision (a)(3), were intended to control over a statute such as section 10177, subdivision (b), and that it was the aim of the Legislature to insure that licensing for a business or profession could not be barred for arbitrary reasons. It follows that the language of section 10177, subdivision (b) and the pre-1974 cases interpreting that section must give way to the mandate of section 480, subdivision (a)(3). Thus we find no merit to the People's claim that conviction of any felony or crime involving moral turpitude, however unrelated to one's qualifications for a particular occupation, furnishes grounds for denial of a license.
This case holds that there must be some "nexus" to the prior crime. Factors such as the following should be considered before denying a license:
- Was there fraud or dishonesty in the investigation, prosecution or commission of the crime.
- Rehabilitation factors met (changes in "attitudes and associations")
- Was the crime a one-time isolated occurrence?
- Is the defendant objectively remorseful?
- Is the incidence likely to happen again?
- Was the crime a long time ago?
- Was the crime expunged?
These are some of the factors which may help weigh in favor of licensing. Our real estate mortgage and licensing lawyers can help you make the case for licensing. This is even more important in drug, DUI, marijuana, cannabis and other types of crime cases which may have been a bad move made when the applicant was young, stupid, and running with the wrong crowd.
Who bears the burden of proof in a DBO administrative hearing?
The licensing agency ultimately bears the burden to prove you should not have a license, and they are required to have clear, convincing and substantial evidence. The DBO may rely on statutory language to deny you such as is stated under California Financial Code section 22109 et seq. which states:
"22109.1. (a) The commissioner shall deny an application for a mortgage loan originator license unless the commissioner makes, at a minimum, the following findings:
(1) The applicant has never had a mortgage loan originator license revoked in any governmental jurisdiction, except that a subsequent formal vacation of a revocation shall not be deemed a revocation.
(2) (A) The applicant has not been convicted of, or pled guilty or nolo contendere to, a felony in a domestic, foreign, or military court during the seven-year period preceding the date of the application for licensing and registration, or at any time preceding the date of application, if the felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering. Whether a particular crime is classified as a felony shall be determined by the law of the jurisdiction in which an individual is convicted. (B) For purposes of this paragraph, an expunged or pardoned felony conviction shall not require denial of an application. However, the commissioner may consider the underlying crime, facts, or circumstances of an expunged or pardoned felony conviction when determining the eligibility of an applicant for licensure under this paragraph or paragraph (3).
(3) The applicant has demonstrated such financial responsibility, character, and general fitness as to command the confidence of the community and to warrant a determination that the mortgage loan originator will operate honestly, fairly, and efficiently within the purposes of this division.
Attorney Steve Tip: As I tell my Clients, our goal is to prove (on our end) that you are a good person and have the character, fitness and competency to have and hold the MLO, NMLS, CFL, RMLA, broker, salesperson or other license. We don't want to "play for the fumble" we want to affirmatively prove the applicant should be given the license. [Note also that the burden to show "financial responsibility, character, and general fitness as to command the confidence of the community and to warrant a determination that the mortgage loan originator will operate honestly, fairly, and efficiently" under Financial Code Section 22109.1(a)(3) is a burden of proof that the applicant for a CFL or other real estate license must carry. We can help prepare your case to obtain the best chance at clearing this hurdle!
How long do I have to file the "notice of defense"?
You only have 15 days to file a notice of defense. Do not chance this. If you even think you might challenge the statement of issues or denial of a real estate license (this also applies to responding to a real estate accusation), you must file this immediately. I would send this via fax, and U.S. certified mail. If you do not file and serve this, you could waive any right to a hearing, and this could close your case out with a negative result.
What can a California mortgage lending law firm do for me?
We can help you apply for your lending or real estate licenses. We can file the notice of defense and notice of representation. We can prepare to explain your prior criminal history (in some cases our package can be used to help you lift BRE license restrictions) as well. We can try to negotiate a license pre-hearing, and if the DBO or BRE is not inclined to grant you the licensing rights, we can represent you at an "administrative hearing" in front of the California office of administrative hearings ("OAH"), which hears cases in San Diego, Los Angeles, Oakland and Sacramento. Fill out the contact form below or call us for more information.
Contact a Real Estate law firm
For more information or to discuss your case, call us at (877) 276-5084. We offer free initial consultations for BRE and DBO cases. You may also fill out the contact form below to have one of our real estate lawyers contact you. Please make sure to leave your phone number. We offer flexible legal fees, including flat rate fees for many, but not all, cases.