Case Law Summaries

Notarmaso v. Goodman

• Opinion Date: December 7, 2000
• Real Property Law
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BROKERS; MISAPPROPRIATION—An “inactive” real estate broker has the same status as an “unlicenced” broker for whose acts the Real Estate Guaranty Fund has no obligation to reimburse that broker’s customer for misappropriated funds.

A licensed real estate broker received, but misappropriated deposit monies from a failed real estate transaction. While the broker negotiated the contract, and thereafter when he accepted the deposit monies, he had “ceased to be active” as a broker because he had not paid the necessary license renewal fee. When the rescheduled closing was to take place, the broker’s office was closed and he failed to appear and produce the deposit money. The broker was subsequently convicted of the unlawful taking of the money. As a condition of his parole, the broker was to make restitution payments. He made an initial payment, but failed to pay the remaining amount. The buyers then sought compensation from the Real Estate Commission through the Real Estate Guarantee Fund. This gave rise to the question as to whether “a party aggrieved by an inactive broker or salesperson, or by an unlicensed employee of an unlicensed brokerage, is entitled to recovery from the Real Estate Guarantee Fund.” The statute that provides recovery speaks of persons “aggrieved by the embezzlement, ... of money or property in a real estate brokerage transaction by a licensed real estate broker, broker-salesperson or salesperson or unlicensed employee of a real estate broker… .” Consequently the Court needed to determine whether the broker was a “licensed real estate broker” or whether he or his wife could have been deemed to be “an unlicensed employee of a real estate broker.” The aggrieved buyer argued that an “unlicensed” broker is legally distinct from an “inactive” broker for the purposes of recovery. It also argued that because the broker was acting as an escrow agent when he accepted the deposit monies, he was acting as a broker within the meaning of the statute. Lastly, it argued that even assuming that the broker and his wife were “unlicensed” at the time of the transaction, they were, at the same time, unlicensed employees at a real estate broker. The Real Estate Commission and the aggrieved buyer agreed that the broker’s status was “inactive” and “unrenewed.” They disagreed, however, regarding whether that status is tantamount to being “unlicensed,” for which compensation from the Fund is not available. The Commission took the position that the designation “inactive” lacks real significance, but instead is a mere “administrative convenience” which “indicates only that a previously licensed broker will not be required to undergo the same training, schooling or testing that would otherwise be required of a new applicant” provided that he “renews” within a two year window. The aggrieved buyer argued that the purpose of the statute was to protect the public “from transgressions by those individuals whose integrity and training had theretofore been investigated and sanctioned by the Real Estate Commission.” Consequently, the buyer argued that “for reasons of sound public policy,” mere failure to renew one’s license should not be equated with an “unlicensed” person whose background and qualifications has never been scrutinized by the Commission. The Court, although believing that the applicable statute should be construed liberally, could not agree with the buyer’s interpretation. According to the Court, by its very terms, the applicable statute “makes clear that recovery is limited to those persons who have entrusted their deposit monies to licensed persons, or, at the very least, unlicensed employees of a license broker.” Brokers who cease to be active are required to immediately return their licenses to the Commission and the Court felt that this requirement is consistent with the Commission’s view that a person’s license is deemed to be canceled. The Court was also unpersuaded that by acting as an escrow agent for the deposit money, the absconding individual “became” a broker within the meaning of the statute. Although an earlier case in a different context subjected the Fund for liability for a broker whose license had been revoked, but who was permitted to engage in real estate activities, the Court did not find the same circumstances present in this case. Here, the Commission never sanctioned the broker’s continuing brokerage activities. The fact that the Commission failed to begin its investigation until five months after the broker failed to renew its license, standing along, was found to be unpersuasive. As to the buyer’s argument that the “inactive” broker and his wife were unlicensed employees of a real estate broker, the Court held that while the definition of “real estate broker” in the applicable statute does not explicitly require the broker to be licensed, it is nonetheless precise in its admonition that ‘[n]o person shall engage either directly or indirectly in the business of real estate broker ... without being licensed ... .” For all of those reasons, the Court refused to hold the Fund accountable.

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