Compliance Audits – “Director’s Corner”

Spotlight

Throughout the year, the Division performs various types of compliance audits on behalf of the
three boards housed within the Division. The license renewal season is directly related to a few
of the audits that the Division performs. This article will describe the different compliance
audits that we conduct to better assist our licensees in complying with the regulations.
Conducting audits is one of the Division’s ways of being proactive about ensuring compliance
with the state laws that govern the licensed practice of real estate. It allows us to catch issues
before a consumer complaint is filed.

Continuing Education (“CE”) Audits

Mortgage Loan Originators (“MLOs”):
MLOs are required to complete at least eight (8) hours of continuing education, which must be
reviewed and approved by the Nationwide Multistate Licensing System & Registry (“NMLS”),
or by a company contracted by the NMLS (Board of Mortgage Loan Originators Rule 3.1). The
completion of continuing education by mortgage loan originators is essentially audited through
the license renewal process with the NMLS. To renew your MLO license, you must first renew
it on the NMLS. If you haven’t completed the required CE, you won’t be allowed to renew on
the NMLS which will then prevent you from renewing your license in our database, eLicense.

Real Estate Appraisers (“Appraisers”):
Appraisers who were issued an initial license prior to July 1st are required to complete fourteen
(14) hours of CE as a condition of renewing their license. Appraisers who were issued an initial
license on or after July 1st are not required to complete any CE in order to renew their license
(Board of Real Estate Appraisers Rule 7.1). Appraisers with a two-year license cycle are
required to complete 28 hours of CE in order to renew (Board of Real Estate Appraisers Rule
7.2). Within the 28 hours of required CE, each appraiser must complete a 7-hour National
USPAP Update Course in accordance with Board of Real Estate Appraisers Rule 7.2.B. In
addition to the CE courses approved by the Board of Real Estate Appraisers, there are alternative
options available to appraisers for CE credit (see the Chapter 7 rules of the Board of Real Estate
Appraisers).

We conduct two separate CE audits of the appraisers. At the time of renewal, we audit all
renewing appraisers to ensure that they have completed the 7-hour National USPAP Update
Course within the immediate cycle of the license that is being renewed. If you renew on or
before December 31st and you have not completed the 7-hour National USPAP Update Course,
you will be required to pay a compliance fee, in addition to the renewal fee, for failing to
complete the mandatory course. If you are late renewing and do not do so until on or after
January 1st, and you did not complete the 7-hour National USPAP Update Course, we will audit
you for the full 28 hours of mandatory CE. In order to renew, you will be required to pay a
compliance fee, in addition to the renewal fee, and complete any missing hours of CE.

Within 60 days of the renewal cycle, we will initiate a CE audit of a sample of the renewing
appraisers to audit for the full 28 hours of mandatory CE. We are required to conduct this audit
due to the Appraisal Subcommittee’s Policy Statements. CE audits are faster and easier to
process if your CE is based on Board approved education. If you seek credit based on one of the
alternatives afforded by the Board rules, it will take us longer to process and there is no
guarantee that the alternative CE credit will actually be approved. Non-approved courses, which
are included as an alternative, require submission of detailed course outlines and/or other course
materials to determine their eligibility. If it is determined that you do not have the required 28
hours of CE, you will be required to pay a compliance fee and make up any of the missing CE
hours. These hours will not carry over as CE credit for your new license cycle.

We have a list of Board of Real Estate Appraisers’ approved education that can be found here.
To verify the status of a course, you may access the Division of Real Estate Approved
Continuing Education Course List and use the Course Title to filter down to a specific course.
Once on that filter, type the course title into the search bar and then check the applicable boxes.
This will display all courses affiliated with the selected provider’s name. This same process may
be applied to any of the available filters to view the desired results. You are encouraged to
verify that any CE classes you are considering taking have been approved by the Board of Real
Estate Appraisers.

Real Estate Brokers (“Brokers”):
Brokers who are in their initial license cycle, meaning that the license expires on December 31st
of the year that it was issued, are not required to complete CE in order to renew their license. All
other brokers are required to complete 24 hours of CE, 12 hours of which are required to be the
Annual Commission Update Course and the remaining 12 hours are elective courses that have
been approved by the Real Estate Commission (“Commission”). A broker cannot take the same
version of the Annual Commission Update Course more than once for CE credit. There are
alternatives to completing the 24 hours (see Commission Rule 4.2), but most brokers seek to just
do the requisite hours to comply with the requirement.

We perform broker CE audits on a quarterly basis and we audit the most recently completed
license cycle. Brokers are selected for an audit based on a randomly selected sample. The
number of brokers audited may vary based on the workloads of Division staff. If you are audited
and you do not have enough hours of approved CE, or you do not qualify for one of the
alternatives, you will be required to pay a compliance fee and complete any missing hours. The
CE hours that you are required to take cannot be used as CE for your current license cycle.

We have a list of Commission-approved education that can be found here. To verify the status of
a course, you may access the Division of Real Estate Approved Continuing Education Course
List and use the Course Title to filter down to a specific course. Once on that filter, type the
course title into the search bar and then check the applicable boxes. This will display all courses
affiliated with the selected provider’s name. This same process may be applied to any of the
available filters to view the desired results. You are encouraged to verify that any CE courses
you are considering taking have been approved by the Commission.

Errors and Omissions (“E&O”) Insurance Audits
All three of our licensure programs have a mandatory E&O coverage requirement. As we move
into renewal season, the state-approved insurance carrier starts sending notifications to all
licensees about the E&O coverage requirement and the need to purchase a new policy for the
upcoming calendar year. There are multiple notifications sent out starting at the end of
September or beginning of October and continuing through the end of January. Since renewals
may carry over into January, we start verifying E&O coverage with the different insurance
carriers in February. The insurance providers supply us with a data feed of those licensees who
have purchased a policy of E&O coverage. We match that data with what is in our licensing
database. For the licensees who did not purchase a new policy of E&O insurance, we start the
process of inactivating licensees. Each year, we inactivate numerous licensees because they do
not have a current policy of E&O insurance. Due to the insurance requirement, you are not
allowed to maintain an active license or practice without a current E&O policy. If we inactivate
your license for E&O, you will be notified by email of the change in your license status. It is
really important that you update your email address with us because that is the primary form of
communication that we use to communicate changes with you. We also receive several
complaints throughout the year about licensees who are performing licensed duties when their
licenses are inactive. Your respective Board or Commission can discipline your license for
practicing without an active license.

Individual and Brokerage Business Account Audits
These audits are specific to brokers and brokerage firms because Colorado law places the duty
on the Division Director, or the Director’s designee, to conduct audits of the business accounts of
the licensees regulated by the Real Estate Commission (See §12-10-207(2), C.R.S.). We also
have the authority to audit the business accounts of the subdivisions registered with the Real
Estate Commission. Generally, the brokers or brokerage firms are selected randomly, although
an audit may stem from a complaint filed with the Commission or as the result of a disciplinary
action.
If you are selected for an audit, we will send written notification of the audit, including an
Affirmation and Questionnaire for you to complete. This document asks various questions about
your licensed practice and information about any trust accounts you maintain. This allows us to
determine the scope of the audit that we will conduct. After we receive your responses, we will
request specific documents, such as transaction files and/or trust account records. These audits
tend to be more engaging than the other types of audits we conduct because the financial
examiner (or “auditor”) will have follow-up questions regarding the files and account
information provided for review. The auditors will ask about any potential changes you have
made during the course of the audit, such as policy revisions or modifications made to any
attorney-drafted forms that you use. We have limited authority to address potential deficiencies
at the staff level. If there are concerns identified during the audit, it is not uncommon for the
audit findings to be presented to the Commission, who can then determine what, if anything,
needs to be done to correct the issues. You can find more information about the audit process
and the forms the auditors use here. We also have information about what documents you
should maintain in your transaction files and the applicable Commission regulations here. The
transaction file checklist is to serve as a guide. Not everything listed on it will necessarily apply
to the different transactions in which you are involved.

Finally, if you are selected for an audit, whether it be for CE or business accounts, remain calm
and provide the documents requested. If you don’t have the documents, don’t manufacture them.
This will just cause any potential issues to snowball. Make sure you are responsive to Division
staff because ignoring an audit can just exacerbate the issue. Overall, the audit outcomes
demonstrate that a majority of our licensees are compliant with their license requirements.

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