4.2 License Law Violations & Discipline
Key Takeaways
- HIREC may revoke, suspend, fine, or terminate a license for the grounds listed in HRS 467-14, including misrepresentation, undisclosed dual agency, paying unlicensed persons, and failure to account for others' money
- HRS 467-26 sets a criminal/penalty ceiling of not more than $5,000 for each violation of the chapter; unlicensed practice is prosecuted as a misdemeanor
- The Real Estate Recovery Fund pays an aggrieved consumer up to $25,000 per transaction (HRS 467-16) and not more than $50,000 in aggregate for any one licensee (HRS 467-24)
- A licensee whose conduct causes a Recovery Fund payout is automatically suspended until the full amount plus interest is repaid (HRS 467-25)
- Licensees have due-process rights — notice of charges, a HRS 467-15 hearing, counsel, and judicial appeal — before adverse action
Grounds for Discipline — HRS 467-14
The Hawaii Real Estate Commission (HIREC) enforces HRS Chapter 467. Under HRS 467-14, the commission may revoke a license, suspend the right to use it, fine the holder, or terminate a registration or certificate for enumerated causes. Know these grounds verbatim-ish for the exam:
| HRS 467-14 Ground | Plain-Language Meaning |
|---|---|
| (1) Misrepresentation about a transaction | Stating a material fact falsely |
| (2) False promises likely to mislead | Promising what cannot or will not be delivered |
| (3) Flagrant, continued misrepresentation in advertising | A pattern of deceptive marketing |
| (4) Acting for both parties without written consent | Undisclosed dual agency or double-dipping commissions |
| (5) Compensating an unlicensed person to perform licensed acts | Paying a finder/unlicensed assistant for brokerage acts |
| (6) Salesperson acting as/for a broker other than their employer | Working around the principal broker |
| (7) Failing within a reasonable time to account for others' money | Trust-fund accounting failures |
| (8) Any other fraudulent or dishonest dealings | Catch-all integrity clause |
Misrepresentation, agency, and disclosure traps
| Violation Family | Exam Examples |
|---|---|
| Misrepresentation / fraud | Hiding a known material defect; false square footage |
| Agency / RECAD | Undisclosed dual agency; missing agency disclosure |
| Trust handling | Commingling; conversion; late deposit; bad records |
| Unlicensed activity | Practicing on an expired license; aiding unlicensed practice |
Unlicensed practice is not merely administrative. Performing acts that require a license without one is prosecuted as a misdemeanor in Hawaii — fine and/or imprisonment — separate from any discipline against a license the person does not hold.
The Disciplinary Process (HRS 467-15)
Discipline follows a structured, due-process path. Memorize the order and the off-ramps:
| Step | What Happens | Possible Exit |
|---|---|---|
| 1. Complaint filed | Consumer, HIREC self-initiated, or referral from another agency | — |
| 2. Preliminary review | Real Estate Branch screens for jurisdiction | Dismiss if no jurisdiction |
| 3. Investigation | Evidence gathered, witnesses interviewed | — |
| 4. Probable cause | Commission decides whether cause exists | Dismiss if no cause |
| 5. Notice & charges | Written notice of the specific allegations | — |
| 6. Hearing (HRS 467-15) | Formal contested-case proceeding | Settlement / consent agreement |
| 7. Final order | HIREC issues its decision and sanction | Judicial appeal |
Due-process rights
Before any adverse action, a licensee is entitled to:
- Notice of the specific charges
- A hearing under HRS 467-15 (a contested case under HRS Chapter 91)
- Representation by counsel
- To present evidence and witnesses and cross-examine
- To appeal an unfavorable decision to court
Available Penalties
| Sanction | Description |
|---|---|
| Reprimand | Formal written warning on the licensee's record |
| Administrative fine | Monetary penalty (the chapter penalty in HRS 467-26 caps at $5,000 per violation) |
| Probation | Continued practice under conditions/supervision |
| Suspension | Temporary loss of the right to use the license |
| Revocation | Permanent loss of the license |
| Denial | Refusal to issue or renew |
| Consent agreement | Negotiated settlement in lieu of a full hearing |
Correction of a common myth: Some older outlines state a "$500 per violation" individual fine and a "$75,000" Recovery Fund aggregate. Neither matches current Hawaii statute. The chapter penalty under HRS 467-26 is not more than $5,000 for each violation, and the Recovery Fund aggregate per licensee under HRS 467-24 is $50,000 — not $75,000.
Aggravating vs. mitigating factors
| Aggravating (harsher) | Mitigating (lighter) |
|---|---|
| Prior violations / pattern of conduct | First offense |
| Actual consumer harm or financial loss | Cooperation with investigators |
| Lack of cooperation | Voluntary remedial action |
| Concealment | Restitution to the victim |
The Real Estate Recovery Fund
The Real Estate Recovery Fund (HRS 467-16 through 467-25) is a trust fund, financed by licensee fees, that compensates consumers who win a judgment against a licensee for fraud, misrepresentation, or deceit but cannot collect. It is a safety net for the public — it is not insurance for the licensee.
Limits — the two numbers to memorize
| Limit | Amount | Statute |
|---|---|---|
| Per transaction | $25,000 (incl. court costs, fees, reasonable attorney fees) | HRS 467-16(a) |
| Aggregate per licensee | $50,000 (notwithstanding any other provision) | HRS 467-24 |
If the fund balance falls below $350,000, the department may assess each licensee an additional payment to replenish it (HRS 467-17).
How a claim works
- A licensee commits fraud, misrepresentation, or deceit in a transaction.
- The consumer obtains a court judgment (or HIREC settlement).
- The consumer cannot collect from the licensee.
- The consumer applies; HIREC, as trustee, pays up to the statutory caps. A collection action must be started within two years of the judgment (HRS 467-18).
Effect on the licensee (HRS 467-22 / 467-25)
| Consequence | Detail |
|---|---|
| Automatic suspension | The license is suspended upon a payout on the licensee's conduct |
| Repayment required | Must repay the fund in full plus interest |
| No reinstatement | License stays suspended until full repayment |
| Subrogation | The commission steps into the consumer's judgment rights |
Worked example: A salesperson defrauds a buyer of $40,000 in one deal. The buyer wins a judgment but the salesperson is insolvent. The fund pays the buyer the $25,000 per-transaction maximum (not the full $40,000). If the same licensee triggers other claims, total fund liability for that one licensee still stops at $50,000. The licensee is suspended and must repay everything paid out, with interest, before any reinstatement.
Avoiding Violations — Best Practices
| Practice | Why It Protects You |
|---|---|
| Deposit trust funds by the next business day | Avoids the most common HAR 16-99-4 citation |
| Keep per-client ledgers and reconcile monthly | Survives a HIREC audit cleanly |
| Disclose agency in writing (RECAD) | Prevents undisclosed-dual-agency charges |
| Never pay unlicensed persons for licensed acts | Avoids HRS 467-14(5) discipline |
| Document everything; when in doubt, disclose | Strongest defense in a complaint |
| Complete continuing education on time | Keeps the license active and current on law |
What is the maximum amount the Hawaii Real Estate Recovery Fund will pay for any one licensee in the aggregate?
Practicing real estate in Hawaii without a license is best classified as which kind of offense?
When the Real Estate Recovery Fund pays a claim arising from a licensee's fraud, what happens to that licensee's license?
Which protection must HIREC provide a licensee before imposing a disciplinary sanction?
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