4.3 Indiana License Law Violations and Discipline

License Law Violations and Discipline

The Indiana Real Estate Commission (IREC), working with the Indiana Professional Licensing Agency (IPLA), enforces the Real Estate License Law. Its disciplinary authority comes from IC 25-1-9 (the general practitioner-discipline statute for all licensing boards) and the real-estate-specific grounds in IC 25-34.1-6.

Grounds for Discipline

IREC may discipline a licensee who:

1. Obtained a license by fraud or misrepresentation.
2. Engaged in dishonest or fraudulent dealings or any act of incompetence.
3. Made false, deceptive, or misleading advertising, or failed to identify the broker company in ads.
4. Failed to account for funds or documents belonging to others.
5. Commingled client funds with personal or business funds.
6. Split fees with or paid a referral to an unlicensed person.
7. Failed to disclose a personal interest in a transaction or a material adverse fact.
8. Violated fair housing law (IC 22-9.5).
9. Was convicted of a felony or a crime of moral turpitude related to the practice.
10. Failed to provide required agency relationship disclosure.
11. Failed to supervise affiliated licensees (a managing-broker duty).
12. Failed to deliver copies of contracts and disclosures to the parties.
13. Acted as an undisclosed dual agent without informed written consent.

Unlicensed Activity and Fee Splitting

Two of the most common bright-line violations involve compensation. A licensee may not pay a commission or referral fee to an unlicensed person for performing acts that require a license (showing property, negotiating, soliciting). The licensee also may not accept compensation from more than one party without full disclosure and consent. Conversely, an unlicensed person who performs licensed activity commits a separate offense, and the broker who lets them is also liable.

Property-management activities, advertising, and "finder's fees" are common traps: a flat thank-you gift to a friend who refers a buyer is generally allowed, but a percentage of the commission tied to producing a deal is illegal fee-splitting.

The Sanction Ladder

Note the fine ceiling: a frequent exam trap inflates it. Indiana's statutory civil penalty per violation is $1,000, though multiple counts can stack across a single course of conduct.

Due Process and the Recovery Fund

Hearing Rights (IC 4-21.5)

Discipline is not summary. Before a sanction becomes final, the licensee is entitled to administrative due process under Indiana's Administrative Orders and Procedures Act (AOPA, IC 4-21.5):

• Written notice of the charges.
• An administrative hearing before the Commission or an administrative law judge.
• The right to present evidence, call and cross-examine witnesses, and be represented by counsel.
• The right to judicial review (appeal) of an adverse final order.

IREC may, however, issue an emergency suspension before a full hearing when the public health, safety, or welfare is at immediate risk (for example, ongoing theft of escrow funds).

The Real Estate Recovery Fund

The Indiana Real Estate Recovery Fund (IC 25-34.1-7) reimburses consumers who win a court judgment against a licensee for fraud, misrepresentation, conversion, or deceit and cannot collect from the licensee. It is funded by surcharges on license fees.

Correction note: Some older study materials list a $15,000 cap. The current statutory limits are $20,000 per judgment and $50,000 aggregate per licensee.

Effect of a Recovery Fund Payment

When the fund pays on a licensee's behalf, the consequence is automatic and severe:

1. The licensee's license is suspended by operation of law.
2. The license is not reinstated until the licensee repays the fund in full plus interest (at the statutory rate).
3. Repayment does not erase the underlying disciplinary record.

Audits

IREC may audit a broker's trust account on a complaint, at random, or in connection with renewal. Brokers must keep current bank statements, monthly reconciliations, deposit and disbursement logs, and beneficiary ledgers — all retained five (5) years. A deficiency discovered in audit (a shortage, missing reconciliation, or commingling) triggers the disciplinary process described above.

Worked Scenario

A managing broker uses $5,000 of escrowed earnest money to cover the firm's rent, intending to repay it before closing. The buyer's deal falls through and the buyer demands the deposit back, but the account is short. This single act of conversion can produce: (1) IREC discipline up to revocation; (2) a consumer lawsuit; (3) if the broker is judgment-proof, a Recovery Fund payout up to $20,000, which then suspends the license until repaid with interest; and (4) potential criminal theft charges.

The lesson tested repeatedly: intent to repay is no defense — moving trust funds for any non-authorized purpose is conversion the moment it happens.