4.2 License Law Violations & Discipline

Source of KREC's Authority

The Kentucky Real Estate Commission (KREC) derives its disciplinary power from KRS Chapter 324 and the 201 KAR Chapter 11 administrative regulations. KREC can act on a written complaint from a consumer or another licensee, or it can open its own investigation (for example, after a routine escrow audit reveals a shortage).

Grounds for Discipline (KRS 324.160)

KRS 324.160 lists the conduct that exposes a licensee to sanctions. Group them so they are easy to recall on the exam:

Trap: Paying a referral fee or commission to someone who is not licensed is itself a violation — even if that person found a great buyer. Compensation for licensed activity flows only to licensees.

Net Listings Recap

A net listing (seller names a net price; the agent keeps everything above it) is prohibited in Kentucky because it pits the agent's profit against the seller's interest and invites fraud. Recognizing it as a per se violation is a common exam item.

The Disciplinary Process — Step by Step

1. Complaint or self-initiated inquiry reaches KREC.
2. Investigation: staff gather documents, interview parties, and may audit escrow records.
3. Charging decision: if probable cause exists, KREC issues a written notice of charges; if not, the matter is dismissed.
4. Administrative hearing: a formal hearing where both sides present evidence and witnesses.
5. Order: KREC issues a written decision and sanction.
6. Appeal: the licensee may appeal the final order to Circuit Court.

Due-Process Rights

Before KREC can take adverse action, the licensee is entitled to:

• Notice of the specific charges;
• A hearing before the action becomes final;
• Representation by an attorney;
• The chance to present and cross-examine evidence;
• Judicial appeal of an unfavorable order.

The Sanctions KREC Can Impose

Math trap: The $1,000 cap is per violation, not per case. Three separate violations can mean up to $3,000 in fines, plus a suspension or revocation on top.

Administrative vs. Criminal — Don't Confuse Them

KREC is an administrative body. It can fine, suspend, or revoke, but it cannot send anyone to jail. Criminal penalties come only from a court.

The headline criminal statute is KRS 324.990: engaging in real estate brokerage without a license is a Class A misdemeanor for a first offense (up to 12 months in jail and a fine up to $500) and a Class D felony for any subsequent offense. A Circuit Court may also impose an additional fine of $100–$1,000 or up to six months. Fraud or theft of client funds (conversion) can be prosecuted separately as theft.

How Discipline Interacts With the Recovery Fund

Kentucky maintains the Real Estate Education, Research and Recovery Fund, financed by licensee contributions. A consumer who wins a court judgment against a licensee for fraud, misrepresentation, or conversion in a real estate transaction — and who cannot collect from the licensee — may petition to recover actual damages from the Fund up to the statutory per-transaction cap. The crucial exam point: when the Fund pays on a licensee's behalf, that licensee's license is automatically suspended until the Fund is fully reimbursed with interest. The Fund covers actual losses only, not punitive damages, and is a payer of last resort.

Reporting and Cooperation Duties

Licensees have affirmative obligations that, if ignored, become independent violations. A licensee generally must notify KREC of certain criminal convictions and of disciplinary action taken by another state's commission, and must respond truthfully and promptly to a KREC inquiry. Failing to cooperate with an investigation, or providing false information to KREC, is itself a separate ground for discipline — often compounding the original charge. Cooperation, prompt correction, and restitution are mitigating factors that can reduce a sanction.

Putting the Sanction Framework Together

When you see a discipline question, first decide whether the forum is administrative (KREC) or criminal (court), then map the conduct to the right sanction tier.