4.2 Michigan License Law Violations and Discipline
Key Takeaways
- LARA's Board of Real Estate Brokers and Salespersons enforces Article 25 of the Occupational Code against licensees
- Trust-account commingling and conversion are among the most heavily disciplined violations and can be both administrative and criminal
- Sanctions escalate from reprimand and fine through probation, suspension, revocation, and denial
- Licensees are entitled to written notice, a contested-case hearing before an administrative law judge, counsel, and appeal under the Administrative Procedures Act
- Unlicensed real estate activity is a misdemeanor and the unlicensed person cannot sue to collect a commission
The Disciplinary Authority
Real estate licensees in Michigan are regulated under Article 25 of the Occupational Code (Public Act 299 of 1980), administered by the Department of Licensing and Regulatory Affairs (LARA) through the Board of Real Estate Brokers and Salespersons. LARA's Bureau of Professional Licensing receives complaints, investigates, and prosecutes; the Board imposes the final sanction after a hearing. Note the division of labor: LARA licenses and disciplines agents, while the MDCR (Section 4.1) handles fair housing — the exam loves to swap these agencies in distractor answers.
Categories of Violations
| Category | Typical conduct |
|---|---|
| Trust account | Failure to deposit promptly, commingling, conversion of client funds |
| Supervision | A broker failing to supervise affiliated salespersons or unlicensed assistants |
| Disclosure | Concealing a known material defect or the agent's own interest in a deal |
| Misrepresentation | False statements about price, condition, zoning, or square footage |
| Advertising | Ads that omit the broker's name or imply the salesperson works independently |
| Unlicensed activity | Performing licensed acts without a valid license; paying a referral fee to an unlicensed person |
| Substantial misconduct | Fraud, dishonesty, or a felony involving moral turpitude |
Trust-Account Rules to Memorize
Michigan brokers must place client money in a separate broker trust (escrow) account, never in personal or operating accounts. Earnest-money deposits must be turned over to the broker and deposited promptly per the broker's policy and the purchase agreement. Three terms are tested:
- Commingling — mixing client funds with the broker's own money (a violation even if nothing is stolen).
- Conversion — actually using client funds for the broker's purposes (a more serious violation, and theft criminally).
- Interpleader — when two parties both claim the deposit, the broker may deposit the disputed funds with a court and let the court decide.
The Disciplinary Process
- Complaint — filed by a consumer, another licensee, or LARA staff.
- Allegation review / investigation — LARA determines whether the complaint, if true, would violate the Code.
- Cease-and-desist or formal complaint — issued when probable cause exists.
- Contested-case hearing — held before an administrative law judge (ALJ) under the Administrative Procedures Act.
- Board action — the Board adopts findings and imposes a sanction.
- Appeal — to circuit court and, ultimately, the Court of Appeals.
The Sanction Ladder
LARA and the Board can impose escalating sanctions. The exam tests the order and the difference between suspension (temporary) and revocation (permanent).
| Sanction | Effect |
|---|---|
| Reprimand / censure | Formal warning entered on the public record |
| Fine | Monetary penalty (up to statutory caps per violation) |
| Probation | License stays active under conditions and monitoring |
| Limitation | Specific restrictions on the scope of practice |
| Suspension | Temporary loss of the license for a set period |
| Revocation | Permanent loss of the license |
| Denial | Refusal to issue or renew |
Factors the Board Weighs
- Severity and whether the conduct was willful vs. negligent.
- Harm to consumers and amount of money involved.
- Prior disciplinary history.
- Restitution made and cooperation with investigators.
Due-Process Rights of the Licensee
A Michigan licensee is not subject to summary punishment. Under the Administrative Procedures Act, the licensee is entitled to:
| Right | Description |
|---|---|
| Written notice | A formal complaint stating the charges |
| Hearing | A contested-case hearing before an ALJ |
| Present evidence | Call and cross-examine witnesses, submit documents |
| Counsel | The right to be represented by an attorney |
| Appeal | Judicial review of an adverse Board decision |
Criminal Overlap
Some violations are crimes as well as license offenses:
- Practicing real estate without a license is a misdemeanor; the unlicensed person also cannot sue to recover a commission.
- Trust-fund conversion is embezzlement/theft.
- Forgery of signatures or documents is a felony.
Worked Scenario
A broker receives a $5,000 earnest-money check, deposits it into the brokerage's operating account "just until closing," and uses none of it. Even though no money was stolen, this is commingling — an Article 25 violation that can support a reprimand, fine, or suspension. Had the broker spent the $5,000 on office rent, it would escalate to conversion, exposing the broker to revocation and criminal embezzlement charges. The safest practice: deposit earnest money into the dedicated trust account promptly and reconcile it monthly.
Self-Reporting and Renewal Duties
Michigan licensees carry affirmative duties that, if ignored, themselves become violations. A licensee must keep LARA informed of a current address and must disclose criminal convictions on initial and renewal applications. A felony conviction, or any crime involving fraud or moral turpitude, can support denial or revocation even years later. Salespersons renew every three years and must complete the required continuing education, including periodic legal-update and fair housing content; renewing while falsely certifying completed CE is a misrepresentation violation.
Brokers carry an extra layer of exposure through vicarious liability and the duty to supervise. If an affiliated salesperson or unlicensed assistant performs licensed acts improperly, the supervising broker can be disciplined for failure to supervise even without personal wrongdoing. Practical safeguards include written office policies, documented training, monthly trust-account reconciliation, and prompt review of all advertising before publication.
Because Article 25 discipline is public and reciprocal, an agent who is sanctioned in Michigan may also face action on a license held in another state, making early correction and cooperation with investigators the most protective response.
A Michigan broker deposits a client's earnest money into the brokerage operating account but spends none of it. Which violation has occurred?
Before LARA can revoke a Michigan real estate license, the licensee is entitled to which of the following?
A person performs real estate brokerage activity in Michigan without a license and then sues for the commission. What is the result?