4.3 License Law Violations and Discipline

The Board's disciplinary authority and the catalog of violations are reliably tested. Understand what counts as a violation, how discipline works, and what protects consumers now that the recovery account is gone.

Common Violations

Misrepresentation and fraud

Trust-fund violations

Agency, disclosure, and unlicensed-activity violations

Warning: Practicing real estate without a license is unlawful in Montana and can carry criminal penalties in addition to civil and administrative consequences. Likewise, a broker who pays a referral fee to an unlicensed person for licensed activity violates the Act.

The Disciplinary Process

The process protects both the public and the licensee's due-process rights.

Investigation

1. A complaint is filed (or the Board initiates an inquiry).
2. Board staff investigate — gathering documents, interviews, and trust-account audits.
3. The Board determines whether to proceed.

Hearing and appeal

Due-process rights

A licensee is entitled to notice, a hearing before adverse action, representation by counsel, the chance to present evidence, and the right to appeal. The Board cannot revoke a license without this process.

Sanctions and Aggravating/Mitigating Factors

The Board may impose a range of sanctions, often in combination:

Factors the Board weighs

Exam tip: Match the severity of the conduct to the sanction. Sloppy records might draw a reprimand or fine; conversion of client funds points toward revocation and possible criminal referral.

Consumer Remedies After the 2019 Repeal

This is the area most likely to contain an outdated answer choice. Montana repealed its real estate recovery account in 2019 (HB 376); final claims were due by January 31, 2021, and remaining funds moved to the Housing Montana Fund. There is no current state recovery fund paying $15,000 or $50,000 per transaction.

So when a consumer is harmed, the modern remedies are:

1. Board complaint and discipline — punishes the licensee (fine, suspension, revocation) but does not directly repay the consumer.
2. Civil lawsuit — the consumer sues for damages and may obtain a judgment.
3. E&O insurance — for covered negligence/errors, the licensee's E&O policy (commonly the RISC group policy, $100k/claim) is the principal financial recovery route.

Critical correction: If an answer choice says Montana's recovery account currently pays a consumer up to $15,000 (or $50,000), it is wrong under current law. The recovery account was repealed; E&O insurance now fills the consumer-protection role for negligence-based losses.

Putting It Together

A strong state-portion strategy: identify the violation, confirm the process (notice → hearing → appeal), select a proportionate sanction, and remember that consumer financial recovery today runs through civil claims and E&O — not a recovery account.

Unlicensed Assistants and Net Listings

Two recurring discipline traps deserve their own note:

• Unlicensed assistants may perform clerical and administrative tasks — scheduling, data entry, placing pre-approved ads — but may not perform licensed acts: showing property, negotiating terms, discussing price or features with prospects, or hosting an open house unattended. Crossing that line is unlicensed activity, and the broker who permits it is also liable.
• Net listings (where the agent keeps everything above a price the seller sets) are disfavored and heavily restricted because they invite self-dealing; treat them as a red flag on the exam.

Truthfulness in Investigations

Montana, like most boards, expects licensees to be truthful in investigations. Refusing to produce trust records, lying to investigators, or failing to respond to Board inquiries are independent violations that often add to the underlying charge. Conversely, prompt correction, restitution, and cooperation are mitigating factors that can reduce a sanction.

Exam framing: If a fact pattern shows an agent who (1) committed a minor error, (2) lied to the Board about it, and (3) refused to provide records, the cover-up can draw a harsher penalty than the original mistake. Honesty in the disciplinary process is itself a duty, and it ties back to the universal duty of honesty owed to all parties.