4.2 Ohio License Law Violations and Discipline
Key Takeaways
The Ohio Division of Real Estate and the Ohio Real Estate Commission discipline licensees under ORC 4735.18 — sanctions range from reprimand to revocation
Civil penalties may reach $2,500 per violation, in addition to suspension, revocation, education, or probation
Commingling and conversion of trust funds are among the most heavily disciplined violations; brokers keep records three years
The Real Estate Recovery Fund pays a maximum of $40,000 per licensee for unsatisfied judgments based on fraud or conversion
When the Fund pays, the licensee's license is automatically suspended until the Fund is repaid with interest
Who Disciplines, and Under What Authority
Two bodies act together: the Ohio Division of Real Estate and Professional Licensing (inside the Department of Commerce) investigates, and the Ohio Real Estate Commission (OREC) — a five-member board — hears contested cases and imposes discipline. The governing list of prohibited acts is ORC 4735.18.
Prohibited Acts (ORC 4735.18)
The Commission may discipline a licensee who:
- Obtains a license by fraud or misrepresentation.
- Engages in dishonest or fraudulent dealing or makes substantial misrepresentations.
- Makes false, misleading advertising or fails to identify the brokerage.
- Fails to account for or remit money or documents belonging to others.
- Commingles trust money with personal/brokerage funds, or converts (steals) it.
- Pays a fee or splits a commission with an unlicensed person for licensed acts.
- Fails to disclose a personal interest in a property the licensee is buying/selling.
- Violates fair housing law or any provision of ORC Chapter 4112.
- Is convicted of a felony or a crime of moral turpitude.
- Fails to provide an agency disclosure statement at the required time.
Exam trap: Distinguish commingling (mixing client funds with the broker's own funds — a violation even if no one is harmed) from conversion (using those funds for the broker's own purposes — theft, far more serious).
The Disciplinary Process and Due Process
Complaints reach the Division from consumers, other licensees, routine audits, and agency referrals. A licensee facing discipline has full due-process rights under ORC Chapter 119 (Administrative Procedure Act):
| Right | Detail |
|---|---|
| Written notice of charges | Specific statute/rule alleged |
| Administrative hearing | Before the Commission or a hearing examiner |
| Present evidence and witnesses | Cross-examine the Division's witnesses |
| Legal representation | Attorney permitted |
| Appeal | To common pleas court under ORC 119.12 |
The Division may also pursue citations for less serious violations, which carry smaller fixed penalties and can be resolved without a full Commission hearing if the licensee accepts the citation.
Unlicensed Activity and Compensation
A recurring tested rule: a licensee may not pay a commission or referral fee to an unlicensed person for activities that require a license. A broker may pay only their own affiliated salespersons and other licensed brokers. Paying a "finder's fee" to an unlicensed acquaintance who brought in a buyer is a violation under 4735.18. Conversely, a salesperson must be paid through their own broker, never directly by a client.
Supervision and Branch Responsibility
The principal broker is responsible for the acts of every affiliated licensee performed within the scope of the brokerage. Failure to adequately supervise — for example, letting an inexperienced agent handle trust funds with no oversight — is itself a disciplinable offense, even if the broker did not personally commit the underlying wrong. Each branch office must be under a broker or management-level licensee.
Sanctions and Fines
The Commission selects from a ladder of sanctions — often combining several:
| Sanction | Description |
|---|---|
| Reprimand / warning | Written notice on the licensee's record |
| Civil penalty (fine) | Up to $2,500 per violation (cumulative for multiple acts) |
| Mandatory education | Required courses, often added to a suspension |
| Probation | License active under conditions/monitoring |
| Suspension | Temporary loss of license |
| Revocation | Permanent loss; cannot reapply for a set period |
Worked example: A broker commingles earnest money on three separate transactions and also runs one misleading ad. The Commission could treat that as four violations — up to 4 × $2,500 = $10,000 in civil penalties — plus suspension and required trust-account education.
Trust-Account Recordkeeping (ORC 4735.18 / Division rules)
Brokers must hold client money in a special, non-interest-bearing trust/escrow account (ORC 4735.18(A)(26)); only a separate property-management account may earn interest, which is paid to the owners pro rata. Required records, kept for three years:
- Current monthly bank statements and monthly reconciliations
- Deposit and disbursement logs tied to each transaction
- Copies of all earnest-money checks and contracts
The Ohio Real Estate Recovery Fund (ORC 4735.12)
The Recovery Fund reimburses consumers who hold an unsatisfied court judgment against a licensee for conduct that violated 4735.18 (e.g., fraud, conversion). It is funded by licensee fees, not taxpayers.
| Feature | Rule |
|---|---|
| Maximum per licensee | $40,000 total, regardless of number of transactions/claims |
| Per-transaction cap | No separate statutory transaction cap; the $40,000 per-licensee ceiling governs |
| Prerequisite | Final court judgment + proof other collection remedies were exhausted |
| Effect of payment | Licensee's license is automatically suspended |
| Reinstatement | Only after repaying the Fund in full, with interest |
Memory hook: "$40k per crook" — the Fund tops out at $40,000 for any one licensee. If multiple consumers have valid claims that exceed $40,000, they share the $40,000 proportionally.
What the Fund does NOT cover: ordinary contract disputes, claims against a licensee acting only as the property owner (selling their own home), punitive damages, and claims where the consumer has not first obtained a judgment and exhausted collection. The aggrieved party must apply to the court for an order directing payment from the Fund after the judgment is unsatisfied.
Worked example: A salesperson forges a closing document and the buyer wins a $60,000 fraud judgment but cannot collect because the agent has no assets. The buyer can recover up to $40,000 from the Recovery Fund; the remaining $20,000 is uncollectible from the Fund. The agent's license is then suspended until that $40,000 (plus interest) is repaid.
A broker deposits a client's earnest-money check into the brokerage's general operating account but does not spend any of it. Which violation has occurred?
Conversion, because the funds were stolen
Commingling, because client funds were mixed with the broker's own funds
No violation, because the money was not spent
Steering, because funds were directed improperly
After the Ohio Real Estate Recovery Fund pays a consumer's judgment against a licensee, what happens to that licensee's license?
Nothing, once the consumer is paid the matter is closed
It is automatically suspended until the Fund is repaid with interest
It is permanently revoked with no path to reinstatement
It continues but the licensee must pay a $2,500 fine
Sections you finish are checked off in the contents.