4.2 Virginia License Law Violations and Discipline
Key Takeaways
- The Virginia Real Estate Board (REB) under DPOR may fine, place on probation, suspend, or revoke a license for violations of the License Law and Board regulations
- Monetary penalties for regulatory violations run up to $2,500 per violation and may be cumulative
- Escrow mishandling — failure to deposit on time, commingling, and conversion — is the single most common cause of discipline
- The Transaction Recovery Fund pays aggrieved consumers up to $20,000 per claim, $50,000 per transaction, and $100,000 per licensee per biennium, and the paid licensee is suspended until repayment plus interest
- Licensees are entitled to written notice of charges and an Informal Fact-Finding or formal hearing before sanctions are imposed
Authority of the Real Estate Board
The Virginia Real Estate Board (REB), a unit of DPOR, regulates licensees under the Real Estate License Law (Va. Code 54.1-2100 et seq.) and the Board regulations (18 VAC 135-20). The Board has authority to investigate, hold hearings, impose monetary penalties, and suspend or revoke licenses. Discipline can be triggered by consumer complaints, routine and for-cause escrow audits, referrals from other agencies, court convictions, or a licensee's own mandatory self-reporting (a licensee must report criminal convictions and other Board actions, generally within 30 days).
Common violations
| Category | Typical examples |
|---|---|
| Escrow / trust funds | Late deposit, commingling with personal funds, conversion (theft), poor recordkeeping |
| Supervision | A principal broker failing to oversee salespersons or branch offices |
| Disclosure | Failing to disclose a material adverse fact or a personal interest |
| Misrepresentation | False statements about a property, financing, or the transaction |
| Advertising | Misleading ads; not identifying the brokerage firm name |
| Unlicensed activity | Acting without a current license; paying a referral fee to an unlicensed person |
| Agency | Not delivering required brokerage-relationship disclosures |
Specifically prohibited acts (Va. Code 54.1-2131 to 54.1-2138 and regs)
- Fraud or misrepresentation in obtaining or renewing a license.
- Dishonest, fraudulent, or improper dealings with the public.
- False or misleading advertising.
- Failure to account for or deliver funds or documents.
- Commingling client funds with the licensee's own.
- Splitting compensation with an unlicensed person.
- Failing to disclose a personal interest in a transaction.
- Violating fair housing law.
- Conviction of a felony or a crime involving moral turpitude.
- Acting while a license is lapsed, suspended, or revoked.
Escrow handling — the deposit deadline
Because escrow violations dominate discipline, know the deadline cold. Under Board regulation, a principal broker must deposit earnest money into an escrow account by the end of the fifth business day following the broker's ratification of the contract, unless the parties have agreed in writing to a different time. Money belonging to others must be kept separate from the firm's operating funds at all times.
Three distinct escrow wrongs are tested and must be kept separate:
| Term | What it means | Severity |
|---|---|---|
| Commingling | Mixing client funds with the broker's own money | Violation even with no loss |
| Conversion | Using client funds for the broker's own purposes (theft) | Most serious; often criminal |
| Late deposit | Failing to deposit by the 5th business day | Common audit finding |
Exam trap: Commingling does not require that any money be lost or stolen — simply mixing the funds is the violation. Conversion is the more serious step of actually spending the money.
The disciplinary process
Licensees have due-process rights. The Board cannot revoke a license by surprise; it must give notice and an opportunity to be heard.
| Stage | What happens |
|---|---|
| Complaint / audit finding | DPOR intake screens for jurisdiction and merit |
| Investigation | DPOR investigator gathers records, interviews parties |
| Informal Fact-Finding (IFF) | Informal conference; many cases resolve here by consent order |
| Formal hearing | Held before the Board or a hearing officer if no agreement |
| Board decision | Issues findings and sanctions |
| Appeal | Judicial review under the Administrative Process Act |
At a hearing the licensee may present evidence and witnesses, be represented by counsel, and cross-examine. An adverse decision can be appealed to circuit court.
Sanctions the Board may impose
| Sanction | Description |
|---|---|
| Monetary penalty | Up to $2,500 per violation; multiple counts add up |
| Probation | License stays active under conditions (e.g., audits, courses) |
| Suspension | Temporary loss of license |
| Revocation | Loss of license; reapplication is restricted |
| Denial | Refusal to issue or renew |
| Mandatory education | Completion of specified courses |
The Transaction Recovery Fund
The Virginia Transaction Recovery Fund compensates consumers who win an unsatisfied court judgment against a licensee for fraud, misrepresentation, deceit, or conversion of trust funds in a real estate transaction. It is funded by licensee assessments, not the state budget.
| Feature | Detail |
|---|---|
| Maximum per claim (single claimant) | $20,000 |
| Maximum per transaction (all claims from one transaction) | $50,000 |
| Maximum per licensee (aggregate, per biennial license period) | $100,000 |
| Prerequisite | Final judgment the licensee cannot or will not pay |
| Effect on the licensee | License automatically suspended until the Fund is repaid with interest |
If multiple claims against one licensee exceed $100,000, or multiple claims from a single transaction exceed $50,000, the Board prorates payment among the claimants.
Exam trap: The Fund pays the consumer, not the licensee. It is a last resort after the claimant pursues the licensee's own assets. Repayment to the Fund (plus interest) is mandatory before reinstatement — there is no "the Fund covers it, so I'm done" outcome. Do not confuse the $20,000 per-claim cap with the $50,000 per-transaction and $100,000 per-licensee aggregate caps.
Worked scenario
A salesperson converts a $30,000 escrow deposit and disappears. The wronged buyer sues, wins a judgment, but cannot collect because the salesperson has no assets. The buyer applies to the Transaction Recovery Fund. The Fund pays the per-claim maximum of $20,000 (not the full $30,000) because the single-claimant cap limits recovery. The salesperson's license is then automatically suspended and stays suspended until the Fund is repaid the $20,000 plus interest. The buyer must still pursue the salesperson personally for the uncovered $10,000.
Self-reporting and mandatory disclosures
Licensees must keep their information current and report key events to the Board, generally within 30 days: criminal convictions (felonies and certain misdemeanors), guilty/nolo pleas, and any disciplinary action by another jurisdiction or regulatory body. Failure to self-report is itself a separate violation, independent of the underlying conduct.
A broker, having ratified a purchase contract, holds the buyer's earnest-money check in a desk drawer for two weeks before depositing it, mixed into the firm's operating account. Which violation is clearly present?
What are the Transaction Recovery Fund limits in Virginia?
Before the Real Estate Board revokes a license, the licensee is entitled to: