Arizona Court of Appeals Division One affirms the revocation of a real estate broker and brokerage’s licenses for failing to maintain and produce important sales transaction records.

The Arizona Department of Real Estate conducted an audit of a real estate brokerage.  The brokerage’s records were not stored in “any organized fashion” and it was unable to locate the files for a number of the identified sales transactions.  After numerous requests, including a subpoena, the brokerage still did not provide the missing documents.  The Department then sent the brokerage and its designated broker (the “Licensees”) a notice for an administrative hearing. 

The Licensees did not appear at the hearing.  Based on the testimony of the auditor, the Administrative Law Judge found that the Licensees had committed multiple violations of A.R.S. § 32-2153 and recommended revocation of their licenses, which the Commissioner adopted in a final order.  The Licensees appealed to the superior court, which affirmed, and to the Court of Appeals, which also affirmed.

The Licensees argued that the Commissioner’s findings were not supported by substantial evidence.  Section 32-2153(18) allows the Commissioner to revoke a real estate broker’s license if the broker or brokerage fails to “maintain a complete record of each transaction” or produce to the Department, upon demand, any document that it is required to maintain.  Section 32-2151.01 requires real estate brokers to keep copies of documents including earnest money receipts, closing statements, and sales contracts for each transaction, and to keep sales transactions records “in a chronological log or other systematic manner” that is easily accessible by the Department.  The Commissioner found that the Licensees had failed to maintain these documents or produce them upon demand, and the Court of Appeals held that the testimony of the auditor provided substantial evidence to support the Commissioner’s finding.

The broker also argued that there was insufficient evidence that she had failed to exercise reasonable supervision over the activities of the brokerage, as required by § 32-2153(A)(21).  The broker opened the brokerage’s offices and was its designated broker and supervisor.  The fact that the brokerage failed to maintain and produce important documents provided substantial evidence that the designated broker failed to exercise reasonable supervision of the brokerage.  

Chief Judge Swann delivered the opinion of the court; Judges Jones and Weinzweig joined.