Real Estate Agents Losing Licenses in California

Jose J.R. Sandoval, his wife and three children load into the family car and drive to a residential street not far from San Jose’s Los Lagos Golf Course. With the engine off, they sit and stare at their dream house. Their thoughts don’t touch on what might be, only what once was.

These mournful car rides started six years ago; five houses ago; a life savings and dozens of unemployment checks ago.

“I was so excited,’ J.R. says now, without a shred of enthusiasm. A 50-year-old housing contractor whose health has prevented him from working in recent years, Sandoval talks about how his American Dream—buying a home for his family—turned into a recurring nightmare. The story starts like so many others before the housing bubble burst. “I answered the ad, the gentlemen came to my house, brought info, and my wife and I talked about it,’ J.R. remembers. “I said, ‘It looks like it’s going to be a good deal. Let’s do this.’‘

That was in 2004. The gentleman they say met with them was Ken Gervais, a licensed real estate broker and owner of My Triangle Realty, which operates in the South Bay. The third time the Sandovals toured a home handpicked by Gervais, they signed a few documents and Gervais handed over the keys. “He said, ‘Here, you just became homeowners,’’ Sandoval recalls. After nearly three decades of saving, J.R. and his wife, Marcelina, parents of three children, had done it. Buying a home for the first time never seemed so simple, and they put $40,000 in life savings to improving their new house.

In reality, though, the Sandovals owned nothing.

According to the Sandovals, Gervais told the unsophisticated homebuyers they were signing up for a rent-to-own contract, yet Gervais was pocketing at least a portion the rent—with no intention of ever transfering ownership. In early 2006, when the Sandovals started to prepare their taxes, and claim a first-time homebuyer’s credit, Gervais’ scheme started to unravel. The broker offered to file their returns for them, which seemed fishy to them.

“I went to see my tax guy and he did a little checking for me,’ Sandoval says. “He called me up two or three days later and he said, ‘J.R., you don’t even own the home.’ And the nightmare began.’

On April 18, 2006, Sandoval and one of his sons returned home to find the house locks changed. Almost two years later, a Superior Court judge would agree with an arbitrator’s ruling that Gervais created a fraudulent contract and illegally evicted the family. Gervais has not faced criminal charges.

Gervais was ordered to pay half of a $469,798 judgment along with the house’s true owners—the second victim in this story.

While Gervais duped the Sandovals, he also playing Rakesh Vazir and his wife. He told the Vazirs—who wanted to invest in property before moving from San Jose to Texas—that they qualified to buy a home without so much as a down payment. A tenant’s monthly rent, the Vazirs say Gervais told them, would cover the monthly mortgage.

But when the Sandovals were evicted, rent payments ceased and the Vazirs found themselves not only facing a foreclosure but also liable for damages from Gervais’ fraudulent contract to sell the home to the Sandovals.

“It’s hard for me to trust anybody now because of what happened,’ Vazir says over the phone. He says the ordeal has left him financially ruined aside from a motel his family owns in San Antonio, Texas. “We are victims to this as well. I feel bad for what happened to [the Sandovals], but we are victims of [Gervais], too.’

John Crowley, an attorney who has represented the Sandovals since they were evicted in 2006—and is owed about $230,000 of the settlement in attorney fees, costs—is of the opinion that Gervais is “a danger to the community.’

When Crowley informed officials at the state Department of Real Estate of Gervais’ actions, they seemed to agree. Surprisingly, the agency that licenses Gervais says it’s helpless to stop him.

Gervais didn’t return multiple messages seeking comment. He continues to sell homes in the South Bay.

Landsharks

Banks were cast as the bad guys in the subprime mortgage crisis but little was made about the actions of the middlemen.

Last fiscal year, which ended July 1, California’s Department of Real Estate says it revoked the licenses of a record 564 brokers. That’s more than double the 227 real estate licenses revoked in 2005-06, the time in which the Sandovals were displaced from the home they thought they owned.

Halfway through this fiscal year, the DRE is on pace to break its own pinnacle of malpractice by revoking more than 600 licenses.

“Clearly, the number is going up,’ says DRE spokesman Tom Pool. “We’re on record pace the last few years.

Almost a decade ago, before the housing bubble burst, most of the DRE’s work focused on rejecting agent applicantions. Pool estimates that there were about 600-700 denials a year about a decade ago, but that changed when “the bubble burst, and people started looking at these transactions,’ he says. “We kind of went from being the gatekeeper and using our enforcement resources to keep people out of the business to people that committed fraud during the bubble getting their licenses taken.’

A new state law that went into effect at the beginning of this year, Senate Bill 706, now places stricter requirements on the DRE to more closely monitor its licensees’ activities, but most action still begins with consumer complaints or brokers self-reporting.

In the case of the Sandovals, the latter obiously never occurred, but Crowley suggests the DRE lost a grievance the Sandovals faxed in November 2010.

The DRE has a three-year statute of limitations to act on complaints against brokers, and the $469,000 judgment against the Vazirs and Gervais was reaffirmed in Santa Clara County Superior Court on Feb. 14, 2008.

But while the Sandovals have a copy of the fax transmission sent to the DRE in November 2010, supposedly received by a front office employee still with the agency, none of the DRE’s investigators became aware of the fraud perpetrated by Gervais until late last year—well outside the scope of the statute. As recently as the fall of 2011, Gervais was the listing agent on at least two properties in San Jose and Campbell.

The Sandovals, with little progress in getting Gervais or the Vazirs to sell property to recoup punitive damages, are now left waiting for payment that collects 10 percent interest each year but seems unlikely to ever be collected.

“For the DRE to know what [Gervais] did and still allow him to sell property,’ J.R. sighs, “it seems like they’re saying, ‘I’m sorry it happened, but it’s OK.’‘

Pool says he’s sympathetic to the Sandovals but counters those claims. “We don’t have the authority to compel payment of any civil damages,’ he says. “We are responsible for enforcing the laws that we are given. The law says we have a three-year statute of limitations. If an action is beyond that, we can’t act.’

The DRE does offer a provisional recovery fund. If a consumer cannot collect on fraud by an broker, the license will be suspended and a maximum payout of $50,000 could be awarded. But that would still leave the Sandovals owing their attorneys more than $230,000.

“This gentleman has taken something from us that we’ll never get back,’ Sandoval says. “We wanted to find a home, we have our three kids, and we wanted to do something for them. Give them something. It’s been a nightmare. We have nothing now.

“I would never wish this on anybody.’

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