Handling DOS Investigations

By: Michael T. Wallender, Esq.

Real Property Law §442-e(5) authorizes the Secretary of State to investigate licensee's businesses and business practices; §442-e(6) authorizes him to issue subpoenas; and §442-e(7) authorizes him to confer immunity in the course of investigations. A licensee's obligations to supply information is subject to the licensee's constitutional protection and "reasonableness" standards regarding both DOS and licensee conduct. Simply stated, a DOS request does not obligate a licensee to surrender "forthwith" either a licensee's rights or records.

There are a spectrum of anecdotes regarding DOS' current investigative approach, from evenhanded inquiries to threatening tactics. It is recommended that all licensees engage in a "self-audit" and be prepared for an unannounced visit by a DOS investigator. In addition, it is recommended that the representative broker make arrangements to be immediately advised of any contact and to personally conduct any discussions with DOS, so that, to the maximum extent practicable, misunderstanding and ill considered responses are eliminated.

With respect to a "self-audit", it is recommended that the following items be reviewed:

(a) proper category of licenses for each affiliated licensee;
(b) proper business card reflecting licensed name;
(c) escrow accounts; and
(d) disclosure law compliance (especially listing files and closing files.

With respect to instructions to staff and affiliated licensees regarding handling unannounced DOS visits, it bears emphasis that the representative broker should decide how the firm will respond. While each licensee has his or her own obligation of "reasonable compliance" with lawful DOS requests, the firm's representative broker should make the firm's decision. If the representative broker is not present when a DOS investigator arrives unannounced, he/she should be contacted so that appropriate instructions may be given and appropriate participation can be arranged. If he/she is not available (being out of the office or subject to pre-existing commitments), the broker should offer to promptly reschedule. The representative broker should consider whether to attempt to reorder his/her schedule, if appropriate under the circumstances, to handling the matter immediately. There are an array of anecdotes regarding the results of this approach, which run the gamut from pleasant confirmation of full compliance to rather unpleasant DOS demands that the broker continue to "drop everything" and proceed at that time (there is even a report of a refusal by an investigator to wait five minutes for the broker, who was in traffic en route to the office).

With respect to dealing with the investigator at the time of an unannounced visit, the following steps are recommended:

Step 1: confirm the identity and authority of the individual (obtaining a copy of credentials or other indication of authority, if possible).

Step 2: ask for written specifications on DOS' investigatory requests (a handwritten note would be useful; ask for an itemization similar to that which would be customary in a subpoena or interrogatory).

Step 3: promise prompt compliance with any lawful request.

Step 4: attempt to schedule a prompt appointment (e.g. within two to three business days) at which the representative broker can participate (with counsel, if desired).

Step 5: confirm steps 1 through 4 in writing by letter to DOS, certified mail, return receipt requested, with a copy to a third party (e.g. attorney, local board of NYSAR, etc.).

Step 6: promptly seek assistance in following up with DOS (consult counsel and local board for guidance).

For your convenience, below is a skeleton letter, which implements step 5 and should be tailored to the actual facts and circumstances involved.



New York State Department of State
84 Holland Avenue
Albany, New York 12208
Attention: (name of DOS official)

SUBJECT: Department of State Request for Information

Dear Secretary Treadwell:

On _____________________________ (date) my office was visited by _________________________ (name of investigator), who identified (himself/herself) as an investigator from the Department of State. He/she requested that _________________________ (name of individual speaking with DOS investigator) do the following:


In accordance with my firm's standing instructions, which are designed to ensure effective supervision of my office and compliance with lawful regulatory requests, I was promptly contacted by my office. I spoke with _____________________________ (name of investigator) and offered to do the following:


This letter is to reiterate a request for written specification of DOS' investigatory requests and to assure you of prompt compliance with any lawful requests. In order to promptly arrange a meeting in which I can participate, I have tentatively set aside __________________________ (date and time) to meet with your investigator. Alternatively, I will make every attempt to make myself available at the time specified by your investigator upon two business days' notice.

I am proud of my unblemished record as a real estate licensee and will constructively cooperate with you in the review of this matter.

Very truly yours,

pc: Name of Investigator
Name of Broker's Attorney
[also, or as an alternative, could "cc" local board and/or NYSAR]

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