By Andrew C. Weeks & Michael F. Lawrence
December 6, 2016
On December 1, 2016 Governor Matt Bevin issued Executive Order No. 2016-859. The Executive Order will have a lasting effect on Kentucky’s real estate industry by reorganizing four administrative bodies and creating the Kentucky Real Estate Authority. The changes are set to take effect on January 31, 2017; however, pursuant to the order, the transition phase has already begun. The eighteen-page Executive Order might seem daunting, but this article will provide a clear analysis of the changes in structure and process that the Executive Order has initiated, as well as an analysis of the impact that the Executive Order will have on Kentucky’s real estate professionals. This article organizes the changes into three sections: (I) Structure, (II) Adjudicative Process, and (III) Regulatory Process.
Currently, there are four administrative bodies that govern the real estate professions in Kentucky: The Kentucky Real Estate Commission (KREC); the Kentucky Real Estate Appraisers Board (KREAB); the Kentucky Board of Auctioneers (KBA); and the Kentucky Board of Home Inspectors (KBHI). The four boards make decisions regarding licensing issues, education, and penalties, administer KRS 13B administrative hearings and appeals, and promulgate regulations via the notice and comment process of KRS 13A. Under the new structure, all four boards will be restructured underneath a newly formed administrative body, the Kentucky Real Estate Authority. The four boards will now be known as the Board of Realtors, Board of Appraisers, Board of Auctioneers, and Board of Home Inspectors. The boards will no longer handle appeals, administrative hearings, or promulgate regulations. Under the new structure, all four boards will make decisions regarding license denials, suspensions, revocations and penalties, as well as providing recommendations regarding regulations to the Kentucky Real Estate Authority.
It should be noted that “Realtor” is a registered trademark of the National Association of Realtors and is not an appropriate designation of a real estate agent. Technically, Kentucky may be exposing itself to some liability as a result of the newly coined “Board of Realtors.” The National Association of Realtors has yet to comment on the new name of the reorganized board.
The changes to the four boards mean more than just a change in job duties. All four boards have been restructured so each only has three board members (across all four boards this serves as a reduction from 24 to 12 board members). None of the boards will have their own staff anymore. Staffing for all four boards will now be served by the Kentucky Real Estate Authority. The Kentucky Real Estate Authority was formed pursuant to KRS 12.050. The newly formed Kentucky Real Estate Authority will serve the following purposes: (1) To act as a clearinghouse for administrative regulations and make recommendations to the Department of Professional Licensing; (2) To act as a forum for innovation in the real estate industry; (3) To provide staffing for the four administrative bodies below it; and (4) To give final approval for all license denials, suspensions, revocations, and penalties. Notably, the Kentucky Real Estate Authority (hereinafter the “Authority”) will not promulgate new regulations and will not handle appeals or administrative hearings. The Authority will act as a clearinghouse of regulations by filtering the recommendations of the four boards below it and making a final recommendation to the Department of Professional Licensing.
Finally, the Office of Occupations and Professions has been reorganized as the Department of Professional Licensing. The Department of Professional Licensing will serve as the new umbrella agency that oversees appeals and administrative hearings regarding the decisions of the Kentucky Real Estate Authority and the four boards below it. Additionally, the Department of Professional Licensing will be the agency tasked with promulgating regulations by following KRS 13A’s notice and comment process.
III. ADJUDICATIVE PROCESS
The Executive Order will change the way licensing issues and penalties regarding real estate professionals will be managed. Currently, a Board will make a decision regarding a license denial, suspension, revocation, or penalty and all subsequent administrative appeals and hearings are handled internally by the individual board (often with the appointment of a hearing officer by the board if an administrative hearing is necessary). After the administrative appeal process has been exhausted by the professional being disciplined, the professional has the right to file an appeal of the board’s decision directly to the appropriate Kentucky Circuit Court.
Under the new structure, first, the Board will first make a decision regarding the license or penalty. The Kentucky State Real Estate Authority must subsequently give final approval of the decision. After the Authority approves the decision, the professional will then be able to appeal the decision directly to the Department of Professional Licensing. The Department of Professional Licensing will hold an administrative hearing on the appeal pursuant to KRS 13B (the Commissioner of the Department of Professional Licensing may appoint a hearing officer). After the KRS 13B hearing the professional will have 30 days to file an appeal with the Franklin Circuit Court. The requirement that all appeals are now to be filed with the Franklin Circuit Court is a major change by itself. Currently appeals for the four lower boards may be filed with multiple Kentucky Circuit Courts. For example, currently, appeals of a KREC Final Order are supposed to be filed in the county where the real estate professional’s principal place of business is located. The change in venue may reduce the number of appeals simply because of the distance involved.
IV. REGULATORY PROCESS
Prior to the Executive Order, each individual board was tasked with administering the notice and comment process from KRS 13A and promulgating a proposed regulation into reality. Under the new structure the four lower boards (the Boards of Realtors, Appraisers, Auctioneers, and Home Inspectors) will merely make recommendations regarding proposed regulations to the Kentucky Real Estate Authority. The Kentucky Real Estate Authority will then make a final recommendation to the Department of Professional Licensing. The Department of Professional Licensing makes the final decision regarding proposed regulations and changes and then begins the long notice and comment process by posting the proposal for comment on the Administrative Register of Kentucky. The process has not only added steps and filters for administrative regulations, but it has transferred the final authority to promulgate proposed regulations to the Department of Professional Licensing which effectively reduces the influence of the market participants (real estate industry professionals serving as board members of the four lower boards and the Kentucky Real Estate Authority).
While we can all be optimistic that the changes will achieve the stated goals of providing a forum for innovation in the real estate industry, the future impact may be quite different. The reality is that the changes reduce the number of real estate professionals engaged in the process and adds layers of bureaucracy to the rule making process, thus slowing any progress. It remains to be seen how the details of the transition, new policies, and inevitable new regulations will affect real estate professionals, the rulemaking process, and disciplinary issues.
Note: This article is the first in a two-part series examining Kentucky Executive Order No. 2016-859 which reorganized Kentucky’s four real estate boards and created a new administrative agency to oversee them called the Kentucky Real Estate Authority.