Reducing your risk and staying out of legal trouble is crucial to your success. We provide the tools you need to meet your legal obligations. Before making contact, please formulate a clear question, gather all relevant facts and have your TREC license number available.

This service is provided at no cost to all SABOR members.

Contact the TAR Legal Hotline at (800) 873-9155 or visit TexasRealEstate.com.

Please browse our frequently asked questions below.

Advertising

Is there liability for being called an “expert”?

Possibly. When an agent uses the word “expert” to describe themselves it can create the impression that they have a greater proficiency than other individuals in the same area of practice. Adopting the title of expert is going to be adopting a higher standard of care.

For example, if an agent holds themselves out as an expert in short sales or leasing the consumer is likely to get the impression they specialize in this area of practice. If a problem arises and litigation ensues, because the agent has held themselves out as an expert there is a great likelihood the attorney for the other side would exploit the representation as an expert to their benefit. Attorneys would argue that because the agent represented themselves as an expert there was little room for error on behalf of the agent. Additionally, lawyers would have an argument that because they are considered an expert the agent operated at a higher level than other agents. Lawyers will generally look to websites and other advertisements to find these representations in preparing their case.

Agents should be advised that representing themselves as experts has its consequences and thus should be used cautiously.

Are there rules to the destruction of business records?

Yes, under TREC rule 535.2(h) brokers are required to maintain certain records for a minimum period of four years. It is up to each individual broker to determine if they wish to keep the records for longer than that period. Some of the required records to be maintained will have personal identifying information of clients. With regards to these records certain rules apply.

Under the Texas Business and Commerce Code, Section 72.001 the law provides that when records are going to be destroyed, and these records contain personal identifying information of a customer, “the business shall modify, by shredding, erasing, or other means, the personal identifying information so as to make the information unreadable or undecipherable.” The law was passed in 2009 as part of reforms to protect consumer information.

Within the law it provides that if a company hires a professional company in the business of destroying such records, then the company is presumed to have complied with the law. The attorney general has the ability to sanction any company in violation of the law with a civil penalty of up to $500 per each business record.

Can I use this picture I found online in my advertising?

The answer to the question is not unless you have a license for the use of that photo. The ease of finding photos to use in advertising material makes it seem like taking a photo from an online source should not be a problem. With the click of a button you can take an image and use it in your flyers, website, or emails. But unless you have the permission to use that photo you could be violating copyright law.

Copyright law protects individuals who create unique works whether it be pictures, music, writings or other works from the misuse or distribution of that work without just compensation. So the photo I took of the Alamo is my creation and no one is allowed to use it without my permission unless I chose to allow them to have a license. Obtaining a license is generally going to be for a fee. Additionally, most licenses restrict the way the material can be used and for how long.

So as you review the materials your agents are putting out to the public consider the source of the images or content being distributed and confirm all the proper permissions have been granted.

Does the legal principle of disparate impact apply to advertising?

Yes. Disparate impact is the legal principle that looks to the effect of a policy or practice and not to the intent of the policy or practice. Under the principle it does not matter if you didn’t intend to discriminate; it only looks to see if the end effect was discrimination. Therefore, you should be cognizant of the effects of your target marketing.

In 2016, HUD issued a statement it would look into the ability of real estate agents to select only certain races to receive marketing of their listing through Facebook. The potential effect of Facebook’s marketing tool might be placing agents in a compromising situation.

Can you use nicknames on your business card?

Yes, assuming the nickname “Matt” has been filed with TREC using the appropriate form (Form DBA – 2). The name on your license issued by TREC is the name that should be used in all your real estate communications. If you have a nickname that you go by you don’t have to have your license amended but you do need to submit the DBA form.

Do Agents’ Facebook pages have to comply with advertising rules?

Yes. If the agent is using their Facebook page as a means to advertise, which is defined under 535.154(a), then all the TREC Advertising rules apply. Whether something comes under this definition is determined if the communication is intended to induce or attempt to induce a member of the public to use the services of the agent. Facebook provides the option of creating personal as well as business pages. Caution should always be used to make sure whichever page is being used that it, or both, comply with the advertising rules.

Additionally, if Facebook or any other social media website is being used to have a substantial dialogue with potential clients then it would be necessary to also provide the required “Information About Brokerage Services” information

Is there liability for being called an “expert”?

Possibly. When an agent uses the word “expert” to describe themselves it can create the impression that they have a greater proficiency than other individuals in the same area of practice. Adopting the title of expert is going to be adopting a higher standard of care.

For example, if an agent holds themselves out as an expert in short sales or leasing the consumer is likely to get the impression they specialize in this area of practice. If a problem arises and litigation ensues, because the agent has held themselves out as an expert there is a great likelihood the attorney for the other side would exploit the representation as an expert to their benefit. Attorneys would argue that because the agent represented themselves as an expert there was little room for error on behalf of the agent. Additionally, lawyers would have an argument that because they are considered an expert the agent operated at a higher level than other agents. Lawyers will generally look to websites and other advertisements to find these representations in preparing their case.

Agents should be advised that representing themselves as experts has its consequences and thus should be used cautiously.

Copyright Law: Can I use this picture I found online in my advertising?

Question: Can I use this picture I found online in my advertising?

Answer: The answer to the question is not unless you have a license for the use of that photo. The ease of finding photos to use in advertising material makes it seem like taking a photo from an online source should not be a problem. With the click of a button you can take an image and use it in your flyers, website, or emails. But unless you have the permission to use that photo you could be violating copyright law.

Copyright law protects individuals who create unique works whether it be pictures, music, writings or other works from the misuse or distribution of that work without just compensation. So the photo I took of the Alamo is my creation and no one is allowed to use it without my permission unless I chose to allow them to have a license. Obtaining a license is generally going to be for a fee. Additionally, most licenses restrict the way the material can be used and for how long.

So as you review the materials your agents are putting out to the public consider the source of the images or content being distributed and confirm all the proper permissions have been granted.

Does Your Web Site Name Violate the Code?

Strategic domain names and search-engine optimizations can cross an ethical line.

The following case concerns Article 12 of the Code of Ethics, which states:
REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing and other representations. REALTORS® shall ensure that their status as real estate professionals is readily apparent in their advertising, marketing, and other representations, and that the recipients of all real estate communications are, or have been, notified that those communications are from a real estate professional.

Optimized online marketing
REALTOR® X, a principal broker in the firm XYZ, was technologically savvy and constantly looking for ways to use the Internet to promote his firm and drive additional traffic to his website.
Being an early adopter to the Internet, he had registered, but not used, domain names that incorporated or played on the names of many of his competitors and their firms, including ABC, REALTORS®.
REALTOR® X and his information technology staff concluded that one way to drive traffic to the firm’s website would be to take advantage of the search engines commonly used by potential buyers and sellers. They realized that when potential buyers or sellers searched keywords like real estate or REALTORS®, lists of domain names would appear, and that when consumers searched the Internet for ABC, REALTORS®, one of the domain names that might appear would be REALTOR® X’s domain name, ABCRealtors.com. REALTOR® X decided to take advantage of the domain names that he had previously registered, and pointed several that used, in various ways, the names of his competitors, including ABCRealtors.com, to his website.
In a matter of days, REALTOR® X learned that he had been charged with a violation of Article 12 of the code of Ethics by REALTOR® A, the owner of ABC, REALTORS®, alleging that REALTOR® X’s use of the domain name ABCRealtors.com presented a false picture to potential buyers, sellers and others on the Internet.

A savvy strategy or an untrue representation?
At the hearing REALTOR® X defended himself, indicating that, in his opinion, use of a domain name was not advertising or a “representation” to the public, but simply a convenient way for Internet users to find relevant web sites. “When web surfers reach my home page, there is no question that it is my website, since I clearly show XYZ’s name and our status as REALTORS®,” he continued. “These complaints are just a lot of sour grapes, from dinosaurs who aren’t keeping up and who don’t realize that on the Internet, it’s every man for himself.”
The hearing panel disagreed with REALTOR® X’s justification, indicating that, while his use of a domain name that employed another firm’s name might not be precluded by law or regulation, it did not comply with the Code’s higher duty to present a “true picture.”
REALTOR® X was found in violation of Article 12, presenting an untrue picture in his representation to the public.

Source: Association of Texas REALTORS® Magazine, featured in the June 2012 issue.

How can you use the term “REALTOR®” with a firm name

When using the term REALTOR® in conjunction with your firm name, you must follow the guidelines provided by the National Association of REALTORS®.  The NAR Membership Marks Manual gives clear guidance on how to use the word “REALTOR®” with your firm name.

The first point to remember is to always separate your firm’s name from the term REALTOR® with some manner of punctuation.  Whether your company is a franchise of a national company or an independent firm, the rule applies equally.  The manual clarifies that the term REALTOR® may be used adjacent to the firm name, but may not be an actual part of the name. Here are some examples of proper and improper usage.

Improper Use

Blackacre REALTORS®, Inc.

John Smith REALTORS®, Ltd.

Sunshine REALTORS® Homes

Proper Use

Blackacre, Inc., REALTORS®

John Smith, Ltd., REALTORS®

Sunshine Homes, REALTORS®

A good way to visualize the distinction is to remember that because the term REALTOR® simply means membership in the National Association of REALTORS®, you should be able to exchange the term REALTOR® with the word member and your firm name still make sense.  “Blackacre Members, Inc.” does not make sense whereas “Blackacre, Inc., Members” does.

Finally, for new firms or those undergoing a name change, NAR is strongly suggesting including terminology other than the term “REALTOR” to describe the real estate nature of the business. Consider using the terms “realty” or “real estate” in the firm name and then include the term REALTOR® adjacent to the firm name.  NAR’s belief is that structuring the name in this manner will even more clearly imply to the public that the term REALTOR® means Member.  Here is the example given by NAR.

Preferred
Jack Jones Realty, Inc., REALTORS®

Acceptable

Jack Jones, Inc., REALTORS®

How can you use the term “REALTOR®” in your domain name or email

When using the term REALTOR® as a part of your domain name or email address, you must adhere to the rules laid out in the NAR Membership Marks Manual.  The Manual requires that when using the term as a part of your domain name or email address, it may only be linked to your name or your firm’s name.  It may NOT be attached to or modified by any type of descriptive word.  Below are examples of proper and improper usage.

Proper

www.JaneSmithREALTOR.com
www.janesmithrealtor.com
www.johndoe-realtor.com
www.johndoeREALTOR.com
johndoerealtor@email.com
realtorjane@email.com
realtor-jane@email.com

 Improper

www.SanAntonioREALTOR.com
www.AlamoCityREALTOR.com
www.YourREALTOR.com
www.WorldsBestrealtor.com
number1realtor@email.com
MilitaryCityRealtor@email.com
RiverCityREALTOR@email.com

You will notice that in some of the examples provided, the term REALTOR® is separated from the member’s name and in others it is not.  The rules of usage provide that either way is acceptable.  When using the term as a part of your domain name or email address, there is no requirement to separate the term REALTOR® with punctuation.  Remember, however, that in other types of print usage, the term must still be separated.  Additionally, note that when using the term in your domain name or in your email address that capitalization is not required.

How can you protect the term REALTOR® and the REALTOR® brand

Estimates project that the value of the NAR member marks are approximately $3 BILLION dollars.  This is an enormous asset for the National Association of REALTORS® and therefore its members.  It is therefore incredibly important that all members of the association and all who are related to it to do everything possible to protect them and their appropriate usage.  Below are five easy ways you can protect the value of the member marks.

  1. Ensure your usage of the marks complies with the NAR Membership Marks Manual
  2. Correct those who misuse the term REALTOR® to refer to any real estate licensee
  3. Properly pronounce the term REALTOR® (e.g. It has only TWO syllables)
  4. Test your proper usage of the term REALTOR® by ensuring you can substitute it with the word “member”
  5. Mount your own in-office branding campaign to ensure all in your office understand the value and proper usage of all NAR member marks (wear your REALTOR® pins!)

What broker information must be on your advertisements?

The REALTOR® Code of Ethics, TREC Rules and the Texas Real Estate License Act require all salesperson advertising to include certain information about the salesperson’s broker. The policy behind these provisions is that a member of the public must never be under the impression that it is the salesperson who is responsible for the real estate operations of an office or firm. However, the actual requirements for what must be included are relatively limited.

Salesperson advertisements must include the name of the salesperson’s sponsoring broker and some terminology clarifying that the ad was placed by a real estate professional. Acceptable words include “REALTOR® or real estate agent” for example.

Also, be sure that you follow these requirements not just on your print advertising, but also in any internet-based ads. Each distinct page on your site must include your broker’s name.

Agency

May an agent be paid by someone other than their broker?

Before an agent pays another agent for compensation earned they must have the permission of their sponsoring broker. Under TREC rule §535.3 it provides:
A salesperson may not receive a commission or other valuable consideration except with the written consent of the salesperson’s sponsoring broker or the broker who sponsored the salesperson when the salesperson became entitled to the commission or other valuable consideration. A salesperson may not pay a commission or other valuable consideration to another person except with the written consent of the salesperson’s sponsoring broker.

Is a business entity that is licensed as broker required to have a designated officer?

Yes. In order for a business entity to obtain a license as a real estate broker in the state of Texas it must have a designated officer in the company that is also licensed as a Broker by TREC (see TREC Rule §535.53).  This designated broker must be a managing officer of the business entity. Additionally, if the designated broker does not own at least 10% of the entity then the Licensed Business Entity must be able to show proof of a one million dollar E&O insurance policy per occurrence. All these requirements are expected to be shown at any renewal of licensure or change of a designated broker.

May a broker delegate their responsibilities to supervise agents to an unlicensed assistant?

No. The TREC Rules provide in rule 535.2(e) (“Broker Responsibility”): A broker may delegate to another license holder the responsibility to assist in administering compliance with the Act and Rules, but the broker may not relinquish overall responsibility. Based on reading the rule it is clear that only a licensed holder may help a broker in supervising agents.

It should also be noted that the rule further states that any such delegation must be in writing and that this delegation of duties must be filed with TREC. This assumes the delegation of duties is for longer than a period of six months. The form can be found on the TREC website labeled “DL-0” and can be submitted online or in writing.

How long should I maintain my transaction records?

4 years. Under section 535.2 (h) it provides a broker must, at a minimum, maintain records for at least four years from the date of closing, termination of the contract, or end of a real estate transaction.

May a buyer’s agent request to be present when an offer is being presented to a seller?

Yes. Under MLS rule section 2.3 a buyer’s agent may request to be present when their offer is presented to the seller. The seller may decline the request if they do so in writing communicated to the listing agent stating they would prefer the buyer’s agent not be present. The ability to be present for presentment of the offer does not create an ability to be present during the discussion or evaluation of that offer.

Do your Agents have to be given written documentation of the scope of the activities they are allowed to perform?

Back on January 1, 2015, Section 535.2 (Broker Reasonability) was amended by including the word “in writing” within the text of the rule. Previously, the rule did not require that the brokers were to document in writing that instructions were given as to the scope of an agents authorized activities. After the change it has been made clear that brokerages should be able to provide documented proof that their agents have been advised. Because it is a recent change, it is something that should be updated and addressed with all your agents. The same instructions should be contained in the policies and procedure manual.

Can a non-licensed individual receive a referral fee?

No. Under The Texas Real Estate Licensing Act a referral fee cannot be paid to a non-licensed person. This would also mean someone who is licensed as an agent but who is currently not working under a broker is also excluded from receiving a referral fee.

What a non-licensed person can receive is something that is not considered “valuable consideration.” That is why you will hear that a non-licensed person may be paid with gift cards to establishments or tangible merchandise so long as its value does not exceed $50. The item must not be able to be converted into cash. For example, a Visa gift card that can be used anywhere. This would also include discounts on rent which would also be prohibited

Do referral fees need to flow through the broker or can they be paid directly to an agent?

TREC Rule §535.2(i)(3) provides: “a broker must maintain written policies and procedures to ensure that any and all compensation paid to a sponsored salesperson for acts or services subject to the Act is paid by, through, or with the written consent of the sponsoring broker.”

A referral fee would be considered compensation and therefore, unless the broker has provided written consent to pay an agent directly, the payment of a referral fee must flow through the broker.

Another important point to highlight out of this rule is that the payment of referral fees should be a part of a broker’s policies and procedures manual.

Is an agent required to provide all offers to the seller even when he has been instructed otherwise?

No. If the agent has been provided with written instructions by the seller of the property not to provide offers below a certain threshold or that include a particular characteristic, the agent would not be violating his duties by not forwarding that offer.

One of the responsibilities an agent owes to the principal under the law of agency is the duty of obedience. Agents are obligated to act in good faith and obey the principal’s instructions so long as those instructions are not unlawful or unethical. Therefore, agents can be instructed to only submit offers meeting a particular requirement. The other duty this implicates is the duty of disclosure which requires an agent to keep the principal fully informed at all times. Because this duty is equally as important, agents should always obtain written consent from the principal that they are not required to disclose offers the seller finds undesirable. Additionally, written consent provides protection to agents in the event principals forget the instructions that were given.

Could providing outdated information to a consumer cost you a sanction?

Yes. Recently TREC sanctioned someone under Texas Real Estate Licensing Act under section 1101.652(b) which provides disciplinary action may be taken when an agent “acts negligently or incompetently.”

The agent was providing to prospective buyers a property survey that was no longer an accurate representation of the total acreage. The size of the property had been reduced years prior to the agent’s current involvement. They were aware of this fact and still marketed the property with the wrong information.

Clearly the important fact in this instance is that the agent was aware of the misinformation and they continued to disseminate the information. How the information was acquired is not explained. Agents should be cautious to review all documents made available to them by sellers to confirm the statements being made are accurate and true.

Brokerage Liability Issues

May an unlicensed individual manage a trust account for a broker?

No. Under TREC Rule §535.146(C)(7) it provides: “A broker may only authorize another license holder to withdraw or transfer money from any trust account but the broker remains responsible and accountable for all trust money received by that broker and all deposits to or disbursements from the trust account.”

How often should brokers sign a statement of understanding with their agents?

Annually.  Brokers should have their agents sign the Statement of Understanding Form (TAR Form 2302) annually as a risk reduction measure.  The form is intended to serve as documentation that the relationship between the broker and the agent remains that of an independent contractor agreement and not that of an employee/employer.

May a Broker in an intermediary transaction appoint themselves to one side of the transaction and have their agent appointed to the other side?

No. A Broker may act as an intermediary for a buyer and a seller, assuming written consent has been obtained and notice delivered, but they cannot appoint themselves to one side of the transaction. If a broker wishes to make appointments the broker is going to have to have two agents to represent both parties. Appointment of the broker to one side with the agent on the other places the agent in a precarious situation and therefore is not allowed. Failure to comply with this requirement will make a broker subject to disciplinary action by TREC.

Do brokers have a responsibility to inform agents of rules changes?

Yes. Under TREC Rule §535.2(i) brokers are given the requirement to maintain written policies and procedures for the brokerage to provide agents with information about their scope of practice and expectations. Also included as part of this provision is language obligating brokers to make sure that:

“Each sponsored salesperson is provided on a timely basis, prior to the effective date of the change, notice of any change to the ACT, Rules, or commission promulgated contract forms.” [See §535.2 (i)(4)]

Most agents receive enough information from various resources by way of emails, social media and magazines to be made aware of changes coming into effect. But as a brokerage it is a good policy not to rely solely on these third party sources to provide the information. Brokerages should take an active role in educating agents about the new rules, laws or forms with which they will be expected to work. One potential solution is making sure all your agents get a copy of the TREC Advisor. It provides a great amount of information about all the changes the Commission makes.

Affiliated Business Arrangements – What Can Be Done?

By Gilbert Gonzalez, Vice President of Risk Management and General Counsel

If you are familiar with affiliated business arrangements (AfBA) then you know they can be beneficial for consumers.

It is not uncommon for consumers to be offered incentives to use “preferred” settlement services of a seller. Under RESPA it is not against the law to make these offers to induce them. However, there are certain restrictions that apply to these types of arrangements.

What you should know is the new enforcer of RESPA, the Consumer Financial Protection Bureau (“CFPB”), has indicated a focus on the proper use of these types of services. A simple internet search will show you that the CFPB has started to sanction those companies abusing these types of arrangements.

When you are representing clients be sure and consider two important issues that should be a part of any AfBA.

First and foremost, you should know that if any type of referral has been made to an affiliated business there must be provided a written disclosure. Generally the disclosure must be given at the time of the referral. In the event of a lender, then the disclosure would be at the time of the loan application. The disclosure seeks to provide the consumer with the nature of the relationship between the parties making the referrals and customary fees typically charged for the service being offered. An example of this type of form can be found in appendix “D” of the RESPA Act.

Second, the referral must not be offered as a “required use.” This is the portion of the law that can seem to cause some problems as the way it is written provides for different definitions to what constitute “required use.” What is not considered “required use” is when a consumer is offered discounts or rebates for the use of an AfBA service. However, any such discounts or rebates must be optional and they must be considered true discounts. The ability to purchase a property cannot be contingent on the use of the AfBA.

For example, if the consumer is given a discount of $5,000 for using an AfBA as part of a real estate transaction, this is acceptable. What is also acceptable is if the consumer decides that for any reason they do not wish to use that affiliated business, the selling party may withdraw that $5,000 incentive. What is unacceptable is if that party goes beyond withdrawing the incentive and states that the consumer is not allowed to continue with the purchase of the property. In this case, the company is in violation of RESPA.

Parties offering any type of AfBA should also make certain that the incentives as offered do not constructively create a “required use.” If for example the incentive being offered is such that once it is taken away it essentially makes the purchase of the property almost impossible or unfeasible, the courts have determined in similar situations that this conduct is tantamount to being the same as making the use of the affiliated company required.

Ultimately, these types of programs help consumers and can be valuable to purchasing a home. As an agent for a buyer it is important to be aware that these programs can be used incorrectly to create pressure on your clients to use services which might not be in their best interest. The ability to know when your client is being pressured or when the incentives are being used incorrectly will add value to the services you already provide. For more information on this topic visit the CFPB website at www.consumerfinance.gov.

MLS Rules Regarding Listings

By Gilbert Gonzalez, Vice President of Risk Management and General Counsel

As you are already aware, MLS rules require listings be placed in the MLS within 72 hours of the listing agreement being signed. The exception to this rule is if the seller requests the listing not be entered into the MLS and in that case, it must first be put in the contract and also included in a Non-MLS Addendum indicating this decision. A REALTOR® should not decide for the seller or influence the seller not to list their home in the MLS. SABOR has the ability to check the listing agreements in MLS and levy fines where rules have been violated. Remember, these rules are in place to provide accountability and universal guidelines that ensure fair transactions and reduced liability for our members.

There is a recent trend occurring toward member-only online groups. These groups as formed are not against MLS rules. However, there is a potential for these groups to cause problems. When a group of agents only refer their listings to each other and give preference to their clients, rather than allowing the public to view and possibly take action on a listing, they are opening themselves up to liability. These agents are not making the property available to all prospective purchasers but instead are limiting the pool to a select group of people. This can potentially violate Article 3 of the Code of Ethics which states in Standard of Practice 3-10, “The duty to cooperate established in Article 3 relates to the obligation to share information on listed property, and to make property available to other brokers for showing to prospective purchasers/tenants when it is in the best interests of the seller/landlords.” In other words, as a REALTOR® you should always act in the best interests of your clients.

As always, the Member Care Department at SABOR is here to serve you. If you have any questions about these rules, please contact us at 210-593-1200.

Record Retention: Four Year Rule

Now that the big tax deadline has come and gone what are you to do with all those records? There are different requirements imposed by law as to how long you must keep your records but I wanted to talk about the requirement imposed by TREC.

Under TREC Rule §535.2 (h) brokers must maintain records for a period of four years. The timeline begins either from the date of closing or termination of the contract. The code provides that at a minimum the following types of records must be retained: disclosures, commission agreements, work files, contracts and related addenda, receipts of compensation, property management contracts, sponsorship agreements, and USPAP requirements for appraisals.

I have come to learn that each office has its own preference as to how much time beyond four years it prefers to keep records. Everyone should maintain what they feel comfortable with. Only consider that for litigation purposes the four year rule would not act as a limit. Therefore, if you were requested to produce all documents on a property or transaction you would need to search all files in your possession and not just those created over the last four years.

Are there rules to the destruction of business records?

Yes, under TREC rule 535.2(h) brokers are required to maintain certain records for a minimum period of four years. It is up to each individual broker to determine if they wish to keep the records for longer than that period. Some of the required records to be maintained will have personal identifying information of clients. With regards to these records certain rules apply.

Under the Texas Business and Commerce Code, Section 72.001 the law provides that when records are going to be destroyed, and these records contain personal identifying information of a customer, “the business shall modify, by shredding, erasing, or other means, the personal identifying information so as to make the information unreadable or undecipherable.” The law was passed in 2009 as part of reforms to protect consumer information.

Within the law it provides that if a company hires a professional company in the business of destroying such records, then the company is presumed to have complied with the law. The attorney general has the ability to sanction any company in violation of the law with a civil penalty of up to $500 per each business record

Commission Issues

Can a commission listed in the MLS be changed once an offer has been submitted?

Yes it can, but only when both parties consent to the change. The value of the MLS is that it serves as the unilateral offer of compensation amongst members. Therefore, if a commission is offered in the MLS it is considered the agreement of the parties once an offer has been received. If an offer has not been received then it is acceptable to change the offered amount. The only way to change a commission after the offer has been received is to have the change agreed to by both parties by executing a written document stating the change. Submitting a contract for the property with a different commission offered on page nine of the contract does not satisfy this requirement.

May a broker pay an agent’s commission in the name of the agent’s unlicensed corporation?

No. In order for a broker to pay a commission the receiver of the commission must possess a broker’s license. Therefore, if an agent has requested that their commission be issued in the name of their private corporation, the agent must be instructed to have the corporation licensed as a broker.

The Texas Real Estate License Act provides under §1101.355(c): A business entity that receives compensation on behalf of a license holder must be licensed as a broker under this chapter.

Should Commission Rebates be included as part of the Residential Contract for resale?

No. A rebate of any commission between an agent and the party they represent is an independent agreement to the resale contract. It should not be included as part of the underlying transaction. The reason to avoid making it a part of the contract is because should there be a problem with the payment of the commission then it would affect the underlying contract.

With that said, TREC rule 535.147 does require that this information be disclosed to all parties. While it should not be included as part of the sales contract it should be included as part of the HUD-1 Settlement Statement and in the representation agreement.

Bonuses: Shouldn’t be an extra headache

Recently I have been receiving increased calls by agents expressing their concern about bonuses being offered in the MLS but being withdrawn after a purchase offer is submitted. It is important to remember that the listing on the MLS serves as a “blanket unilateral offer of compensation.” Without prior written notice, before the submission of an offer, the bonus cannot be changed.

The situation presented regarded what to do if an agent forgot to include the bonus on page 9 of the standard 1-4 family contract (TAR 1601). Would that mean the agent waived their right to claim the bonus? The answer is no. Page 9 of the standard contract (TAR 1601) does not serve as the formalization of the compensation agreement. Instead look at paragraph 8 which states, “all obligations of the parties for payment of broker’s fees are contained in separate written agreements.”

Someone forgetting to confirm they would receive the bonus does not negate the offer to pay that bonus. It also goes without saying that bonuses cannot be made conditional. This includes the condition that an offer must be a certain price.

Follow these guidelines and everyone will win.

Contracts and Forms

Closing has come and gone. Now what?

More often than you would like I’m sure the closing date isn’t always the final deadline. So what are your options when it comes to closing time and you’re the only one at the closing table?

Paragraph 15 of the TAR 1601 contract provides your choices. The provision says either party “may” exercise their options. This is important because it means the party who wants to terminate the contract may do so but does not have to. If both parties agree to continue through their words or their actions then the contract will continue. Always formalize any such intentions by using an appropriate form.

Alternatively, if one of the parties would like to cancel the contract they must do so affirmatively. This means they must take actions to give notice they wish to cancel. The passing of the closing date alone is insufficient to terminate the contract and could lead to confusion.

Someone once said “contracts don’t just end they must be terminated.” Remember the rule this way and you are sure to reduce your risk.

Mailing Option Fees

When a contract calls for “Time is of the essence” that is going to mean that two days is two days and not a day more. Putting a check in the mail within two days will not create a valid option period as the contract calls for receiving the money within two days.

Legally speaking there is a principle called the “mailbox rule. ” The mailbox rule provides that notices are deemed given from the moment they are placed with the U.S. post office. The distinction here is that it applies to notices. Courts have held that payment of a fee is not a notice but rather an action that must be completed according to the contract. Because the contract provides “time is of the essence” then it means that the money must be delivered within the given timeframe, which in the standard contract is two days.

Looking at the case law it appears that a court would hold that the money will not be appropriately delivered simply because it was put in transit before the deadline arrived. Courts are going to require the money be delivered and received by the deadline. Some parties might be understanding and allow it to pass if they believed the check was in the mail but if it ever went to litigation chances are a court is going to see that as insufficient to create the option period.

Non-Realty Items listed on MLS

The issue that has been popping up lately is non-realty items being advertised in the MLS that never make it into the sales contract through a non-realty item addendum (TAR 1924).

The MLS is a service between REALTORS® and has no binding authority on consumers purchasing the home. The correct way to have these items transfer is to make sure and use the appropriate addendum. This does not mean a buyer would have no recourse. Buyers could choose to retain an attorney and sue under the premise that the listing was a misrepresentation.

Both parties – buyers and sellers – and their agents should make certain that everyone is on the same page. If you list a property on the MLS and advertise that non-realty items will transfer, confirm with the buyers that they do or do not want the items and ask them to use the appropriate form. If you are buying a house listed on the MLS with non-realty items being offered, make certain the seller’s know your interest in acquiring the property by also using the appropriate form.

Communication between the agents will reduce your risk of having problems in the future.

Limited Services Agreements and Submitting Offers

By Gilbert Gonzalez, Vice President of Risk Management and General Counsel

Limited services agreements provide that an agent has the ability to enter into a relationship with a seller of property to provide limited services as part of their representation. “Limited services” means there is a minimum that is expected from the listing agent.

The most important characteristic of these types of agreements that all agents should be aware of is that negotiations must involve the agents. By this I mean that the listing agent must remain informed of offers being submitted. Instructions to potential buyers and their agents to submit all offers to the seller without notice to their agents are asking those buyer’s agents to violate the Real Estate Licensing Act.

Listing agents must be the avenue by which offers are received and countered. Listing agents may ask that offers be submitted to the seller, but should only involve the administrative act of providing the offers. It should not extend to any conversations or negotiations about the offers. Buyer’s agents should also be aware that if they are submitting offers directly to a seller then they should also make certain copies are sent to the listing agent. Agents on both sides of the transaction should know that their roles legally require both participate in the negotiations of a transaction.

Adding “Does Not Appraise” to a contract is giving legal advice

By Gilbert Gonzalez, Vice President of Risk Management and General Counsel

New rules are being implemented on mortgage providers that will ask consumers to start putting more money down. And, because most homes are purchased under conventional financing, you should be aware there are no protections for these consumers if a house does not appraise in the Third Party Financing Addendum (TAR 1901).

The form does have protections for buyers under FHA and VA in the event a home does not appraise for the contracted price. However, there are no such protections in the “Conventional Financing” paragraph. Efforts have been made in the past to include protective language but they have always been denied by TREC for inclusion.

Buyers that are putting down significant amounts of money as part of their contracts should be advised to seek the assistance of an attorney to provide them with protections in the event a home does not appraise for the contracted price. Agents who write into special provisions “Must appraise” language are practicing law. By including this language in a sales contract you have indicated to your clients that you have protected their legal rights to terminate a contract. This is considered giving legal advice and should be avoided. Make certain this advice comes from a legal professional who can take the responsibility, and liability, of protecting the buyer in the event of a low appraisal.

Proposed TREC Contract Form Changes

By Gilbert Gonzalez, Vice President of Risk Management and General Counsel

TREC at its most recent commission meeting announced it was looking to make changes to the promulgated contract forms. At this stage in the process all the proposed changes have not been finalized and accepted by the commission. The process currently is at the point of taking comments from members on the proposed changes.

The contracts to be affected are:

  • One To Four Family Residential Contract (Resale) – TREC 20-11
  • New Home Contract (Incomplete Construction) – TREC 23-12
  • New Home Contract (Complete Construction) – TREC 24-12
  • Residential Condominium Contract (Resale) – TREC 30-10
  • Unimproved Property Contract – TREC 9-10
  • Farm and Ranch Contract – TREC 25-9

While some of the changes could be considered significant others seem to be drafted to bring clarity to the contracts.   For a complete list of the proposed changes, TREC has posted the contracts on their website at www.trec.texas.gov under the “Forms” tab. Some of the more significant changes I see being proposed are:

•  Under the “Property Conditions” portion of the contract, generally paragraph 7, language is being included to define the legal principal of “As Is.” The principal is being defined to explain that term means, “the present condition of the property with any and all defects and without warranty except for the warranties of title and the warranties in this contract.” Prior to this change the term would have needed to be explained to buyers putting Agents in a difficult position.

  • Another change to the “Property Conditions” paragraph, more specifically paragraph 7(f), is that currently repairs can be completed by the sellers of property and under the new language the repairs would need to be performed by a licensed individual or someone “commercially engaged in the trade of providing.”
  • With regards to all contracts, mediation is being changed to become mandatory for all contracts. Currently, the parties have the option to decide if disputes will be handled through mediation. This option is being taken away making it mandatory under these contracts.
  • Under the Termination Option paragraph buyers will have an extra day in which to deliver the option fee to the sellers. The language is being changed from two days to three in which to perform.
  • The Third Party Financing addendum is being amended to include another option for USDA Guaranteed Financing which was not previously an option.
  • A completely new form is being proposed titled: “Mutual Termination of Contract.” Under this new form the parties can agree to terminate the contract and provide for the release of the earnest money or they can decide that the contract is terminated but without the release of the earnest money.

If you would like to comment on these proposed changes or the others listed on the TREC website you may send your remarks to general.counsel@trec.texas.gov. Comments are being accepted until October 1st.

New paragraph added to: Notice Terminating Right Of Occupancy

The Texas Association of REALTORS® has recently made a change to one of its forms that I would like to bring to your attention. The Notice Terminating Right of Occupancy (Form 2208) was recently amended to give tenants the reason why their lease is being terminated.

The Legal Department at TAR made the change to provide clarity to tenants on why they are being asked to leave the property. Additionally, judges thought the information was valuable to protect tenants’ rights by providing the reason they have been asked to terminate the lease.

The form change provides for REALTORS® to check one of two boxes. The first box specifies that the lease is terminating due to the nonpayment of rent. The second box provides a blank space so that property managers or landlords may indicate any other legal reason provided in the lease that is the basis for the removal.

Lease to Purchase Contracts

One Residential contract coupled with a Temporary Residential Lease contract do not equal a Lease to Purchase contract. The only thing they will add up to is a whole lot of liability.

When your clients have found the home that they have been waiting for but need some more time, they might ask you for a Lease to Purchase contract. Under these types of contracts the buyer is obligated to purchase the home and the seller is obligated to sell the home after a set time. These contracts are viable options, but they are not one of the standard forms provided by TAR.

Using a Standard Sales contract combined with a Temporary Lease contract will not accomplish this objective. The main reason why is it does not provide for consequences on a breach. On the same note, getting creative with the special provisions paragraph is also a road you should not take.

Protect your client’s interests, and yours, by requiring the parties to hire an attorney to draft the contract. This way if something happens down the road you will be protected.

If you have a contract open at one title company and you know it’s not going to close, should you take a second contract to another title company?

No. If a seller has a valid contract to buy property with another party, then the buyers have an equitable title in that property that does not become removed until the first contract is terminated. The equitable title can be removed only once the first contract has been closed and there are no pending issues.

If there is a dispute over who is entitled to the earnest money, then that first contract is not considered closed and there is an issue of equitable title held by the buyer in the property. For this reason, that same title company will not accept another contract from a new buyer until the first contract is closed. Taking the contract to another title company to circumvent this issue opens up agents to liability. Title companies do not have a manner in which to see if contracts are pending so a large responsibility relies on the sellers to be truthful and not encourage this type of activity.

Client is asking for a second copy of the form they signed because they can’t find it. Do you have to provide them another copy?

Yes. Under the Code of Ethics Article 9 it states, “A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing.” We know an initial copy should be given as soon as it is signed or initialed, but oftentimes you are contacted at a later date with the request for another copy to be provided. The reasons I am sure vary between, “I was never provided a copy of that form” to “I can’t find the copy now.”

Given under TREC rule 535.156 that you have a duty to keep your client informed—the best practice is to honor the request of the principal and provide a second copy. Providing a second copy does not constitute an admission that an initial copy was not provided. What it does do is avoid any time in which you were put on notice your client was without the information and they were left uninformed because you did not want to provide it to them. Therefore you should immediately provide those copies and make certain you are able to document that you have made them available a second time.

Does the law that requires the buyer to assume the cost of purchasing the resale certificate extend to the purchase of condos?

No it does not. Section 5.012 (g) was added to the property code back in 2011 and became effective January 1 of 2012. It creates the presumption that buyers will pay for the resale certificate unless the parties negotiate otherwise.  At the beginning of the provision it states this rules applies to the “seller of residential real property…that comprises not more than one dwelling unit.” Also, a little further down in section “c” it states this section does not apply to a transfer of a real property interest in a condominium. With the sale of a condominium, the “owner of the unit” is charged with supplying the resale certificate under section 82.157.

Who may request a resale certificate and when?

As of January 1st of this year buyers may request resale certificates from a property owners association in addition to a seller. The TREC forms were recently updated to include this change. There are some restrictions, however. A buyer must be able to prove that he is a party to a currently effective sales agreement to purchase property located within the HOA. The HOA may also require that a method of payment be provided by the requestor before the HOA has to begin working on completion of the certificate. Note, however, that the HOA is prohibited from processing the payment until the HOA is ready to provide the completed certificate.

The parties may use the Addendum for Mandatory Membership in a Property Owners Association to negotiate who is responsible for requesting and paying for the certificate (and other property information).

Fair Housing

April: Fair Housing Month

Recently, an agent out of Florida took to the blogosphere after he learned that he was being sued by the Federal government for a Fair Housing Act violation. A HUD tester visited his website and saw a listing with the comment, “Adults Only, No Children Under 16 Allowed.” The comment is a clear violation of fair housing laws as it discriminates against families. The twist to this situation is that the listing did not belong to the agent who owned the website, but rather it was a listing supplied through his Internet Data Exchange feed (“IDX”). On the advice of his broker, the agent was asked to settle the claim rather than proceed to trial. He objected and took to fighting against the claim.

Ultimately, the case was dismissed by the government and the agent was cleared of any wrong doing. When the case was initially filed against this agent the HUD tester was under the impression that the agent was the author of the content. It appears that after the government investigated the issue further it was discovered the listing was from an IDX feed and not the agent hosting the website.

There are two points to take away from this situation. The first is there are protections in place for agents using an IDX feed on their website. The second is everyone should be cautious to always comply with fair housing laws.

The underlying case against the agent was brought based on the Fair Housing Act provision (42 U.S.C. 3604(c)) which reads it shall be unlawful:

To make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination.

In summary, the provision makes it illegal to market a property in such a way that it discriminates against a listed protected class. The provision however does not address whether someone would be held liable for a listing someone else has authored as is the case with an IDX feed.

The National Association of REALTORS® has taken the position that agents should be protected for the content supplied through an IDX under the Communications Decency Act of 1996. The Act provides a “Good Samaritan” protection that someone will not be treated as a “publisher or speaker” of content when it is supplied through a 3rd party. Though it has not been applied in the context of an IDX feed, the principle has been held to protect similar situations for websites such as roommates.com and craigslist.org. In these cases the websites were found to be cleared of illegal content placed on their websites by independent parties.

This does not mean that websites do not have any responsibility in the matter. Here at SABOR the “remarks” section of the MLS has been subject to a compliance scan for some time now to help prevent comments that could be violations of the Fair Housing Act. Any possible violations are reviewed and addressed before they are disseminated through the IDX. As an aside, in the case out of Florida the word “adult” was misspelled so it could have been possible that this comment would have made it past any such checkers.

While the case has brought to light the potential issues in using an IDX feed it has not done enough to focus on the underlying issue which is that the remark was a form of discrimination against families seeking housing. Though the case was ultimately dismissed against the agent whose only action was to use an IDX feed on their website, the case against the listing agent still stands. That agent does not have the same protections we have already discussed as they are the authors of the discriminatory language. The best protection the real estate community has to avoid these incidents in the future is to stay informed of the protections the Fair Housing Act provides.

April is National Fair Housing Month and it is a good time to remember that the Code of Ethics is a REALTORS®’ commitment to fair and equitable treatment to the public in the providing of professional services. The Fair Housing Act makes it unlawful to discriminate on the basis of: race, color, religion, sex, familial status or national origin. As REALTORS® it is important to remember we support the “widest distribution of land ownership.” Under the guidance of the Act and the Code of Ethics we should never endorse preferences or limitations that discriminate against the public’s pursuit of that part of the American dream which is home ownership.

Landlord-Tenant Issues

Hoarding: It’s Not Just a Television Show

At the most recent National Association of REALTORS® convention there was an interesting conversation brought up at the property management forum.

There may be a point where as a property manager you have a tenant who has amassed such a large amount of belongings that it is no longer safe for the occupants, nor is it prudent for the property, to be in such a condition. But did you know that evicting someone or mandating clean up because they have hoarded so many items could be a violation of the Americans with Disabilities Act and the Fair Housing Act?

Recently, the medical profession moved to include hoarding as a distinct disorder in the Diagnostic and Statistical Manual of Mental Disorders (DSM-5). What that means for property managers is the classification of hoarding as a disability now makes it a protected class under our laws.

It is acceptable to ask a tenant for a doctor’s letter verifying that they do have a disability but further inquiry should be avoided. As with anyone who has a disability, property managers must make reasonable accommodations for tenants which could include providing more time to remedy the situation.

Licensing

Can Attorneys Bend the Rules?

No. While attorneys are not required to be licensed by TREC in order to perform the same functions as a real estate agent, that does not mean they can act as a broker. Under TREC rule 535.31 an attorney must be licensed as a broker before they are able to sponsor salespersons or serve as a designated officer for a licensed corporation.

Additionally, assistants to the attorney are prohibited from performing anything that would require a license. Therefore the rules that apply to assistants for brokerages stating they are not allowed to show properties or draw up contracts would also apply to an attorney’s assistants as well.

Lastly, sharing a commission with an attorney would be a violation of the licensing act under 1101.652(b)(11). For an attorney to be compensated for his work they must make separate arrangements with their client to be paid as a fee for services and not as a cooperative arrangement with an agent on the other side of the transaction. An agent is prohibited from sharing a fee with anyone who is not licensed as a real estate agent or broker. While attorneys are allowed to act as a real estate agent, they are not licensed as a real estate agent.

My agent wants to start operating under a DBA. Do I have to do anything for this to happen?

Yes. For an agent to operate under a name other than which they are licensed, the broker for the agent must file with TREC Form DBA-1 “Notice of DBA or Assumed Name for a Broker’s License.” This notice must be filed with TREC within 30 days from the date the agent starts using the assumed name in business. The same rule applies to giving notice when the agent stops using the name. See TREC Rule 535.154(e).

If an agent starts to operate under an assumed name or DBA, they are also required to make clear to consumers that the advertisement is being placed by an agent and not the broker. The best approach to comply with this requirement is to include the term “agent” in the advertisement.

As a broker, under Section 535.2(g) [Broker Responsibilities] it is important to remember you are responsible to ensure that a salesperson’s advertising complies with these rules.

Miscellaneous

Should you have a “no texting while driving” policy in your Policies and Procedures manual?

Yes. While it might seem redundant to place something in your Policies and Procedures manual that is already against the law, it is still a good idea. The policy could be that agents agree to abide by all traffic and safety laws. The reason to take this step is oftentimes liability may extend to a brokerage for the actions of an agent where the brokerage has not been proactive in advising agents of their expectations. Plaintiffs will seek to bring into litigation those who have insurance. By placing this type of language into your Policies and Procedures manual, you proactively work to minimize your risks.

Am I in violation of the rules for not returning phone calls?

Yes. Failing to return phone calls or emails can sometimes happen. Most would agree it is not the best practice but would not consider it a violation of the TREC rules. There is a provision that actually creates a responsibility to return communications within a timely manner. Under Section §535.2(j) titled Broker Responsibility it provides: “a broker or [delegated supervisor] must respond to sponsored salesperson, clients, and license holders representing other parties in real estate transactions within three calendar days.”

Is a broker responsible for the property management activities of their agents even if they don’t know about such activities?

Yes. Under section 535.2(d) it provides: a broker is responsible for any property management activity by the broker’s sponsored salesperson that requires a real estate license. Brokers should take a proactive approach and place into their policies and procedure manual that agents are not allowed to participate in any property management activities without the knowledge and or consent of the broker.

Can an agent share a commission with an agent who is licensed in another state?

Yes. A broker licensed in Texas can share a commission with a broker from another state as long as that broker is licensed under the laws of the state in which they practice. For example, a Texas agent can share a commission with an agent licensed in California as long as the agent in California has the appropriate license to practice real estate in that state.  The one requirement is that the Texas licensed agent must be the person handling all the negotiations in the state of Texas.

Can a buyer of residential property obtain consent to perform hydrostatic testing on the property by writing the request into special provisions of the contract?

No. The contract provides that the consent to perform the hydrostatic testing must be in a separate document. It cannot be included as part of special provisions in the contract.

Is an assistant allowed to open a house for an agent?

No. In the most recent TREC Advisor (May 2016), the Commission made it clear that only licensed individuals are allowed to give consumers access to a house. The Commission cites Rule 535.4(c) which states, “unless otherwise exempted by the Act, a person must be licensed as a broker or salesperson to show a broker’s listing” as its basis. The Commission emphasizes the use of the word “show” in the rule to explain that assistants are not able to allow access to a property.

Under 535.5(H), the rules still allow a broker to hire an unlicensed person to be a host at a property but they may not participate in any function that requires a license.

Must agents provide a BPO or CMA when buying property for themselves?

Yes. Under TREC rule §535.16 it provides that when an agent is offering to purchase a property for themselves the agent is required to provide a BPO or CMA. The rule provides that this applies when the agent has located the property “while acting as a real estate agent.”

Am I complying with the Licensing Act (§1101.558, Texas Occupations Code) which requires representation disclosure if I include a link at the bottom of my email?

No. The Texas Real Estate Commission has made it clear under its new rule that including a link at the bottom of an email is not in compliance with the law’s requirements. Under new section 531.20 (d) it states: “Providing a link to the IABS Form in a footnote or signature block in an email does not satisfy the requirements of subsection (c).” Subsection “c” is a reference to section 1101.558 of the Licensing Act.

The new rules makes it clear that if the notice is going to be part of an email communication then it must be included in the body of the email or as an attachment to the email with a specific reference to the form in the body of the email. If the form is going to be referenced in the body of the email then the best practice would be to label the form as “Texas Real Estate Commission Information About Brokerage Services.”

Do sellers need to disclose that there may be a sex offender nearby?

No, under the code of criminal procedure (Article 62.056) it states: An owner, builder, seller, or lessor of a single-family residential real property or any improvement to residential real property or that person’s broker, salesperson, or other agent or representative in a residential real estate transaction does not have a duty to make a disclosure to a prospective buyer or lessee about registrants (“Sex offenders”) under this chapter.

Obligations regarding extra copies of documents

Yes. Section 1101.652(b)(28) of the Texas Occupations Code provides that TREC may suspend or revoke a license where a licensee, “fails or refuses to provide, on request, a copy of a document relating to a real estate transaction to a person who signed the document.”

This means if even you have already provided the consumer with copies of the documents once before it would still be wise to provide them with additional copies if they are requested. TREC recently fined an agent $1,000 for failing to provide, upon request, copies of a signed listing agreement.

License Holder Nicknames

TREC issued a point of clarification on the use of license holder nicknames. There is a distinction being made between those names that are derivatives of a person’s full name and those that are unrelated. For example, if a person’s name is Michael and they go by Mike or Christina happens to go by Chris then these would be considered derivative names and therefore not requiring a DBA to be filed.

However, if a license holder is named David but goes by the name of “Bravo” from their days in the Air Force then in these instances they will be expected to file a DBA. The advertising rules are currently being worked on so we will keep you informed of any changes.

Should buyers be allowed access to the property before closing and funding?

Under the One to Four Family Residential Contract, paragraph 10 states that possession of the property will happen upon closing and funding. Unless both conditions are met, the transfer of the property may not be complete. This would also mean that the reasonability and liability would also not have transferred. Therefore, buyers given early access to a property place sellers in a liable position where they may still be accountable for any harm or damages done to or on the property. Agents should take precautions to make certain that access to the property is not given until the appropriate time.

Money Laundering: What REALTORS® Should Know

Associations around the country are doing their part to inform members about the use of real estate transactions as a form of money laundering. The consensus is that at this time it has not become a prolific problem. However, everyone is taking a proactive measure to make sure it stays that way.

In other parts of the world, anti-money laundering policy has become legislatively mandated. Our neighbors to the north, Canada, now have mandatory obligations when it comes to recording and reporting suspicious activity. In the United States, such measures have not been instituted. The efforts being made now are in hopes that it will not become necessary as agents will voluntarily disclose suspicious activity.

Money laundering is the process by which criminals take monies they have acquired through illegal activities and insert them into the market so as to hide from where the money originated. This is done in an effort to legitimize its future use. An example would be John Doe who recovered $500 illegally through credit card fraud. He then used that money to buy gift cards which he turned around and sold at face value. He now walks away with his $500 dollars cash and has converted the origins of the money multiple times so as to disguise where it came from.

Now let’s assume John Doe has graduated to more sophisticated crimes such that he has found a way to illegally acquire $100,000 dollars in cash. He doesn’t want to keep the cash lying around the house or put it in a bank and leave it there so he tells his sister, Jane Doe, he is going to buy her a home. Jane Doe then purchases a house using the money from John and she lives in it for a period of time. John has now found a way to hide his money and when the time comes to sell the house the proceeds will appear as legitimate profits.

With that said, we should not become automatically suspicious of anyone who has the money to buy a home in cash. The fact of the matter remains the large majority of homes require financing. The need for financing is also the reason money laundering is not a prolific problem in real estate transactions.  The process involves entities such as banks and mortgage companies which are highly regulated. This does not reduce the burden to do our part now to prevent the possibility of exploitation of our industry in the future.

The National Association of REALTORS® and the U.S. Department of Treasury have come together to help provide some guidelines to assist you in detecting the possibility of money laundering. They have categorized the risk factors into three general groups: geographic, customer and transaction risk.

Geographic risk arises when money or funds are coming from a country or jurisdiction that has a propensity for crime. There is no definitive list of countries but a good place to start would be the Treasury Department’s website for a list of countries currently under financial sanctions. A small sample of the countries that currently have imposed some form of sanctions include:

  • Burma
  • Iran
  • North Korea
  • And many more

Customer risk addresses the principle that it is important to know who your client is. If you know your client well enough you would be able to address concerns from issues such as:

  • Your client is located in South America and has not been to the United States but wants to buy property here.
  • Third parties have a vested interest in the transaction and your client has no apparent authority with which to make decisions.
  • The purchase of the property is to be completed in the name of another than with who you are dealing.

The last factor to consider is transaction risk. This risk revolves around elements of the deal and its terms. Transaction risk includes occasions in which:

  • The value of the property is of little concern to the seller
  • The transaction includes large amounts of cash
  • The property being purchased is inconsistent with the individual’s occupation or income
  • The buyer or seller is looking to close the transaction quickly without a reasonable explanation

The list of factors provided is not intended to be an exclusive list nor a bright line rule that criminal activity is afoot. Rather, these are factors that in the past have been consistent with such attempts to launder money. The most important tool that you have is your experience in the industry. You will know when something does not feel right. Follow your instincts when you come across any of the above factors and consider all the circumstances surrounding the transaction. You are the industry’s best asset in prevent future misuse of the real estate transaction.

If a situation does occur that you believe rises to the level that someone should be notified, consider contacting local or federal law enforcement agencies. Just as consumers come to you to assist them with purchasing a home, consider contacting them when you would like direction on how to proceed or to whom you should report the possible illegal activity.

Additionally, remember that IRS rules require that a Form 8300 be submitted when a business receives more than $10,000 in cash for a single transaction. Confirm with the title company that they will be assuming the responsibility of submitting that form.

With your help and vigilance, the industry will continue to stay ahead of the curve and protect against misuse of the real estate transaction.

Is there a definition to a reasonable amount of time to account for or remit money belonging to someone else?

Yes, TREC Rule 535.146(g) defines reasonable time as: “within 30 days after demand is made.” Once a demand is made by a principal to an agent the clock starts ticking and they must provide the accounting or pay the funds that belong to someone else.

This definition does not apply to the requirement of depositing money that is accepted as part of an executed contract. When money is accepted as part of an executed contract, the rule that applies is 535.159 (i) which would require the money be deposited with the escrow agent “by the close of business of the second working day after execution of the contract by the principals.”

Can you charge your clients an administrative fee?

YES! As of May 24, 2012, the National Association of REALTORS® is advising members that it is compliant with federal RESPA law for a brokerage to charge clients a flat administrative fee. NAR is reacting to a recent US Supreme Court opinion in which consumers sued a lender alleging the lender charged and collected a flat fee for services that were not performed and that collection of the fee violated the Real Estate Settlement Procedures Act. The Supreme Court asserted that because the fee was not shared by the lender with a third party, the collection of the fee fell within the bounds of RESPA.

In its interpretation of the ruling, NAR made the following statement, “in light of the unanimous Supreme Court ruling, such fees do not violate Section 8(b) of RESPA unless the broker who is paid the fee splits it and pays a portion of it to a third person outside of the brokerage firm who provides no services in exchange for the fee.”

Accordingly, so long as collection of the fee occurs on the terms stated above, your brokerage may collect an administrative fee from clients.

Professional Standards

Protecting Your Liability and Keeping Others Safe

This month is REALTOR® Safety Month and it is a good time to take assessment of your protection against liability – insurance. Making sure that you have all the proper insurance coverage to insulate you from the costs of lawsuits can help you avoid the effects monetary damages can create.

Given that you spend a large amount of your time in your car with clients, make sure that you have properly taken stock of your insurance coverage. Even the safest drives can’t avoid the reckless driver who causes accidents. Simple actions like making sure everyone is wearing their seatbelts also help reduce injuries and liability. Not only that, but it’s the law.

Slip and fall accidents that happen on a property you are touring might be covered under the homeowner’s policy, but do you have business liability insurance in the event the accident happens at your office? Keeping a location safe and organized helps to reduce the chances of accidents, but in the event one does happen you will feel more secure knowing someone is there for your support.

Have a great month and be safe.

Assistants: Can they do that?

Perhaps you have decided to take on an assistant to help with the increase in business. You have hired this person to make your life a little easier. After all, with their help you can focus more on closing deals and less on administrative work. To make sure your help doesn’t turn into a burden be sure your assistant is only helping you with the tasks they are allowed to help with. Otherwise, TREC could be knocking on your door.

Assistants are a valuable asset to your company and are completely permissible under TREC rules. However, the rules don’t make it easy to determine what tasks they are allowed and not allowed to perform. Under Section 1101.002 of the Act we are told the definition of what a Broker and their Agents are allowed to do. One way to determine what an assistant can do is by saying that if it is written in this definition then it requires a license and assistants should stay away from those tasks.

If you have read the definition under Section 1101.002 then you know it is a pretty broad definition of what activities require a real estate license to perform. To help with interpreting the rule on assistance TREC has put out various resources on what your assistants can undertake to make themselves a useful part of your team. Some of the more prominent ones are:

  • Assistants should not be allowed to perform “telemarketing.” Asking your assistant to call a list of individuals to see if they are interested in buying or selling property is against the rules. Even if the purpose of the call is to setup a future appointment to talk to a licensed individual the assistant cannot make those calls.
  • Assistants may act as “hosts” at open houses but under TREC Rule 535.5(h) they should not, “engage in any activity for which a license is required.” Your assistant can feel comfortable asking guests to sign-in and distributing flyers with information describing the property. However, they should never be the person giving tours and pointing out features of the house as that would be crossing the line. When hosts are asked question about the property they should refer those questions to a licensed individual.
  • Assistants may confirm information in limited circumstances. Under TREC Rule 535.5(g) it allows assistants to “confirm” information concerning size, price and terms of the property. The importance of the word “confirm” as used in this context is that it means the clients or customers have approached the assistant having already acquired the information from another source. Therefore, the assistant should not be the original provider of this information. Additionally with this rule, it is required that the assistant identify themselves as unlicensed individuals in order to confirm the information.
  • Assistants may provide training and motivational guidance to licensed agents, but under 535.4(d) that person would not be allowed to direct or supervise agents in their work as licensees. A broker may only assign licensed individuals to supervise agents.
  • Assistants may assist with administrative tasks such as setting up appointments for licensees to take clients to see homes, and even inputting data into a computer or typing up contracts, but all must be specifically directed by a licensee.

This list represents a highlight of the most common issues that could arise and is not an exhaustive inventory of all possible scenarios. It is important to set clear guidelines for your assistants to know what scope they are allowed to work in and what they should avoid. More importantly would be to regularly verify that those guidelines are being followed and enforced.

Legal Disclaimer: The material provided in this website is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the San Antonio Board of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the San Antonio Board of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on SABOR.com. Any legal or other information found here, on SABOR.com, or at other sites to which we link, should be verified before it is relied upon.

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