These are the hurdles agents most often face and how to stay in compliance while navigating a transaction.

A Korean-American couple recently asked Brian Bartholomew to show them homes only in Korean neighborhoods. Bartholomew, a sales associate with RE/MAX Cornerstone in Brea, Calif., immediately saw the red flag. “I can’t steer you toward an area just because of race,” he says he told the client. If Bartholomew had done what the client asked, he would have been in violation of fair housing law. The couple decided to continue working with Bartholomew, and he showed them homes in areas they requested by name rather than demographics.

It doesn’t matter that the buyers were the ones to ask for specific neighborhoods based on their racial and ethnic profile. Under the federal Fair Housing Act and the REALTOR® Code of Ethics, you cannot limit your customers’ housing options based on race or ethnicity, among other protected statuses, even if it’s what the client wants. This is just one of many legal issues practitioners may misunderstand. Beyond fair housing, transactional items that can be wrought with legal consequences include disclosures, contracts, escrow management, and lawful property marketing. “Legal issues permeate all aspects of the real estate industry,” says Steven D. Graham, vice president of risk management at the Missouri REALTORS® association.

Graham’s advice to real estate pros—especially rookies—is to “keep in mind that you are not a lawyer, so you should not be interpreting contracts or providing legal advice.” Rather, you should refer clients to their attorneys when a potential legal issue arises. Common legal issues in real estate include:

• Inaccurate listing information. Graham says he’s seen lawsuits over listings using square footage from a local assessor’s office that turned out to be false. The Missouri state association has created a Measurement Disclaimer Form to address square footage. It provides the opportunity to cite the source of the square footage used for a listing but also says, “If exact acreage or square footage is a concern, the Property should be independently measured.”
• Misleading property photos. Using old photos of a property in a listing can lead to accusations of misrepresentation in advertising. Bartholomew recalls going to see one house whose photos showed a lush green lawn, but there was no grass on the property in person. Such a misrepresentation is a violation of Article 2 of the Code of Ethics, which states: “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” A Standard of Practice was added to Article 2 last year addressing the Photoshopping of listing photos.
• Escrow. A buyer who gets cold feet and wants to cancel a deal may also want his or her earnest money back, turning to you to figure out how to retrieve it. You should refer your client to his or her attorney in such a circumstance. Even in places like Illinois, where a real estate broker serves as the escrow agent, the broker cannot release funds without written permission from both parties in the transaction or a court order.
• Wire fraud. Fake emails from scammers instructing the release of escrow funds is a growing problem. If you handle escrow funds, you should have policies in place to verify any wiring instructions that are sent to your clients, says Juana Watkins, general counsel at Florida REALTORS®. Such policies might include a disclaimer on your email signature that you will never give wiring instructions via email, as well as procedures to have clients call you to verify any instructions they receive.

Some legal issues will be more obvious, such as a seller who refuses to disclose a known defect about a property. But what if you need additional knowledge about legal issues? For anything you are uncertain about, use industry resources such as in-house legal counsel, if your brokerage has one, or consult your local or state association’s legal hotline, advises Betsy Urbance, general counsel and vice president of legal services at Illinois REALTORS®. “Those organizations typically have people who monitor what is going on in the industry and publish about it on a daily basis—if not hourly,” she says. The Florida REALTORS®’ legal hotline, for example, fields 70,000 calls and emails a year. The Illinois and Missouri state associations’ hotlines handle roughly 3,000 calls each annually. The most common questions relate to disclosures and representation of properties in marketing materials.

Disclosures: A Constant Legal Bug-a-Boo

Issues around property disclosure are perhaps the most common legal pitfalls for real estate pros. Bruce Aydt, ABR, CRB, a real estate attorney and past president of Missouri REALTORS®, says about 80 percent of claims he’s handled relate to property disclosures. State disclosure requirements vary, so you should know the laws in your area. Remember that although your REALTOR® association may provide disclosure forms, your state may not legally mandate all the items on the list.

But there may be particular disclosure laws that are important in your area. In Missouri, where meth houses are common, the state requires disclosure of methamphetamine production on any property. Local REALTOR® associations there have adopted specific meth disclosure forms they include as an item on the overall seller disclosure form. Aydt notes that agents in Missouri are not required to verify or substantiate any information the seller shares with them about meth production on the property. But agents do need to inform buyers of adverse material facts related to the property that they have knowledge about.

Other disclosures can be difficult as well. Bartholomew recalls one client who had done roof repairs and repainted the ceiling in a room where leaking had occurred. The seller disclosed the work to potential buyers, but while the house was on the market, more rain caused the leak to reappear—and more repairs needed to be done. The seller also disclosed the second round of fixes. When a buyer’s inspector found evidence of the repairs, Bartholomew could point to the disclosure to satisfy the buyer’s query about the roof.

Know Your Transaction Forms

You should read and understand every word in the forms you, your clients, and the counterparties in a transaction are signing. Pay attention to the fine print; you need to know exactly what it says in case your clients skim over it and miss important information. “The more knowledgeable you can become with a contract in all of its forms, the better off you’ll be,” Watkins says.

It’s also wise to keep records of signed documents for every deal. “You never know what may come back to bite you,” says Linda Darer, a sales associate with Julia B. Fee Sotheby’s International Realty in Rye, N.Y. Such records came in handy when Darer worked with a divorcing couple who was selling their home. The husband, who had moved out of the $2 million home in Westchester County, accused his wife—and, by extension, Darer—of being unreasonable and rejecting offers because she didn’t really want to sell. He sought legal avenues as part of the divorce proceedings to force her to accept an offer. The wife’s attorney asked Darer, who kept written records of every offer and counteroffer in the transaction, to furnish the information for the divorce case. The judge, after reviewing the records, determined that the wife was seriously entertaining and countering offers.

©National Association of REALTORS®
Reprinted with permission

Your phone marketing strategy could land you in legal trouble.

As a real estate professional, you’re constantly looking to grow your business. While picking up the phone to call potential clients and solicit new business may seem outdated in today’s digitized world, the reality is that the telephone still plays an important role in marketing. In fact, using your phone to send text messages to potential clients is more common than ever. But also becoming more popular are class-action lawsuits alleging violations of the Telephone Consumer Protection Act.

The TCPA is a federal statute, premised on protecting residential and personal telephone numbers from telemarketing and autodialed calls. Two primary restrictions are at the heart of the law. The first prohibits telemarketing calls to numbers registered with the national Do Not Call Registry. The second requires a caller to obtain written consent before using an autodialer to send telemarketing text messages or calls, even when the number called is not on the DNC registry. 

In the 17 months after the Federal Communications Commission’s July 2015 order clarifying TCPA rules, 3,121 lawsuits were filed, targeting U.S. businesses of all kinds, a 46 percent increase from the 17 months prior to the clarification. And aggressive plaintiffs’ attorneys are increasingly focused on real estate in class-action TCPA litigation. In April, a consumer sued a California brokerage alleging the brokerage violated the TCPA by making unsolicited autodialed calls to consumers without their consent, including to consumers registered on the Do Not Call list. These lawsuits can be expensive, as the TCPA provides for statutory damages ranging from $500 to $1,500 per violation. While plaintiffs more often target deep-pocketed brokerages, individual agents are not inherently protected.

How to Avoid Being Sued

Protect yourself by ensuring the numbers you text or call are not included on the DNC list. Adopt a written policy that includes these requirements:

• Check your call lists every 30 days against the Do Not Call list (available at telemarketing.donotcall.gov(link is external)). 
• Record consumer removal requests, and add removed numbers to an internal company do-not-call list.
• Honor do-not-call requests promptly (no later than 30 days from date of request) and for a minimum of five years.

While many states have elected to use the national Do Not Call list as their statewide registry, 12 states maintain separate registries. Therefore, if you make telemarketing calls or send text messages in Colorado, Florida, Indiana, Louisiana, Massachusetts, Mississippi, Missouri, Oklahoma, Pennsylvania, Tennessee, Texas, or Wyoming, make certain you are aware of any state-specific do-not-call restrictions, and scrub call lists against the state lists in addition to the national registry. 

Next, before texting or calling people with marketing messages, get their written consent. Consent is best achieved through a written agreement that is signed by the consumer (an electronic signature is sufficient). The agreement should include the consumer’s phone number and state that the consumer authorizes you to place telemarketing calls to the consumer. It should also disclose that the consumer is not required to sign the agreement as a condition of purchasing any property, goods, or services. 

Practically speaking, this consent can be incorporated into existing methods of acquiring potential client contact information, such as open house sign-in sheets. But you must let consumers revoke their consent and opt out of receiving future texts or calls. 

Review your telemarketing text and call methods to ensure you’re in full compliance with the TCPA. It’s never too late to protect yourself and your business against the growing threat of costly litigation.

©National Association of REALTORS®
Reprinted with permission

Property managers must abide by strict rules when using common reports to determine the eligibility of prospective renters. Make sure you know what you can and can’t do with the information.

When a rental application is under consideration, most property managers and landlords require a prospective tenant’s credit report, credit score, and, usually, a background check and eviction screening. Thanks to technology that makes receiving these reports fast and simple, rental screening is easier than at any time in the past.

As a property manager with the opportunity to participate in rental transactions, chances are you’re familiar with the following passage from the Fair Credit Reporting Act:

Any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses shall be fined under title 18, United States Code, imprisoned for not more than 2 years, or both.

The FCRA protects all consumers—including you and me—related to our personal data, such as credit, payment patterns, debt, and court records. This information is collected, stored, and, when inquired about by a creditor, provided by one of several consumer reporting agencies like TransUnion, Equifax, and Experian. Thankfully, the FCRA requires agencies to maintain accurate and complete records. It requires that our private data remain private by imposing specific guidelines for providing it. CRAs may distribute a person’s data if there is “permissible purpose” and the consumer has consented to its release.

For property managers, this is understandably where things become confusing, making the prospect of conducting a rental transaction daunting. Much of the concern stems from questions that swirl around the proper handling of the tenant’s reports. Let’s discuss these important questions and make sense of the issues at hand.

• What defines permissible purpose?
• Who orders reports?
• Who should receive reports?
• Can reports be shared between real estate professionals?
• Can I share reports with the landlord?

Permissible purpose. Let’s say someone applying for a mortgage grants permission to a lender to pull his or her credit report. Mortgage lending is a “permissible purpose” as defined by the FCRA. So is tenant screening. The use of all reports must conform to their intended permissible purpose. A report pulled for a tenant’s rental screening must be used for this purpose alone.

Ordering and receiving reports. Reports can be ordered by the tenant or property manager who has received the appropriate permissions. But who orders the report isn’t really as important as who receives it. To safeguard the consumer, the FCRA mandates that all who receive reports must be credentialed, or vetted in advance. Credentialed recipients are known as “end users”—those who receive the report for its ultimate use in accordance with its permissible purpose.

Credentialing. Companies such as TenantVerify.net(link is external), which I own, allow tenants to order reports and authorize delivery directly to a credentialed recipient, such as a listing broker. Credentialing the broker in advance with paperwork and a site visit to their physical location is required before delivery of reports can happen.

Who can’t receive reports. Now that we have established who can take delivery of a report, let’s discuss who should not: an agent representing the tenant. This cannot be stressed enough. All reports must go to the credentialed end user for use in accordance with its intended permissible purpose—rental screening. Since the tenant’s agent does not make the decision on tenancy, they have no legal standing to receive the report. Additionally, if a tenant’s agent were to receive the report, subsequent redistribution to another, such as a listing broker, listing agent, or landlord, is not permissible. Even credentialed brokers with appropriate permission to receive reports aren’t authorized to distribute them to another real estate pro. In an effort to safeguard privacy, the FCRA limits the flow of consumer data directly and only to credentialed entities with permissible purpose. Consumer reporting is one of several tools available to screen tenants. The rules, though there are many, are actually quite logical. Brokers and agents should know the laws that govern the use of consumer reports and have a reputable service provider to rely on for safe and legally compliant rental screening.

©National Association of REALTORS®
Reprinted with permission

New laws make remote electronic notarization secure and accessible.

From home searches to purchase contracts and loan applications, many aspects of a modern real estate transaction are now conducted electronically and online. But until recently, the actual closing has remained a stubbornly paper process in an increasingly digital world. Over the past several years, with the rapid expansion of remote online notarization, fully online digital closings have arrived.

Online closings can turn the most cumbersome part of a real estate transaction into a client-friendly online meeting that clients can complete from anywhere. They also dramatically reduce post-closing processing times, speeding up final fund transfers and commission payments.

While online closings will soon be a key part of every practitioner’s toolkit, they’re not yet available in every state, and most underwriters require use of approved online notarization platforms. Here’s an overview of how they work:

What are the major steps in a remote online closing? Documents are prepared by the title company and uploaded to an online remote notarization platform. Buyers and sellers can log on and review the documents and discuss any questions with their agent and others. When ready, signers return to the platform and connect with an online notary. Agents and others can connect in, too. Signers electronically sign and the notary electronically notarizes each document as required. As a security measure, each completed document is then “tamper sealed.”

To deter identity fraud, each signer’s identity is validated to a much higher standard than in a traditional paper-based notarization, using -database-driven tools such as knowledge-based authentication and software-based analysis of the client’s photo ID. In addition, the audio-video session is recorded. Encrypted data records of the transaction are maintained for the periods specified in law or applicable contracts.

The key feature of remote notarization is that while the notary must be commissioned and physically located in a state that authorizes its notaries to use online tools, the property and signer can be in another state.

Where are online closings available?

Virginia, Florida, Texas, Ohio, Michigan, Minnesota, Arizona, and Utah, among other states, have enacted laws authorizing their remote notarization, and legislation has been introduced in about 15 other states. But in the real estate context, two other factors can affect whether you can use remote notarization to close your transaction: title insurance underwriter guidelines and e-recording rules in the county where the property is located. Online real estate closings currently can be completed in more than 35 states, with the list expanding regularly. Check with one of the leading national remote notarization platforms, including notarize.com(link is external) (where I work), to see if your state is on the list and to ensure that your online notarization platform has been approved by your underwriter.

What about cost?

Online closings require a computer or mobile device with a camera and an internet connection. The per-transaction cost is about the same as a mobile notary: roughly $75 to $150 or so depending on the complexity of the transaction.

When will I still use paper notarization?

Traditional notarization isn’t disappearing yet. A client may prefer paper or may not have access to internet service. Or the property may be in a county that doesn’t yet accept electronic records for recording purposes. Even in those cases, you can benefit from partially online closings, called “hybrid” closings, where many key documents are reviewed and signed by the client online, while a subset of documents is ink-signed in front of a traditional notary.

©National Association of REALTORS®
Reprinted with permission

What you should know about working with clients who choose this unusual avenue to homeownership.

A small but growing share of home buyers is forging an alternative path to homeownership that is ripe for potential legal consequences: purchasing a property with friends. With affordability near an all-time low, it’s easy to see why some consumers, unattached to family or a partner, would consider such an arrangement prudent. However, these transactions likely will introduce legal issues you wouldn’t typically have to address with clients who are married or buying with family members.

You may not be seeing the trend of friends purchasing homes together in your neck of the woods just yet. There’s a likelihood, though, that you will soon. Only 2% of buyers in 2018 described themselves as “other,” meaning they could be in an unmarried romantic relationship or an alternative family relationship, says Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®. “Marriage rates in the United States have dropped while, at the same time, home prices have increased, so buyers are finding unique ways to enter homeownership,” Lautz says. One result of this trend, she adds, is the share of unmarried couples purchasing homes with roommates is increasing.

While the process of buying a home with friends is similar to purchasing with a partner or alone, there are specific aspects of this type of sale on which you, as the real estate professional, should be able to offer guidance. “The most important thing is for the friends to be on the same page on legal issues and to have everything in writing,” says NAR Senior Counsel and Director of Legal Affairs Chloe Hecht.

The major issues that could have legal implications include:

• How will the down payment be split?
• In whose name will the mortgage be?
• How will the title be held?
• Will the ownership stake be equally split?
• How will decisions be made about repairs and improvements?
• How can one of the owners exit the partnership?
• What happens if one of the owners passes away?

“It’s also important to understand how your state’s laws could impact the partnership,” says Hecht, who recommends consulting with a real estate attorney to ensure the buyers have a comprehensive agreement about the joint purchase.

The piece of the puzzle that may cause the biggest legal concerns is the plan for transferring ownership in the event one friend wants to exit the partnership. ”The parties may want to consider allowing the person who is staying a right of first refusal to purchase the other person’s interest in the property they jointly own,” Hecht says. “Related issues to consider are how the parties will determine a fair market value for the house and what happens if the person staying can’t afford to purchase the other’s interest in the house.”

Beyond legalities, the decision-making process also may be trickier between friends than partners or family members, says Stacey Schalk, associate broker at Berkshire Hathaway HomeServices in Northglenn, Colo. Couples, for example, usually have a firmer understanding of what they want in a home, while friends may need more time to come to an agreement, she adds.

In cases of friends purchasing together, Schalk recommends sitting down with the buyers to firmly establish what’s important to them in a home, including which spaces they’re willing to share, such as the kitchen, family room, and outdoor area. Friends may also need help figuring out how to equitably cover utility bills, maintenance costs, and expenses for common home goods. Shalk says that while it’s exciting to consider living with your best friends, practitioners need to look beyond their clients’ initial enthusiasm about such an arrangement to figure out what the friends really require in their spaces.

Some real estate professionals have been on the consumer side of a transaction with friends and struggled with the process. Daniele Kurzweil, a sales associate with Compass in New York, says she was a silent partner when she bought a single-family home that was converted into a two-family home with two of her friends in 2011. Kurzweil says she was confident she was making a solid investment but left specific decisions, such as the location and finishes of the home, up to her friends. Kurzweil contributed to the process by helping her friends understand the types of renovations they should undertake versus a major project. “I trusted that my friends would make the right decisions. Had I tried to get involved, it would have been a distraction, and nothing would have gotten done,” Kurzweil says, describing the transaction as having “too many cooks in the kitchen.”

Kurzweil and her friends didn’t draw up legal documents describing their ownership stake in the property, though they have since formed an LLC and are figuring out how to clear legal hurdles as they go. Kurzweil says she wouldn’t advocate a property purchase with a friend before asking yourself a few questions:

• Would you trust your friends to do the right thing, with or without a legal document? (Spoiler: You should always have a legal document in place when purchasing with friends.)
• If, for some reason, you were unable to make a decision regarding a problem with the property, would you trust your friends’ judgment?

“If your answer to either of these questions is no, then making it legal with a contract won’t change things,” Kurzweil says.

None of this is to say that buying a home with friends is necessarily a bad idea. But the possible legal and personal ramifications cannot be understated, says Jake Lizarraga, a writer for REITS.org(link is external), a website dedicated to helping people understand real estate investment. ”For those who don’t qualify for a mortgage on their own, it’s a great idea,” he says. “For those who wish to keep a friendship, not so great.” Lizarraga likens buying a home with friends to going into business with friends: The individuals must agree on a vision moving forward for the arrangement to work. However, it’s likely with friends that, eventually, they’ll have different visions—which can sour the relationship quickly. Then again, it’s always possible that a home purchase with friends can lead to a lifelong partnership.

©National Association of REALTORS®
Reprinted with permission