© 2014 OnCourse Learning MCE Broker Responsibility Chapter 1 - Introduction

© 2014 OnCourse Learning

MCE Broker Responsibility

Chapter 1 - Introduction


Purpose

Address regulatory aspects of a brokerage firm.

Provides knowledge of agency, planning and organization, written policies and procedures, record retention, advertising, recruitment and training, and anatomy of a complaint.

Who Must Take This Course? Broker who sponsors salespersons, a

designated broker of a business entity, and a licensee supervisor of licensees.


Definitions

Person – An individual, partnership, corporation, LLC, state agency or governmental subdivision.

Business Entity - Any entity as defined by Business Organizations Code.

Real Estate - Any interest in real property, located inside or outside Texas.


Definitions

Real Estate Broker - A person who, for another person and for a fee, commission, or other valuable consideration sells, exchanges, purchases, or leases real

estate. Includes listing, auctioning, dealing in options,

locating or obtaining real estate for purchase or lease, and procuring prospects.


Definitions:

Designated Broker - Individual holding broker license designated by a business entity to act on entity’s behalf. DB must be an officer of a corporation, a

manager of an LLC, or a general partner. Salesperson - A person who is associated

with a licensed broker for the purpose of performing real estate brokerage.


Authority, Competency, Training, Selection and Recruitment

Chapter 2


Scope of Licensee’s Authority – Broker’s Responsibility

Broker required to advise salesperson of scope of authorized activities.

If broker permits salesperson to conduct activities beyond scope authorized by broker, broker will be responsible for those.

Sponsoring broker should create competency standards for licensees. Includes residential, commercial, farm and

ranch, leasing, property management, short sales and foreclosures, etc.


Competency Considerations

High rise office building Completing residential contracts? Landlord/tenant laws? Cash crops and mineral rights? Must maintain policies to ensure salesperson

is competent to conduct authorized activities. Must assure salesperson receives instruction

to obtain and maintain competency in scope of salesperson’s practice.


Recruiting Issues

Background Checks Broker may require background checks for all

employees with access to the office. Broker may wish to consult with an attorney on

the implementation of such a requirement. Recruiting Licensees from Other

Brokerages No provision in the Act or the TREC Rules Custom and courtesy may be considered.


Case Study

Respondent was broker for a salesperson who represented buyer of a condominium.

Buyer could not afford more than $200 per month for HOA fees.

Condo docs reflected HOA fees of $323, but salesperson failed to ensure seller provide docs timely.

Respondent failed to supervise salesperson Agreed to reprimand and penalty of $1,000


Agency

Chapter 3


Agency Relationship

Law of Agency Broker who represents a party is agent.

Creation of the Agency Relationship Written or verbal authority

Receiving a Commission Broker can receive compensation from more

than one party Timing of Agency Relationship

Relationship arises when both consent


Types of Agency

Agency by actual authority Express or Implied

Agency by ostensible authority Agency by estoppel or apparent authority

Agency by ratification Agency affirmed after the fact


Agency Liabilities - liability agent or principal may create.

Licensees are sued for misrepresentations. failing to fulfill terms of an agreement. general negligence. slandering title. failure to disclose known defects. failing to inform the client of property’s

appreciation in value. engaging in conduct that constitutes fraud. expressions of opinion.


When buyer sues seller, common for broker to be named

Seller’s failure to make disclosure may create liability for agent. Reverse may be true, as well.

A party is not liable for misrepresentation unless party knows of the falsity.

Quoting one’s source provides affirmative defenses and can reduce confusion and liability.


Special and General Agency

Special Agency - Listing broker and principal normally a special agency where agent cannot bind principal. Principal has little, if any, control over conduct

of agent limiting their liability. General Agency - Principal always

responsible for acts of his/her agent if acting within scope of his/her duties. General agency relationship gives wide scope

of authority to the salesperson.


Duties of the Agent to the Principal

There is duty of trust, confidence, and honest business dealing owed to principal.

Specific Disclosure Issues Sales Information HIV Issues Death Sex Offender Registration


Duties Owed the Principal

Performance - broker will use best efforts and diligence to market the property.

Loyalty - conflict created by in-house sales is resolved by the intermediary relationship.

Reasonable Care - implies broker’s competence and expertise.

Accounting - requires any money accepted must be promptly remitted or deposited in a trust account.


Duties of the Principal to Agent

Performance - principal is expected to do whatever can be done reasonably to accomplish purpose of the agency.

Compensation - normally specified in the listing agreement or employment contract.

Reimbursement - implies principal must reimburse agent for expenses made on the principal’s behalf.

Indemnification - arises when agent suffers a loss while performing duties on behalf of principal.


Duties to Third Parties

Broker has duty to act on principal’s behalf but has duty of care to third persons by using fair and honest business practices. Broker liable for misrepresentations, regarding

material defects. Operating on their own behalf, brokers

obligated to inform everyone they are licensed.

Licensees must provide copies of documents to persons who signed the documents.


Buyer Brokerage

Broker who represents a buyer may do so under oral or written buyer rep agreement.

Compensation - listing brokers normally offer to compensate buyer brokers or cooperating brokers.

Fee for Services and Rebates - occurs when compensation is based on services performed.

Minimal Level of Services -Broker must provide minimum level of service.


Dual Agency & Intermediaries

Dual Agency Broker must agree to act as intermediary if

broker represents buyer and seller.

Intermediaries - broker who is employed to negotiate transaction between parties. Broker intermediary:

may not disclose offering prices may not disclose confidential information


Property Management Responsibilities

Duties to owners and third parties relate to service contracts, as well as to properly maintaining property such that no one suffers any injury caused by the broker’s negligence.

Problem of management liability may also occur when property management company does not want to be obligated for payment of expenses.


Termination of Agency

Termination by Acts of the Parties - can be accomplished by either or both parties.

Termination by One Party - tends to be more complicated.

Termination by Operation of Law - occurs upon death or insanity of principal or agent, or change of law. Supervening Illegality


Case Study

Buyers asked salesperson/ respondent to show a property

Salesperson prepared an offer and presented it and IAB and TAR Intermediary Relationship Notice to buyers who signed all forms.

Salesperson agreed to the assessment of a $2,500 administrative penalty and a reprimand of her license for failing to properly establish an intermediary relationship.


Chapter 4

Organizational Structure


Legal Entities

For liability protection and pass-through tax status.

Entity must be licensed and they must designate an individual broker responsible for actions of the entity.

Designated broker must be an officer of the corporation, a manager of the limited liability company, or a general partner of the partnership.


Assumed Name - If legal entity elects an assumed name, should file with Secretary of State, local county clerk and TREC

Types of Legal Entities Corporation - chartered by State through

filing of articles of incorporation with Secretary of State.

An individual broker who is an officer must be designated broker. “Subchapter S” corporation makes a special

election to pay no corporate taxes Double Taxation


Types of Legal Entities

Partnership - Two or more individuals or entities, general and limited.

General Partnership - all partners have full liability - not used much in real estate.

Limited Partnership - created by filing with the Secretary of State and has the designation LP or LLLP, primary vehicle used in real estate.

Limited partners have limited liability, but must have at least one general partner.


Limited Liability Company (LLC)

Created by filing with the Secretary of State; with limited liability, pass-through tax status, and no need for a general partner, it is designed to simplify business entities and provide maximum flexibility.

Owners of an LLC are members; LLC may be managed by a manager or by the members without a manager, but the manager does not have liability for the LLC’s obligations.


Sole Proprietorship

Single individual engaging in business without a formal organization and may be conducted under an assumed name.

No additional requirement to license a sole proprietorship other than the license for the individual owner.


Case Study

Applicant for a license was an LLC but not aware of requirement to have a license. Once discovered, applicant filed for license

and disclosed applicant had engaged in brokerage activity while not licensed.

The applicant agreed to a 6-month probationary license and a $1,000 administrative penalty.


Chapter 5

Operational Policies and Procedures


Need for Agency Policy – Scope of Authorization

Brokers required to maintain written policies and procedures addressing relationship between broker and agents, competency of agents, compensation issues, maintenance of trust accounts, and maintenance of business records.

Errors and Omissions Policy Risk management policy should include,

broker safety, client safety, cell phone use,

checklists for office personnel, etc.


Unlicensed Assistants

Unlicensed person can not conduct activities for which licensure is required.

Direct Activities by Unlicensed Assistants Indirect Activities by Unlicensed

Assistants FAQs What functions may an unlicensed office

manager perform? Teams, Groups, and Individuals Who’s in Charge?


Online Community Policy (e-mail, social networks, agent websites)

Licensees using social media have legal risks, defamation and copyright infringement. Permission Accuracy Visible disclaimer. Contact information

Defamation Act of harming reputation of another person


Sudden Cessation or Termination of Sponsoring Broker or Designated Broker of a Licensed

Business Entity

Sponsoring broker passes away or otherwise becomes incapacitated? Too often, TREC gets phone calls from

brokerage firm asking what to do. Should have a written policy in place for such

an event. Under TREC, business entity broker license

and licenses of agents are also placed on inactive status.


Case Study

Owner entered into agreement with a salesperson to manage residential property. Salesperson failed to properly account for rent

collected. Tenant sending rent to salesperson’s home

Salesperson paid owner all funds owed, agreed to one-year suspension of licensee, agreed to take additional education, and paid an administrative penalty of $2,400.


Chapter 6

Records, Retention and Control


Recordkeeping

Paper vs. Electronic Salesperson’s Scope of Authorized Activities Recordkeeping for at least four years Broker shall maintain written policies and

procedures Retention Considerations Special Level of Recordkeeping and Retention for

IRS Privacy of Personal Information


Chapter 7

Advertising


Advertising Compliance Issues (in the Act and TREC Rules)

Service Providers

Offering Courses TREC Advertising Rules Definitions Disclosures Deceptive Advertising


Advertising Compliance Issues (in the Act and TREC Rules)

Trade Names

Include Broker’s Name Assumed Names

Road Signs Safe Harbor Policy

Designations

Rebates


Case Study - TREC complaint involved salesperson who advertised property on Craigslist.

24 advertisements in which Respondent engaged in multiple violations.

Most of the advertisements failed to identify sponsoring broker, offered properties that were not available, failed to identify respondent as an agent, offered unauthorized rebates, and contained conflicting or out of date information.

If a licensee offers property for sale or lease on Craigslist for or in anticipation of payment, licensee must comply with TREC Rules.


Federal Laws Affecting Real Estate Brokerage

Chapter 8


Dodd-Frank Wall Street Reform and Consumer Protection Act

The Act makes sweeping changes to financial regulatory system.

Requires creation and consolidation of agencies, and mandates adopting new rules

Act will impact real estate because mortgage lending is significant part of real estate. Much of the impact unknown now as new

rules not yet been proposed.


RESPA Compliance and Related Matters

Referrals

Information for Borrower Difference between estimated and actual

costs are subject to tolerance levels

Affiliated Business Arrangement

Annual Escrow Statement

Servicing Transfer Statement

Section 8 Prohibitions


Other RESPA Issues

Title Insurance Choice HUD FAQs About RESPA for Industry Insurance Code and P-53 Compliance Texas Real Estate Commission Rules Licensees Buying or Selling Their Own

Property, TX. Occ. Code §1101.652(a)(3) & TREC Rules §535.144


Other Issues

Trust Account Policy, TREC Rules §535.146, §535.159, §535.160

Informing and Responding to Clients Duty to Respond and Disclose Do-Not-Call Policy, CanSpam, Fax policy

Do-Not-Call


Chapter 9

Anatomy of a Complaint


TREC Issues

Complaint Filed with TREC See TREC Complaint Form (11201 2) in

Text See TREC Complaint Form (11201 2)

INSTRUCTIONS in Text TREC Investigative Report


Refer to the Text for the following Documents:

TREC Investigative Report TAR Listing Agreement One to Four Family Contract See Loan Assumption Addendum Sale Of Other Property Addendum Justintime Cover Letter IAB dated 4/20/2011 IAB Dated 5/28/2011 in Text TAR Residential Lease TAR Seller Disclosure Notice


Notice of Alleged Violation Against Justine Short

Refer to Text for “Notice of Alleged Violation” and “Cause No. SC123456”

Settlement Agreement with Casey Dolittle, the Sponsoring Broker

Refer to Text for “PRIVILEDGED AND CONFIDENTIAL SETTLEMENT COMMUNICATION”