2015 TREC UPDATES Eve Maxwell 1. ADVERTISING T.C.A. 62-13-310(b) Licensees name no larger than smallest font in the Firm name as licensed with TREC

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2015 TREC UPDATESEve Maxwell

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ADVERTISING T.C.A. 62-13-310(b)

Licensees name no larger than smallest font in the Firm name as licensed with TREC

Only applies to signs and billboards

Rule 1260-02-.12(1) Rule covers all Formats and mediums Must be done in Firm name and licensee name

as registered with TREC

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Advertising Rule 1260-02-.12(2)(b)

One of PB’s supervisory responsibilities to review and approve all advertising prior to dissemination TREC cannot approve advertising

Rule 1260-02-.12(2)(e) No licensee shall advertise in a false,

misleading, or deceptive manner

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ADVERTISING Team Advertising

Broker Act does not recognize teams Cannot create impression that team is a separate,

licensed Firm Even if several licensees within a Firm work together

as a team, TREC views those licensees as affiliated with Firm and PB remains responsible to supervise all activities of affiliated licensees

Affiliated licensees cannot establish separate office – that would be a branch office and would require a Firm license and PB

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ADVERTISING Firm Name and Phone number must be in all

advertising Consumer must know how to reach the Firms’ PB if a

problem surfaces or if questions arise Inducements Rule 1260-02-.12(5)(a)(b)

Unsubstantiated selling claims and misleading statements or inferences prohibited

Any offer, guaranty, warranty made to induce an individual to enter into agency relationship or contract must be in writing and must disclose all pertinent details on face

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ADVERTISING Inducements Rule 1260-02-.12(5)(a)(b) cont.

FTC and Consumer Protection Act Coming Soon and Pocket Listings

Limited exposure to market Still must comply with Broker Act Promptly present all written offers until a contract

is signed by all parties(Rule 1260-02.08) Put clients interests above own (TCA 62-13-404) Diligently exercise reasonable skill and care

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ADVERTISING Coming Soon and Pocket Listings cont.

Services provided with honesty and good faith Misrepresentation – is properly legitimately coming

to market or ploy to build buzz about the property Signed written authorization from owner to put sign

on property (Rule 1260-02-.12(2)(c) Seller understand minimal options for exposure of

property even with internet-not all sites will pick up Antitrust, Fair Housing, Discrimination

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ADVERTISING Internet

Rule 1260-02-.12(4) Firm name and phone number conspicuously

appear on each page of website Written authorization to list Must be kept current and accurate Aggregators, syndicators, scrapers want to

reconstitute and rebrand licensee data One click away(twitter)

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PROPERTY MANAGEMENT Included as activity which requires a license as defined in TCA 62-

13-102(4)(A)(B)

Must be conducted through Firm and all monies and transactions go through Firm(TCA 62-13-312)

Operate under name as licensed with TREC

If LLC, Corp, must have license to manage, lease, sell (generally no exemption under Broker Act—Attorney General Opinion)

Only manage without license if own properties solely as an individual

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PROPERTY MANAGEMENT Cannot be licensed and try to hold self out as unlicensed

All licensees shall identify themselves as licensees

Great Responsibility – cognizant of requirements of LL-Tenant, Fair Housing, ADA, Fair Credit Reporting Act, Broker Act and other regulations

Money belonging to third parties must be held in trust account. Separate dollars for each tenant

Property Management Agreement

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Escrow accounts Rule 1260-02-.09

Requires separate rental deposit and earnest dollar trust accounts to be established

Dollars do not ever belong to licensee, they belong to third party

Rule allows for deposit with third party, but must be specifically established in purchase and sale contract

If you do not receive the earnest dollars as specified in contract, immediately notify seller/client as represents breach of contract. Same if any monies received NSF.

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Escrow accounts Rule 1260-02-.09 cont.

Reasonable skill and care, honesty and good faith Affiliated licensees must pay over earnest monies received

immediately upon receipt If you place with third party, get signed receipt from third party

—Purchase and Sale Contract must specifically set forth third party name and address

Broker may properly disburse funds upon reasonable interpretation of contract which authorizes broker to hold funds

May disburse funds upon written agreement signed by all parties having interest in and is separate from contract authorizing him to hold

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Escrow accounts Rule 1260-02-.09 cont.

Funds in escrow or trustee accounts shall be disbursed in proper manner without delay

Funds should be disbursed or interplead within 21 calendar days from date of receipt of written request for disbursement—no particular form of written request required

No “Operating” Escrow account

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SHORT SALES, REO, FORECLOSURES

Communication is key to make sure client, whether buyer or seller, understands issues/process involved

Making Home Affordable Options Does Seller intend to sell in short sale process or is

property priced low just for licensee to drive consumers to call and then give information about other properties

Know all facts about current liens on property, so can apprise client of potential obstacles

Seller is under no obligation to give written rejection of an offer nor to give reasons for rejection of offer


Short sales are a process and licensee represents buyer/seller –not bank- Investment of time which might not yield transaction which closes

Negotiate on behalf of your client – loyal to interests of your client

Very specific, regimented timetables and document requirements by HUD and most lenders

Deadline missed or package incomplete, deal is usually gone

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Frequent source of complaints—party to transaction does not think that their offer was presented to seller of lender if REO

TCA 47-18-5401 and TCA 47-18-5402 Prohibit upfront payment of fees by

homeowners to anyone assisting with loan modifications

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Online transfers Confirmation from web allows licensee to go

to work New PB pays transfer fee online and signs

affidavit online that transferring licensee was released by former broker, has E&O and has an active TN license Within 5 calendar days must transmit fully executed TREC 1

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Online transfers If licensee cannot locate former PB or licensee cannot get

former PB to sign TREC 1 releasing, form on TREC website that licensee can sign and submit to TREC for release

Transaction does not reflect in TREC system for several days, but confirmation allows transfer

Facilitate change in firms and expose consumers to less risk of harm because transferred listings move seamlessly to new firm

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DUTIES TO CUSTOMER, CONSUMER, & CLIENT

Often consumer is a customer before becomes a client (specific bilateral agency agreement to provide services)

TCA 62-13-403 – Duties to All Parties Diligently exercise reasonable skill and care in

providing services Provide services with honesty and good faith Disclose adverse facts of which licensee has actual

knowledge or notice

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Adverse Facts – conditions or occurrences generally recognized by competent licensees that have negative impact on value of real estate, significantly reduce structural integrity of improvements or present significant health risk to occupants of property **TCA 62-13-102(2)

Confidentiality—unless authorized by parties specifically to disclose information or required to be disclosed by Broker Act

Disclose to each party timely and accurate information regarding market conditions which might affect transaction only when information is available through public records and when requested by a party

Timely account for trust funds and all other property received from parties

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Do not engage in self dealing nor act on behalf of licensees immediate Family or other individual, organization or business entity in which licensee has personal interest without prior disclosure and timely written consent of all parties (Owner/Agent)

Read with Rule 1260-2-.11 Personal Interest – Full disclosure of true position if purchase

of true position if purchase or attempt to purchase or acquire interest or option in property listed with licensee or their Firm or which their Firm have been approached by owner to represent without Full disclosure

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Read with Rule 1260-2-.11 cont. After acquiring personal interest, directly or indirectly make Full

disclosure to prospective purchasers who tender offers All licensees ID selves as licensee when buying or selling property

for themselves Do not recommend to any party use of services in which licensee

has interest or might get referral Fee or other compensation without timely disclosure of licensees interest or Fact referral Fee may be received

Note 62-13-312(b)(18) failing to disclose to owner licensee’s true intent or true position if the licensee directly or indirectly through a third party, purchases for itself or acquires or intends to acquire any interest or option to purchase property which has been listed with licensee’s office to sell or lease

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Duty to client: TCA 62-13-404 Obey all lawful instructions, be loyal to interest of

client – place before all others in negotiations and other activities except where loyalty duty would violate duties to customer under 403 or to another client

Assist client, schedule showings, receive offers, counter offers, Forwarding promptly Rule(Rule 1260-02-.08 - present all offers written until contract signed by all parties) requires prompt delivery of documents and to make certain all terms and conditions of offers and of transaction included in contract

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Duty to client: TCA 62-13-404 cont. Answer questions client may have in negotiation within

scope of expertise Advise forms, procedures, steps after execution for

successful closing Client not required to reject an offer nor to give reasons

for accepting one offer over another offer Importance of education

New TILA-RESPA Rules by Consumer Protection Bureau – 8/1/15 Implementation—crucial to be familiar with to advise clients re steps for successful closing

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E & O insurance Continuous coverage

Must have coverage at time of transaction to be covered and claim must be made when you have coverage – active or “tail” coverage

Think of E & O insurance as Financial health insurance – if you don’t have it when you are sick, you are out of luck.

Limits: $100,000.00 per licensee per claim (damages); $300,000.00 aggregate all claims per licensee during each consecutive Annual Policy Term

Certain Sublimits for discrimination, escrow, lockbox($5,000.00/$10,000.00) Environmental ($100,000.00/$300,000.00)

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E & O insurance Lockbox is device to allow authorized persons without

a key to enter a locked door. Claim alleging property damage or loss of use of property resulting from property damage in distribution, operation or use of lock box on property not owned, occupied by or leased to Insured.

Does Not apply to any claim made based upon, arising out of or attributable to any negligent act, error, or omission or discriminatory conduct committed or alleged to have been committed prior to insured’s own retroactive date.

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E & O insurance Claim-written demand for money or services or service

of a lawsuit or institution of arbitration or mediation against Insured seeking damages and alleging a negligent act, error or omission in the performance or failure to perform professional services.

Complaints-E&O will pay max of $2,500.00 with respect to all claim expenses incurred in handling a complaint filed with TREC when Insured is respondent, as long as complaint issues would be covered by policy. Will not pay civil penalties or other costs assessed by TREC. Maximum during annual policy term is $5,000.00

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E & O insurance 22 Exclusions

Fraudulent, dishonest, criminal or malicious acts committed by Insured or with Insured’s knowledge or at Insured’s direction

Bodily Injury, sickness, disease, mental anguish, pain, suffering, emotional distress or death of any person

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E & O insurance Personal Interest – professional services relating to

property in which any of the following had more than a 25% interest: Insured, Insured’s spouse, any entity, partnership or trust in which Insured or Insured’s spouse owned or controlled more than 25% ownership or financial interest or services related to property purchased or attempted to be purchased by Insured, Insured’s spouse, any entity, partnership or trust in which Insured or Insured’s spouse owned or controlled more than 25% ownership or financial interest

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E & O insurance Developed/Constructed Property/Personal

Interest--professional services related to property developed or constructed by Insured, Insured’s spouse, any entity, partnership or trust in which Insured or Insured’s spouse owned or controlled more than 15% ownership or financial interest

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E & O insurance 22 Exclusions

Environmental – limited to $100,000 claim Commission dispute ≠ professional services Prior Acts Acts which prejudice Insurance company’s ability to defend

(admission of liability; default judgment) Fines, penalties, assessments, punitive damages, exemplary

damages, multiplied damages, or matters deemed uninsurable under applicable law

Conversion-theft Pollution/Mold/Fungi/Microbes -includes asbestos, radon, lead,

nuclear reaction or radioactive contamination, spores, mycotoxins, odors an any manner transmitted, actual, alleged, threatened

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E & O insurance Claims

Failure to disclose defects in property

Misrepresentation as to acreage, boundaries

Mistake in advertisement or MLS

Sewer or septic

Title issues (restrictive covenants, easements – RV)

Zoning

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E & O insurance Claims cont.

Forged or altered documents (no power of attorney) – Don’t use POA – assume liability

Selling wrong property

Recommend services

Foreclosed properties

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E & O insurance Claims cont.

Documentation problem – paper trail important

Selling same property to 2 different people

Update property disclosure – seller

Professional services which require real estate license

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TREC Complaint Process TREC must open all complaints filed if

jurisdiction—open anonymous complaints also

Once complaint filed, copy sent to respondent by certified mail

Respondent has 10 days from date sign green certified mail receipt card to respond

Respond thoroughly and timely

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TREC Complaint Process Send all supporting documents and any other

paperwork pertinent to defense Copy of response sent to complainant Complainant may choose to send additional

information, but once response is filed, respondent is not required to file additional responses each time respondent receives information sent by complainant

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TREC Complaint Process Legal reviews files and writes a synopsis of

allegations and response to present to Commission at monthly meeting-synopsis is anonymous-contains no names or locations

Probable Cause determination by Commission at the initial phase

TREC cannot recover monies, require specific performance, order restitution, shut down a business, decide commission issues

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TREC Complaint Process TREC can only take action against the license of the

licensee TREC can dismiss, issue Letter of Warning or

Instruction or authorize Consent Order which might include payment of civil penalty (to state), educational hours, voluntary suspension, voluntary revocation and will always contain requirement of attendance at a complete regularly scheduled TREC monthly meeting

Respondent can accept terms of Consent Order within 30 days of receipt and resolve matter by signing this offer of settlement or can request a formal hearing

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TREC Complaint Process Formal Hearing is like a trial and is before an Administrative Law

Judge who rules on procedural matters and the Commission who sits as the “jury” Advisable to bring an attorney for formal hearing

Costs of formal hearing usually assessed to respondent and can run around $1,500.00-$2,000.00, which must be paid in addition to any civil penalty assessed

At conclusion of formal hearing, Commission can suspend, revoke, downgrade or take any of the actions previously outlined, in combination with one another

If respondent does not agree with outcome at formal hearing, can appeal to Chancery Court. Complainant has no right of appeal

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TREC Complaint Process Fail to supervise:

Advertising Property Management Unlicensed Activity Agency – non disclosure, reasonable skill and care,

good faith/honesty putting clients interest first Fiduciary duties Escrow/Trust Account violations Unlicensed Branch Office 62-13-312(b)

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DIGITAL/ELECTRONIC SIGNATURE – LEGAL IN TN

Digital More secure method authentication- unique to

person – verifiable integrity – verification documents/data not modified

Non-repudiation – binding – cannot deny Electronic

Digitized handwritten signature typed name Secret code or pin number

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Sewer/septic Disclosure critical

Rule 1260-2-.37 – Septic System Inspection Letters and TCA 66-5-212 Disclosure of Known Perk tests Licensee preparing offer to buy shall provide in offer and make

buyer aware that for a fee, septic system inspection letter available through TN Department of Environment and Conservation(Rule)

Seller shall, prior to entering contract with buyer, disclose in contract itself or in writing, including acknowledgement of receipt, the presence of any known exterior injection well and the results of any known percolation test or soli absorption rate performed on the property that is determined or accepted by the Dept of Environment and Conservation (Statute)

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Sewer/septic TCA 66-5-212(c) Sinkhole Disclosure: Effective 7/1/2015 The new statute states:

(c)(1)In addition to any other disclosure required by this part, the seller shall, prior to entering into a contract with a buyer, disclose in the contract or in writing, including acknowledgement of receipt, the presence of a known sinkhole on the property.

(2)For purposes of this section, “sinkhole”:

(i)Means a subterranean void created by the dissolution of limestone or dolostone strata resulting from groundwater erosion, causing a surface subsidence of soil, sediment, or rock; and

(ii)Is indicated through the contour lines on the property’s recorded plat map. (Tenn. Code Ann. 66-5-212(c))

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Sewer/septic Number of bedrooms for which septic approved or “perked

for” TCA 47-18-104(41)(A)(B)(C) (C) Real estate licensee representing owner must have

actual knowledge transmitted from owner to licensee to be in violation of (B) which gives rights of rescission and treble damages if advertised and marketed as having more bedrooms than permitted and no disclosure of actual number permitted occurs prior to execution of sales agreement

Communicate and explain difference between septic and sewer

If sewer/city water available, but property still on septic, disclose clearly to client and customers

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LICENSEE TIPS FROM TREC

Active and Retired licenses are eligible to be renewed if conditions for renewal are met-renewal fee must always be paid to renew

Inactive license does not mean you are taking some time off. It is a non renewable statutory status which TREC places license in if licensee sends in TREC 1 to retire but has not completed CE (62-13-322)

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License is a suspended status means licensee cannot engage in real estate activities(i.e., no take listings, no show houses, no lease, no contact clients)

License can be suspended for failure to pay child support, failure to pay student loan, E&O, failure to complete all terms of signed Consent Order, Consent Order or Final Order of Commission

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Commission will revoke license if remain in E&O suspended status for 12 months

Auto revocation by Commission if licensee pleads guilty or is convicted of offense set forth in Broker Act and fails within 60 days of conviction to provide Commission with certified copies of court paperwork (62-13-312(f) and refer 312(b)(12))

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Renewal v Reinstate- Renewal notices are simply courtesy reminders and are not required by statute or rule. No excuse for failure to renew that did not get a renewal notice Renewal must be paid and all conditions necessary for renewal must be met or license will not renew

TREC does not distinguish between a “traditional” firm and a “referral” firm—must have active license, E&O and are governed by all parts of Broker Act and Rules

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Unlawful for any licensee to compensate or employ any person not a licensee(62-13-302(a)

Licensee may pay a commission or referral fee to a licensee of another state if such nonresident does not conduct in TN any of the negotiations for which a commission or fee is paid. No cooperative brokerage agreement in TN

Monies must be paid through firm/principal broker with whom affiliated (62-13-312(b))

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Remember if you change your home, mailing, or business address, you must notify TREC within 10 days. There is no charge for a home change of address, but it is important that TREC is aware of such a change. If your home address is your mailing address, make sure that both addresses get changed. This is particularly important if a licensee is retired, because home is then where all TREC mail is sent

State mail is not forwarded—therefore, if you are not at the address TREC has in its system, your TREC mail will come back to TREC and you will miss important information

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Please keep copies of every document that you send to TREC. If a document gets lost or the auditors have a question about a document, then you will have it readily available and that will expedite things for all of us

There are only a few E & O insurance policies that will follow you when you leave a place of employment. Please make sure when you change firms that you check to make sure that you have the required E & O and supply TREC with proof of same

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Principal Brokers—make sure that you send in Broker Releases in a timely manner for affiliated licensees who no longer work for you. TREC does not want you to be held liable for actions of affiliated licensees who do not work for you, but are still in the TREC system as your affiliate, because no paperwork has been received. Broker Releases require no fee and are effective as soon as received by TREC office

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Please make sure that all license expiration dates are checked regularly. Now that the licenses expire at all different times, it is especially important to keep up with expiration dates. The Reinstatement Policy makes compliance with its provisions a condition precedent to reinstatement, so in order to work without interruption, make sure you renew in a timely fashion

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All Commissions must be paid through the firm and to the licensee as that person’s name appears on their license. A broker cannot pay a corporation or other entity set up by the licensee under Tennessee law

If you are a PB, make sure that you pay the Professional Privilege Tax—otherwise a hold will be placed on your license renewal

Licensees can only be affiliated with one firm at a time, except for a PB who can be the PB of two firms if they are physically located in the same location Affiliated licensee can never be affiliated with more than one firm at a time

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Questions

Documents

2015 TREC UPDATES Eve Maxwell 1. ADVERTISING T.C.A. 62-13-310(b) Licensees name no larger than smallest font in the Firm name as licensed with TREC