Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - August 10, 2009 "Red Flag" ID Theft Compliance Rules Extended The FTC staff will redouble its efforts to educate about compliance with the "Red Flags" Rule and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the Rule and what they must do to comply. The FTC has posted FAQs that address how the FTC intends to enforce the Rule and other topics at www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm. The enforcement FAQ states that FTC staff would be unlikely to recommend bringing a law enforcement action if entities know their customers or clients individually, if they perform services in or around their customers' homes or if they operate in sectors where identity theft is rare and they have not themselves been the target of identity theft. See the FTC Red Flags Web site for additional information: http://www.ftc.gov/redflagsrule
1.) Office Management - Termination Standard of Practice 16-20 reads: "REALTORS®, prior to or after terminating their relationship with their current firm, shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm. This does not preclude REALTORS® (principals) from establishing agreements with their associated licensees governing assignability of exclusive agreements." (Adopted 1/98) A listing contract or a buyer agency agreement is a contract between the client and the broker. The broker's sales associate solicits and enters into the agency contract as the broker's agent and on behalf of the broker. The fact that the salesperson leaves the broker does not operate to terminate the listing or buyer agency agreement or permit the sales associate to take it with him or her to the new broker. The work done by an agent while with a company is performed on behalf of the company and "belongs" to the company. In relation to the agent's files, customer lists, files etc, there are no specific real estate statutes or rules pertaining to these issues. Generally speaking, a departing agent who takes original files, photographs and computer software from the office may be committing theft. This is especially true when the objects taken physically are the property of the company such as with the original office file on a transaction or a computer disc. On the other hand, it may be very difficult to prevent a departing agent from having a duplicate list of prospects or something of that nature. Many agents may routinely have some duplicate information on their own computers at home, for instance. All of this is, of course, subject to any specific written company policy on the subject. A written policy makes it easier to pursue any taken items in court. Any broker faced with this situation may wish to consult with local legal counsel to discuss the possibility of pursuing any claims for stolen property in court. 2.) Commissions - Miscellaneous Commission Issues QUESTION: If an agent forms an LLC and is the only member can the broker pay his commissions to the LLC? ANSWER: In order for a licensee to incorporate oneself or create a one-person LLC or some other business entity, the licensee must either hold a broker's license or find another broker to fulfill the role of broker for the salesperson's incorporated or LLC (business entity) practice. The business entity would hold the broker's license and the individual broker would be a business representative of the business entity, such as an officer of the corporation. While Wis. Admin. Code § RL 17.03 permits a broker or salesperson to be employed by only one broker-employer at any time, for purposes of Chapter RL 17, a business representative like an officer of a corporation or a member or manager of a LLC is not an employee of the business entity. Thus, an "incorporated" individual broker could still be employed by another broker without violating RL 17. Whether or not incorporating oneself or creating another business entity is the proper thing to do requires an independent analysis of the individual's financial and business position by the individual's own attorney and tax advisor. READ MORE ABOUT IT: 3.) Office Management - Independent Practice QUESTION: Can a licensed broker work for a real estate company and own a separate property management company? If so what are the legal issues that must be dealt with before opening the management company? ANSWER: When an individual has a broker's license and is working under another broker, Wis. Admin. Code § RL 17.03(1) permits the licensed individual to conduct some independent practice. To practice independently under this rule, the licensed individual must have the written consent of the employing broker and must avoid conflicts of interest. In addition, the licensed individual may not employ other licensees in this independent practice. Where a licensed individual conducts independent practice, care should be taken that all of the normal aspects of a brokerage are provided for. The employing broker should have no responsibility for the independent practice if the licensed individual establishes the operation as clearly independent. READ MORE ABOUT IT: 4.) Disclosure - Real Estate Condition Report QUESTION: The broker primarily sells and leases commercial property. When listing a commercial property, is a "Seller Property Disclosure Statement" required? If occupied by the seller as a place of business? If not occupied and held as an investment? ANSWER: Pursuant to the Wis. Admin. Code § RL 24.07(1)(b), real estate licensees are required, when listing commercial real estate, to inspect the property and make inquires of the seller as to the condition of the property and ask for a written response. The seller does not have to complete the "standard" Wis. Stat. Chapter 709 residential Real Estate Condition Report unless the property contains 1-4 dwelling units. The WRA, however, has developed a condition report for use with commercial properties - a sample copy appears in the February 2009 Legal Update, "Revised WB-5 Commercial Listing and Seller Disclosure Report," online at www.wra.org/LU0902. Commercial sellers who do not want to complete a commercial condition report do not have to, but they can be reminded that similar representations will need to be made in the offer. If they do not wish to make representations in the offer, they should be referred to legal counsel for legal advice regarding structuring an "as-is" transaction. READ MORE ABOUT IT: 5.) General Real Estate - Foreclosure QUESTION: The broker is the listing agent, doing a short sale on a town home. Three offers have been sent to lender for approval. All offers have a short sale addendum and are signed by the seller, one in primary position and two in secondary. The lender picked an offer that was written by listing agent because it netted more money for them when they cut the commission from 6% to 4%. The buyers who offered the highest price are now saying they cannot do that. Is it up to the lender to choose an offer? That buyer is threatening legal action to tie up sale if he does not get the property. ANSWER: Wis. Admin. Code § RL 24.12 provides real estate licensees shall not disclose any terms of one prospective buyer's offer to purchase to any other prospective buyer or any person with the intent that the information be disclosed to any other prospective buyer. The agent working with each buyer should not know the terms and conditions of any of the other offers. In a short sale situation, it is the seller's prerogative to accept more than one offer to purchase. Standard of Practice 1-7 provides in relevant part, "REALTORS® shall recommend that sellers obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract." Once a primary offer is accepted the seller may make subsequent offers secondary offers - with each one also subject to the approval of the seller's lender for a short sale. The seller can submit the offers to the lender at the same time for the lender's consideration if the lender allows submission of multiple offers. However, the seller must proceed with good faith and due diligence to complete the terms of each contract as negotiated with the buyers. If the lender rejects the seller's request for short sale based on the terms of the primary offer, the seller must resolve the first offer before elevating a secondary offer. The seller could then elevate a secondary offer which has the lender's approval for a short sale. It is a listing broker's choice to renegotiate a listing commission with the seller. Per the listing contract it is the broker/firm who has authority to reduce commission. If a listing is negotiated with a variable rate commission, one where one amount of commission is payable if the listing broker firm is procuring cause and a different amount of commission is payable if the sale results through the efforts of a cooperating broker, the listing broker must disclose the variable rate commission. The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale that results through the efforts of the seller/landlord. If the cooperating broker is a buyer's agent, the buyer's agent must disclose such information to their buyer/client before the client makes an offer to purchase. Debbi Conrad |