Brokerage Liability Issues

The rules and regulations of the legal fund set forth specifically all of the application procedures and the requirements that must be met before assistance from the legal fund may be authorized. For copies of the procedures or applications, contact the Legal Affairs Department.

No. Texas brokers who are exempt from TREC’s continuing education requirements do not have to take the Broker Responsibility course.

Brokers who are exempt from continuing education requirements are those who were informed in writing of their eligibility by TREC, gave notice between between October 1 and 30, 1991, of their wish to opt out, and paid the applicable fee.

In one informal HUD interpretation, the department indicated that a sale of a list of consumers to a settlement service provider did not violate RESPA provided the payment is for the use of the list and is not further conditioned upon the number of closed transactions resulting from the list, or any other consideration, such as an endorsement of the product being offered by the seller of the list. Thus, a real estate agent could receive nominal compensation, for supplying a lender with certain basic information about a customer (i.e., name, address, telephone number, price of the newly purchased home, etc.). However, under the circumstances, the real estate agent should not promote the lender or its services to the customer, and the payment must be made to the agent, regardless of whether the lead ultimately turns into a closed loan.

Since RESPA exempts payments by an employer to its employees, several programs offer to make the real estate agent a part-time employee of the lender. However, only bona fide employees are covered by this exemption. The Internal Revenue Service sets strict standards for employment. Although HUD has never published criteria, it's likely the IRS rules would prevail. That means in order to be considered an employee rather than an independent contractor, the agent/loan officer must: 1) be under the supervision and control of a lender's office; 2) use the lender's equipment; 3) have set hours; 4) receive a W-2 form; 5) receive standard employee benefits; and 6) have the lender be liable for the employee's conduct. That means that a real estate agent that becomes a "loan officer" only after selling a property is unlikely to be considered a true employee and therefore would not be covered by the RESPA exemption.

First, there are no new changes to RESPA. Information about real estate agent and mortgage broker compensation first appeared in a 1995 HUD informal advisory opinion issued to the Independent Bankers Association of America. This letter, often referred to as the Retsinas Letter (after the former FHA Commissioner who issued the letter), was later incorporated by reference in a March 1, 1999, RESPA Statement of Policy Regarding Payments By Lenders To Mortgage Brokers, 64 Fed. Reg. 10080. Under these guidelines, agents and brokers may receive fees for performing loan origination work on a lender's behalf, such as taking a loan application, counseling borrowers, ordering credit reports and appraisals, and completing loan documents used to process the loan. The fees must be "reasonably related to the value of the services performed." Finally, many of the promotional materials claim their compensation programs have received HUD "approval." While HUD may provide general guidance, the department does not approve individual business plans, and generally does not opine as to what amounts constitute fair and reasonable compensation. Before accepting the claim at face value, ask to see a copy of HUD's approval.

One way you can do this is by using the Independent Contractor Agreement for Sales Associate (TAR 2301) and the Statement of Understanding (TAR 2302). The independent contractor agreement formally defines the obligations and rights of a broker and an agent and outlines provisions that make it clear the agent is not an employee.

The Statement of Understanding contains statements, agreed to by the agent, which would help confirm the existence of an independent contractor relationship under the law. It should be completed annually to reaffirm the relationship that exists between you and your agents.

Brokers who carefully maintain independent contractor relationships and follow the terms of the agreement can reduce their risk of the IRS, the Texas Workforce Commission, or other government agencies asserting that there are employer-employee laws applicable to the relationship. While a written independent contractor agreement and statement of understanding are not required by law to establish and maintain an independent contractor relationship, it’s a good idea for brokers to use both. Records that include the independent contractor agreement and annual statements of understanding would provide persuasive evidence about the nature of the relationship between the parties.

While real estate agents will find it difficult to serve as both real estate agents and mortgage brokers, or real estate agents and part-time lender employees, agents may still be paid under a RESPA exemption that permits persons (even ones that refer lenders business) to be paid for services rendered, so long as the payment is commensurate with the services provided. A real estate agent who spends an hour with a customer taking a preliminary credit application and collecting certain credit documents (i.e., W-2s, pay stubs, bank statements) has performed a genuine service for the lender that is actual, necessary, and distinct from the agent's normal duties. Reasonable compensation (generally a flat fee, not a percentage of the loan amount) may be justified. Note, however, that real estate agents may not take loan applications in connection with FHA-insured loans.

Very rarely. Ultimately, the board of directors must make a determination if the use of the Legal Fund satisfies the purposes and intent of the fund. Persons who are not members of the REALTOR® organization have asked TAR to file amicus briefs in cases in which no REALTOR® is involved. For example, litigants in one case involving antitrust issues asked the association to file briefs with the court. In another case, litigants in a city-zoning dispute asked the Texas REALTORS® to file briefs with the court. After careful review, the board of directors chose not to file the requested briefs. However, the fund has been used to pay for expenses in filing briefs in cases involving homestead issues (as discussed above), contractual issues and other issues. It has also been used to fund the filing of analyses and comments before governmental agencies. In each of these cases, the board of directors determined that there was a significance to REALTORS® as a class.

No. The Real Estate Recovery Fund is a fund created by the Real Estate License Act that is maintained by the Texas Real Estate Commission (the state agency regulating Texas real estate brokers and salesmen). The Recovery Fund is funded by a $10 fee paid with every broker’s or salesman’s original license application. The recovery fund is a state-run consumer protection fund used to reimburse aggrieved persons who suffer actual damages by reasons of certain acts committed by brokers, salesmen, or their unlicensed employees or agents. A number of statutory elements must be satisfied by the consumer before he can file a claim for payment out of the recovery fund, including first obtaining a judgment against the broker or salesman that is not satisfied.

No. The legal fund is not a substitute for errors-and-omissions insurance. The Texas REALTORS® strongly encourages members to maintain E&O insurance. There are many lawsuits in which a Texas REALTOR® may be involved that are not significant to Texas REALTORS® or the real estate industry as a whole. In fact, the Legal Review Committee recommends that a number of applications be denied each year.

You should consult an attorney regarding the risks involved and how to protect yourself from liability before agreeing to this situation.

A person employed by a builder to sell the builder’s homes is exempt from the Real Estate License Act. If he were working exclusively for the builder, he would be exempt from the act and you would not be responsible for his activities. However, while working as a salesperson under you as his sponsoring broker, he is covered by the provisions of the act and you are responsible for his real estate-related activities. This includes possible civil liability for negligent or other inappropriate activities.

One risk you face is that the lines of activities, duties, and responsibilities between the two positions can become blurred, especially to a buyer. Things such as car signs, business cards, and client referrals could lead a buyer to believe that your agent was acting as a real estate salesperson while working for the builder. A court or TREC hearing officer might reach the same conclusion and assess liability or responsibility on the broker.

The Texas REALTORS® Legal Fund is maintained by the association through the oversight of the Legal Review Committee. The fund is used only for purposes authorized by the Texas REALTORS® Board of Directors and may only be accessed by REALTORS® through a formal application process. It is primarily reserved for paying the legal expenses of cases that are significant to Texas REALTORS® as a class or the real estate industry.

The Legal Fund is used for a number of expressed purposes: 1. Helping Texas REALTORS® understand their legal rights and duties under law 2. Providing legal assistance for matters pending in court or governmental agencies 3. Defraying all or a portion of legal expenses for pending litigation in which a member is a party 4. Defraying legal expenses for cases in which the association intervenes or files briefs as a friend of the court 5. Monitoring and participating in the actions of governmental agencies 6. Reimbursing travel expenses of Texas REALTORS® who participate in form-development task forces

Every six months, the Texas REALTORS® Legal Review Committee reviews applications and requests for funding from the Legal Fund from Texas REALTORS® and litigants involving cases that significantly affect the entire real estate industry. A brief summary of three recent cases is noted below. Case 1: A REALTOR® was sued by a buyer who alleged the agent failed to properly advise him that the property lay near an environmentally contaminated site. At the time of the contract, the agent provided the buyer with a detailed written statement (signed by the buyer) about the toxic dangers and health hazards posed to residents of the subdivision, since it was known that a nearby site was environmentally contaminated. The REALTOR®'s errors-and-omissions insurance carrier refused coverage on the basis that the claim involved bodily injury that was excepted from the policy. The buyers originally alleged damages in excess of $30 million. The legal fund assisted the defendant in resolving the case favorably. Case 2: The association filed an amicus brief in an Austin case in which a savings and loan association filed suit against the attorney general of Texas, arguing that federal regulations preempted the Texas Constitution regarding its homestead protection. The Austin Federal District Court disregarded the savings and loan’s claims and upheld the Texas Constitution. The Fifth Circuit Court of Appeals reversed and held that the Texas Constitution had been superseded. The case was ultimately moot as a result of Congressional action initiated by Rep. Gonzales of San Antonio that amended the Home Owner Loan Act so that it was clear that Congress did not intend to supersede the Texas Constitution. Through the Legal Fund, the Texas REALTORS® was able to monitor and participate in the action. Case 3: A REALTOR® was sued by a buyer alleging that the agent did not disclose that the property lay in a flood-prone area or that the property had previously flooded. The buyer purchased the property under an assumption and refinanced the lien six months after closing. At the time of the purchase, flood maps for the area showed the property not to lie in a flood hazard area. About a month after closing, the flood maps were revised and included the property in a flood hazard area. At the time of the refinance a survey incorrectly stated that the property did not lie in a flood hazard area. Three years after the purchase, the property flooded and the buyers then learned that the property had previously flooded. The case proceeded to a jury which found for the defendant REALTOR®. The Legal Fund was able to assist the REALTOR® in defeating the unfounded claim.

There is a formal application and certification that an applicant, or his attorney, must complete. The application is submitted to the applicant’s local association for review. The local association may forward the application to the Texas REALTORS® Legal Review Committee recommending that the application be approved, or it may deny the application and return it to the applicant. The Legal Review Committee, in turn, makes a recommendation to the Texas REALTORS® Board of Directors either to approve or deny the application. Probably, the most crucial requirement to satisfy in the application process is that the case must be of significance to REALTORS® as a class or the real estate industry as a whole.

It depends. A mortgage company sponsoring an educational event to promote its services can do so as long as the cost associated with the event doesn’t cover any of the agents’ other expenses they would otherwise have to pay, such as the cost of the CE credit. The mortgage company can’t sponsor the luncheon on the condition that it will receive referrals, either. And the company must promote its services during the event to qualify for the Real Estate Settlement Procedures Act (RESPA) advertising exemption.

Yes, as long as you follow the rules set out in the Real Estate Settlement Procedures Act (RESPA). These rules come into play any time a real estate broker in a position to refer mortgage business to a lender is paid a “thing of value” by the lender.

A broker may charge a lender a flat fee to place the lender’s banner ads or hyperlinks on the broker’s website, but the payment must be reasonable and commensurate with the value of the service. Some brokers charge a small fee every time someone clicks through to the lender’s website. This appears permissible under RESPA guidelines as long as the fee is minimal and not tied to whether that click results in a loan.

A fee based on a transaction between the lender and a consumer is prohibited by RESPA. For example, it would be a RESPA violation if you received a fee for every click that resulted in an application or closed loan.

Texas REALTORS® created a model privacy policy to help you develop your office's policy about the maintenance and destruction of customers' and clients' personal information. Download a PDF of the Model Privacy Policy just for Texas REALTORS® from the Manuals & Guides page.

No. Only a broker who sponsors salespeople or is a designated broker for a business entity must maintain up-to-date written policies and procedures. A broker who sponsors salespeople is subject to this rule regardless of how long the broker sponsors the salespeople. A broker who is the designated broker for a business entity is subject to this rule whether or not the business entity sponsors salespeople. 

Yes. You should check the do-not-call list before soliciting such listings to avoid violating the law.

There is an exception to the do-not-call rules: If you have a prior business relationship with the owner that ended within 18 months, you can call him. This exception does not apply if the owner has asked your company to place his number on the company do-not-call list.

There are no do-not-knock or do-not-mail laws that would prohibit these methods of soliciting business, so you could consider sending a nicely worded letter to the owner or making a personal visit to the home.