Broker Responsibility. May 2012

Broker Responsibility May 2012

Chapter 1 - Introduction Purpose The purpose of this course is to address the regulatory aspects of the management, operation and supervision of a real estate brokerage firm in Texas. The course provides an understanding and working knowledge of the law of agency, planning and organization of business entities, requirements for written policies and procedures, records retention and control, advertising, recruitment and training of agents, and a case study of a hypothetical complaint filed with Texas Real Estate Commission (TREC). The Real Estate License Act (the Act) is Chapter 1101 of the Texas Occupations (TX. Occ. Code; the TREC Rules are part of 22 TAC Chapter 535 (TREC Rules). Who Must Take This Course? Section 535.2 of the TREC Rules requires a broker who sponsors salespersons, a designated broker of a business entity, and a licensee who is a delegated supervisor of one or more licensees (for six months or more during the supervisor s current license period), to complete this 6-hour broker responsibility course to renew a license. Any licensee may take this course, which counts for six hours of MCE elective credit. Additionally, a sponsoring broker may, by policy, require certain licensees and employees to take this course. Definitions Almost any act related to buying, selling, or leasing real estate by a licensee, when performed for another, and for or in expectation of valuable consideration, constitutes the practice of brokerage, TX. Occ. Code 1101.002. When a brokerage function is performed, the licensee becomes someone s agent. If the function is performed for the licensee s own account, that action does not fall under the definition of brokerage. However, TREC may discipline licensees who buy, sell or lease property for their own account under certain circumstances TX. Occ. Code 1101.652(a). Section 1101.002 of the Act defines the following: Person An individual, partnership, corporation, limited liability company, or other legal entity, including a state agency or governmental subdivision. Business Entity (Entity) Any entity as defined by Business Organizations Code 1.002, Business Organizations Code (corporation, LLC, partnership, etc.). Real Estate Any interest in real property, including a leasehold, located inside or outside Texas. Real Estate Broker A person who, for another person and for a fee, commission, or other valuable consideration, or with the expectation of receiving a commission or other valuable consideration from another person sells, exchanges, purchases, or leases real estate; offers to sell, exchange, purchase, or lease real estate; negotiates or attempts to negotiate the listing, sale, exchange, purchase, or lease of real estate; lists or offers, attempts, or agrees to list real estate for sale, lease, or exchange;

auctions or offers, attempts or agrees to auction real estate; deals in options on real estate, including buying, selling, or offering to buy or sell options on real estate; aids, offers or attempts to aid in locating or obtaining real estate for purchase or lease; procures or assists in procuring a prospect to effect the sale, exchange or lease of real estate; controls the acceptance or deposit of rent from a resident of a single family residential real property unit; or provides a written analysis, opinion, or conclusion relating to the estimated price of real property if the analysis, opinion, or conclusion o is not referred to as an appraisal; o is provided in the ordinary course of the person s business; and o is related to the actual or potential management, acquisition, disposition, or encumbrance of an interest in real property. Real Estate Broker also includes a person who is employed by or for an owner of real estate to sell any portion of the real estate; or engages in the business of charging an advanced fee or contracting to collect a fee under a contract that requires the person primarily to promote the sale of real estate by listing the real estate in a publication primarily used for listing real estate; or referring information about the real estate to brokers. Designated Broker An individual holding an active Texas real estate broker license designated by a business entity licensed by TREC to act on the entity s behalf, TREC Rules 535.50(5). The designated broker must be an officer of a corporation, a manager of a limited liability company, or a general partner of a partnership. Salesperson A person who is associated with a licensed broker for the purpose of performing real estate brokerage.

Chapter 2 Authority, Competency, Training, Selection, and Recruitment Scope of Licensee s Authority Broker s Responsibility A broker is required to advise a sponsored salesperson of the scope of the salesperson s authorized activities under the Act. Unless such scope is limited or revoked in writing, a broker is responsible for the authorized acts of the broker s salespersons, but the broker is not required to supervise the salespersons directly. If a broker permits a sponsored salesperson to conduct activities beyond the scope explicitly authorized by the broker, those too, will be deemed to be authorized acts for which the broker is responsible. TREC Rules 535.2(a). Establish Competency Standards A sponsoring broker should create competency standards for supervised licensees. Examples of competency standards might be education or experience in residential, commercial, farm and ranch, leasing, property management, short sales and foreclosures, international selling and listing, or geographical limitations. These competency standards may be communicated in office policies, part of independent contractor agreements, or other means. Competency Considerations Is a new licensee fully trained and capable of assisting the seller of a high rise office building in downtown Dallas? If not, what skills and knowledge are needed to practice real estate in this area? Should a sponsoring broker assist a new licensee in completing residential contracts? Does the sponsoring broker have licensees unfamiliar with Texas landlord/tenant laws performing residential leasing or taking lease listings? Should a licensee understand cash crops and mineral rights in order to perform farm and ranch sales? Licensee s Competency A sponsoring broker must maintain written policies and procedures to ensure that a sponsored salesperson is competent to conduct authorized activities. The sponsoring broker also must assure that each sponsored salesperson receives educational instruction that the broker may deem necessary to obtain and maintain competency in the scope of the salesperson s practice, TREC Rules 535.26(i). These requirements simply mean that a broker, in addition to establishing the scope of the sponsored salesperson s authorized activities, must make sure that a salesperson is competent to conduct authorized activities and that the salesperson receives necessary educational instruction to achieve that goal. While competency is often achieved through actual transactional experience, the sponsoring broker may determine there is a need for additional training. For example, a new salesperson wanting to engage in property management might need additional education in that area of real estate. 4

Background Checks A sponsoring broker may find it prudent to require a background check policy for all employees with access to the office, both employees of the sponsoring broker and any employees of the broker s salespersons. A broker may wish to consult with an attorney on the implementation of such a requirement, including but not limited to the creation of the proper authorizations to obtain background checks, the type of service that will perform any background checks, the interpretation of any background reports, and the criteria to use when basing decisions on information in the background reports. Recruiting Licensees from Other Brokerages There is no provision in the Act or the TREC Rules prohibiting a broker from offering to sponsor a licensee whose license is active with another sponsoring broker. Custom and courtesy within certain market areas may be taken into account, but they do not necessarily govern recruitment. Any questionable recruitment practice by a broker should be discussed with the broker s attorney for the purpose of avoiding allegations of interference with contractual relationships. Generally, however, recruitment of a salesperson by a broker is not regulated. 5

Chapter 3 - Agency Law of Agency The changing provisions of the Act, as well as generally accepted provisions for employment contracts, have underscored the technicalities of the law as they apply to real estate brokerage. In addition to the Act, the law of agency governs the relationship between clients and brokers. The Act specifically states that a broker who represents a party to a real estate transaction acts as that party s agent, TX. Occ. Code 1101.557. Historically, the broker was hired by the seller (landlord) to assist him or her in marketing the property. However, buyer brokerage, tenant representation, and intermediary relationships have added different dimensions (duties and obligations) to the relationship between the broker and client. Creation of the Agency Relationship In many agency relationships, one can be deemed to be an agent of a principal through written or verbal authority. Receiving a Commission While one broker may initially think that the broker s principal is responsible to pay the broker his or her commission or fee, the Act permits a broker to receive compensation from the other party s principal, the other broker, or from more than one party as long as all parties are aware of and consent to the compensation arrangement. Timing of Agency Relationship An agency relationship arises when both the principal and agent have consented to the establishment of the agency relationship. This can occur when a written agreement is signed such as a listing or buyer representation agreement, but it can also arise before any written agreements are signed through oral agreements or by the actions of the broker and principal (by implication). For example, the broker and principal may act in ways that establish that the broker was performing services for the principal and that the principal received those services. For example, if a broker learns confidences during the time the broker is attempting to obtain a listing, it is possible that the broker may be bound to keep that information confidential. Types of Agency Agency relationships may be classified according to the authority given to the agent representing the principal or to the agent s authority represented by the principal to a third party; for example, agency by actual authority, agency by ostensible authority, and agency by ratification. Agency by Actual Authority Agency by actual authority exists where the agent is employed by the principal by either an express or oral contract. This type of agency generally outlines in detail what authority the agent has to act on behalf of and to bind the principal. When this is specifically given to an agent either in writing or verbally, it is considered to be express authority. Along with express authority there is often created a certain amount of implied authority. Implied authority is the right to perform certain acts on behalf of the principal even if the acts are not specified in the contract. This authority may arise from custom in the industry, common usage, or conduct of the parties (an inference or implication as to the agent s right to act). Examples of implied authority might be a listing agreement not specifying the broker has a right to place advertising signage, 6

hours for showing the property, or means of advertising a property for sale. If such authority is not set out in the listing agreement, such authority may be implied to the agent because of common custom and usage in the industry, especially when the agreement only generally outlines the broker s responsibilities or authority. Agency by Ostensible Authority Agency by ostensible authority is one that exists because the principal intentionally or negligently causes a third party to believe that another was his or her agent, even though that agent may not actually be employed by the principal. If the third party reasonably believes that the agent is employed by the principal, the principal may be bound by the act of his or her agent. It is important to remember that an agent possessing ostensible authority has no express authority. If, however, the principal cloaks the agent with the appearance of authority, or negligently gives the agent the appearance of authority by failing to exercise proper control, the agency relationship arises. Declarations of the agent alone are not sufficient, and ostensible authority arises only by the acts of the principal that create the apparent authority. Creation of agency through this type of conduct has also been called an agency by estoppel or agency by apparent authority. Notwithstanding the existence of a listing agreement, an agency by ostensible authority can create an agency relationship between a purchaser and the listing broker that can create confusion. Of course, a licensee has an obligation to make it clear to the parties whom the broker represents in the transaction. Agency by Ratification An agency by ratification is an agency that is affirmed after the fact. For instance, if an agent secures a contract on behalf of the principal and the principal subsequently agrees to the terms of the contract, it is likely that a court would hold that the agency relationship was created as of the time the initial negotiation was transacted. That agency relationship was then ratified by the action of the parties (when the principal signed and acted under the contract). The critical factor in determining whether a principal has ratified an unauthorized act by his or her agent is the principal s knowledge of the transaction and actions in light of such knowledge. If the principal fails to repudiate the acts of her or her agent, that failure or the acceptance of the benefits of the agent s acts is evidence of agency by ratification. Agency Liabilities One of the significant factors in any agency relationship is the liability that the agent or the principal may create for the other. Some of the more common theories under which real estate licensees in Texas are sued by one or more parties to a transaction include alleged liability for misrepresentations (as to a property s condition, size, amenities, features, encumbrances, etc.), failing to fulfill the terms of an agreement (breach of contract), 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 real estate fraud, and expressions of opinion. 7

When a buyer sues a seller (for example, over an issue concerning a defect in the property), it is common for the broker to also be named in the suit. This may occur even if the broker has no knowledge of the alleged defect. The seller s failure to make the disclosure may create liability for the agent. The reverse may be true, as well; for example, the broker s actions may create liability for the broker s principal. The Act provides that a party is not liable for misrepresentation or concealment of material fact made by a license holder in a real estate transaction unless the party knows of the falsity of the misrepresentation or concealment and failed to disclose knowledge of the falsity of the misrepresentation or concealment. Note, however, that the new provisions do not diminish the broker s liability for his or her own acts or the acts or admissions of the broker s supervised licensees. Additionally, expressions of opinion by real estate licensees are generally not actionable, provided that the opinion was not negligently provided and that a reasonable person would understand the statement to be an opinion. The practice of always quoting one s source for information when a broker conveys information to someone provides affirmative defenses in some cases and can reduce confusion and potential liability. Special Agency Agency relationships may also be classified as special agency relationships and general agency relationships. The relationship between a listing broker and the principal is normally deemed to be special agency (as is the relationship between a buyer and the buyer s broker and the relationship between a tenant and the tenant s broker). In a special agency, the agent does not have the authority to bind the principal. The broker s responsibility is limited to the specific matters for which he or she was hired (for example, marketing the property and other duties listed in the agreement). In practice, the principal has little, if any, control over the conduct of the agent. Therefore, any misrepresentations or other wrongful acts by the broker will result in the broker being liable for them rather than the principal. So, in a special agency relationship, the principal is not responsible for the acts of his or her agent. General Agency In a general agency relationship the principal is always responsible for the acts of his or her agent as long as that agent is acting within the scope of his or her duties. A general agency relationship exists between the salesperson and the sponsoring broker. The salesperson is the agent of the sponsoring broker, and acts for the broker when performing services for the principal. The general agency relationship gives a wide scope of authority to the salesperson (for example, the salesperson can bind his broker to contracts such as listing or other representation agreements). In the general agency situation, if the salesperson makes a misrepresentation to the purchaser, the sponsoring broker is responsible for that act, and the third party may sue the sponsoring broker or the salesperson or both. This may be particularly harsh when an agency has been created by ostensible authority or ratification (the principal might have an agent and not know it!). The principal may be responsible for those acts regardless of how the agency was created. General agency relationships do not typically exist between a broker and the broker s principal. It may be possible that a court could find that a special agency relationship has been converted into a general agency relationship. This may occur in a situation in which a seller benefits from fraud, or the seller knew of fraud and did not reject the benefits of that fraud, the seller may be jointly and severally liable for misrepresentations made by his or her real estate agent. Duties of the Agent to the Principal The agent acts in the capacity of a fiduciary. That is, there is a duty of trust, confidence, and honest business dealing that is owed to the principal. There may be communications between the principal and agent that could not be disclosed without breaching that fiduciary relationship. An example would be a principal who chooses to list a house for $100,000 but informs the broker that 8

$80,000 would be accepted from a qualified purchaser who offers good terms. The agent is, of course, under a fiduciary capacity not to disclose anything that would be adverse to the interest of the principal. The agent will want to clarify which information, if any, may be communicated to others concerning the seller s willingness to accept less than the asking price. Specific Disclosure Issues Sales Information A sensitive issue exists as to whether or not a licensee may disclose sales price or other terms of the sale to others after a closing. While this information may be considered or identified as confidential in a contract, the Act provides that a licensee, or notfor-profit real estate board, may provide information about real property sales prices or terms of the sale for purposes of facilitating, selling, leasing, financing, or appraising real property. Any entity providing this information is not liable to any other person as a result of providing the information, unless this disclosure is specifically prohibited by statute. TX. Occ. Code 1101.804. HIV Issues Several decades ago, there was concern whether or not a broker should disclose whether a previous occupant in a property had AIDS or HIV-related viruses. Fair housing laws now make it clear that a person with AIDS or an HIV-related virus is considered to have a disability and belongs to a protected class such that the information may not be disclosed. Section 1101.556 of the Act provides that the broker has no duty to make inquiry or disclosure about whether a previous occupant had or may have had AIDS or an HIVrelated illness. Death Under the Act, a real estate licensee has no duty to inquire about, disclose, or make representations concerning a death on the property that was a result of suicide, natural causes, or accidents unrelated to the condition of the property. Questions still arise as to whether a broker needs to or should disclose a death that occurred as a result of murder, condition of premises, or unnatural causes. Sex Offender Registration Section 62.056(e) of the Code of Criminal Procedure provides that a person s broker, salesperson, or other agent or representative in a residential real estate transaction does not have a duty to make a disclosure to a prospective buyer or lessee about registered sex offenders. Representing a Buyer. It is probably prudent for a licensee to be cautious about disclosing any information about sex offenders whether the licensee is an exclusive buyer s agent or an agent appointed to represent a buyer in an intermediary relationship. The Texas Department of Public Safety maintains a registered sex-offender database, which is available at www.txdps.state.tx.us. Considering that buyers and sellers may have different criteria and preferences concerning such matters, it may be prudent to refer the parties to the database. Duties Owed the Principal Generally, a real estate broker, as an agent, owes his or her principal the duty of performance, loyalty, reasonable care, and an accounting for all monies received with regard to the transaction. Performance Performance indicates that the broker will use best efforts and diligence to market the property on behalf of the principal and to obey the principal s instructions as to asking price, condition of the property, and marketing practices. The duty means nothing 9

more than doing the job, which is obtaining for the principal the highest price then obtainable and known to the broker. Corresponding duties apply for the buyer s broker or the landlord s broker or the tenant s broker. Loyalty The duty of loyalty is a sensitive subject for real estate agents. How can a broker represent a seller to get the highest price for the house when also representing a purchaser trying to get the best buy for the same house? The Act provides that the conflict created by the in-house sales is resolved by the intermediary relationship as defined by the Act and by following the procedures outlined in the Act. Loyalty also implies the duty not to advance the broker s own interest in profit to the detriment of the principal and is the essence of the agent s fiduciary responsibility. Full Disclosure The duty of loyalty also includes the broker s duty of full disclosure to the principal. In addition to the obligations listed above under the Act, the TREC Rules require that the licensee convey all known information that would affect the principal s decision to accept or reject offers and to keep the principal informed of all applicable, significant information, TREC Rules 535.156. A broker who places his own interest ahead of the client s interest may face breach of fiduciary allegation for failing to disclose material information to the principal. For instance, if the real estate appreciates in value and the broker buys the property during the listing period while failing to disclose that appreciation in value, a potential liability has been created for the broker. An example of nondisclosure is the flip sale. In this transaction, the broker may be liable if the broker acquires the property from his or her principal and sells it for a higher price to a prospective purchaser on the same day or soon thereafter. A broker must also disclose if the agent owns an interest in the entity that is the purchaser. TREC Rules require written disclosure by the licensee engaging in a real estate transaction on his or her own behalf. A broker is considered to be acting on his own behalf if he or she is a named party to the transaction or is working on the behalf of the business entity in which the licensee is more than a 10 percent owner, or is working on behalf of his or her spouse, parent, or child, TREC Rules 535.144(b). Reasonable Care The duty of reasonable care generally implies the broker s competence and expertise. The broker has a duty to disclose knowledge and material facts concerning a property and cannot become a party to any fraud or misrepresentation likely to affect the sound judgment of the principal. The broker may not give legal interpretations of the documents involved in a transaction. To give legal interpretations of an instrument is practicing law without a license and is specifically prohibited, TREC Rules 537.11. Standards of conduct concerning reasonable care can be found in the Act, TREC Rules, and in customary practice in the industry. For example, is it customary and reasonable for a listing broker to obtain some information concerning a prospective buyer s financial ability to complete a proposed real estate transaction? Should a listing broker advise his or her client about changes in values during a listing period? What types of questions should a buyer s broker suggest that the buyer ask about the property and the history of the property? Accounting The duty of accounting requires that any money accepted in trust for another or on behalf of another must be promptly remitted to the person or deposited in a trust or escrow account according to the terms of an agreement. Such funds may not be commingled with the broker s or agent s own funds, TX. Occ. Code 1101.652(b)(10) and (11). The duty of accounting also prohibits 10

a broker or salesperson from accepting an undisclosed commission, rebate, or profit on expenditures. TX. Occ. Code 1101.652(b)(13). Duties of the Principal to the Agent Similar to the above duties, there are also certain duties that the principal owes to his agent. While these duties are not as concrete nor so distinctly spelled out by state statutes, the duties are important in determining the rights of the agent when the principal fails to live up to obligations created by the agency relationship. These duties are performance, compensation, reimbursement, and indemnification. Performance Performance is normally considered to be an agent s obligation; however, the principal is expected do whatever can be done reasonably to accomplish the purpose of the agency. Compensation Compensation is normally specified in the listing agreement or employment contract. Although the receipt of compensation is usually contingent on the closing of the sale or lease, in most real estate transactions the agent has earned his or her fee when he or she has produced a ready, willing and able buyer (usually evidenced by the signing of the purchase contract or lease). The earned fee is usually payable only upon the closing of the transaction. Nonetheless, compensation arrangements are negotiable and can take several forms. Reimbursement Reimbursement implies that the principal must reimburse the agent for expenses made on the principal s behalf. This does not mean that the principal has to reimburse the agent for the costs of advertising, entertainment, and other costs of doing business. An example of reimbursable expenses may include the situation involving an absentee landlord or seller if the agent is required to perform minor repairs and incur other small expenses in order to keep the property in good condition. When these expenses are made in good faith and within the scope of the agent s authority, the agent is entitled to reimbursement from the principal for funds expended on the principal s behalf. To avoid confusion and disputes, reimbursable expenses are usually authorized or identified in the agreement that creates the agency relationship. Indemnification Indemnification is becoming more important for the agent. This duty arises when the agent suffers a loss through no fault of his or her own while performing duties on behalf of the principal. An example is a broker making an innocent misrepresentation in performing acts on behalf of the principal. As previously discussed, the agent is almost always liable if the agent makes a misrepresentation to a third party. However, if the broker relied on a representation made by the principal, the agent may be reimbursed for losses because of the principal s misrepresentation. This often includes concealed defects and representation regarding the quality and condition of the property. 11

Duties to Third Parties Although the broker has a duty to act on his or her principal s behalf and only in the best interest of that principal, the broker has a duty of care to third persons by using fair and honest business practices. The agent cannot be a part of any fraud on behalf of the principal, and if a case arises where the principal asks the agent to lie or misrepresent certain material defects, the broker should refuse to engage in any such acts. A broker is liable to third parties for misrepresentations, particularly for failure to disclose certain material defects that may affect the buyer s good judgment and sound business practice. Section 1101.652 of the Act requires at least 3 affirmative disclosures a broker must make to a third party under certain circumstances. These are significant defects in the condition of the property under TX. Occ. Code 1101.652(b)(3) and (4), advising a purchaser to have the abstract of title covering the real estate examined under TX. Occ. Code 1101.652(b)(29), and making clear to the parties of the transaction which party the broker is working for under TX. Occ. Code 1101.652(b)(7). Additionally, all licensees, when engaging in a real estate transaction in their own behalf, are obligated to inform any person with whom they deal that they are licensed (broker or salesperson) and shall not use their expertise to the disadvantage of a person with whom they deal, TREC Rules 535.144. If a broker or agent receives a request for a copy of document from a person who signed the document, the licensee is obliged under TX. Occ. Code 1101.652(b)(28) to provide the requested document. Buyer Brokerage A broker who represents a buyer may do so either under an oral understanding or under a written buyer representation agreement. Obviously, the written buyer representation agreement resolves a number of questions that may arise. Compensation Because it is common for listing brokers to offer to compensate buyer brokers or cooperating brokers for procuring buyers, it should be clear that the person who pays the commission is not necessarily the principal for the broker receiving the compensation. A broker can represent either party and be paid by either party, or both parties, provided that all commissions are disclosed. If a listing broker refuses to offer compensation, the buyer s broker would have to look to the purchaser or some other source for compensation. A cooperating broker does not have an agreement with a seller and therefore cannot sue the seller for a commission. Fee for Services and Rebates A fee for services is when compensation is based on services performed. This type or arrangement may be attractive to buyers who prefer to do their own research, obtain their own financing, and may not need any actual help until execution of the contract for sale or going to closing. Sellers, too, may choose to pay a lower fee to the listing broker if the broker provides a more limited range of services. Rebates of commission to principals do not violate the Act. Minimal Level of Services What if a broker refuses to perform any services, but expects to split the commission? For instance, a broker can access the MLS system to split the commission, rebate part of that commission back to the buyer and perform no services, leaving the listing broker with all the responsibility (and liability) in handling the transaction. The Texas Legislature has addressed this situation by requiring a 12

minimum level of service under the Act. These new minimum requirements provide that a broker who represents a party or who lists real property under an exclusive agreement must inform the party of material information relating to the transaction, including the receipt of an offer by the broker, answer the party s questions, and present an offer to or from the party. Dual Agency The Act provides a broker must agree to act as an intermediary if the broker agrees to represent in the transaction (1) a buyer or tenant; and (2) a seller or a landlord. This eliminates dual agency, and creates a duty for the broker who represents both parties to get written consent from each party to act as an intermediary in the transaction, which also must contain a written consent of the parties concerning the source of any expected compensation to the broker. Intermediaries An intermediary is defined under the Act as a broker who is employed to negotiate a transaction between the parties and for the purpose may be an agent to the parties to the transaction. A real estate broker who acts as an intermediary between the parties may not disclose to the buyer or tenant that the seller or landlord will accept a price less than the asking price unless otherwise instructed in a separate writing by the seller or landlord; may not disclose to the seller or landlord that the buyer or tenant will pay a price greater than the price submitted in a written offer to the seller or landlord unless otherwise instructed in a separate writing by the buyer or tenant; may not disclose any confidential information or any other information parties specifically instruct the real estate broker in writing not to disclose unless otherwise instructed in a separate writing by the prospective party or required to disclose such information by the ACT or a court order, or if the information materially relates to the condition of the property; shall treat all parties to the transaction honestly, TX. Occ. Code 1101.651; and must comply with the Act, TX. Occ. Code 1101.651. The statute provides that a real estate broker may act as an intermediary between the parties if the real estate broker obtains written consent from each party to the transaction for the real estate broker to act as an intermediary in the transaction, and written consent of the parties state the source of any expected compensation to the real estate broker. A written employment agreement, which also authorizes the real estate broker to act as an intermediary, is sufficient to establish written consent if the written agreement sets forth, in conspicuous bold or underlined print, the real estate broker s obligations. If a real estate broker obtains the consent of the parties to act as an intermediary, the broker may appoint, by providing written notice to the parties, one or more licensees associated with the broker to communicate with and carry out instructions of one party, as well as one or more other licensees associated with the broker to communicate with and carry out instructions of the other party as long as the parties consent and authorize the broker to make the appointment, which is presumably done in the listing agreement. 13

Property Management Responsibilities Different problems arise if a broker is acting as a manager of real estate, rather than simply as a broker in a sales transaction. Duties to owners and third parties in this situation relate to service contracts for services to be performed on a particular project, as well as to properly maintaining the property such that no one suffers any injury caused by the broker s negligence in maintaining the property. The problem of management liability may also occur when the property management company, or broker, does not want to become obligated for the payment of the expenses of a project. However, vendors and suppliers who perform many of the services must know whom they should pursue in the event they are not paid. The fundamentals of principal and agent again apply, and the liabilities can be summarized as follows: When an agent (broker) acts on behalf of a principal who is known to the service company performing the work, and the agent is acting within the scope of his or her authority, the principal is liable, and the agent will not ordinarily be personally liable to the third party. If the agent exercises ostensible (apparent) authority that he or she does not have, and the third party reasonably relied on such representation, an agency will be presumed, and the principal is still liable, rather than the agent. The principal may also ratify an agent s acts after they have been performed (even if they were wrongfully performed by the agent) and become liable for the agent s acts. However, if the agent was not acting within his or her scope of authority, the principal has a cause of action against the agent to recover any losses. If the broker discloses the fact that he or she is an agent but does not disclose the identity of the principal, the broker will generally be considered personally liable on the agreement. It logically follows that the third party is advancing services only on the agent s good name and promise to pay, even though the third party knows that the broker is acting as an agent. A third party performing services should not expect to be paid by a principal when he or she does not know who that principal is or anything about that principal s ability to pay. If the third party subsequently discovers the identity of the principal, both the principal and the agent may be liable to that third party. If the principal is undisclosed, and the agency is also undisclosed, the agent is liable to third parties for all acts that he or she performs, as if they were the principal s. The agent is always liable for his or her torts or contracts if the agent commits an act constituting deceit or misrepresentation. Even if the third party sues the principal and recovers, the agent would still be liable to the principal. Termination of Agency Once it has been determined that an agency agreement exists, it can be terminated by acts of the parties or by operation of law. Termination by Acts of the Parties Termination of an agency agreement by acts of the parties can be accomplished by either party or by both parties. If both parties agree to terminate the agency agreement, it is simple to agree to the termination by mutual consent. The termination can also be accomplished by completion of the agency objective (i.e., the property being sold) or by expiration of the stipulated length of time as set out in the listing agreement or agency contract. Termination by One Party Termination of the contract by one of the parties tends to be more complicated. A principal may unilaterally revoke the agency or listing agreement at any time if there is cause to do so, but may be exposed to contractual liability if he or she is in default under the agreement. If there is no cause to terminate the brokerage service agreement, the broker will likely have the right to recover the amount of compensation due under the agreement or the reasonable value of services and reimbursement for expenses. 14

Conversely, the agent may be able to renounce the contract if the agent feels that the principal is not helping to complete the agency objective. The agent may be liable for damages if there is no just cause to terminate the contract. In both cases, what is just cause is a fact question that has to be determined by a jury. Termination by Operation of Law Termination of the agency relationship by operation of law occurs upon the death of either the principal or the agent, insanity of either party, or change of law. Since the agency contract is a contract for personal services and is often purely unilateral, the death of either party terminates the obligations of either party. This can always be modified, however, if the broker is a corporation, the seller is a corporation, or either are entities rather than natural persons (i.e., a trust or limited partnership). Similarly, insanity of either party limits the contractual capacity of either party to the point that the principal-agent relationship cannot be completed. Determinations and definitions of sanity are difficult to determine. If a change of law, supervening illegality, makes a contract become illegal, any contract that is illegal is void. An excellent example of this arose recently. The listing broker earned a substantial commission by negotiating the sale of several savings and loans. While the transaction was pending, however, Congress made the payment of commissions to brokers for this type of sale illegal. The broker was then denied the commission because of supervening illegality. It was legal initially, but it became illegal during the pendency of the transaction. Once the confidential relationship is established, it cannot just be disregarded or ignored. If the agent takes advantage of the principal because of insider information, or if the agent advises someone else to do so, the fiduciary duty has been breached. Therefore, even if the agency terminates, the fiduciary duty may not end. For instance, a broker cannot become a principal on the same transaction and shed fiduciary obligations. The agency relationship is presumed to continue once it is established. The agency liabilities may continue far beyond the termination of the agency relationship. 15

Chapter 4 Organizational Structure Many licensees have utilized legal entities for their practices. The primary benefits of legal entities commonly selected by licensees are liability protection of the individual licensee and pass-through tax status (no double taxation). The selection of the appropriate entity for a particular licensee should be made after careful consideration and consultation with legal and accounting advisors. This discussion is not intended to replace that process, but to provide information for licensees to understand different types of legal entities. If a licensee establishes a legal entity, the entity must be licensed in order to be paid commissions. The legal entity must designate an individual broker who will be responsible for the actions of the legal entity as a licensee. The designated broker must be an officer of the corporation, a manager of the limited liability company, or a general partner of the partnership. If the designated broker owns less that 10 percent of the legal entity, the legal entity must obtain and maintain errors and omissions insurance of at least $1 million. Assumed Name A legal entity may have one legal name and do business under another assumed name. If a legal entity elects to do business under an assumed name, the licensee should file the assumed name with the Secretary of State and the local county clerk. TREC Rules require licensees using an assumed name to file the name with TREC; licensees may use the TREC DBA form (Appendix A). Types of Legal Entities Corporation A corporation is chartered by the State of Texas through the filing of articles of incorporation with the Secretary of State (now known as a certificate of formation). Corporations have the designation inc or corp after their names. For-profit corporations are owned by shareholders whose ownership interest is evidenced by shares, usually in paper form. The governance of a corporation is vested in its board of directors, established in the articles of incorporation and then annually elected pursuant to the terms of the corporation s bylaws. The corporation is operated by officers, including a president, secretary and treasurer. Internal governance is structured in bylaws adopted initially by the board of directors. Bylaws can be modified by the shareholders in accordance with the amendment provisions in the bylaws. The shareholders may govern the relationship between themselves in a shareholder agreement. Neither the bylaws nor the shareholder agreement are filed with the Secretary of State (or elsewhere). An individual broker who is an officer must be the designated broker for a corporation that seeks to hold a corporate real estate broker s license. One type of corporation is the Subchapter S corporation, which is named after a section in the Internal Revenue Code. This type of special corporation is simply a typical corporation that makes a special election with the IRS. The special election results in no taxation at the corporation level. Instead, all income is allocated to the stockholders and included in their tax return. 16

Regular corporations (known as C corporations ) pay income taxes at the corporate level. When distributions are made to shareholders, the shareholders include the distribution in their taxable income. Partnership Another longstanding legal entity is the partnership. This broad category has several types, but for this discussion only general and limited partnerships will be discussed. All partnerships are associations of two or more individuals or entities, which share profits and losses in a business transaction. General Partnership The general partnership is simple, but does not limit liability. All partners of a general partnership have full liability for all partnership debts. No written agreement is required, although it is highly recommended. Due to the lack of liability limitation, general partnerships have not been in broad use in the real estate industry. Limited Partnership Limited partnerships have been the primary vehicle used in the real estate industry. A limited partnership is created by filing with the Secretary of State and has the designation LP or LLLP, as appropriate, after its name. The partners execute a limited partnership agreement, which is not filed with the Secretary of State, to set forth the rights and duties of the general partner and the limited partners. There is never taxation of partnerships at the entity level. Instead, all income is allocated to the partners (as provided in the limited partnership agreement). Limited partnerships are owned by both limited and general partners (usually only one general partner). The general partner has unlimited liability for the obligations of the partnership but also has the power to manage the limited partnership. General partners are usually set up as legal entities themselves, to limit liability, but such limited partnerships may not be licensed due to the requirement that the designated responsible broker must be an individual. Limited partners have limited liability, rights to profits, and such approval rights over important decisions by the partnership as are provided in the limited partnership agreement. However, a limited partner may not manage the affairs of the partnership without losing limited liability. One type of limited partnership is the limited liability limited partnership, often utilized by professional firms, such as lawyers and accountants. For a partnership to be licensed, an individual broker who is a general partner must be the designated broker. By being an individual general partner, the designated licensee is personally liable for all obligations of the partnership. Limited Liability Company The majority of legal entities created today are limited liability companies (LLC). An LLC is created by filing articles of organization with the Secretary of State. The LLC is intended to merge the best aspects of the corporation and the limited partnership. With limited liability, pass-through tax status, and no requirement for a general partner, it is designed to simplify business entities and provide maximum flexibility. The owners of a limited liability company are members. The LLC may be managed by a manager or by the members without a manager. The manager does not have liability for the LLC s obligations, therefore the manager may (unlike in a Limited Partnership) be an individual. There is no board of directors, instead the members control the manager through a company agreement, which is very similar in form and function to a Limited Partnership Agreement. Limited liability companies have become common in the real estate industry. A limited liability company will have the designation LLC after its name. For a limited liability company to be licensed, an individual broker, who is a manager, must be the designated broker. 17

Sole Proprietorship A sole proprietorship is a single individual who is engaging in business without a formal organization. The sole proprietorship may be conducted under an assumed name. There is no additional requirement to license a sole proprietorship other than the license for the individual owner. The sole proprietor is personally liable for business obligations. 18

Chapter 5 Operational Policies and Procedures Need for Agency Policy Scope of Authorization Section 535.2 of the TREC Rules requires brokers to maintain written policies and procedures addressing a variety of matters, including the relationship between the broker and agents sponsored by or associated with the broker, competency of agents, compensation issues, maintenance of trust accounts, and maintenance of business records in general. Errors and Omissions Policy An errors and omissions policy (E & O policy) is a contract between the insurance company and the broker/licensee; therefore, each policy should be scrutinized to determine coverage issues and duties of the insured. Most E &O policies require timely and full disclosure of potential claims. Brokers/licensees should create a written risk management policy that includes broker safety, client safety, cell phone use, checklists for office personnel, listing and contract files, copyright and license obligations; and other risk management issues the broker deems necessary. Unlicensed Assistants Real estate licensees often use unlicensed personnel for assistance in conducting their real estate brokerage activities. Care must be taken to ensure that the unlicensed person does not conduct any of the activities for which real estate licensure is required. The following are activities which may and may not be legally conducted by unlicensed persons. Sections 1101.351(a) and 1101.758 of the Act establish that it is a crime for an unlicensed person to engage in activity for which a real estate license is required. The licensee who employs an unlicensed person might be criminally charged for the crime, as well. In addition, TREC may take disciplinary action against a licensee who pays or associates with an unlicensed person who engages in activities that require a real estate license. Authority for this disciplinary action is set out in the Act 1101.652(b)(11) and (26). For these reasons, it is important to distinguish between those activities that require a real estate license and those that do not. Section 1101.002(1)(a) of the Act sets forth a list of activities that require licensure. The real estate brokerage activities must be for another person or entity. The activities must also be for a fee or something of value, or with the intention of collecting a fee or something of value. Direct Activities by Unlicensed Assistants The list of activities requiring licensure may be summarized and placed in 2 categories (this is a summary only and not all inclusive). First are those activities in which a person directly helps another buy, sell, or lease real property. These activities, such as negotiating a listing agreement with a property owner, spending the afternoon with a couple showing houses for sale, or negotiating 19

a contract to buy or lease real property, obviously require licensure if done for a fee or something of value. These direct activities are seldom the subject of debate or controversy. Indirect Activities by Unlicensed Assistants FAQs The second category of activities might be referred to as "indirect" activities and are more troublesome. Section 1101.002(a)(viii) of the Act requires licensure of those persons who procure or assist in procuring prospects to buy, sell, or lease property. Section 1101.002(a)(ix) of the Act requires licensure of those persons who procure or assist in procuring properties to be bought, sold, or leased. If the words assist in are read broadly enough, virtually everyone working in a real estate office would need a license. Common sense dictates, however, that many activities that do not require licensure can be legally conducted in a real estate brokerage. Sometimes there may be only a thin line between activities that require licensure and activities that do not. The foregoing general TREC Rules and the following discussion of factual situations may help licensees accurately draw this line. 1. May an unlicensed person, identified as such, make calls to determine whether a person is interested in buying or selling property, or has property they wish to sell, and if so, make an appointment for a licensed agent to talk to them? No. Often referred to as telemarketing, any such activities conducted in Texas must be conducted by a licensee. In Tex. Atty. Gen. Op. H-1271 (1978), the attorney general concluded that a license is required. Also, 535.4(e) of the TREC Rules makes clear that all solicitation work must be conducted by licensees. 2. May an unlicensed person sit in on an open house? Yes, but care must be taken that the unlicensed person does not "show" the house to prospective purchasers. Section 535.4(c) of the TREC Rules makes clear that only licensed agents are allowed to show properties. On the other hand, 535.5(h) of the TREC Rules also specifically allows a broker to hire an unlicensed person to serve as a hostess, attendant, or custodian" at homes offered for sale by the broker. TREC Rules do not define these terms, and such a hostess should be limited to welcoming the visitors. The hostess may register the guests and refer inquiries to a licensee. Clearly, the hostess must not point out features of the home or neighborhood to visitors; however, as is the case with secretaries and receptionists discussed below, the hostess may distribute a flyer or brochure that describes the property. 3. May unlicensed assistants set appointments to show a listing? Yes. Under the general TREC Rules stated above, it is permissible for an assistant to call a homeowner and schedule an appointment for the broker to bring a potential buyer to see the home. If the broker then becomes tied up on other matters, can the unlicensed assistant drive the purchaser to the listing and let them in the home? Again, yes, but extreme care must be taken that the assistant does not engage in showing the property. The assistant should identify himself as an unlicensed assistant and explain the assistant s limited role. Any questions that arise regarding the property or the purchase of the property must be referred to a licensee. 4. May the unlicensed assistant place for sale signs; open a property or accompany inspectors; place newspaper advertisements as directed by the broker? Yes, subject to the following guidelines. Section 535.5(g) of the TREC Rules provides that answering the telephone and acts of a secretarial nature do not require licensure. Clerical employees need not be licensed so long as they do not engage in solicitation and do not hold themselves out as licensed agents. Further, an unlicensed clerical or secretarial employee, identified to callers as such, may confirm information concerning the size, price and terms of property advertised. Taken together, this means that an unlicensed person may, after identifying himself or herself as an unlicensed person, confirm information previously advertised to callers or persons dropping by. The unlicensed person should not give information 20

about properties other than that inquired about and should refer any requests for information regarding other properties to a licensed agent. For example, the assistant might confirm that a particular property called about has three bedrooms and one bath, as previously advertised; however, the assistant may not attempt to identify properties which instead have two baths and bring these to the attention of the caller. Such questions must be referred to a licensee. The assistant should not attempt to qualify the caller in any respect. Many other duties that are administrative in nature can be safely performed, such as inputting data into a computer or typing contracts but only as specifically directed by a licensee. Support personnel can order supplies, schedule maintenance, and all the other things that are involved in keeping the office open. Bookkeeping and office management functions may be performed by an unlicensed assistant, as discussed immediately below. 5. What functions may an unlicensed office manager perform? Unlicensed persons may perform such administrative tasks as training or motivating personnel, and those tasks dealing with office administration and personnel matters. In addition, the person a broker designates to sign checks in the brokerage is not regulated by TREC. Thus, an unlicensed person may serve as bookkeeper for the company and handle personnel matters. Such an office manager may also serve as a trainer. However, under 535.4(d) of the TREC Rules, an unlicensed person may not direct or supervise agents in their work as licensees. Therefore, an unlicensed person may not direct or advise agents in their attempts to help others buy, sell, or lease property. They may not review contracts, or help make deals work. These tasks are properly conducted only by licensed persons. 6. May unlicensed persons assist in arranging financing? Yes, but again, great care must be taken. An unlicensed assistant may be directed by a broker or salesperson to assist a particular buyer in applying for and qualifying for a loan. The assistant may gather information, contact lenders, and set appointments. However, these acts should be at the direction of a licensee, and care should be taken that the assistant does not exercise discretion, such as making the decision to apply for a different type of financing than called for in the sales contract. Mortgage brokers are licensed by the Texas Department of Savings and Mortgage Lending, and any questions regarding the requirements for licensure for persons dealing with financing issues should be directed to that agency. 7. May unlicensed persons serve as property managers for rental properties? Under recent amendments to the Act, a person who controls the acceptance or deposit of rent from a resident of a singlefamily residential unit must have a broker or salesperson license. Section 535.4(g) of the TREC Rules provides that a person controls the acceptance or deposit of rent from a resident of a single family residential real property unit and must be licensed under the Act if: (A) the person has the authority to use the rent to pay for services related to management of the property; or (B) the person has the authority to deposit the rent into a trust or bank account and sign checks or withdraw money from the account. In addition a single family residential unit is defined in 535.4(g) to include a single family home or a unit in a condominium, co operative, row home or townhome. The term does not include a duplex, triplex or 4-plex unless the units are owned as a condominium, cooperative, row home or town home. Note that persons acting as on-site managers at apartment complexes are exempt from licensure under 1102.005(7) of the Act. 8. What can a licensee do to avoid criminal or disciplinary actions? First, a broker should NOT let his or her license or any of the licensed associates licenses lapse. The lapse of a license, often inadvertent, is a common basis for disciplinary action on the grounds of improper unlicensed activity. Second, analyze any 21

new factual situation according to the TREC Rules above to determine the extent to which the unlicensed person is being allowed to act with discretion, and how closely the unlicensed person is directly assisting others in buying, selling, or leasing property. If still troubled, the broker should contact an attorney. The broker may also write TREC (or call in an emergency) for an informal opinion based on a particular fact situation. Managing brokers might gain some protection from disciplinary action by establishing written guidelines and training dictating to both their agents and unlicensed personnel what is allowed and not allowed of non-licensees. Teams, Groups, and Individuals In an increasingly competitive market, brokers are contemplating creative ways to distinguish themselves and their practice. Marketing strategies play vital role in differentiating a broker from his or her competitors. It is imperative however, that a broker keep in mind the Act and TREC Rules when crafting any advertising strategy. Advertising issues related to a broker s operations are discussed in Chapter 7. The following is a brief discussion about advertising issues related to team names within a broker s operations. Who s in Charge? Section 535.154(e) of the TREC Rules states that a broker or salesperson may not place an advertisement that in any way implies that the salesperson is the person responsible for the operation of a real estate brokerage business or causes a member of the public to believe that a person not authorized to conduct real estate brokerage is personally engaged in real estate brokerage. This is an intuitive rule, because the sponsoring broker is always responsible for the brokerage and its operations. Section 535.154(c) of the TREC rules provides that an advertisement must contain the name of the broker (either the individual name of the entity s name). If the broker uses an assumed name, the use of the assumed name in the advertisement meets this requirement (provided the broker has registered the assumed name with TREC). Additionally, if the assumed name or the corporate name of the broker contains the name of a salesperson, the advertisement should also include the name of the broker (or another assumed of the broker that does not contain the salesperson s name, or name of the designated officer if the sponsor broker is a corporation. When Agents Work Together Assume a salesperson licensee (Edra Anderson) is the leader of several licensed salespersons who work together, all sponsored by one broker. Is it permissible to advertise as Edra Anderson and Associates? No! Given these facts, TREC does not permit use of a name such as Edra Anderson and Associates or Edra Anderson and Company. This holds true even if the broker has attempted to file an assumed-name certificate with TREC using the salesperson s name. The idea is that by advertising in this manner, consumers may be confused as to who is responsible for the brokerage operations. Names like The Edra Anderson Group and The Edra Anderson Team also are considered unacceptable by TREC under these circumstances. However, Edra Anderson Group and The Edra Anderson Team are acceptable if the broker s name or assumed name is also in the advertisement. If Edra Anderson Group or Edra Anderson Team are corporate names and the corporation holds a real estate broker license, then given these facts, the name of the designated officer for the corporation should also be included to avoid giving the impression that a salesperson, Edra Anderson, is responsible for the operation of the brokerage business. In developing a policy regarding teams, a licensee might ask: 22

Who will hold the licenses of salespersons when a broker associate builds a team or group? If not your brokerage firm, will the E & O policy cover the acts of these licensees? How will a team or group be compensated? Who is responsible for the day-to-day activities of licensees belonging to a team or group? If the team or group is using a name other than its own name, is this name properly filed with TREC? Is the brokerage name used in all advertising? Do-Not-Call Policy, CanSpam, Fax policy Solicitations or advertisements communicated by phone, fax or e-mail are now governed by several federal and state statutes. Brokers, especially brokers who make cold calls or send out advertisements by fax or e-mail, need to be aware of these statutes and may need to seek additional education. Do-Not-Call Real estate licensees who make cold calls must comply with the requirements of the National Do-Not-Call registry and TREC Do-Not-Call Rules. Specifically, before making a cold call, a licensee must verify whether the number is on the national do-not-call registry. Licensees may not make cold calls to numbers in the registry. The licensee needs to update any download of the registry at least every 31 days. A licensee may call a person whose number is on the do-not-call registry if the licensee has an established business relationship (EBR) with the person called (unless the number is on the firm s internal do-not-call list). An EBR exists with someone who was party to a transaction with the broker s company in the last 18 months or with someone who made an inquiry with the broker s company within the last 3 months. Additionally, licensees may call if a consumer grants prior written permission. The TREC Rules require that a brokerage that permits agents to make cold calls must maintain an internal do-not-call list. Requests to be placed in the internal list must be honored for 5 years. The internal list applies to all agents in the firm. The firm should maintain a central list into which each agent may input names and check before making calls. If a name is on the internal list, the agent may not call that number even if the number is not on the national do-not-call registry. Online Community Policy (e-mail, social networks, agent websites) Many licensees are taking advantage of social media to connect with prospective customers and clients. While these new marketing channels open avenues of communication, there are also legal risks, such as defamation and copyright infringement. Statements in social media might offend another party and could be the basis for a defamation claim. Similarly, licensees should obtain permission to use other persons articles, photographs, etc. Licensees should also keep social media sites current. Items published on the web may be there forever! A broker should be sure that any written statements are true. If unsure, the broker should describe the statement as an opinion or an idea. When republishing others statements, such as allowing comments or other posters on a blog, the broker should post a visible disclaimer informing readers that those statements are from someone other than the person who maintains the blog. Licensees should publish contact information so that readers may request that objectionable text be removed. For example, Contact me at john@johndoe.com or 512/555-1234 to have any comments removed from this website. Defamation What can a licensee do if someone publishes a defamatory statement about the licensee? The licensee should ask the publisher to remove the statement or ask for a correction or retraction in a printed document. If the publisher does not remove the statement or take other action, the licensee may have the legal right to sue the publisher for defamation if he or she has been injured by the 23

false statement. Defamation is the act of harming the reputation of another person by making a false statement to a third person either by slander (spoken words) or libel (printed words). Usually, a defamation claim requires evidence of a false statement, made to someone other than the person who is allegedly defamed, and the damage to the person allegedly defamed (either by intention or reckless disregard for the truth). Defamation per se is when a person publishes a statement that is false and it is of such a significant matter that the law does not require a showing of harm. A licensee who intends to use a statement that is potentially harmful about another person should consult an attorney before publishing the statement in order to avoid allegations of defamation. RESPA Compliance and Related Matters The Real Estate Settlement Procedures Act (RESPA) first passed in 1974. It applies to transactions with loans on residential property (1-4 units). RESPA requires certain disclosures that spell out the costs associated with the transaction, outline lender servicing and escrow practices, and describe business relationships between settlement service providers. RESPA is intended to help consumers become better shoppers for settlement services; and eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. Referrals Section 8 of RESPA prohibits giving or accepting anything of value for referrals between settlement service providers. Section 8 also prohibits giving or accepting any part of a charge for services that are not performed. RESPA allows service providers to pay each other fees for services actually rendered for or on behalf of the service providers. For example, a title company may own an office building in which a real estate broker may be a tenant. Both the broker and the title company need to exercise care that the rent is a market rate. Information for Borrower Not less than 3 days after the time of application, RESPA requires the lender to give the borrower a Special Information Booklet (consumer information about settlement services) and a Good Faith Estimate (GFE) of the settlement costs. The difference between the estimated costs and the actual costs at closing are subject to certain tolerance levels. The lender must also provide the borrower a Mortgage Servicing Disclosure Statement, which discloses whether the lender intends to service the loan or transfer it to another lender. RESPA allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement to confirm the actual settlement costs. Affiliated Business Arrangement An Affiliated Business Arrangement (AfBA) Disclosure is required when a settlement service provider refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest. The referring party must give the disclosure at or prior to the time of referral. The disclosure must describe the business arrangement that exists between the 2 providers and give the borrower an estimate of the second provider s charges. The referring party may not require the consumer to use the affiliated provider (except for an attorney, credit reporting agency, or appraiser who represents the lender). This requirement also applies to a real estate licensee who has an ownership interest in a settlement service provider. For drafting a proper AfBa disclosure and obtaining other RESPA advice, make sure to hire an attorney who is knowledgeable in RESPA matters. 24

Annual Escrow Statement Loan servicers must deliver to borrowers an Annual Escrow Statement once a year. The statement summarizes all escrow account deposits and payments during the servicer s 12-month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken. Servicing Transfer Statement A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower s loan to another loan servicer. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments. Section 8 Prohibitions The following have been identified by the National Association of Realtors as examples of matters prohibited under Section 8 of RESPA. A title company hosts a monthly dinner and reception for real estate agents. A mortgage broker pays for a lock-box for the broker. A mortgage lender provides lunch at an open house. (Note a lender could purchase advertising rights from the broker at the open house). An insurance company hosts a happy hour and dinner outing for real estate agents. A home inspector pays for a real estate agent to go to dinner but does not attend the dinner. A title company makes a lump-sum payment or pays for other costs toward a function hosted by the real estate agent but does not provide advertising materials or make a presentation at the function. A mortgage broker buys tickets to a sporting event for a real estate agent or pays for the real estate agent to play a round of golf. A title company sponsors a getaway in a tropical location during which only an hour or two is dedicated to education and the remainder of the event is directed toward recreation. A mortgage lender only pays a real estate agent for taking the loan application and collecting credit documents if the activity results in a loan. Examples of activity that are permissible under RESPA may include the following: A mortgage lender sponsors an educational lunch for real estate agents where employees of the lender are invited to speak. If, however, the mortgage lender subsidizes the costs of continuing education credits, this activity may be seen as defraying costs the agent would otherwise incur, and may be characterized as an unallowable referral fee. A title company pays for advertising at an event that various individuals, including real estate agents, will attend; it posts a sign identifying the title company s contribution to the event in a prominent location for all attending to see and distributes brochures regarding the title company s services. An insurance company provides notepads, pens, or other office materials reflecting the insurance company s name. A mortgage brokerage sponsors the hole-in-one contest at a golf tournament and prominently displays a sign reflecting the mortgage brokerage s name and involvement in the tournament. A real estate agent and mortgage broker jointly advertise their services in a real estate magazine, provided that each individual pays a share of the costs in proportion with his or her prominence in the advertisement. 25

A lender pays a licensee fair market value to rent a desk, copy machine, and phone line in the licensee s office for a loan officer to prequalify applicants. Title Insurance Choice Section 9 of RESPA prohibits sellers from requiring buyers to purchase title insurance from a particular company. See the discussion in the TREC Mandatory Legal Update textbook related to choosing the title company for more information related to this specific question. HUD FAQs About RESPA for Industry 1. What kinds of transactions are covered under RESPA? Transactions involving a federally related mortgage loan, which includes most loans secured by a lien (first or subordinate position) on residential property. This includes home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages. 2. What types of transactions are generally not covered? The following are kinds of transactions that are not covered an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction, or other business purpose transactions. 3. Is a "time share" a covered transaction under RESPA? Yes, if the lender s interest is secured by a lien on residential property. 4. Is a loan secured by a condominium unit or a cooperative share a covered transaction under RESPA? Yes, as long the units are not used for business purposes. 5. Is a loan secured by a manufactured home (mobile home) a covered transaction under RESPA? Yes, but only if the manufactured home is located on real property on which the lender s interest is secured by a lien. 6. Does a federally related mortgage loan only involve FHA, VA or other government sponsored loans? No, RESPA covers most conventional loans, too. See the statute or regulations for the definition of a federally related mortgage loan. 7. Are home equity loans covered under RESPA? Yes, home equity loans secured by residential property are covered. 8. How does the coverage of home equity loans and subordinate lien loans differ from other RESPA covered loans? If the loan involves an open-end line of credit, providing the disclosures required by Regulation Z satisfies the RESPA good faith estimate and the HUD-1 or HUD-1A requirements. 26

Both subordinate lien loans and open-end lines of credit (home equity loans) in first lien position are exempted from the loan servicing requirements. 9. Are construction loans covered under RESPA? No, unless the loan is used as, or may be converted to permanent financing by the same lender, lender issues a commitment for permanent financing, loan is used to finance a transfer of title to the first user, or loan is for a term of 2 years or more, unless it is to a bona fide builder. 10. If a construction loan is covered under RESPA, how do you account for construction loan closing on the HUD-1 if funds will be held back by the lender until performance? List the sales price of the land on Line 204, the construction cost on Line 105 (Line 101 is left blank) and the amount of the loan on line 102. The remainder of the form should be completed taking into account adjustments and charges related to the temporary and permanent financing, which are known at the date of the settlement. 11. When the loan transaction includes an option for the borrower to obtain additional funds in the future merely by signing a note for the new amount, must RESPA's disclosure requirements be followed for the future advance of additional funds? Yes, because there is a new note. This is consistent with Truth-in-Lending Act provisions. 12. If a loan is sold within 1-7 days of closing to another lender, does the sale of that loan fall within RESPA's coverage? The sale of a loan after the original funding of the loan at settlement is a secondary market transaction. Such a sale is exempt from RESPA coverage as a secondary market transaction. However, any transfer of ownership and/or servicing rights is subject to RESPA s requirements in Section 6. 13. Does the exemption from RESPA for the sale of a land parcel of at least 25 acres apply even if there are 2 homes on the property? Yes, as long as the property is a single parcel. 14. Can a credit agency provide a lender with a dedicated printer to expedite communication between the credit agency and the lender? Yes, provided the printer can only be used for communication with the lender and not for general use. If it s for general use, it may be considered payment for the referral of business. 15. Can a flood zone certification company examine a lender s existing loan portfolio for free or at a reduced rate, in exchange for the lender sending the company future business? No. Flood zone certification is a covered settlement service (24 CFR 3500.2), therefore RESPA would apply to agreements by companies or persons providing portfolio reviews. Providing free or reduced reviews is a thing of value. Providing this service in exchange for referrals of future flood insurance business would violate Section 8(a) of RESPA which provides that [n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. 16. Can a lender set up a contest for real estate agents under which the agent who provides the lender with the most business will win a trip to Hawaii? 27

No. Under RESPA, the trip itself, and even the opportunity to win the trip, would be a thing of value given in exchange for the referral of business. 17. Can a lender give a borrower an incentive, such as a chance to win a trip or a rebate, for doing business with the lender? RESPA does not prohibit a lender or other settlement provider from giving the borrower an incentive for doing business with it as long as the incentive is not based on the borrower referring business to the lender. 18. Can a mortgage banker and a real estate broker advertise their services together, for example, on the same brochure or newspaper advertisement? Nothing in RESPA prevents joint advertising. However, if one party is paying less than a pro-rata share for the brochure or advertisement, there could be a RESPA violation. 19. Can a lender give a real estate agent note pads with the lender s name on it? Yes. Such note pads with the lender s name on it would be allowable as normal promotional items. However, if the lender gives the real estate agent note pads with the real estate agent s name on it for the agent to use to market clients for its real estate business, then the note pads could be a thing of value given for referral of loan business, because it defrays a marketing expense that the real estate agent would otherwise incur. 20. Can a mortgage broker be compensated for referring business to a lender if it is unrelated to a real estate transaction, such as automobile loans? Yes, provided that the compensation is exclusively related to the automobile loan and does not represent, in whole or in part, compensation for the referral of real estate business and no lien is placed on a residence to secure the auto loan. 21. Affiliated businesses: If a lender refers a consumer to more than one of its affiliated settlement service providers, does the lender have to provide a separate affiliated business arrangement disclosure statement for each referral? No, the lender can use one disclosure statement. 22. If a lender refers a consumer to a settlement service provider with which it does not have an affiliate relationship, as defined by RESPA, does the lender still have to provide the affiliated business arrangement disclosure statement? No, the affiliated business arrangement disclosure statement is only for affiliates. 23. When a principal in a law firm is a member of the board of a lender and the lender refers RESPA covered settlement service business to the firm, but not personally to the principal, must the relationship be disclosed? Yes. When the lender refers the borrower to the law firm, the borrower must be given an Affiliated Business Arrangement Disclosure Statement. 24. Fee splitting: Can a lender collect from the borrower an appraisal fee of $200, listing the fee as such on the HUD-1, yet pay an independent appraiser $175 and collect the $25 difference? No, the lender may only collect $175 as the actual charge. It is a violation of Section 8 (b) for any person to accept a split of a fee where services are not performed. 25. Can a lender charge a borrower at closing a one-time charge for setting up an account with a tax service to arrange for tax payments? Yes, the lender may collect a reasonable charge for the service provided. 26. Can a title company, which has the only convenient closing room in the area, provide it to any interested party at $100 per closing? Yes, provided the charge is reasonably related to the value of the space. 28

27. Consumer Information: When must the special information booklet be provided and by whom? In general, the lender or mortgage broker should provide the special information booklet at application. Alternatively, they may place it in the mail to the applicant not later than 3 business days after the application is received or prepared. 28. Must a mortgage servicing transfer notice be given for a prospective table funded transaction? Yes, by the mortgage broker. 29. When the potential borrower furnishes a substantial amount of financial information for prequalification, but no particular property has been identified, must the good faith estimate be furnished to the borrower? No. A submission by a borrower to a lender that does not identify a property is not an application and thus does not trigger the Good Faith Estimate requirement. However, HUD encourages providing information to the borrower on settlement costs as soon as it can be estimated, so that the borrower may be better able to shop. 30. If the borrower is getting a "no cost" loan, must the lender list charges the lender is going to pay? Yes. The charges to be shown on the GFE and the HUD-1 must include any payments by the lender to affiliated or independent settlement providers. These payments should be shown as P.O.C. (paid outside closing). The regulations at 3500.15 (b)(1)(i) state that where a lender makes a referral to a borrower, the condition for providing an Affiliated Business Disclosure (AfBA) may be satisfied as part of and at the time of the GFE. 31. Does this mean the lender does not have to give a separate AfBA disclosure if the information is part of the GFE? No. A separate AfBA must be given. The regulation means the AfBA may be given at the time the GFE is given if this is when the affiliate is referred or is required to be used (a lender may require the use of an appraisal, credit reporting company or attorney). 32. If I have a question concerning the calculation of the Annual Percentage Rate or APR, can HUD answer it? The calculation of the APR is part of the Truth-in-Lending Act (TILA) which is administered by the Federal Reserve Board. Questions concerning TILA as well as Section 32 (high cost loan disclosure) may be directed to the Federal Reserve Board at (202) 452-3693. 33. May a settlement service provider charge a fee that reflects its own fee plus any recording fees as the service provider s fee? Example: an attorney charges $500 for its services and the county charges $30 for recording fees. May the attorney simply charge the consumer $530 and pay the county as a cost of doing business? No. The Line Item instructions to the HUD-1 state that [f]or all items except for those paid to and retained by the lender, the name of the person or firm ultimately receiving the payment should be shown. The attorney must disclose all entities ultimately receiving the fee. 34. If the borrower s escrow account includes a surplus greater than $50, which HUD s Rules require be refunded, may the servicer credit the surplus directly to the principal, rather than refund the surplus to the borrower? No. However, the servicer may inform the borrower in the information accompanying the return of the surplus that the borrower may elect to use the refund to reduce principal or have it credited against the next year s escrow payments. 35. If there is a surplus in the escrow account and the borrower is in default, may the servicer retain the surplus as payment towards the amount in default? HUD s escrow Rules are inapplicable to loans that are in default, which is defined under the RESPA Rules as current payments that are more than 30 days delinquent. The parties should consult the mortgage documents or state law to resolve whether escrow funds are available for this purpose. 29

36. How should I report a violation of RESPA? Send a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. It is preferred that you include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to U.S. Department of HUD, Office of RESPA and Interstate Land Sales, 451 7th Street, SW, Room 9154, Washington, DC 20410. You may also wish to send a complaint to state and other federal agencies that have the responsibility for regulating the settlement providers engaged in the referenced practice. Insurance Code and P-53 Compliance The relationship between Texas title companies and settlement service providers, such as lenders and real estate brokers is, in addition to the ACT and RESPA, governed by the Texas Insurance Code and by Rule P-53, which is promulgated by the Texas Department of Insurance. Under 2502.055(a) of the Insurance Code, a title company may engage in promotional and educational activities that are not conditioned on the referral of title insurance business and are not otherwise prohibited by the Insurance Code, purchase advertising at market rates from any person in any media, deliver to a party or the party s agent legal documents or funds in a transaction the title company closes, participate in trade associations of other settlement service providers as long as the company s participation is considered to be normal with respect to other members participation, and provide education at market rates, regardless of whether continuing education credit is given or not. In adopting Rule P-53, the Texas Commissioner of Insurance clarified that a title company may not subsidize (pay, contribute, share in the cost of, or finance any part) the business expense of a producer (settlement service provider). A business expense, generally, is any expense that a licensee would normally deduct on the licensee s tax return as a business expense (marketing, mileage, vehicles, office supplies, educational expenses). Rule P-53 identifies the following as examples of prohibited payments toward a producer s business expenses: advertising jointly with a producer real property for sale or lease, paying any part for or contributing toward a producer s signs, advertisements, or boxes or similar items in which to store advertising media, hosting an open house, paying for or giving prizes, food, beverages, gifts, decorations, entertainment or professional services given at open houses, or hosting parties or receptions that promote a producer or the producer s properties. Texas Real Estate Commission Rules Under TREC Rules 535.148 a licensee may not receive compensation from someone other than the person whom the client represents unless the licensee discloses to the client that the licensee will receive the compensation and obtains the client s consent. This does not apply to referral fees between licensees. If a licensee intends to accept compensation from a service provider for referring a non-client to the service provider, the licensee must also obtain the consent of that person (non-client). As used in this rule, the term service provider is not limited to Settlement Service Providers as defined by RESPA. It includes any person who provides a service to a consumer. 30

A licensee may not enter into a contract with a service provider to provide services on behalf of the service provider in a transaction if the contract is exclusive (prohibits the licensee from offering similar services on behalf of other service providers). For example, if a broker agrees to perform compensable services for a home warranty company (that does not otherwise violate RESPA), the agreement should not be exclusive so as to prohibit the broker from offering those same services to other home warranty companies. A licensee may not accept compensation from a service provider if the licensee provides a service on behalf of the service provider and the compensation is contingent on a party in the transaction purchasing a contract or service from the service provider. A licensee must use Form RSC 1, Disclosure of Relationship with Residential Service Company, if the licensee (or the brokerage firm) will receive compensation from the residential service company. The compensation to the broker or salesperson may be in any form, whether a one-time payment or a periodic payment under a contract between the broker and the residential service company. Licensees Buying or Selling Their Own Property, TX. Occ. Code 1101.652(a)(3) & TREC Rules 535.144 A broker should maintain a policy related to transactions in which a licensee is involved in buying or selling his or her own property. Items to consider when developing such a policy include a determination from the broker s E & O insurance provider on the coverage in such transactions, how such property is advertised, disclosure of the license status in or contemporaneous with the contract, whether the licensee must be represented by another licensee in the firm when listing property owned by the licensee. Trust Account Policy, TREC Rules 535.146, 535.159, 535.160 At any given time, a property manager may possess funds that fall into 3 categories: property management money, owner money, or tenant money. As a real estate licensee, any time a broker holds money belonging to another, it must be kept in a trust account, or the broker risks a charge of commingling. Section 1101.652(b)(10) of the Act states that TREC may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or salesperson, commingles money that belongs to another person with the license holder s own money. TREC Rules 535.146(a) states, for the purposes of this section, trust account includes any trust, escrow, custodial, property management account, or other account in which a licensee holds money on behalf of another person. If the account contains money that belongs to someone else, TREC considers the account to be a trust account. Defining an account as a trust account implicates numerous other provisions of TREC Rules and the Act. Funds must be maintained in a trust account. Placing such money in a licensee s operating account constitutes commingling, TREC Rules 535.146(f). Security deposits must be held in a trust account. If security deposits are held by a licensee in a property management context (as may be dictated by the property management agreement), they must be held in a trust account, TREC Rules 535.159(g). 31

Trust accounts must always be in the broker s name. A broker is responsible for the proper handling of escrow monies placed with the broker, although the broker may authorize other persons to sign checks for the broker, TREC Rules 535.2(c). A salesperson may not maintain an escrow account or act as an escrow agent. Any money, received by a real estate salesperson, which is to be held in trust pursuant to a real estate transaction must be delivered to the salesperson s sponsoring broker to be deposited in accordance with the agreement of the principals in the transaction, TREC Rules 535.159(f). A trust or escrow account must be identified as such. If a broker maintains a trust or escrow account, that account must be identified as such, TREC Rules 535.159(h). Trust accounts may be savings accounts and are otherwise not defined by statute or rule. It is permissible for a broker to establish a savings account as an escrow account, provided said funds may be withdrawn at the appropriate time for disbursal, TREC Rules 535.159(e). Money may be held in a noninterest-bearing account. The broker is not liable for interest or for charges on the funds unless there is an agreement to the contrary, TREC Rules 535.159(j). Trust accounts may be interest-bearing and broker may retain interest if the client agrees. In the absence of an agreement to the contrary signed by the person depositing the funds with the broker, any interest earned on a savings account must be distributed to the person or persons who are the equitable owners of the funds during the time the interest is earned, TREC Rules 535.159(e). Any property manager must have at least one trust account. A best practice is to have separate trust accounts for security deposit funds and property owner cash funds. The broker should set office policy as to whether or not individual properties should have separate accounts. Trust accounts o must be in the broker s name and identified as such, and o can be any type of account, including interest-bearing. Be sure operating expenses are kept completely separate from any funds held in trust for a property owner. Establish policies and procedures for items belonging to each type of account. o Items for trust accounts: security deposits, owner cash (e.g. for property repairs), after-expenses rent payments, etc. how and when owner money will be transferred (typically from rents) to owner accounts and money that becomes the broker s and transfer to an operating account (typically interest) o Items for broker s operating account payroll, office expenses, commissions other operating expenses Be prepared to provide an accurate accounting of any money held in trust. Anytime the person for whom money is held requests the money, an accounting must be provided (or remitted, if required) to the person within 30 days. The broker should make sure any accounting software used is able to segregate various property accounts, security deposits and owner funds 32

Keep property management agreements and other paperwork in order. If a property owner agrees that the broker may keep any trust account interest, the provision must in the agreement. If a property owner is required to furnish cash for the broker to keep on hand, the provision must be in the agreement, also. Keep accounting records up to date. The broker must always be able to demonstrate what money is held in trust and to whom it belongs (may be requested by TREC, owner, or a tenant). Keep up to date. The broker must stay informed about the Act and TREC Rules to maintain a compliant operation. Informing and Responding to Clients Duty to Respond and Disclose Supervising brokers, perhaps more so than other licensees, have a duty to respond to parties in a transaction, to provide disclosure of important information to their principal, and to act honestly and fairly with third parties. A sponsoring broker must promptly respond to a sponsored salesperson, the principal and other licensees involved in a transaction, TREC Rules 535.2(j). Promptness will be judged on the nature of the request, the time of day and the type of transaction. A supervising broker should be reasonably available to supervised salespersons to provide needed advice and counsel. Another obligation is to disclose important information to the principal, which includes disclosure of 2 types of information: all known information that would affect the principal s decision on any offer, and all significant information relating to the transaction, TREC Rules 535.156(a) & (c). However, if a principal directs in writing NOT to be submitted offers after it has entered a contract, then that information need not be submitted. This direction could be included in a listing agreement or in a contemporaneous or later document. The disclosure can be made through the supervised salesperson. In dealings with third parties, (not clients), all licensees must be honest and fair, and not provide inaccurate information to those, TREC Rules 535.156(b) & (d). Being responsible for the supervised salesperson, the supervising broker should be available during all normal business hours of the organization and its salespersons to provide their experienced, informed advice and counsel to assist the salespersons and the organization s clients. The supervising broker should monitor transactions handled by salespersons to insure proper disclosure is being made. The scope of required disclosure is broad (and possibly subject to dispute, particularly if a transaction goes poorly), so close supervision and counseling of salespersons is appropriate. Salespersons should be reminded about their obligation to be honest and fair to third parties, which is part of their responsibility as licensed professionals. 33

Chapter 6 Records, Retention and Control Paper vs. Electronic The broker should emphasize retention of executed copies signed by all parties to a transaction. Additionally, a chronological filing system for transactional records should be maintained. If digital recordkeeping is utilized, the broker must be able to reproduce or transmit the record upon request. Salesperson s Scope of Authorized Activities A broker is required to advise a sponsored salesperson of the scope of the salesperson s authorized activities under the Act. Unless such scope is limited or revoked in writing, a broker is responsible for the authorized acts of the broker s salesperson, but the broker is not required to supervise the salesperson directly. If a broker permits a sponsored salesperson to conduct activities beyond the scope explicitly authorized by the broker, those too will be deemed to be authorized acts for which the broker is responsible. It may be prudent to define the authorized acts in the independent contractor agreement and review them periodically with each licensee. Any delegation by the sponsoring broker of another licensee to assist in administering compliance with the Act and TREC Rules must be in writing. This delegation does not relieve the sponsoring broker from overall responsibility for the supervision of sponsored licensees, TREC Rules 535(e). Records for the above items in addition to the list below outline a minimum of recordkeeping for a period of at least 4 years from the date of closing or termination of the contract. Format of all recordkeeping is flexible provided that a copy is readily available to TREC. TREC Rules 535.2(h) enumerate a minimum list of required records and include disclosures, commission agreements, work files, contracts and related addenda, receipts and disbursements of compensation for services subject to the Act, property management contracts, documents required by USPAP for appraisals, and sponsorship agreements between the broker and sponsored salespersons. In addition, a broker shall maintain written policies and procedures to ensure that each sponsored salesperson maintains his or her license in active status at all times while engaged in activities subject to the Act; any and all compensation paid to a sponsored salesperson for acts or services subject to the Act is paid by, through or with the written consent of the sponsoring broker; each sponsored salesperson is provided on a timely basis, prior to the effective date of the change, notice of any change to the Act, TREC Rules, or TREC-promulgated contract forms; 34

each sponsored salesperson receives such additional educational instruction the broker may deem necessary to obtain and maintain on a current basis competency in the scope of the sponsored salesperson s practice subject to the Act (in addition to completing statutory minimum continuing education requirements); each sponsored salesperson s advertising complies with TREC Rules; all trust accounts, including but not limited to property management trust accounts, and other funds received from consumers, are handled with appropriate controls by the broker; TREC Rules 535.2(l) specify that when the broker is a business entity, the designated broker is the person responsible for the broker responsibilities under TREC Rules 535.2, Broker s Responsibility. This includes delivery of mail and other correspondence from TREC to sponsored salespersons. Fulfillment of requirements for broker responsibility in TREC Rules 535.2 is not intended to create or require creation of an employer/employee relationship between a broker and a sponsored salesperson. Retention Considerations A broker might consider whether to incorporate the following in setting up a retention policy: secure executed copies signed by all parties to a transaction, use a chronological filing system for sure and easy retrieval, keep separate physical disk records available (if digitizing records) and record when hard copies are shredded, be able to convert digital record for delivery or transmittal to TREC upon request, remove transactional records from collective records (at or soon after 4 years) after abstracting desired transactional data, and develop a written office policy insuring protected access to records both on and off the office premises. Special Level of Recordkeeping and Retention for IRS The broker should use the same best practices as in recordkeeping for TREC, but for a period of 7 years, required in the event of allegation of fraud. Employment records must reflect independent contractor status, signed by broker (or broker representative) and sponsored licensee. Privacy of Personal Information Confidentiality of information while performing as a fiduciary does not have a termination date unless this duty is released in writing, such as in a conventional listing or buyer representation agreement. 35

Chapter 7 Advertising Advertising Compliance Issues This section discusses advertising compliance issues in the Act and TREC Rules. It does not discuss compliance issues from other sources, such as federal regulations (Regulation Z or Truth-in-Lending). Brokers are required under TREC Rules to ensure that each sponsored salesperson complies with TREC advertising rules. The broker should be able to demonstrate that there are reasonable measures in place to meet this standard. Compliance with this standard suggests that the broker consider procedures, such as how salespersons advertisements are reviewed and by whom, periodic education of salespersons with respect to advertising standards and the broker s internal procedures, and how corrections to any advertisements are documented. Section 1101.652(b) of the Act contains a list of misconduct for which TREC may impose disciplinary action against a licensee. Advertising provisions under 1101.652(b) provide that a licensee may not publish an advertisement that misleads or is likely to mislead or is likely to deceive the public, tends to create a misleading impression, or does not identify the publisher as a broker or agent; offer to sell or lease property without the knowledge and consent of the owner or the owner s agent; offer property on terms other than those terms authorized by the owner or the owner s agent; make misrepresentations or false promises through advertising or otherwise; or place a sign on property for sale or lease without the written consent of the owner or the owner s agent. Service Providers If an advertisement promotes a service provider and the licensee expects compensation, disclosure that the licensee may receive compensation is required. Advertisements may not rank service providers unless the ranking is based on disclosed objective criteria. Offering Courses A licensee may not advertise that he or she offers TREC-approved courses unless approved to offer such courses TREC Advertising Rules TREC Rules 535.154 has been adopted and is related to the above statutory provisions and provides the following items. Definitions The definition of advertisement is broad and includes all types of media including publications, stationery, business cards; signs, billboards; radio, television, electronic media; or the Internet, e-mail, text messages, social networking websites. The definition of advertisement does not include communication from licensee to his or her client, or 36

information in a virtual office. Disclosures Each page on a website is an advertisement and must include required disclosures. Advertisements by e-mail, discussion groups, text messages, and social networking must include required disclosures. If space is limited, the broker can include a hyperlink to the disclosures ( TREC DISCLOSURE ). Deceptive Advertising A licensee may not place an advertisement that implies a salesperson is responsible for the brokerage business, or causes someone to believe a person not authorized to conduct brokerage is engaged in brokerage. Deceptive or misleading advertisements may include an advertisement that is inaccurate in any material way or misrepresents any property, terms, values, services, or policies; advertising another broker s listing without permission and without disclosing name of listing broker; failing to remove an advertisement about a listing within a reasonable time after it ends; an advertisement that identifies a salesperson as a broker; or an advertisement that creates confusion about the permitted use of property. Trade Names Advertising may not include a copyrighted trade name without authority to do so. Include Broker s Name A licensee s advertisement must clearly and conspicuously contain broker s name (either a business entity or an individual licensee s advertisement). Assumed Names A broker s assumed name is the broker s name, and the broker may use the assumed name to satisfy this requirement. A broker is required to register an assumed name with TREC (even if the assumed name is a salesperson s name; for example, a team name). If the broker s name or assumed name includes a salesperson s name, the advertisement must include another assumed name without the salesperson s name or include the designated agent s name. A broker must notify TREC within 30 days after the broker or the broker s salesperson starts or stops using an assumed name. Road Signs Road signs must clearly and conspicuously identify the advertiser as broker or agent. This provision does not apply to directional signs Safe Harbor Policy TREC has adopted a safe harbor policy for the staff and enforcement to use in directing licensees as to what might be considered clear and conspicuous in advertising. On a sign or other advertising media, the broker s name or assumed name must be at least 50 percent of the size of the largest item of contact information. 37

Designations An advertisement must term such as agent, broker or realtor or other designation that identifies the publisher as a licensee (see safe harbor policy). Except as stated in subsections (c) and (g) of TREC Rules 535.154, a licensed entity may do business in the name in which it was chartered (namely, corporations, LLCs). Rebates Advertisements promoting rebates must disclose terms of rebates. 38

Chapter 8 Anatomy of a Complaint The following sample case study follows a hypothetical TREC complaint from beginning to end. The complainant, Doris Manford, filed a complaint with TREC against her listing agent, Justine Short, because she and her husband were unable to keep the earnest money when the buyers terminated the contract. As alleged, the listing agent failed to make clear to them what would happen to the earnest money if the buyers terminated the contract. The complaint and the investigator s report spell out the details of the complaint, and the allegations and agreed order describe how the licensees were alleged to have violated the Act and TREC Rules. 39

Complaint Filed with TREC Complaints from the public must be signed, and the complaint and any evidence presented must provide reasonable cause for an investigation. While TREC cannot investigate anonymous complaints, the TREC or TREC staff may file a complaint and conduct an investigation to enforce the Act. In this case, although the complaint listed only the salesperson acting as the seller agent, TREC added the sponsoring broker as a respondent pursuant to 535.1419(c) of the TREC Rules.

T E X AS R E A L E S T A T E C O M M I S S I O N Standards and Enforcement Services P.O. Box 12188 Austin, TX 78711-2188 512-936-3000 Fax: 512-936-3809 www.trec.texas.gov COMPLAINT FORM IF COMPLETING BY HAND, PLEASE PRINT OR TYPE WITH BLACK OR BLUE INK I WISH TO FILE A COMPLAINT AGAINST: (check all that apply) DOUGLAS E. OLDMIXON, ADMINISTRATOR NOTE: You may type information into this form and it will display, but you will need to print, sign and mail the form along with copies of documents to TREC when completed. Information entered into this form can only be saved if you are able to print and save the form as a PDF. Real estate broker or salesperson Residential service company Inspector Timeshare plan Approved education provider or instructor Unlicensed activity MY CONTACT INFORMATION: Name: Address: DORIS MANFORD 2711 Waco Drive City Waco State: TX Zip: 76008 Telephone Numbers: Work: Home: Cell: 254.234.5678 Fax: 254.123.4569 INFORMATION CONCERNING THE PERSON OR COMPANY AGAINST WHOM YOU ARE COMPLAINING: Person's Name: Company Name: Justine Short Just In Time Realty Physical Address: 24 Needle Lane City Waco State: TX Zip: 76009 Telephone Number(s): License Number or Registration Number (if known): HAVE YOU FILED A COMPLAINT AGAINST THIS PERSON OR COMPANY WITH ANOTHER AGENCY? IF YES, WHICH AGENCY? YES NO WHAT ACTION HAS BEEN TAKEN BY THE OTHER AGENCY? Page 1 of 3 TREC Complaint Form (7/2011)

DO YOU HAVE AN ATTORNEY REPRESENTING YOU IN THIS MATTER? IF YES, PLEASE PROVIDE THE FOLLOWING INFORMATION: Attorney's Name: YES NO Attorney's Address: City Telephone Number(s): State: Zip: DATE(S) OF TRANSACTION: April 2011-September 2011 COMPLAINT DETAIL: List the facts of your complaint in the order of their occurrence, starting with the earlest date and working forward. Attach additional sheets as needed. We signed an agreement with Justice Short to list our home at 286 Stellar Drive in Waco, Texas in April 2011. She found a couple to buy our house but they couldn't close right away and were coming in from out of state and needed someplace to live. Ss. Short made arrangements for the couple to move in and rent out our house until closing was complete. The couple agreed to pay us $5,000 up front in order to allow us to let them move in early. Ms. Short accepted the $5,000 in cash and kept $1,500 and said that was her commission. She didn't sell the house and will never sell the house. We feel she kept the money illegally and was working more for the buyers than for us. The buyers moved out after three months and wanted their money back, claiming it was earnest money. Ms. Short messed up the agreement when she completed it for us stating that the $5,000 was earnest money in one place and a "non-refundable" down payment in another. We all agreed that it would be non-refundable for us to allow them to move in early. The buyers have now hired a lawyer and are suing us for the return of the $5,000. HAVE YOU PREVIOUSLY NOTIFIED THE PERSON OR COMPANY ABOUT YOUR COMPLAINT? HOW DID YOU NOTIFY THEM? WRITTEN (attach copies) ORAL (detail each contact) WHAT WAS THE RESPONSE? YES NO We contacted Ms. Short by phone several times but she said that she earned the commission at the time the buyers moved into the house and that whether the $5,000 gets returned to the buyers or not is between us and them. PLEASE LIST THE NAME(S), ADDRESS(ES), AND TELEPHONE NUMBERS(S) OF ANY WITNESS(ES) WHO HAVE INFORMATION CONCERNING THE SUBJECT MATTER OF YOUR COMPLAINT: TREC Complaint Form (7/2011) Page 2 of 3

RELEVANT DOCUMENTATION CHECKLIST: (check all that are enclosed) Sales contract (front and back)-all pages an all accompanying forms and attachments Lease/rental agreement (front and back) Listing/managment agreement(front and back) Disclosure statement(s) (e.g. Information about Brokerage Services, Intermediary Relationship Notice, Seller's Disclosure Notice) Closing statement (HUD 1) Multiple listing service (MLS) printout(s) Appraisal(s) Inspection report(s) Photograph(s) Advertising Repair bill(s) Receipt(s) Canceled check(s) (front and back) Monthly statement(s) Correspondence, including demand letter(s) and e-mail(s) Judgment/civil lawsuit document(s) (e.g. original petition, settlement document(s)) Other (describe): SIGNATURE BLOCK I certify that the information contained herein and all enclosed documents are true and correct to the best of my knowledge. I understand that a copy of my complaint will made available to the person or company against whom it is filed and that I may be required to testify at a hearing. I understand that a copy of my complaint and accompanying documentation is subject to public inspection. I understand that neither the Texas Real Estate Commission nor any of its officers or employees can act or will act as my legal representative or attorney at anytime, and that I am encouraged to retain separate legal counsel. Signature Date PRIVACY NOTICE In accordance with Chapter 559, Government Code, the following notice about certain information laws and practices is given. (1) With few exceptions, an individual is entitled on request to be informed about the information that a state governmental body collects about the individual. (2) Under Sections 552.021 and 552.023 of the Government Code, the individual is entitled to receive and review the information. (3) Under Section 559.004 of the Government Code, the individual is entitled to have the governmental body correct information about the individual that is incorrect. TREC Complaint Form (7/2011) Page 3 of 3

T E X A S R E A L E S T A T E C O M M I S S I O N COMPLAINT INSTRUCTIONS DOUGLAS E. OLDMIXON, ADMINISTRATOR The Commission's authority is limited to taking disciplinary action against those regulated under its programs. Texas law prohibits the Commission from giving private legal advice or opinions or acting as your personal attorney. The Commission does not generally have authority to require a licensee to pay damages to another person. If you need legal advice or want to recover money, please contact a private attorney. It is not necessary to file a complaint with the Commission to proceed with a civil suit or file for recovery from the Real Estate Recovery Trust Account or the Real Estate Inspection Recovery Fund. Complaints the Commission investigates: real estate brokers and salespersons real estate inspectors approved education providers and instructors residential service companies timeshare plans unlicensed activity those 4 years old or LESS Complaints the Commission DOES NOT investigate: mortgage companies new home builders title companies sellers or buyers who are not also licensed commission or other disputes between licensees those MORE than 4 years old To file a complaint, complete ALL SECTIONS of the Complaint Form AND provide COMPLETE and LEGIBLE copies of all relevant documentation. Relevant documentation may include: Sales contract (front and back) - all pages and all accompanying forms and attachments Lease/rental agreement (front and back) Listing/management agreement (front and back) Disclosure statements (e.g. Information about Brokerage Services, Intermediary Relationship Notice, Seller's Disclosure Notice) Closing statement (HUD 1) Multiple listing service (MLS) printout Appraisals Inspection report Photographs Advertising Repair bills Receipts Canceled checks (front and back) Monthly statements Correspondence, including demand letters and e-mails Judgment/civil lawsuit documents (e.g. original petition, settlement documents) Other (describe) DO NOT SEND ORIGINAL DOCUMENTS WITH COMPLAINT--SEND COPIES ONLY. TEXAS LAW PROVIDES THAT COMPLAINTS CANNOT BE ACCEPTED OR PROCESSED IF NOT SIGNED. Mail or fax your complaint to TREC at the address listed on the complaint form. You will be notified by mail that your complaint has been received. If an investigation is opened, the person(s) against whom the complaint is filed will receive a copy of the complaint. After the investigation is concluded, the information obtained will be reviewed to determine whether there is sufficient evidence to take disciplinary action for a violation of the applicable statute or the Commission's rules. Disciplinary action could include a formal reprimand, the suspension or revocation of a license, payment of an administrative penalty, or other appropriate action. Investigations and the disciplinary process differ in complexity and duration, so providing a time of completion is not possible. TREC Complaint Form (7/2011) INSTRUCTIONS

TREC Investigative Report After a complaint is open, it is sent to a field investigator. The investigator gathers relevant documents, interviews the parties, and provides an investigative report to the attorney assigned to the complaint. The relevant documents are attached as exhibits to the investigator s report. The investigator summarizes the facts provided by the parties but does not provide an opinion about the facts. The attorney may discuss the case with the investigator, but the attorney determines and recommends appropriate action, if any. If the attorney decides that disciplinary action should be pursued, the Standards and Enforcement Services division director is involved in the decision-making process and any settlement agreements.

Karen Jones and Scott Jones Doris Manford and Jeff Manford Lot 1 R 10 Original Town Waco Johnson 286 Stellar Drive, Waco, Texas 76009 13,000.00 64,500.00 77,500.00 x KSJ sj DM JM FO# 2 File # Pg 1 of Pgs 8

286 Stellar Drive, Waco, TX 5,000.00 Doris & Jeff Manford 1221 Summit Ridge, Waco, Texas 76009 n/a assumption of note with Wells Fargo x 3 x no title policy issued KSJ sj DM JM

286 Stellar Drive, Waco, TX x KSJ sj DM JM

286 Stellar Drive, Waco, TX x x

286 Stellar Drive, Waco, TX $300 August 24 11 x Both buyer and seller agree that this contract will extend until the home at 132 Cooper St., Anytown, PA 15401 is sold and as long as payments are made on the sellers home at 286 Stellar Drive. Payments are due every other Wednesday starting June 10, 2011, June 24, July 8 and 22nd, Aug. 5 and 19 Sept. 2, 16, 30 and so on. $5,000 down is not refundable. No mineral rights to exchange. KSJ sj DM JM

286 Stellar Drive, Waco, TX 0 x KSJ sj DM JM

286 Stellar Drive, Waco, TX 132 Cooper St., Anytown, 2711 Waco Drive, Waco, TX PA, 15401 until June 1, 2011 then 286 76008 Stellar Dr, Waco, Texas 987 654-3210 254 123-4567 254 123-4567 KSJ sj DM JM

286 Stellar Drive, Waco, TX x x Assumption Agreement; residential lease 0 0 10 June 11 Karen S. Jones Scott Jones Doris Manford Jeff Manford

286 Stellar Drive, Waco, TX Just In Time Realty x Just In Time Realty 254.123.4568 Justine Short 254.123.4568 24 Needle Lane 254.123.4568 Waco TX 76009 justine@justintime.com

From: To: Sent: Justine Short Doris Manford Wed, Jun 10, 2011 04:47 PM Subject: Re: The Joneses have asked me to send you this proposal and I will put in in contract form for everybody but it is late in the day and I wanted you to see this. Don t even ask me why Except Ms. Jones want to KNOW exactly what she is paying at the end in cash. They will give you $5000 (FIVE THOUSAND) up front, now, and make the payments until their house closes. They will pay your payment each 2 weeks. When their house sells they will pay you the additional $8,000 and assume the mortgage at that time. We need to make sure that everyone knows that the $5000 is not refundable and that if they create a new loan they pay $5000 more. My commission at $77.500 is $4650 and you offered them the $300 for the home warranty. That will give you $8000 and my commission and the home warranty and $50 extra. Of the $5000 you are collecting up front I will need $1500 for a part of the commission. I will collect the payment from them and deposit it in the bank at no charge for the time it takes to close this out. If this works I will get money from them tomorrow $449.84 plus the $5000 You can call tonight if you need to. Justine Short Just In Time Realty FO# 3 File # Pg 1 of Pgs 1

Doris Manford Jeff Manford 4/20/11 FO# 4 File # Pg 1 of Pgs 1

Karen S. Jones Scott Jones 05-28-11 Buyers FO# 5 File # Pg 1 of Pgs 1

Notice of Alleged Violation Against Justine Short After the investigator completed the investigation, a staff attorney reviewed the information. The staff attorney began by preparing a petition alleging violations of the Act and TREC Rules, which was mailed to the salesperson, Justine Short. The civil lawsuit against the complainants is mentioned in the petition even thought that litigation is outside TREC s jurisdiction to show the Administrative Law Judge the harm caused to both parties to the transaction, because Short improperly drafted the contract. TREC does not have jurisdiction to determine who should receive the $5,000. A civil court is the proper venue for interpretation and performance of contractual matters. Likewise, the question of whether Short should have kept the $1,500 as commission is not a matter TREC can decide (apart from the fact that Short is an agent and cannot receive a commission except through or with the written consent of her sponsoring broker). Whether a commission is earned is a contractual interpretation matter based on the facts of a transaction that must be decided between the parties or by a judge in a civil court. Short requested a hearing but subsequently surrendered her license.

CAUSE NO. SC123456 SCOTT JONES IN THE JUSTICE COURT/SMALL AND CLAIMS KAREN JONES, Plaintiffs vs. PRECINCT 3 JEFFERY MANFORD AND DORIS MANFORD, Defendants OF JOHNSON COUNTY, TEXAS PLAINTIFFS ORIGINAL PETITION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES SCOTT JONES AND KAREN JONES, hereinafter called Plaintiffs, complaining of and about JEFFERY MANFORD AND DORIS MANFORD, hereafter called Defendants, and for cause of action shows unto the Court the following: DISCOVERY CONTROL PLAN LEVEL 1. Plaintiffs intend that discovery be conducted under Discovery Level 2. PARTIES AND SERVICE 2. Plaintiff, Scott Jones, is an individual residing at 4321 First Street, Waco, Johnson County, Texas. Plaintiff, Karen Jones, is an individual residing at 4321 First Street, Waco, Johnson County, Texas. 3. Defendant, Jeffery Manford, is an individual who resides in Johnson County, Texas. Defendant, Doris Manford, is an individual who resides in Johnson County, Texas. JURISDICTION AND VENUE 4. The subject matter in controversy is within the jurisdictional limits of this Court. 5. This Court has personal jurisdiction herein because the acts or omissions that are the basis of this suit were performed in Texas. 6. Venue in Johnson County is proper in this matter because the dispute related to a

contract formed in Johnson County related to real property situated in Johnson County. FACTS 7. Plaintiffs were leasing the real property located at 286 Stellar Dr., Waco, Texas from Defendants. The parties entered into an agreement in which Plaintiffs would continue leasing the premises while also in the process of purchasing the property from the Defendants. Plaintiffs were in the process of selling their property in Pennsylvania and were waiting for receipt of proceeds from that sale before proceeding with the purchase of the property in question. 8. On June 1, 2011, Plaintiffs signed a handwritten document which indicates that Plaintiffs would give Defendants $5000 up front pursuant to a rent to own arrangement. On June 11 th and 12 th, the parties signed a document entitled Residential Lease and a document entitled One to Four Family Residential Contract (Re-Sale). 9. Pursuant to the agreement of the parties, as memorialized in the contract, Plaintiffs gave Defendants $5000.00 as earnest money with Jeffery Manford and Doris Manford as escrow agent. While there is some conflict within the contract, the funds were to be held in escrow pending a contingency as described in the addendum signed by both Plaintiffs and both Defendants. The addendum states the contract is contingent upon [Plaintiffs ] receipt of the proceeds from the sale of the [Plaintiffs ] property at 132 Cooper St., Uniontown, Pa 15401, on or before August 24, 2011. If the Contingency is not satisfied or waived by [Plaintiffs ] by the above date, the contract will terminate automatically and the earnest money will be refunded to [Plaintiffs ]. 10. The contingency was not met and Plaintiffs requested a refund of their earnest money on August 24, 2011, through a telephone conversation between Plaintiff Scott Jones and Defendant Doris Manford. In this phone conversation Plaintiff explained that the property and Pennsylvania had not sold. On September 8, 2011, Plaintiffs wrote Defendants a letter requesting that the earnest money be returned pursuant to the contract. And again, on October 5, 2011, Plaintiffs requested a

refund in a different letter. 11. Defendants have refused to return the funds or to voluntarily submit to an alternative dispute resolution process to resolve the matter. BREACH OF CONTRACT Plaintiff can prove the following elements to show that Defendant breached their contract with Plaintiff: 12. There is a valid, enforceable contract between Plaintiff and Defendants; 13. The Plaintiff and Defendants are in privity; 14. The Plaintiff performed, tendered performance, or was excused from performing her contractual obligations; 15. The Defendants breached the contract; and 16. The Defendants breach caused the Plaintiff s injuries. FRAUD AND FRAUDULENT INDUCEMENT Plaintiff can prove the following elements to show that Defendants committed acts of fraud and fraudulent inducement: 17. Defendants made representations to Plaintiff; 18. The representations made to Plaintiff were material; 19. The representations that Defendants made to Plaintiff were false; 20. Defendants made the representations to Plaintiff either knowing that they were false or made the representations recklessly; 21. Defendants intended for Plaintiff to act on the representations; 22. Plaintiff relied on Defendants representations; and 23. Defendants representations caused Plaintiffs injuries. PLAINTIFFS CLAIMS FOR DAMAGES AND REMEDIES

Plaintiff was damaged and accordingly seeks the following claims for damages and remedies: the earnest money Plaintiffs paid to Defendants but did not receive back from Defendants pursuant to the contract between the parties in the amount of five thousand dollars ($5,000.00) and attorneys fees pursuant to the TEX.CIV. PRAC. & REM. CODE. PRAYER WHEREFORE, PREMISES CONSIDERED, Plaintiffs, Scott Jones and Karen Jones, respectfully ask that the Defendants be cited to appear and answer herein, and that upon a final hearing of the cause, judgment be entered for the Plaintiffs and against Defendants for the actual damages requested hereinabove in an amount in excess of the minimum jurisdictional limits of this Court, together with prejudgment and post-judgment interest at the maximum rate allowed by law, costs of court, attorney fees, and such other and further relief to which Plaintiffs may be entitled at law or in equity, whether pled or unpled. RESPECTFULLY SUBMITTED, Jon Smith State Bar No. 00112233 4545 45 TH Street Waco, TX 76008 Telephone: 254.123.4567 Telecopier: 254.123.4566 ATTORNEY FOR THE PLAINTIFFS

Settlement Agreement with Casey Dolittle, the Sponsoring Broker Dolittle contacted the staff attorney handling the case after receiving a copy of the petition against Short to let the attorney know that she had terminated Short s sponsorship since she found out that Short had other property management arrangements. She also told the attorney about the countersuit filed by the Manfords naming her as a defendant. She reiterated that she had no knowledge about the transaction and did not receive a commission and asked the staff attorney if she was liable under the lawsuit and if TREC was going to take any action against her, especially now that she had terminated sponsorship of Short. The staff attorney could not comment or give any advice on the civil lawsuit but did inform Dolittle about TX. Occ. Code 1101.803. The staff attorney informed Dolittle that he was preparing allegations against Dolittle. He discussed the various alleged violations based on the facts and Dolittle s obligations under various sections of TX. Occ. Code 1101 and 535.2 of the TREC Rules. Dolittle stated that she had not paid strict attention to those provisions but would improve in the future and would cooperate with TREC in any action against Short. She indicated that she would like to negotiate a settlement if possible. The staff attorney, after consulting with the division director, made a settlement offer through a proposed agreed order that Dolittle accepted. If this case had not been settled through the agreed order, the sanction and administrative penalty sought in a petition would have been higher.

Appendix A 1

Appendix B - Advertising TREC Rules 535.154. Advertising. (Adopted March 9, 2011) (a) For the purpose of this section, an advertisement is a written or oral statement or communication by or on behalf of a licensee which induces or attempts to induce a member of the public to use the services of the licensee or service provider. The term advertisement includes, but is not limited to, all publications, radio or television broadcasts, all electronic media including email, text messages, social networking websites and the Internet, business stationery, business cards, signs and billboards. The provisions of this section apply to all advertisements by or on behalf of a licensee unless the context of a particular provision indicates that it is intended to apply to a specific form of advertisement. (b) The following information is not considered an advertisement or advertising: (1) a communication from a licensee to a member of the public after the member of the public agreed for the licensee to provide services, provided the first communication from the licensee contains the information required by this section; or (2) real estate information, including listings, available to the public on a licensee s website, extranet or similar site that is behind a firewall or similar filtering software which requires a password or registration to access that information. (c) An advertisement must clearly and conspicuously contain the name of the broker, either a business entity or an individual. For purposes of this section, the broker, or a salesperson sponsored by the broker, may use the broker s assumed name instead of the name in which the broker is licensed, if the assumed name is registered with the commission under subsection (e) of this section. An advertisement may not contain an assumed name unless a broker has registered that assumed name with the commission. If the broker s name or its assumed name includes a salesperson s name, the advertisement must include another assumed name of the broker that does not include a salesperson's name, or the designated agent's name. (d) For purposes of this section and 1101.652(b) (23) of the Act, deceptive or misleading advertising includes, but is not limited to, the following: (1) advertising that is inaccurate in any material fact or in any way misrepresents any property, terms, values, services, or policies; (2) advertising a property that is subject to an exclusive listing agreement without the permission of the listing broker and without disclosing the name of the listing broker unless the listing broker has expressly agreed to waive disclosure; (3) failing to remove an advertisement about a listed property within a reasonable time after closing or termination of a listing agreement, unless the status is included in the advertisement; (4) an advertisement by a salesperson which identifies the salesperson as a broker; or (5) advertising a property in a manner that creates a reasonable likelihood of confusion regarding the permitted use of the property. (e) A broker, individually or as the designated officer, manager or partner of a business entity licensed as a broker shall notify the commission in writing within 30 days after the broker, or a salesperson sponsored by the broker, starts or stops using an assumed name in business other than the name in which the person is licensed. (f) An advertisement placed by a licensee must include a designation such as agent, broker or a trade association name that serves clearly to identify the advertiser as a real estate agent. (g) A broker or salesperson may not place an advertisement that in any way: (1) implies that a salesperson is the person responsible for the operation of a real estate brokerage business; or 2

(2) causes a member of the public to believe that a person not authorized to conduct real estate brokerage is personally engaged in real estate brokerage. (h) Except as provided by subsections (c) and (g) of this section, a business entity licensed as a real estate broker may do business in the name in which it was chartered or registered by the Office of the Secretary of State. (i) A licensee may not utilize a copyrighted trade name unless the licensee has legal authority to use the name. (j) A real estate licensee placing an advertisement on the Internet, electronic bulletin board or the like must include on each page on which the licensee's advertisement appears any information required by this section and 1101.652(b)(23) of the Act. For purposes of this subsection, page means each html document of a website, which may include several screens of information that are viewed by scrolling down to the end of the document. (k) A real estate licensee placing an advertisement by using an electronic communication, including but not limited to email and email discussion groups, text messages, and social networking websites must include in the communication and in any attachment which is an advertisement, the information required by this section and 1101.652(b)(23) of the Act. For purposes of advertising on social networking websites that limit the number of characters in a communication and the required information would consume more than 10% of the available character limit, a licensee may include a direct hyperlink containing the words TREC DISCLOSURE which links to the information required by this section and 1101.652(b)(23) of the Act. (l) An advertisement placed where it is likely to attract the attention of passing motorists or pedestrians must contain language that clearly and conspicuously identifies the person publishing the advertisement as a real estate broker or agent. This subsection does not apply to signs placed on or providing directions to real property listed for sale, rental or lease with the broker who has placed the sign, provided the signs otherwise comply with this section and the Act. (m) An advertisement containing an offer to rebate a portion of a licensee's commission must disclose that payment of the rebate is subject to the consent of the party the licensee represents in the transaction. If payment of the rebate is contingent upon a party's use of a selected service provider, the advertisement also must contain a disclosure that payment of the rebate is subject to restrictions. (n) If an advertisement offers, recommends or promotes the use of services of a real estate service provider other than the licensee and the licensee expects to receive compensation if a party uses those services, the advertisement must contain a disclosure that the licensee may receive compensation from the service provider. (o) A licensee may not advertise information regarding service providers that ranks such providers unless the ranking is based on disclosed objective criteria. (p) A licensee may not advertise that such licensee offers, sponsors, or conducts commission approved courses in conjunction with an approved school or other approved organization unless the licensee is approved by the commission to offer such courses. 3

Appendix C CAN-SPAM Act: A Compliance Guide for Business (excerpted from www.ftc.gov) Do you use email in your business? The CAN-SPAM Act, a law that sets the rules for commercial email, establishes requirements for commercial messages, gives recipients the right to have you stop emailing them, and spells out tough penalties for violations. Despite its name, the CAN-SPAM Act doesn t apply just to bulk email. It covers all commercial messages, which the law defines as any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service, including email that promotes content on commercial websites. The law makes no exception for business-tobusiness email. That means all email for example, a message to former customers announcing a new product line must comply with the law. Each separate email in violation of the CAN-SPAM Act is subject to penalties of up to $16,000, so non-compliance can be costly. But following the law isn t complicated. Here s a rundown of CAN-SPAM s main requirements: 1. Don t use false or misleading header information. Your From, To, Reply-To, and routing information including the originating domain name and email address must be accurate and identify the person or business who initiated the message. 2. Don t use deceptive subject lines. The subject line must accurately reflect the content of the message. 3. Identify the message as an ad. The law gives you a lot of leeway in how to do this, but you must disclose clearly and conspicuously that your message is an advertisement. 4. Tell recipients where you re located. Your message must include your valid physical postal address. This can be your current street address, a post office box you ve registered with the U.S. Postal Service, or a private mailbox you ve registered with a commercial mail receiving agency established under Postal Service regulations. 5. Tell recipients how to opt out of receiving future email from you. Your message must include a clear and conspicuous explanation of how the recipient can opt out of getting email from you in the future. Craft the notice in a way that s easy for an ordinary person to recognize, read, and understand. Creative use of type size, color, and location can improve clarity. Give a return email address or another easy Internet- based way to allow people to communicate their choice to you. You may create a menu to allow a recipient to opt out of certain types of messages, but you must include the option to stop all commercial messages from you. Make sure your spam filter doesn t block these opt-out requests. 6. Honor opt-out requests promptly. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. You must honor a recipient s opt-out request within 10 business days. You can t charge a fee, require the recipient to give you any personally identifying information beyond an email address, or make the recipient take any step other than sending a reply email or visiting a single page on an Internet website as a condition for honoring an opt-out request. Once people have told you they don t want to receive more messages from you, you can t sell or transfer their 4

email addresses, even in the form of a mailing list. The only exception is that you may transfer the addresses to a company you ve hired to help you comply with the CAN-SPAM Act. 7. Monitor what others are doing on your behalf. The law makes clear that even if you hire another company to handle your email marketing, you can t contract away your legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be legally responsible. 5

Appendix D CAN-SPAM FAQ How do I know if the CAN-SPAM Act covers email my business is sending? What matters is the primary purpose of the message. To determine the primary purpose, remember that an email can contain three different types of information: Commercial content which advertises or promotes a commercial product or service, including content on a website operated for a commercial purpose; Transactional or relationship content which facilitates an already agreed-upon transaction or updates a customer about an ongoing transaction; and Other content which is neither commercial nor transactional or relationship. If the message contains only commercial content, its primary purpose is commercial and it must comply with the requirements of CAM-SPAM. If it contains only transactional or relationship content, its primary purpose is transactional or relationship. In that case, it may not contain false or misleading routing information, but is otherwise exempt from most provisions of the CAN-SPAM Act. How do I know if what I m sending is a transactional or relationship message? The primary purpose of an email is transactional or relationship if it consists only of content that facilitates or confirms a commercial transaction that the recipient already has agreed to; gives warranty, recall, safety, or security information about a product or service; gives information about a change in terms or features or account balance information regarding a membership, subscription, account, loan or other ongoing commercial relationship; provides information about an employment relationship or employee benefits; or delivers goods or services as part of a transaction that the recipient already has agreed to. What if the message combines commercial content and transactional or relationship content? It s common for email sent by businesses to mix commercial content and transactional or relationship content. When an email contains both kinds of content, the primary purpose of the message is the deciding factor. Here s how to make that determination: If a recipient reasonably interpreting the subject line would likely conclude that the message contains an advertisement or promotion for a commercial product or service or if the message s transactional or relationship content does not appear mainly at the beginning of the message, the primary purpose of the message is commercial. So, when a message contains both kinds of content commercial and transactional or relationship if the subject line would lead the recipient to think it s a commercial message, it s a commercial message for CAN-SPAM purposes. Similarly, if the bulk of the transactional or relationship part of the message doesn t appear at the beginning, it s a commercial message under the CAN-SPAM Act. See samples below. Message A is most likely a transactional or relationship message subject only to CAN-SPAM s requirement of truthful routing information. One important factor is that information about the customer s account is at the beginning of the message and the brief commercial portion of the message is at the end. 6

Message A To: Jane Smith FR: XYZ Distributing Subject: Your Account Statement We shipped your order of 25,000 deluxe widgets to your Springfield warehouse on June 1 st. We hope you received them in good working order. Please call our Customer Service Office at (877) 555-7726 if any widgets were damaged in transit. Per our contract, we must receive your payment of $1,000 by June 30 th. If not, we will impose a 10% surcharge for late payment. If you have any questions, please contact our Accounts Receivable Department. Visit our website for our exciting new line of mini-widgets! Message B is most likely a commercial message subject to all CAN-SPAM s requirements. Although the subject line is Your Account Statement generally a sign of a transactional or relationship message the information at the beginning of the message is commercial in nature and the brief transactional or relationship portion of the message is at the end. Message B To: Jane Smith FR: XYZ Distributing Subject: Your Account Statement We offer a wide variety of widgets in the most popular designer colors and styles all at low, low discount prices. Visit our website for our exciting new line of mini-widgets! Sizzling Summer Special: Order by June 30 th and all waterproof commercial-grade super-widgets are 20% off. Show us a bid from one of our competitors and we ll match it. XYZ Distributing will not be undersold. Your order has been filled and will be delivered on Friday, June 1 st. What if the message combines elements of both a commercial message and a message with content defined as "other"? In that case, the primary purpose of the message is commercial and the provisions of the CAN-SPAM Act apply if: A recipient reasonably interpreting the subject line would likely conclude that the message advertises or promotes a commercial product or service; and A recipient reasonably interpreting the body of the message would likely conclude that the primary purpose of the message is to advertise or promote a product or service. Factors relevant to that interpretation include the location of the commercial content (for example, is it at the beginning of the message?); how much of the message is dedicated to commercial content; and how color, graphics, type size, style, etc., are used to highlight the commercial content. What if the email includes information from more than one company? Who is the sender responsible for CAN-SPAM compliance? If an email advertises or promotes the goods, services, or websites of more than one marketer, there s a straightforward method for determining who s responsible for the duties the CAN-SPAM Act imposes on senders of commercial email. t Marketers whose goods, services, or websites are advertised or promoted in a message can designate one of the marketers as the sender for purposes of CAN-SPAM compliance as long as the designated sender: 7

meets the CAN-SPAM Act s definition of sender, meaning that they initiate a commercial message advertising or promoting their own goods, services, or website; is specifically identified in the from line of the message; and complies with the initiator provisions of the Act for example, making sure the email does not contain deceptive transmission information or a deceptive subject heading, and ensuring that the email includes a valid postal address, a working opt-out link, and proper identification of the message s commercial or sexually explicit nature. If the designated sender doesn t comply with the responsibilities the law gives to initiators, all marketers in the message may be held liable as senders. 8

My company sends email with a link so that recipients can forward the message to others. Who is responsible for CAN-SPAM compliance for these Forward to a Friend messages? Whether a seller or forwarder is a sender or initiator depends on the facts. So deciding if the CAN- SPAM Act applies to a commercial forward-to-a-friend message often depends on whether the seller has offered to pay the forwarder or give the forwarder some other benefit. For example, if the seller offers money, coupons, discounts, awards, additional entries in a sweepstakes, or the like in exchange for forwarding a message, the seller may be responsible for compliance. Or if a seller pays or gives a benefit to someone in exchange for generating traffic to a website or for any form of referral, the seller is likely to have compliance obligations under the CAN-SPAM Act. What are the penalties for violating the CAN-SPAM Act? Each separate email in violation of the law is subject to penalties of up to $16,000, and more than one person may be held responsible for violations. For example, both the company whose product is promoted in the message and the company that originated the message may be legally responsible. Email that makes misleading claims about products or services also may be subject to laws outlawing deceptive advertising, like Section 5 of the FTC Act. The CAN-SPAM Act has certain aggravated violations that may give rise to additional fines. The law provides for criminal penalties, including imprisonment, for accessing someone else s computer to send spam without permission, using false information to register for multiple email accounts or domain names, relaying or retransmitting multiple spam messages through a computer to mislead others about the origin of the message, harvesting email addresses or generating them through a dictionary attack (the practice of sending email to addresses made up of random letters and numbers in the hope of reaching valid ones), and taking advantage of open relays or open proxies without permission. Are there separate rules that apply to sexually explicit email? Yes, and the FTC has issued a rule under the CAN-SPAM Act that governs these messages. Messages with sexually oriented material must include the warning SEXUALLY-EXPLICIT: at the beginning of the subject line. In addition, the rule requires the electronic equivalent of a brown paper wrapper in the body of the message. When a recipient opens the message, the only things that may be viewable on the recipient s screen are the words SEXUALLY-EXPLICIT: ; and the same information required in any other commercial email: a disclosure that the message is an ad, the sender s physical postal address, and the procedure for how recipients can opt out of receiving messages from this sender in the future. No graphics are allowed on the brown paper wrapper. This provision makes sure that recipients cannot view sexually explicit content without an affirmative act on their part for example, scrolling down or clicking on a link. However, this requirement does not apply if the person receiving the message has already given affirmative consent to receive the sender s sexually oriented messages. How can I comment about the effect of the CAN-SPAM Act on my business? The National Small Business Ombudsman collects comments from small businesses about federal compliance and enforcement activities. To comment, call 1-888-REG-FAIR (1-888-734-3247) or visit www.sba.gov/ombudsman.

For More Information The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. Your Opportunity to Comment The National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses about federal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rates each agency's responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888-734-3247) or go to www.sba.gov/ombudsman.

Appendix E National Do-Not-Call Registry (excerpted from www.telemarketing.donotcall) The Federal Trade Commission (FTC) amended the Telemarketing Sales Rule (TSR) to give consumers a choice about whether they want to receive most telemarketing calls. As of October 1, 2003, it is illegal for most telemarketers or sellers to call a number listed on the National Do Not Call Registry. Who is covered by the National Do Not Call Registry The National Do Not Call Registry applies to any plan, program, or campaign to sell goods or services through interstate phone calls. This includes telemarketers who solicit consumers, often on behalf of third party sellers. It also includes sellers who provide, offer to provide, or arrange to provide goods or services to consumers in exchange for payment. The National Do Not Call Registry does not limit calls by political organizations, charities, or telephone surveyors. What about an established business relationship? A telemarketer or seller may call a consumer with whom it has an established business relationship for up to 18 months after the consumer s last purchase, delivery, or payment even if the consumer s number is on the National Do Not Call Registry. In addition, a company may call a consumer for up to three months after the consumer makes an inquiry or submits an application to the company. And if a consumer has given a company written permission, the company may call even if the consumer s number is on the National Do Not Call Registry. One caveat: if a consumer asks a company not to call, the company may not call, even if there is an established business relationship. Indeed, a company may not call a consumer regardless of whether the consumer s number is on the registry if the consumer has asked to be put on the company s own do not call list. How will I access the National Do Not Call Registry? Access online at www.telemarketing.donotcall.gov. How will the National Do Not Call Registry work? Staring January 1, 2005, telemarketers and sellers will be required to search the registry at least once every 31 days and drop from their call lists the phone numbers of consumers who have registered. Through December 31, 2004, telemarketers will have to update their lists every three months. The dedicated, fully automated and secure website at www.telemarketing.donotcall.gov will provide this information to telemarketers and sellers. When an organization accesses the system for the first time, it will have to create a profile and provide some identifying information, such as organization name and address, authorized representative, and the representative s telephone number and email address. If an organization is accessing the registry on behalf of a client-seller, the organization may need to identify the client (or clients). Consumer Information Protected The only consumer information that organizations will be able to access from the national registry is a registrant s telephone number. Consumer s phone numbers will be sorted and available by area code. Each organization accessing the registry data will be required to pay an annual fee based on the number of area codes the company accesses.

Additions and Deletions On subsequent visit of www.telemarketing.donotcall.gov, organizations will be able to download either a complete updated list of numbers from their selected area codes or a more limited list that shows additions or deletions since the last download. Complaints and Fines A consumer who receives a telemarketing call despite being on the registry will be able to file a complaint with the FTC, either online or by calling a toll-free number. Violators could be fined up to $16,000 per incident. Fax Advertising (excerpted from www.fcc.gov) Background The Telephone Consumer Protection Act (TCPA) and Federal Communications Commission (FCC) rules generally prohibit most unsolicited facsimile (fax) advertisements. In addition, the Junk Fax Prevention Act, passed by Congress in 2005, directs the FCC to amend its rules adopted pursuant to the TCPA regarding fax advertising. The FCC s revised rules: (1) codify an established business relationship (EBR) exemption to the prohibition on sending unsolicited fax advertisements; (2) define EBR for unsolicited fax advertisements; (3) require the sender of fax advertisements to provide specified notice and contact information on the fax that allows recipients to opt-out of any future faxes from the sender; and (4) specify the circumstances under which a request to optout complies with the Act. Definitions To understand the revised rules, you must first understand the meaning of the terms unsolicited advertisement and established business relationship. As defined in FCC rules, an unsolicited advertisement is any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person s prior express invitation or permission, in writing or otherwise. Also as defined in FCC rules, an established business relationship or EBR is a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a business or residential subscriber with or without an exchange of consideration [payment], on the basis of an inquiry, application, purchase or transaction by the business or residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party. Amended Fax Rules and Established Business Relationship Exemption The rules provide that it is unlawful to send unsolicited advertisements to any fax machine, including those at both businesses and residences, without the recipient s prior express invitation or permission. Fax advertisements, however, may be sent to recipients with whom the sender has an EBR, as long as the fax number was provided voluntarily by the recipient. Specifically, a fax advertisement may be sent to an EBR customer if the sender also: obtains the fax number directly from the recipient, through, for example, an application, contact information form or membership renewal form; or obtains the fax number from the recipient s own directory, advertisement, or site on the Internet, unless the recipient has noted on such materials that it does not accept unsolicited advertisements at the fax number in question; or has taken reasonable steps to verify that the recipient consented to have the number listed, if obtained from a directory or other source of information compiled by a third party.

If the sender had an EBR with the recipient and possessed the recipient s fax number before July 9, 2005 (the date the Junk Fax Prevention Act became law), the sender may send the fax advertisements without demonstrating how the number was obtained. Opt-out Notice Requirements Senders of permissible fax advertisements (those sent under an EBR or with the recipient s prior express permission) must provide notice and contact information on the fax that allows recipients to opt-out of future faxes. The notice must be clear and conspicuous and on the first page of the advertisement; state that the recipient may make a request to the sender not to send any future faxes and that failure to comply with the request within 30 days is unlawful; and include a telephone number, fax number, and cost-free mechanism (including a toll-free telephone number, local number for local recipients, toll-free fax number, website address or email address) to opt-out of faxes. These numbers and cost-free mechanism must permit consumers to make opt-out requests 24 hours a day, seven days a week. Senders who receive a request not to send further faxes that meets the requirements listed in the next section must honor that request within the shortest reasonable time from the date of the request, not to exceed 30 days. They are also prohibited from sending future fax advertisements to the recipient unless the recipient subsequently provides prior express permission to the sender. Opt-out Requests by Consumers To stop unwanted fax advertisements, your opt-out request must: identify the fax number or numbers to which it relates; and be sent to the telephone number, fax number, website address or email address identified on the fax advertisement. If you change your mind about receiving fax advertisements, you can subsequently grant express permission to receive faxes from a particular sender, orally or in writing. Fax Broadcasters Often fax advertisements are sent in bulk on behalf of a business or entity by separate professional fax broadcasters. Generally, the person or business on whose behalf a fax is sent or whose property, goods or services are advertised is liable for a violation of the junk fax rules, even if the person or business did not physically send the fax. A fax broadcaster also may be liable if it has a high degree of involvement in the sender s fax message, such as supplying the fax numbers to which the message is sent, providing a source of fax numbers, making representations about the legality of faxing to those numbers, or advising about how to comply with the junk fax rules. Also, if a fax broadcaster is highly involved in the sender s fax messages, the fax broadcaster must provide its name on the fax. Fax Numbers and the National Do-Not-Call List Registering a home phone number on the national Do-Not-Call list prevents only telephone solicitations directed to that number, not fax advertisements to your home or business fax number. For more information on our telephone solicitation rules, see our consumer guide [1] or visit our website [2]. The FCC s junk fax rules nevertheless prohibit fax advertisements unless you have an EBR with the sender or have given your prior express permission to receive the fax advertisements. How the FCC Can Help The FCC can issue warning citations and impose fines against companies violating or suspected of violating the junk fax rules, but does not award individual damages. If you have received a fax advertisement from someone who does not have an EBR with you or to whom you have not provided prior express permission to send fax advertisements, you can file a complaint with the FCC. There

is no charge for filing a complaint. You can file your complaint using an online complaint form. You can also file your complaint with the FCC s Consumer Center by calling 1-888-CALL-FCC(1-888-225-5322) voice or 1-888-TELL-FCC (1-888-835-5322) TTY; faxing 1-866- 418-0232; or writing to: Federal Communications Commission Consumer & Governmental Affairs Bureau Consumer Inquiries and Complaints Division 445 12th Street, SW Washington, DC 20554. What to Include in Your Complaint The best way to provide all the information needed for the FCC to process your junk fax complaint is to complete fully the online complaint form. When you open the online complaint form, you will be asked a series of questions that will take you to the particular section of the form you need to complete. If you do not use the online complaint form, your complaint, at a minimum, should indicate: your name, address, email address and phone number where you can be reached; the home or business number where you received the unsolicited fax advertisement; date and time of the fax; whether the fax advertised or sold any property, goods or services; the sender s name, phone number, or number of the sending fax machine, and whether this information was provided on the first page or in a margin at the top or bottom of each page; any other information such as website or email address to help identify the sender or individual or company whose property, goods, or services were being advertised or sold; any number, website, or email address provided to allow you to opt-out of future faxes; whether you or anyone else in your household or business gave the sender permission to fax an advertisement to you; whether you have an EBR with the sender (specifically, whether you or anyone else in your household or business made any purchases of property, goods, or services from the sender, or made any inquiry or filed an application with the individual or company prior to receiving the fax); and whether you or anyone in your household or business previously asked the sender or individual or company whose property, goods, or services are being advertised or sold NOT to fax, and when and how (call, email, or website) you made the request. You may also submit a copy of the fax with your complaint, either electronically or by fax or mail using the Consumer Center contact information above. Additional Places to Go for Help You can file TCPA-related complaints with your state authorities, including your local or state consumer protection office or your state Attorney General s office. Contact information for these organizations should be in the blue pages or government section of your local telephone directory. You can also bring a private suit against the violator in an appropriate court of your state. Through a private suit, you can either recover the actual monetary loss that resulted from the TCPA violation, or receive up to $500 in damages for each violation,

whichever is greater. The court may triple the damages for each violation if it finds that the defendant willingly or knowingly committed the violation. Filing a complaint with the FCC does not prevent you from also bringing a suit in state court. For More Information For information about other telecommunications issues, visit the FCC s Consumer & Governmental Affairs Bureau website, or contact the FCC s Consumer Center using the information provided for filing a complaint.