Illinois Association of Realtors

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Common terms and questions for REALTORS®

Illinois REALTORS® Legal Hotline fields calls on a wide variety of issues ranging from agency to using drones. The lagel team has a list of the most common terms and issues which is updated as new information becomes available. 

  • Advertising

    Answers to Your Legal Questions

    1. General advertising guidelines and the License Act?
    2. Can a licensee offer a cash inducement to a buyer or seller?
    3. Advertising on the Internet without involving a real estate agent?
    4. Advertising and including agent's name?
    5. Advertising and team name?
    6. Liability in sales based on the virtual tour?
    7. Virtual Staging?
    8. Can I obtain a managing broker license and not manage an office?
    9. Managing Broker designation in advertising?

    Illinois REALTORS® wins settlement agreement in advertising rule case against IDFPR (original link to http://www.illinoisrealtor.org/Member/legal/ad_rule.asp) -- June 2006

    1. What are some general guidelines for advertising that a real estate licensee should be concerned about?

    Below are some general guidelines for advertising that can be found within the body of the License Act. See Sections 10-30, 10-35 for License Act requirement on advertising in the Real Estate License Act (.pdf file) (original link to www.illinoisrealtor.org/sites/illinoisrealtor.org/files/licenselaw/RELA2000_PA96-856.pdf). Also see 1450.715 and 1450.720 of the Rules for the Administration of the Real Estate License Act of 2000 (original link to www.illinoisrealtor.org/Member/government/issues/rules.doc). Article 12 of the REALTOR® Code of Ethics offers additional guidelines for advertising.

    • The general requirement for advertisements and communications is that they not be in any way false, deceptive or misleading to consumers, when taken as a whole. The ad cannot be misleading or deceptive on its face, nor can it be misleading in practice.
    • The broker's business name must be included in the ad, but there is no specific type size requirement. The REALTOR® Code of Ethics requires that the sponsoring broker's business name appears in a readily apparent manner.
    • Current License Act and rules are silent as to phone numbers. It would likely be okay to include a phone number that differs from the general office number so long as it is in no way false, deceptive or misleading, and it is permitted by the broker of the office.
    • A sponsored or inoperative licensee, when not using his or another broker's services, may advertise "by owner." However, any "for sale by owner" sign or ad must contain the statement "broker owned" or " agent owned." "Solely owned" means the licensee (1) has 100 percent ownership alone, (2) has ownership as a joint tenant or tenant by the entirety, or (3) holds 100 percent beneficial interest in a land trust.
    • Beyond advertising requirements, further written disclosure is legally required when a licensee has any ownership interest in the subject property (See Section 10-27 of the License Act).

    2. May a licensee offer a cash inducement to a buyer or seller?

    Yes. It is permissible under the License Act to offer cash or another type of inducement to a party to a transaction. However, to offer compensation to an unlicensed person for referring business to you, is prohibited under the Act.

    A broker must be certain that the inducement is going directly to the actual owner of the property he is listing or to the party taking title to the property. The License Act further requires that whenever a licensee advertises merchandise or services as being "free" that all conditions of the offer must appear in the ad. This means that if you place a clause in the ad saying, "call the office for further details," you may have an incomplete ad. You must place all limiting conditions of your offer in any advertising of the promotion, e.g. offer contingent on sale closing.

    A listing or selling office that offers an inducement to a buyer should notify the seller in writing prior to submitting an offer that the buyer will be receiving the cash or merchandise.

    3. I have seen several Internet-related businesses that appear to offer assistance to homeowners to help them sell their own homes without involving a real estate agent. Is this legal?

    We should begin this discussion with a reminder that anyone who owns a home is free to try to sell it on his/her own. However, a homeowner may also choose to enlist the services of a real estate agent to assist in the sale of the home. Now, we need to analyze what the Illinois Real Estate License Act of 2000 (the Act) says relative to brokerage activities, thus requiring the person or entity acting as a "broker" to have a real estate license. Let us first look at some key provisions of the Act, and then analyze some sample fact situations.

    The Act contains the definition for "broker" as any person or entity who for another and for compensation performs any of the activities enumerated at Section 1-10. Specifically, if a person "assists or directs in procuring or referring of leads or prospects, intended to result in the sale, exchange, lease, or rental of real estate," and that person (or entity) is acting on behalf of someone else, and expects some form of compensation (direct or indirect), a real estate license would be required. (Section 1-10, definition of "Broker," subparagraph (8)).

    There are also certain exemptions to the licensure requirement found at Section 5-20 of the Act. There is an exemption for “any medium of advertising in the routine course of selling or publishing advertising along with which no other licensed activities are provided.” (Section 5-20(9)). The question then becomes, where is the line between providing space for advertising and assisting in the procurring of prospects for the sale or lease of real estate?

    Let us assume facts where ABC, Inc. hosts a website in which it sells space on its site to homeowners where they may post their own ads relating to the sale of their property. ABC, Inc. provides the space and the homeowner pays some flat fee for the space. ABC, Inc. does not dictate the content of the ad, but might only review it to be certain it does not violate other general advertising laws. This fact situation would appear to fall under the "advertising" exemption of Section 5-20(9).

    Now let us consider facts whereby ABC, Inc. hosts the website and also provides prefabricated signs directly to the homeowner. These are "for sale" signs that the homeowner purchases from ABC, Inc. So, not only has ABC, Inc. provided space for the homeowner to place an ad on the site, ABC, Inc. has provided signage to assist the homeowner in selling the home. If the homeowner is paying ABC, Inc. for the creation of the sign, these facts may put ABC, Inc. outside the exemption in the Act and into the definition of an entity assisting or directing the procuring of prospects for the homeowner, because ABC, Inc. is receiving compensation for these services.

    If we take the fact situation one step further and add an element by which ABC, Inc. not only provides ad space on its website, provides signage directly to the homeowner, but also provides some sort of informational packet that gives the homeowner tips or advice of any kind relative to selling his own home, and ABC, Inc. gets any sort of compensation for these services, ABC, Inc. would need a real estate license in the State of Illinois, on these facts.

    As always, the answers to these questions depend on the actual facts in any given situation and those facts would need to be analyzed by the Illinois Department of Financial and Professional Regulation in accordance with the provisions of the Act.

    4. I was reviewing the advertising guidelines in Section 10-30(f) of the License Act (the Act) and it appears that I must include the agent's name in all advertising even if I am the managing broker and just want to do some general advertising for the company. Is this true?

    No. Admittedly, Section 10-30(f) of the Act might seem to require that an agent's name be included in all of a real estate firm's advertising. However, the idea behind Section 10-30(f) of the Act is that business cards are an advertising medium. As a result, an agent’s business card must include the agent’s name and the name of the agent's sponsoring broker.

    There is, however, a rule in place that clarifies this question. The language of the License Act Rules Section 1450.715(d) states as follows: "Nothing in Section 10-30 of the Act shall require a sponsoring broker to include the name of one of its sponsored licensees on the sponosring broker's signs or other general advertising." So, this language in the Rules makes it quite clear that a sponsoring broker is free to run ads that do not include an agent's name so long as the name of the real estate firm is identified in the ad.

    5. I am a member of a team within a sponsoring broker's company. If my team has its own 'team name,' may I use that name in my advertising?

    Many advertisements do contain a team name that might be different than the sponsoring broker's company name. It is important to consider what the Real Estate License Act of 2000 (the Act) and the rules under the Act say on this issue. First, consider that a sponsored licensee must advertise under his/her sponsoring broker's company name. (Section 10-30(d)). Next, consider that the content of advertising must not be false, deceptive or misleading in any way. (Section 10-30(a)). Third, consider that a sponsored licensee is prohibited from advertising under his/her own name.

    So, if a group of sponsored licensees, or one licensee together with an unlicensed assistant(s), operates under an assumed "team name," the sponsored licensee(s) would not be in compliance with the Act and its rules if it is an individual team member that registered this name as an assumed name (i.e., the team registered the team name as a DBA, "doing business as"). However, if you look at Rules Section 1450.120 regarding assumed names, you will see that the sponsoring broker can register and do business under an assumed name. So, while the sponsored licensees could not establish and register a DBA, if the sponsoring broker were to register the team DBA with the appropriate authorities, and assign this name to the team within the sponsoring broker's office, the advertising using the team name could be done in accordance with the Act and the rules.

    If the sponsoring broker is affiliated with a franchise, the sponsoring broker's company name must appear in all ads showing that affiliation. As a result, a franchise will not be able to use an assumed name in lieu of the sponsoring broker's company name.

    It is also important to remember that the ad content must not be deceptive or misleading and must still contain the sponsoring broker's company name or a properly registered assumed name for the sponsoring broker. There are certainly other legal issues to consider when operating as a "team" within a brokerage company. You should contact your company legal counsel for specific advice as to ad copy and for advice on how to register an assumed name, if needed. Typically, a team will be a functional unit within a sponsoring brokerage company that is not separately organized. As a result, any team name should appear in ads along with the sponsoring company's name, it should not be misleading; and, where it is not being used in lieu of the sponsoring company's name, it will not need to be registered as an assumed name for the company. This also means it will always appear in ads with the sponsoring company's name.

    6. A listing agent was concerned when a buyer purchased a property without ever physically seeing the listed property. The buyer was a soldier on active duty in the military and was unable to do a physical walk-through. He had, however, viewed a virtual online tour of the property that did not show marks on the basement walls from previous water damage in the basement. Buyer bought the property without ever actually seeing it, moved in, experienced flooding in the basement and threatened to file a lawsuit and/or License Law complaint against the listing agent/office for misrepresenting the property. What result?

    There is no clear answer to this question. However, we may see his type of scenario more as consumers and clients rely on technological means to examine real estate without physically walking through the property. We need to start by asking a few more questions. What is a virtual tour really? Is a virtual tour just a form of advertising or is it really supposed to be a "tour" that could be used in place of a physical walk-through? The answer here may very well depend on actual facts in a particular situation.

    Let us consider a couple different scenarios. First, assume that the listing agent assists or oversees the creation of a "virtual tour" that will appear on the agent's website along with other information about the listing. In this scenario, let us also assume that the "tour" consists of a few still photos showing views of the main rooms/areas in the property. Also, we don't know anything about the circumstances of buyers viewing the property online. The listing agent might even consider adding language to explain that this tour is provided for marketing purposes only and should not be used in place of a physical visit. On these facts alone, I think the listing agent would have a pretty good argument that the virtual tour constitutes advertising only and the buyer should have made an effort to physically see the property. Also, the listing agent would want to make sure the seller client has completed the required disclosure form that would be given to the buyer prior to becoming bound on any contract. Thus, the seller should have the argument that any known defects have been disclosed under the Illinois Residential Real Property Disclosure Act.

    Now let us consider some facts on the other extreme. Suppose there is a virtual tour included with other information on the listing agent's website. The tour is one that is more like a movie version and it leads the viewer on a virtual "walk" around every room. In our example, the listing agent and seller take great care not to show the viewer the side of the basement where the water stains are present on the walls. Let's consider that this buyer is a soldier on active duty overseas and his only access to his future home prospects is via the Internet. The buyer views the virtual "movie-like" tour and based on his virtual walk-through, he contacts his agent to make an offer on the property sight unseen. The buyer agent does so, the seller accepts the contract, the seller supplies all required disclosure reports and they consummate the deal. When the soldier moves in to his new home, the basement floods terribly after the first rain and the soldier is looking for someone to sue.

    Of course there are many questions here. One question would be whether the seller disclosed the water problem on his seller disclosure report. Another might even be whether his buyer's agent had any duty to do a physical inspection of the property in place of his buyer client knowing his client's special circumstances. And still another would be whether or not the purposeful exclusion of the water-stained wall from the tour was a misrepresentation of the physical condition of the property. If the buyer agent or the buyer walked through the home, this defect would have been patent or obvious. The seller's duty is to disclose latent or hidden physical material defects that would not be obvious to someone walking through the property. On the facts given above, there could be an argument that the purposeful exclusion of the water stained wall added to the fact that the listing side knew the buyer was not going to be able to view the property himself could provide a basis for liability on the part of the seller and his agent.

    NOTE: Buyer's Agent Role in the Virtual Sale

    This was not part of the original question, but we should also consider the duties of the buyer's agent. The buyer's agent should take care that she is fulfilling her statutory duty to serve her buyer client's best interest. On the latter example, it would not be out of the question for the buyer agent to share in the responsibility to the buyer. The question for the buyer agent becomes whether or not there is any way to protect her against liability. This would not be easy to do given the buyer agent's statutory duties to the buyer and having the knowledge that the buyer will not be able to view the property himself. In our example, the wall stains are obvious to the person who walks through the property. The only protection for the buyer's agent might well be the affinity that the buyer develops for their agent that may result in the desire not to sue or involve them in the dispute. The buyer's agent should also take great care to recommend that inspections by experts be done in cases like these.

    As technology changes the practice of real estate brokerage and very likely changes the way consumers and clients behave, everyone should take great care to think how the information is being presented and how it will be used and/or relied upon. In the past you may have been trying to market the property and put "the best foot forward." However, you may now need to indicate that this material is for marketing purposes and should not be relied upon in lieu of a physical inspection of the property or; in the alternative, you may need to present a more balanced view in the virtual tour. And, as always, agents should remember to consult with their brokers and company legal counsel for specific guidance and advice.

    7. I have heard of companies that offer “virtual staging” to real estate agents in order to enhance their ­listings. This service seems to be used in situations where the property is vacant, in disrepair or some combination of these things. Should I have any concerns if I work with one of these companies?

    Yes, you should be concerned to the extent that you have legal and ethical duties to make accurate representations of properties that you are marketing for sale or lease. Your advertising must not be false, deceptive or misleading. Let’s consider an example: You have a vacant home listed for sale and you are going to place advertising on the Web. You would like to offer a virtual tour and you hire a virtual staging company to help you. If you add furniture and other items to each vacant room that does not exist you might be able to argue that even though you have changed the appearance of the property you are not being deceptive since the room exists as it is and the furniture is not part of the real estate. On the other hand, what if the virtual staging company removes the water stains on the basement wall or cracks in the ceiling? This certainly seems to have gone too far and the ads are now misleading. In the abundance of caution, any time an agent uses this type of service and is representing something as fact that is not really there it should be noted somewhere obvious in order to avoid any confusion.

    You should also consider situations where the virtual stager wants to help you improve the “virtual curb appeal” of a listing. Let’s say the stager adds a fresh coat of paint, maybe some landscaping and a “new” garage door that is not at all like the actual one that is barely hanging on in a lopsided manner. On those facts, you can see that this could be considered misleading. If you are going to “jazz up” your listing, take care to explain that you have used a virtual staging service and then be prepared to make the argument that you are not being misleading when and if someone complains that this is not the actual state of the property.

    8. Can I obtain a managing broker license and not manage an office?

    (Yes, just the same as brokers did under the old license law. However only licensed managing brokers designated with the Department as a managing broker by their sponsoring broker can advertise themselves to the public as a managing broker. Managing brokers that are not designated with the Department as a managing broker should advertise themselves as a “broker.” (See http://www.illinoisrealtor.org/legal/issues/managingbrokerlicense) (Source: Illinois Department of Financial and Professional Regulation “Real Estate FAQs” (original link was http://www.idfpr.com/faq/dpr/realestatefaqs.pdf but it is a broken link on the IDFPR website.)

    This statement does not preclude the use of a descriptive term such as “listing,” “commercial” or “buyer’s” along with “broker.”

    Remember that the use of such descriptive terms must meet the general advertising guidelines of the Illinois Real Estate License Act of 2000 and Administrative Rules. That is, the use of such terms must be accurate and not misleading or deceptive.

    • Members of the Illinois REALTORS® can access the fully updated Illinois Real Estate License Act of 2000 and Administrative Rules, prepared by Illinois REALTORS® legal counsel, from the Illinois REALTORS® member Risk Management Toolkit:(original link was to www.illinoisrealtor.org/riskmanagement (member login required).
    • Post-Transition FAQs prepared by Illinois REALTORS® legal counsel: (original link to www.illinoisrealtor.org/legal/license_law_post_transition).

    9. If I am the managing broker on file with the Illinois Department of Financial and Professional Regulation (IDFPR), as the managing broker for my company must I include this designation in my advertising?

    Generally, yes, on these facts you would need to include managing broker when you use your name in your advertising. However, there is an exception in the Act when your name is on a “for sale” or similar sign (e.g. a “for sale” sign name rider). In that case you do not have to include managing broker on the sign.

    If you are a managing broker licensee, but not designated with IDFPR as the named managing broker for your company, you must not use the term managing broker in your advertising. IDFPR says using the term “broker” meets the advertising guidelines of the Act.

  • Agency

    Answers to Your Legal Questions 

    1. I have been approached recently by a business owner in my town who wants me to help her sell her business. The business is a popular pizza place on a busy intersection in my town. The real estate is not for sale along with the business, but there will be an assignment of the building lease. I have heard something about needing a business broker's license. What do I need, if anything, to help this business owner sell her business?
    2. As a buyer's agent, I often receive calls from the listing agent asking for "feedback" from my buyers regarding the property they just viewed. I am concerned that if I answer the listing agent's questions, I might violate the confidence of my buyer client. Is this correct?
    3. If I am a buyer's agent and I am having a hard time getting my buyer's offer presented, when may I go directly to the seller?
    4. Must I give any disclosures of agency to my clients under the Illinois Real Estate License Act (the Act)?
    5. There is a lot of confusion about the use of disclosures prior to showings, primarily with regard to dual agency. In our office, we now use the non-exclusive buyer representation form for buyers and the listing form for dual agency for sellers. Do we still need the “confirmation” signed?
    6. If I am a licensee and I own the property I want to sell, must I list it with my sponsoring broker?
    7. I had a buyer's agent tell me that it was illegal to "shop" her client's offer. Is this true?
    8. If I wish to sign an exclusive representation/agency agreement with my seller client, must I provide the minimum services required under Section 15-75 of the Illinois Real Estate License Act of 2000 (the Act)?
    9. I am a listing agent for a seller and the seller has asked me to buy this listing from him. I am seriously considering the purchase. Should I do this?
    10. Do agency duties and disclosure requirements apply in leasing/rental transactions too?
    11. I heard of a situation recently where a buyers mortgage broker suggested that the parties change the previously agreed purchase price to help the buyer qualify for a "no down payment" loan. Is this legal?

     

    1. I have been approached recently by a business owner in my town who wants me to help her sell her business. The business is a popular pizza place on a busy intersection in my town. The real estate is not for sale along with the business, but there will be an assignment of the building lease. I have heard something about needing a business broker's license. What do I need, if anything, to help this business owner sell her business?

    There is a statute in Illinois entitled the "Illinois Business Brokers Act of 1995" (BBA) which may or may not apply in this situation. (815 ILCS 307/10-1 et seq.) The Illinois Secretary of State's Office is the agency in charge of administering the BBA. Those people who engage in brokering the sales of non-securities type businesses must register with the Secretary of State's office and pay the required fee. If the sale of the business is one in which an interest in real estate is a dominant element in the transaction, then the BBA does not apply.

    The first question to address, then, is whether an interest in real estate is a dominant element in the transaction. The rules under the BBA define dominant element as one in which the interest in real estate is of a dollar value worth at least 50 percent of the net asset value or purchase price of the business, is an integral part of the transaction or is the single largest part of the transaction. (Title 14, Part 140, Section 140.51).

    It is important to note that, according to the rules under the BBA, one would look to the definition of "real estate" in the Real Estate License Act of 2000 (Real Estate License Act) to determine what constitutes an interest in real estate. Leaseholds are clearly included in that definition. (225 ILCS 454/1-10). Thus, given the fact situation above, if the leasehold being transferred fits any of the criteria set forth under the definition of dominant element, the transaction could be classified as a real estate transaction as opposed to a business transaction. The agent is then covered by his real estate license and would not need to register under the BBA.

    On the facts above, the pizza place is located on a busy intersection in the town. As a result, it is probably safe to assume that the transfer of the leasehold for that building is, at the very least, an integral part of the transaction. Remember the real estate professional’s mantra, "Location, location, location."

    Let us change the facts a bit and assume the interest in real estate is not included in the transaction and the real estate agent has been asked to broker the exchange of only the goodwill of this pizza business. May the real estate licensee handle the transaction without registering under the BBA? The BBA does contain a limited exemption. (815 ILCS 307/10-80(a)(2)). If a person is primarily engaged in business as a real estate licensee under the License Act, that person is exempt for purposes of the BBA if he/she brokers a business transaction on an "incidental basis" to the practice of real estate.

    Unfortunately, there is no definition in the BBA or its rules for "incidental basis." So, the real estate practitioner must make that call if he is asked to broker a business transaction and it cannot be classified as a real estate transaction. Depending on the real estate licensee's real estate business, one business transaction might be enough to require registration under the BBA. Assume the real estate licensee practices on a part-time basis and does an average of two real estate transactions a year. That person may not be able to argue successfully that to do one business brokerage transaction is "incidental" to his real estate business. On the other hand, if the real estate licensee does 50 real estate transactions in a year, he has a better argument that one business brokerage transaction would be incidental to his real estate practice.

    If the potential commission is substantial, or there is any question at all as to whether or not it would be incidental, avoid the issue by registering with the Secretary of State’s office and paying the required fee. It is a registration process and not really a licensing procedure. As always, if there is any doubt, consult the advice of an attorney to review the particular facts.

    2. As a buyer's agent, I often receive calls from the listing agent asking for "feedback" from my buyers regarding the property they just viewed. I am concerned that if I answer the listing agent's questions, I might violate the confidence of my buyer client. What do you think?

    You are correct to have those concerns when representing a buyer client. Section 15-15(a)(4) of the Illinois Real Estate License Act of 2000 (the Act) requires that an agent "keep confidential all confidential information received from the client." As a result, if a listing agent calls you for buyer feedback, you should be cognizant of that duty to keep to yourself any information that would be confidential to your buyer client.

    Confidential information is defined in the Act. It is defined as that information which was made confidential at the client's written request or instruction, deals with the negotiating position of the client, or is information which could harm your client's negotiating position if disclosed. Therefore, when asked for feedback by the listing office, you should first analyze whether any response you might make would harm your client's negotiating position in any way.

    To the extent your response would not hurt your client's position should the buyer wish to pursue the property viewed, you could supply some information to the listing agent. One example might be where your buyer client liked the house he just saw, but was concerned that it only had a one-car garage. To divulge this concern to the listing agent probably would not hurt your client in any way. In fact, it might set the stage for an offer that might be on the lower side.

    On the other hand, if your buyer client views the property and says to you, "I must have this house at any price," you should not divulge that statement to the listing agent unless permitted to do so by your buyer client. Obviously, to give that information to the listing agent could harm your buyer's negotiating position if the seller knew it.

    The moral of the story is that buyer agents must remain aware of their agency duties to their buyer clients. One important agency duty is to protect information that could affect their position in real estate transaction negotiations.

    3. If I am a buyer's agent and I am having a hard time getting my buyer's offer presented, when may I go directly to the seller?

    The general answer to this question is that you should almost never "go around" the listing agent. If the agent is not the broker of the listing firm, and you think you are being stonewalled by the agent, you might first remind the agent (assuming you are able to reach him by phone) that agents have a statutory duty (and ethical duty for REALTORS®) to present all offers to clients in a timely manner, unless the client has waived the right to see new offers for some reason. If that does not work, try calling the agent's managing broker. If after all of that, you are still unsuccessful, you might inform your client that while you are precluded from going around the agent, nothing prohibits the buyer client from taking her offer directly to the seller.

    In addition, you might check your MLS rules. NAR's Model MLS rules do suggest that you could go directly to the seller after you have made a reasonable effort to go through the agent. However, the danger there is the potential of having to defend the listing agent's complaint against you and trying to demonstrate your "reasonable efforts."

    The Model MLS Rules also contain a provision giving the buyer's agent the right to ask to be in attendance for the presentation of the buyer's offer. This sometimes encourages a proper presentation procedure.

    4. Must I give any disclosures of agency to my clients under the Illinois Real Estate License Act (the Act)?

    Under the Act, you will be presumed to represent the party with whom you are working as that person's designated agent. Designated agency is a statutory creation where, even though the contractual relationship is between the client and the sponsoring broker's firm, for purposes of analyzing agency, the broker "designates" an agent to represent the firm's client. (See Section 1-10, definitions of Designated Agency, Designated Agent and Section 15-50). So, while you will be presumed under the Act to represent the party with whom you are working, the client must be given notice in writing as to whom his designated agent is.

    Written notice is easily given to the seller since the seller in most instances signs an exclusive listing contract with the sponsoring broker. Within the written exclusive listing contract, there is typically a space provided to include the designated agent's name. On the other hand, if there is no written buyer agency representation agreement of any kind, unless the agent gives a separate written notice to the buyer identifying the buyer's designated agent, this duty is not being fulfilled. The time to give the consumer written notice identifying his designated agent is no later than entering into a brokerage agreement (whether this is oral or written). As a result, the sponsoring broker for the buyer client might consider a policy requiring written buyer agency agreements. If this is not acceptable or practical, the sponsoring broker for the buyer might have a policy requiring buyer agents to give the buyer the Illinois REALTORS form titled Terms of Non-Exclusive Buyer Representation. These documents are not intended to be a written contract but more like an informational piece explaining the duties of the buyer agent along with the identity of the buyer's designated agent. Remember, you must disclose to your clients in writing the name of their designated agent(s) when you begin to work with them as their agent, and the broker must keep copies of these disclosures on file.

    For a listing of contracts and forms that members can download, see Member Services/Forms section (orginal link to www.illinoisrealtor.org/downloads) or the pamphlet entitled "The Consumer's Guide to Real Estate Agency in Illinois."

    5. There is a lot of confusion about the use of disclosures prior to showings, primarily with regard to dual agency. In our office, we now use the non-exclusive buyer representation form for buyers and the listing form for dual agency for sellers. Do we still need the “confirmation” signed?

    The buyer must sign a disclosure and informed consent to dual agency form either standing alone or as a part of your non-exclusive agreement if there will be disclosed dual agency.* Both seller and buyer must they sign the confirmation of consent to dual agency not later than the time of contract topurchase or lease (if there is dual agency).

    * This form must be signed no  later than when the agent ACTS as a disclosed dual agent.

    6. If I am a licensee and I own the property I want to sell, must I list it with my sponsoring broker?

    The answer under the Illinois Real Estate License Act of 2000 (the Act) is no. In other words, there is no specific statutory requirement that a licensee list property he owns with his sponsoring broker or any other broker for that matter. However, the licensee/owner should look at his independent contractor agreement (or employment contract) to be certain that he has not agreed by contract to list with his firm.

    If the licensee will be advertising "by owner," the licensee should examine Section 10-30 under the Act for guidelines. In short, any "by owner" sign or other ad must include "agent owned" or "broker owned" on the face of the sign or the ad. In addition, under Section 10-27 of the Act, the licensee will need to make sure written disclosure of his status as a licensee is given to a prospective buyer at a time when disclosure of that information would be meaningful to the buyer. Finally, it is important to remember that a licensee may not serve as a dual agent in any transaction in which that licensee has or will have a direct or indirect ownership interest.

    7. I had a buyer's agent tell me that it was illegal to "shop" her client's offer. Is this true?

    Not necessarily. If you represent the seller in a transaction and you have received an offer to purchase the property, in the interest of serving your seller's best interests, you might justifiably call those buyer agents or other prospects that have shown an interest in this property. Of course, you would want to confer with your seller client before taking this type of action. The downside risk would be that if the buyer became aware of this, he might withdraw his offer. While you would not want to disclose the amount of the offer (because you don't want to establish any sort of false ceiling above which other interested buyers would not go), you might have helped your seller client by creating a market for the property.

    While we are dispelling some commonly held mistaken notions, let us also consider that there is no "first in time rule." In other words, if you are the listing agent and you have one offer in hand and more on the way, there is not a legal or ethical requirement that you present the offers in the order received. You are duty bound to present them as timely as practicable and to serve your seller client's best interests. So, depending on the individual facts in the situation, it might be timely to present them all together when you meet the seller after work, as an example. Your seller might direct you to hold them until he can review all offers received. You may legally and ethically follow his direction in this case.

    Here is one final thought while we are on the subject of mistaken notions. There is nothing that requires the seller to abstain from looking at other offers if he is in the midst of negotiating a contract. Let us consider that a buyer made an offer on seller's property. The listing agent presented the offer as required by law. In the meantime, another offer comes in to the listing agent. The agent for buyer #1 and her agent might think that while contract #1 is in negotiations all other bets are off. This is not the case. On these facts, a seller could look at the offer and, under general contract law principles, withdraw his counteroffer on contract #1 prior to delivery of an acceptance by buyer #1 of contract #1. Of course, in situations like the ones discussed here, you should recommend that your client consult legal counsel for advice about legal options and/or the contract status.

    8. If I wish to sign an exclusive representation/agency agreement with my seller client, must I provide the minimum services now required under Section 15-75 of the Illinois Real Estate License Act of 2000 (the Act)?

    Yes. This is the short answer and general rule. First, let us clarify our understanding of exclusive representation/ agency agreement. This would be a brokerage contract where the seller, or the buyer as the case may be, reserves the right to try to sell or buy on his own. For our discussion, we will consider the seller's version of an exclusive representation agreement. In that case, the seller signs a brokerage agreement saying that the broker named in the agreement is the broker for the seller excluding all other brokers. However, the seller reserves the right to sell the property on his own without the aid of a licensee. This arrangement is commonly employed when the seller is a builder of new construction. Thus, if a buyer is procured through the efforts of the broker and while under contract with the broker, then the seller will owe a commission. On the other hand, if the buyer goes directly to the seller, no commission will be due under the exclusive representation agreement.

    Second, let us look at the definition of "exclusive brokerage agreement" within the Act. Exclusive brokerage agreement is really the universe containing different types of exclusive brokerage contracts. If the arrangement is to be "exclusive," meaning there will only be one brokerage firm representing the client, it must be in writing and the broker, through its designated agents, must meet the minimum service requirements of Section 15-75 of the Act. An exclusive representation agreement would be a subset included in the universe of all other exclusive brokerage agreements. Perhaps the most common exclusive contract used today is the exclusive right to sell, or exclusive listing, which is the type of contract where the seller agrees that the broker is the entity with the exclusive right to market and sell the property subject to the terms of the agreement. Clearly, minimum services are required under that type of relationship.

    For a review of the minimum services requirements under Section 15-75 of the Act, go to (original link to www.illinoisrealtor.org/legal/issues/minimumservice). To summarize, the minimum services required under an exclusive brokerage agreement are that the designated agent must: 1) accept delivery of and present all offers and counteroffers to buy, sell or lease the property; 2) assist the client in developing, communicating, negotiating and presenting offers, counteroffers and notices relating to the negotiations; and 3) answer the clients questions relating to the contract negotiations.

    Now, let us consider an example where the broker and seller have agreed to an exclusive representation/ agency relationship. Assume the seller is a builder who reserves the right to sell the property on his own. You are the designated agent for the builder under an exclusive seller’s representation agreement with your brokerage firm. You place the listing in your local Multiple Listing Service (MLS), and you correctly complete the check box to show that the seller is also trying to sell the property on his own (each MLS may have its own method for this type of classification). If an agent for a prospective buyer locates your listing through the MLS, then the buyer's agent must contact you because you are the exclusive representative of the seller. The Act, the REALTOR® Code of Ethics and MLS rules require that the buyer’s agent contact the exclusive representative of the seller. Therefore, you would proceed to act on behalf of your seller and provide the minimum services set forth in Section 15-75 of the Act.

    On the other hand, if a buyer is driving by the property and sees the builder/seller's sign, the buyer might call the builder directly. In that case, the two parties might negotiate a deal without the aid or the involvement of real estate agents at all. This would come under the exclusion outlined in your exclusive representation agreement with your seller client/builder. No commission would be due your firm under the exclusion, and the sellers agent would not be providing services — minimum or otherwise — to the seller.

    So, to summarize, if you sign an exclusive representation/agency agreement with a seller client, you will be bound to provide the minimum services provided for under Section 15-75 of the Act. Also note: the minimum services duties will apply in lease transactions when there is an exclusive relationship between broker and client.

    9. I am a listing agent for a seller and the seller has asked me to buy this listing from him. I am seriously considering the purchase. Should I do this?

    The answer to this question is that you should start with "no" for your answer. One primary reason is that as a licensee, you are prohibited from acting as a dual agent in a transaction where you would be a party or have some financial interest in the property being sold, purchased or leased. See Rules Section 1450.820. Even if you were to remove yourself from the listing and turn it over to another agent in your office, there is a real question as to whether this will solve your potential legal problem since you already know your seller's confidential information and thus, cannot keep that information from yourself. As a result, you would have to hope that your seller never files a complaint against you for a violation of the provision cited above.

    For purposes of this question, let us assume that this listing has been on the market for some time, there are no potential buyers and your seller client is literally begging you to take the property off of his hands. In the abundance of caution, the answer would still be to start from the negative. Even if you buy the property at the prevailing market rate, if you were ever to resell at a profit, it is likely the seller will forget any disclosure you ever made.

    However, in the interest of trying to help your seller, you elect to purchase the property anyway. If you do pursue this purchase, you should consider the following actions and warnings. Make sure you advise the seller to visit with his own attorney who can give him specific legal advice. You should also consult with your attorney and your managing broker if you are not the managing broker in your office. You should make sure that there are written disclosures for the seller to sign recognizing that you are a licensee, you are removing yourself from the listing and that he agrees to the sale price of the property. It would be most helpful to have an independent appraisal done for the property that will be the subject of the transaction. The seller should agree not to sue you and release any claim for potential license law violations. These documents would be best prepared by the parties' attorneys. You should not be paid a commission.

    As a final note, you can rest assured that if this situation ever ends up in court, as a licensed real estate professional you will be held to a higher standard and the deck is stacked against you before you ever begin. Courts traditionally dislike self-dealing.

    10. Do agency duties and disclosure requirements apply in leasing/rental transactions too?

    Yes. Keep in mind that licensees who represent landlords in leasing transactions, need to operate as disclosed dual agents with written disclosure and informed consent secured if they are representing both the landlord and tenants. An alternative is the tenant will be treated as a customer and must be given Notice of No Agency, which is more often the case when a licensee is representing the landlord. These are just two examples to make the point that the statutory duties of agency apply in leasing/rental transactions. This is true for both residential and commercial brokerage transactions.

    11. I heard of a situation recently where a buyer's mortgage broker suggested that the parties change the previously agreed purchase price to help the buyer qualify for a "no down payment" loan. Is this legal?

    On the legal hotline, I have heard a couple different scenarios describing some types of "creative" financing. In one instance, buyer and seller agreed to a purchase price. The mortgage broker then suggested that the parties change the purchase price by a significant amount with the seller to give a "loan" of the difference to the buyer for the down payment. On the facts as I learned them, the seller later forgives the loan and the buyer has, in essence, a "no down payment loan."

    Suppose the buyer and seller agreed to a purchase price of $75,000 and the buyer's mortgage broker, who may not be the ultimate lender, suggests the agreed purchase price be changed to $85,000. The seller is then encouraged to make a "loan" of $10,000 back to the buyer for the down payment. The seller then forgives that loan and the buyer ultimately secures a loan in the amount of $75,000, the original purchase price of the property. The ultimate lender may not be made aware of the seller's agreement and forgiveness, nor the initially agreed purchase price. This fact situation would suggest fraud and misrepresentation. There may even be a fraudulent appraisal in the file.

    Real estate licensees should be very leery of situations such as described above and should remember several things. First, if a similar fact situation presents itself, the agent should notify his/her broker. It would also be appropriate to notify the real estate company legal counsel. Second, the licensee should advise the client, whether the client is the buyer or seller, to seek the advice of counsel before engaging in any such transaction. This advice should be well documented in the licensee's file. A letter to the client would be appropriate. Third, don't sign anything relative to the loan transaction. Finally, if there appears to be any type of misrepresentation or fraud proposed, terminate the agency relationship if the client is insisting upon proceeding with the transaction.

    If such a transaction is determined to be bank fraud, very severe federal and/or state penalties can result, including extremely large monetary fines and even extensive jail time.

    For more, read a related article from the DR Legal News (original link to www.illinoisrealtor.org/Member/publications/drexclusive/2004/Sept/mortgage.asp).

    Updated November, 2016

  • Antitrust

    Answers to Your Legal Questions

    Q. We are hearing a lot about antitrust lately and are not really sure which activities are allowed and which are not. Could you give us some guidance on this important issue?

    The golden rule to remember in the real estate business is "Make your own independent business decisions." If you start with that and live by it, this will go a long way in keeping you out of trouble.

    Below are a few sample fact situations with some analysis as to whether or not the facts give rise to an antitrust violation:

    • A company prints a flyer for potential clients which includes the following: "When interviewing a prospective broker, you should ask three questions: 1) What is the value of my home? 2) How much commission do you charge? and 3) How and when are you going to market my real estate?" The flyer goes on to say, "The answer to the first two questions will be similar. However, the answer to question three will get many different responses." The second question is the one that may raise some eyebrows.

      Keep in mind, real estate licensees may discuss their own company's commissions. Also, making a statement that real estate commissions are similar does not alone give rise to an antitrust action. If the real estate licensee made the statement that all real estate commissions were the same, this could be a different story. The word similar actually suggests that commissions are not the same. Similar means close but not the same. As a result, one could conclude from that statement that commissions are negotiable. You must always remember that commissions are negotiable. Ideally, in a truly competitive market, prices will be similar as the market dictates the levels it will bear.

    • A real estate licensee makes a statement to a consumer that commissions of all competitors in the area are fixed at a given rate. THIS IS CLEARLY AN ANTITRUST ISSUE. Competitors must set their own rates according to their own independent business judgments. One office could make its own business decision to set a particular rate. But, that same office may not collude with competitors to set a rate.

    • Assume a particular newspaper refuses to advertise on the REALTOR.com website. Real estate licensees do not like this and together decide to refuse to place their ads in this paper. This is also an antitrust issue. Competitors must not collude to boycott a particular service or to take certain actions. Each separate real estate office must make its own independent business decision as to whether or not it will place ads in that newspaper.

    • Assume a relocation company finds out late in a transaction that a seller in an affiliated company has hired your real estate office and sold his home. The relocation company tells your office it wants a referral fee, and tells the seller if it does not get its fee, the seller will not get his relocation package. The real estate office reluctantly agrees this time to pay the referral fee and see the deal completed. However, the broker vows to discuss this matter with her competitors to reach a consensus as to how to deal with this relocation company. This is an antitrust issue. Once again, competitors may not conspire to boycott a particular service or to take a certain business position. Whether or not a brokerage firm aligns itself with an affinity group of some sort must, once again, be its own business decision.

    These are just a few fact situations to consider. Price fixing, boycotting and other collusive activities are major problems in the antitrust arena. It is important to be able to recognize fact situations that may be problematic so you can determine whether an issue presents a potential antitrust problem. Also, keep in mind not every mention of a commission rate will, on its own, constitute an antitrust problem. If you have any question at all, call your attorney before you act.

     

  • Changing Offices

    Answers to Your Legal Questions

    1. If an agent is leaving one brokerage firm to go to another, what are some of the common issues?
    2. Is there a License Act requirement to include a date certain for termination of a licensee in an independent contractor/employment agreement between that licensee and the sponsoring broker?
    3. Is there any time limit in which my current sponsoring broker must sign and return my license to me if I will be moving my license to a new sponsoring broker?
    4. When I leave one sponsoring broker to go to another sponsoring broker, may I take files with me and attend closings of my former brokerage company? Will I get paid for deals that were pending when I left?

     

    1. If an agent is leaving one brokerage firm to go to another, what are some of the common issues?

    A common question that arises is, may a sponsoring broker pay the terminated agent for pending deals? Yes, pursuant to Section 10-5(a) of the License Act. A broker may pay a terminated licensee directly if the payment is for licensed activities performed while under contract with that broker. In addition, the broker and the terminated licensee would want to review the employment agreement /independent contractor's agreement to be certain that the broker agreed to pay commissions for pending deals.

    Another common situation or complaint is that the terminated licensee is now soliciting "his own" listings in advance, or shortly after, his departure. As a word of caution, the licensee should remember that it is a potential License Act violation and breach of the REALTOR® Code of Ethics to solicit the exclusive listing of a real estate firm. Remember, the general rule is that the brokerage agreement is entered into with the real estate brokerage company, so unless the departing licensee has contracted otherwise with the broker, the licensee must not solicit those clients subject to an exclusive agency agreement. This would presumably hold true with exclusive buyer agency agreements as well as listings. If the client chooses to remove himself from an exclusive agency agreement, the terminating licensee should leave that to the client to pursue. Once again, this is assuming the licensee has no agreement to the contrary with his former broker.

    Finally, the License Act provides that the sponsoring broker must surrender to the terminating licensee the license endorsed by that broker. The broker must then forward a copy of the endorsed license to the Illinois Department of Financial and Professional Regulation (IDFPR). Sometimes, brokers like to retain the license if the broker believes the departing licensee owes the broker money pursuant to their contractual agreement. While the departing licensee may indeed owe the broker money, it is improper under the provisions of the License Act for the broker to hold the license "hostage" to encourage payment. The broker should consult legal counsel and pursue the matter pursuant to the terms of the independent contractor or employment contract with the terminated licensee, and not by holding the license.

    2. Is there a License Act requirement to include a date certain for termination of an independent contractor/employment agreement between a licensee and the sponsoring broker?

    No. While there is a requirement to provide in the contract for duration and termination in general, i.e. procedures, notice, written agreement etc., there is no statutory requirement that the sponsoring broker include a date certain for termination of an independent contractor/employment agreement.The requirement for the duration to be included can simply be handled by saying that the parties give __ days' notice of termination. These are matters of negotiation between the sponsored licensee and the sponsoring broker. See Section 10-20(d) of the Illinois Real Estate License Act of 2000 (the Act) and Section 1450.735 in the Rules under the Act.

    3. Is there any time limit in which my current sponsoring broker must sign and return my license to me if I will be moving my license to a new sponsoring broker?

    I have given my current broker notice that I will be moving to a new firm and she refuses to endorse my license so that I might have my new sponsoring broker send it to the Illinois Department and Financial and Professional Regulation (IDFPR).

    You can find the answer to your question at Section 5-40(b) in the Illinois Real Estate License Act of 2000 (the Act) and Administrative Rules Section 1450.115. The short answer is that your current sponsoring broker must sign your license and return it to you within two days of termination or risk being subject to discipline under the Act. However, some factual questions might arise as to when your license terminates. Consider the following hypothetical situations.

    • If your current sponsoring broker has taken the action to terminate your association with that firm, then your broker must return the license to you within two days of that termination date.
    • If you have reviewed your written independent contractor/employment contract and it provides for a specific notice period (for example, 30 days' written notice given by one party to the other), you give that notice. However, if your sponsoring broker asks you to leave immediately, the two days' requirement applies and the broker must return your license within two days of your actual departure, not at the end of the 30 days. Note: See Section 10-20 of the Act for the requirement that the sponsoring broker have a written contract (independent contractor or employment) with each licensee sponsored by that broker.
    • On the other hand, if your contract with your sponsoring broker calls for a 30 days' written notice and you are allowed to remain working for that firm until the end of that 30-day time period, the broker must sign your license and return it to you within two days of the expiration of your notice period.
    • In addition, there are situations where the broker gave the sponsored licensee notice that she would be terminated at the end of the time period specified in their independent contractor's agreement. Then the broker restricted the agent's access to her office and to her files so that the agent had an argument that she was effectively terminated. Thus, the sponsoring broker should return the license within the two days of the effective termination date. In these situations, both concerned parties might need to consult legal counsel for advice.
    • Finally, the Act does not allow a sponsoring broker to hold a sponsored agent's license in order to encourage payment of any expenses the agent might owe the broker under the written independent contractor/employment contract. That would be a separate contractual action between the parties that might also require the assistance of the parties' respective attorneys.

    4. When I leave one sponsoring broker to go to another sponsoring broker, may I take files with me and attend closings of my former brokerage company? Will I get paid for deals that were pending when I left?

    1. Remember that your independent contractor/employment contract (contract) is an agreement that binds you to the sponsoring brokerage firm. Review your contract closely with your attorney, ideally before you become associated with a sponsoring broker, and before you become disassociated with a sponsoring broker. The general rule is that the transactions that you are involved in while sponsored by a particular broker will "belong" to that broker, not to you personally. Therefore, any listings that you might have will not automatically follow you.

    If the seller elects to go with you to the new brokerage firm, then the seller will need to discuss that with your former broker. The seller might even need his own legal advice. You must take great care not to induce or encourage your client to break an existing exclusive agreement (the one that is currently with the broker you are leaving), in order to avoid a potential license law action against you. If you wish to "take your listings with you when you leave," you would need to negotiate that into your independent contractor agreement with your sponsoring broker when you are negotiating the terms of your contract at the beginning of your relationship.

    You should also check your contract to see what provisions, if any, are related to buyer clients with whom you will become involved while working with your sponsoring broker. If the relationships are exclusive ones, then chances are those would also stay with the former broker, unless the buyer terminates the agreement with the former broker on her own, and with no assistance or inducement on your part.

    2. Remember that you can legally work for only one sponsoring broker. See Section 10-20(a) of the Illinois Real Estate License Act of 2000 (the Act). Thus, to use a fairly common example, the general rule would be that you not attend the closing of a former client. You would not contact your former clients (usually sellers) as long as that client is still under contract with your former sponsoring broker.

    3. Remember to examine your independent contractor employment agreement with your sponsoring broker to review any provisions relative to payment of commissions for deals that are pending when you leave. Generally, the commissions will be payable to the sponsoring brokerage firm. Unless there is a specific provision in your contract or some office policy that provides for payment, it is quite possible that you would not be paid for deals pending when you leave. You should visit with your attorney to address these questions. Thus, if you have not made provisions when you started with your sponsoring broker, in order to get paid you may need to remain with your sponsoring broker until the transaction is complete, or try to negotiate something before you leave.

    If you have any questions related to any contract that you have signed, you should visit with your attorney who can advise you as to your legal rights, duties and responsibilities under that contract.

    Updated December 2016

  • Cook County Section 8 Guidelines

    Answers to Your Legal Questions

    1. When did these changes become effective?

    2. Does the Ordinance apply to all housing?

    3. I own a duplex and live in one side of the duplex. Does this change to the Cook County Human Rights Ordinance apply to the rental of my other unit?

    4. I manage a condominium association and we just evicted an owner for nonpayment of dues and assessments. We are now looking to rent that condominium unit. Does the Cook County Human Rights Ordinance prohibiting discrimination based on participation in a housing choice voucher program apply to that condominium unit?

    5. Does this Amendment to the Cook County Human Rights Ordinance prohibiting discrimination based upon participation in a housing choice voucher program apply throughout Cook County?

    6. What is your best advice if you have listed rental property in a municipality that permits discrimination based upon participation in a housing choice voucher program in their Ordinance?

    7. What kinds of criteria can a landlord use in screening tenants for their rental property?

    8. Will I need to lower my rent to allow a housing choice voucher program participant to rent the space?

    9. Can I decline to rent to a prospective housing choice voucher program tenant because the prospective tenant does not have the funds to make the required security deposit even though the monthly rent can be paid through the housing choice voucher program?

    10. Must I rent to a housing choice voucher program participant who makes application to rent one of my properties?

    11. If an owner continues to accept applications from prospective market rate tenants and decides to rent to one of those market rate tenants during a period after there has been a tentative agreement with a housing choice voucher tenant pending inspection and determination of a market rent by the Cook County Housing Authority has the owner violated the Cook County Human Rights Ordinance?

    12. If the owner of a unit submits an application for tenancy approval under the housing choice voucher program, an inspection is done, and certain repairs are needed can the owner choose not to make the repairs, thus making the unit not able to participate in the housing choice voucher program and then rent the unit to another tenant who does not participate in a housing choice voucher program?

    13. If a prospective tenant participates in a housing choice voucher program and wants to lease one of my units and the necessary application is submitted to Cook County can I refuse to allow the inspection of the unit to occur until such time as Cook County obtains an administrative search warrant to perform the inspection?

    14. Does the Cook County Human Rights Ordinance apply to real estate brokerage activities, including leasing?

    15. Does the change to the Cook County Human Rights Ordinance prohibit my inclusion of language in a rental ad or a multiple listing service that will indicate that housing choice voucher program participants are not accepted?

    16. I just entered into a listing agreement for the rental of a unit in Cook County and which is not located in a municipality that permits discrimination based on participation in a housing choice vendor program. My client has instructed me that he/she does not want to rent the unit to a participant in a housing choice voucher program. I know that under the Real Estate License Act I am supposed to follow the directions of my client. What should I do?

     

    Cook County amended its Human Rights Ordinance in 2013, to delete an exception to the source of income provisions in the Cook County Human Rights Ordinance. The effect of the amendment makes it a violation of the Cook County Human Rights Ordinance to discriminate in real estate transactions based upon an individual participating in a housing choice voucher program (Section 8) where subsidies received under the Housing Choice Voucher program are considered source of income. 

    The impact of this change in the Cook County Human Rights Ordinance primarily affects rental of housing in Cook County. The Ordinance prohibits the making of “. . . any distinction, discrimination or restriction in the price, terms, conditions, privileges of any real estate transaction, including the decision to engage in or renew any real estate transaction, on the basis of unlawful discrimination.”  To the extent that a decision is made based upon a person’s participation in a Section 8 or housing choice voucher program this will constitute illegal discrimination under the Ordinance.  

    The following questions and answers are intended to illustrate the impact of the Ordinance and answer a number of your questions regarding the Ordinance.

    1. When did these changes become effective?

    Aug. 8, 2013.

    2. Does the Ordinance apply to all housing?

    The only type of housing that the changes do not apply to is an owner occupied private home in which the owner is renting a room or rooms. This exception also applies if the owner is absent from the residence for a period of not to exceed 12 months. However, the Ordinance applies to all other types of housing including rental condominium units, duplexes and any other kind of residential housing under the Ordinance.

    3. I own a duplex and live in one side of the duplex. Does this change to the Cook County Human Rights Ordinance apply to the rental of my other unit?

    Yes, under the language of the Ordinance.

    4. I manage a condominium association and we just evicted an owner for nonpayment of dues and assessments. We are now looking to rent that condominium unit. Does the Cook County Human Rights Ordinance prohibiting discrimination based on participation in a housing choice voucher program apply to that condominium unit?

    Yes, under the language of the Ordinance as long as that condominium is in Cook County.

    5. Does this Amendment to the Cook County Human Rights Ordinance prohibiting discrimination based upon participation in a housing choice voucher program apply throughout Cook County?

    Generally, this change to the Cook County Human Rights Ordinance prohibiting discrimination based upon participation in a housing choice voucher program applies throughout Cook County. The Cook County Ordinance indicates that it intends to apply to the extent allowed under Article VII, Section 6(c), of the State of Illinois Constitution of 1970. What this means is that the Cook County Ordinance will apply unless there is a conflict between a municipal ordinance and the county ordinance. If there is a conflict between the two then the municipal ordinance will prevail within its own jurisdiction. The Cook County Ordinance goes on to provide that if a municipal ordinance regulates conduct which is prohibited under the Cook County Ordinance and also provides remedies for that conduct that the Cook County Ordinance will not apply and the ordinance of the municipal jurisdiction will apply. The potential problem is that there are not many cases in Illinois dealing with regulatory ordinances and the question of which regulatory ordinance prevails under the Illinois Constitution when a municipal ordinance and a county ordinance are in conflict. Thus, you may have to pursue litigation to resolve the question of whether a municipal jurisdiction that permits discrimination based on participation in a housing choice voucher program applies or whether the Cook County Ordinance applies. A court of law may well determine that the municipal ordinance would apply but the question is whether you want to pursue the litigation and incur the costs involved.  Initial indications from the Office of the Cook County State’s Attorney are that they will view the Cook County ordinance as prevailing unless a municipality in Cook County has its own ordinance regulating fair housing.

    6. What is your best advice if you have listed rental property in a municipality that permits discrimination based upon participation in a housing choice voucher program in their Ordinance?

    The best advice is that if you have listed rental property in such a municipality that you will need to follow the direction of the owner.  If there is an allegation made that you have discriminated based upon a person's participation in a housing choice voucher program you will certainly use the defense of the local ordinance permitting said discrimination and that based on the Illinois Constitution the municipal ordinance applies as opposed to the Cook County Ordinance.  However, the cost of defending such litigation may be more than most parties would want to incur when talking about a rental listing.

    7. What kinds of criteria can a landlord use in screening tenants for their rental property?

    In a statement issued by the Housing Authority of Cook County in connection with the consideration by the Cook County Board of whether to prohibit discrimination based upon a prospective tenant participating in a housing choice voucher program the Housing Authority of Cook County stated as follows: “Owners still have the ability to screen all applicants for suitability for tenancy, applying their screening criteria – criminal background checks, credit checks, home visits, landlord references, etc. – equitably amongst all applicants. If an applicant doesn’t meet the owner’s selection criteria, owners may still deny them housing.” The key will be applying the screening criteria similarly to all prospective tenants. Note, however that the letter from Cook County dated Oct. 23, 2013 contained extensive discussion regarding the use of rent-to-income ratios. The example used in the letter indicated that a landlord using the criteria of two times income to rent ratio would mean the typical applicant would need $2,000 of monthly income for a unit with a rental of $1,000 per month. However, an applicant who has a housing voucher for $985 and who would only need to pay the other $15 out of pocket would meet the income to rent ratio if they had an income of $50 per month. In other words, the income to rent ratio could only be applied to the extent the tenant had to pay the rent from their own income.

    8. Will I need to lower my rent to allow a housing choice voucher program participant to rent the space?

    Again, in a statement issued by the Housing Authority of Cook County it was indicated that “Owners are not forced to drop their rent to lease to a participant (of a housing choice voucher program). They should not, though, inflate their rent to avoid renting to (housing choice voucher) participants.” 

    9. Can I decline to rent to a prospective housing choice voucher program tenant because the prospective tenant does not have the funds to make the required security deposit even though the monthly rent can be paid through the housing choice voucher program?

    Yes, so long as that criteria is applied across the board and uniformly. 

    10. Must I rent to a housing choice voucher program participant who makes application to rent one of my properties?

    The statement provided by the Housing Authority of Cook County indicated that “source of income protection will not require owners to accept housing choice voucher participants simply because they are on the program, but will require owners not to refuse to rent to them simply because they are.” Similarly, in its letter of Oct. 23, 2013 it was stated that “(A) landlord does not have to rent to a tenant simply because the tenant is a HCV holder, but the landlord may not refuse to rent to a tenant because the tenant is a HCV holder.”

    11. If an owner continues to accept applications from prospective market rate tenants and decides to rent to one of those market rate tenants during a period after there has been a tentative agreement with a housing choice voucher tenant pending inspection and determination of a market rent by the Cook County Housing Authority has the owner violated the Cook County Human Rights Ordinance?

    The key to answering this question, as it would be in answering many questions, is what is the policy of the owner as regards continuing to accept additional applications after one has already been submitted and is this policy uniformly applied.  If an owner has a policy to continue to accept rental applications until a final, binding lease is in place and follows that policy in a non-discriminatory fashion then the owner should not be in violation of the Cook County Human Rights Ordinance. 

    12. If the owner of a unit submits an application for tenancy approval under the housing choice voucher program, an inspection is done, and certain repairs are needed can the owner choose not to make the repairs, thus making the unit not able to participate in the housing choice voucher program and then rent the unit to another tenant who does not participate in a housing choice voucher program?

    There is not a clear answer to this particular question. However, it would seem that a unit owner could choose not to make the repairs required to participate in a housing choice voucher program. However, that owner could not then make those repairs in connection with rental of the unit to individuals not participating in a housing choice voucher program. However, there has been no clear guidance in regard to this question.

    13. If a prospective tenant participates in a housing choice voucher program and wants to lease one of my units and the necessary application is submitted to Cook County can I refuse to allow the inspection of the unit to occur until such time as Cook County obtains an administrative search warrant to perform the inspection?

    There is no clear answer to this question. Under the Constitution of the United States and applicable case law there is a right to request an administrative warrant before an inspection is done. However, there is no clear indicator as to whether requiring such a warrant for an inspection would result in charges being filed for violation of the Cook County Human Rights Ordinance or how such a matter will be decided. Further, once such a matter is decided by Cook County, you may well end up having to pursue further review of this question in the courts.

    14. Does the Cook County Human Rights Ordinance apply to real estate brokerage activities, including leasing?

    Yes, the Cook County Human Rights Ordinance provides that it applies to real estate transactions which “. . . means with respect to activity conducted or property located in Cook County, the brokering or appraising of residential real property in Cook County ...”

    15. Does the change to the Cook County Human Rights Ordinance prohibit my inclusion of language in a rental ad or a multiple listing service that will indicate that housing choice voucher program participants are not accepted?

    Yes, to the extent that the property is located in Cook County and, according to the Ordinance, to the extent that any of the activity (i.e. advertising) occurs in Cook County. This may be problematic even if the property is located in a municipality that has an ordinance which permits discrimination based on a housing choice voucher program as the ad or multiple listing service language would appear in areas of Cook County outside the municipality and the Cook County Ordinance on its face regulates “…activity conducted or property located in Cook County….” The Ordinance specifically states “no person shall publish, circulate, issue, or display, or cause to be published, circulated, issued, or displayed, any communication, notice, advertisement, sign and other writing of any kind relating to a real estate transaction which would indicate or express any unlawful limitation or discrimination on the basis of unlawful discrimination.” A limitation based upon participation in a housing choice voucher program is unlawful discrimination under the Cook County Ordinance.

    16. I just entered into a listing agreement for the rental of a unit in Cook County and which is not located in a municipality that permits discrimination based on participation in a housing choice vendor program. My client has instructed me that he/she does not want to rent the unit to a participant in a housing choice voucher program. I know that under the Real Estate License Act I am supposed to follow the directions of my client. What should I do?

    You need to terminate the listing agreement.  The statutory requirements of the Real Estate License Act require that you follow the "lawful" directions of your client.  In this case the direction not to lease to a participant in a housing choice voucher program is not a “lawful” direction.  Also, if you follow that direction and are charged with a violation of the Cook County Human Rights Ordinance and are found to have violated the Ordinance for engaging in discrimination in the providing of real estate brokerage activities the Real Estate License Act provides for a mandatory suspension or termination of your real estate brokerage license.

    Copyright.

  • Community Association Manager Licensing

    Answers To Your Legal Questions

    Those who are are managing community associations for a fee, and wish to continue to do so, need to have a Community Association Manager (CAM) License now issued by the Illinois Department of Financial and Professional Regulation (IDFPR).

    Does the new CAM Licensing Act apply to you?

    The CAM license is NOT a real estate brokerage license and is administered by Illinois Department of Financial and Professional Regulation (IDFPR).

    Illinois REALTORS® Legal Webinars cover the new Community Association Manager’s Licensing and Disciplinary Act

    Do You Need Another License to Stay in Business?

    The lead article in the July 2012 D.R. Legal News deals with the Community Association Manager Licensing & Disciplinary Act (“Act”). That Act was effective July 1, 2010. However, the licensing requirements under that Act were not effective until October 1, 2012. More about the licensing aspects of the Act later but first we need to discuss the application of the Act and whether this Act will require you to obtain an additional license. The legislative intent in the Act indicates that the purpose of the Act is to “provide for the regulation of managers of community associations.” The key questions are what is a “community association” under the Act and who is a manager of a community association under the Act. This article will cover definitions, exemptions, requirements and enforcement and fees under the Act. Read more.

    Updated January 2013

  • Contracts

    Answers to Your Legal Questions

    1. How should I handle multiple offer presentations, and how can I be sure my offer is presented if I am the buyer's agent?
    2. Should a seller make simultaneous counteroffers to two different buyers?
    3. Can you give us any information relative to the effectiveness or enforceability of transactions that are carried out electronically?
    4. I had a buyer's agent tell me that it was illegal to "shop" her client's offer. Is this true?
    5. If I am a buyer's agent in a transaction, may I use the terms of the purchase contract to make sure that my company's portion of the commission will be paid to my company? May I refuse to present the contract until the listing office agrees to modify the cooperating compensation?
    6. Is there really a legal requirement that I present all offers made to my seller client? Is this true even if the property is already under contract?
    7. Is it not the law that an exclusive-right-to-sell contract (a.k.a. exclusive listing agreement) cannot legally be effective for longer than one year?
    8. I am an agent for the seller in a purchase transaction where the seller has been asked to pay money on behalf of the buyer in order for the deal to close. My client and I are unsure how to handle this and we are being told that all "seller concessions" are illegal. Is this true?
    9. The parties agree on the contract price. When the mortgage broker suggests that they increase the price in order for the seller to give some money back, credit the buyer for closing costs or otherwise facilitate the financing of the property. Is this acceptable?
    10. Is it acceptable to use electronic signatures and documents for real estate-related contracts?

     

    1. How should I handle multiple offer presentations, and how can I be sure my offer is presented if I am the buyer's agent?

    The License Act and the Code of Ethics require licensees to present all offers as soon as practicable, unless the seller waives the right to see each offer.

    • There is no legal requirement that an agent present offers in the order in which they were received. However, offers must be presented in a manner that is in the seller-client's best interest, not necessarily that of the agent.
    • There is no legal requirement that the agent disclose to all other buyers that there are other offers on the table. The agent should check office policy as well as consult with the seller as to whether or not to disclose this fact to all buyers. There is language in the REALTOR Code of Ethics, Standard of Practice 1-15, that requires REALTORS to divulge the existence of offers on the property so long as the seller approves of this.
    • After considering all terms of each offer, it is ultimately the seller's decision, which, if any, to refuse, counter or accept.
    • It might be best for the listing agent to present all offers at the same time, if at all possible.
    • With regard to assuring the offer is presented, the model MLS rules give the buyer's agent the right to attend the presentation of her client's offer unless the seller objects in writing. The buyer's representative may then ask to see a copy of the seller's written objection. The buyer's representative does not have the right to be present during any discussions about the offer on the table. (Check local MLS rules for similar provisions.)

    2. Should a seller make simultaneous counteroffers to two different buyers?

    No. In order for there to be a valid contract for the sale of real property, the law requires a "meeting of the minds" between the parties. This essentially means that the parties agree to the terms of the sale. This agreement may be manifest by the buyer's written offer to purchase and the seller's acceptance in writing.

    However, it may also occur when the seller, in rejecting the buyer's offer, submits a written counteroffer. At that time, the buyer may form a valid contract by accepting the terms of the seller's counteroffer in writing. Because an offer is an act by which one party gives to the other party the legal power of creating a contract, written offers should not be made without careful consideration.

    Before the signed acceptance of an offer creates a binding and enforceable contract, it must comply with the terms of the offer. Acceptance of an offer on terms varying from those offered constitutes a rejection. If a seller in writing changes any terms of buyer's offer to purchase, he has rejected the buyer's offer. His changed terms constitute a counterproposal, or new offer, which buyer is free to accept or reject.

    If buyer accepts all the terms of seller's counterproposal, a valid contract is formed upon the signing of the written contract. This would not limit a seller's ability to verbally convey his terms to a buyer. Verbal negotiations between the parties will not legally bind either of them.

    An offer imposes no obligation until it is accepted according to its terms. The person making the offer may withdraw it at any time before it is accepted upon written notification to the person to whom it was made. If an offer is withdrawn, or if the person to whom it is made declines to accept it, the parties are in the same situation they would be if no offer had been made. This means they are both at liberty to deal with other purchasers or sellers.

    Once an offer has been rejected, it cannot be revived by tendering an acceptance. If an offer is not limited in duration, it continues for a reasonable time or until it is accepted or rejected. It is good practice, and essential in some markets, that an offer be limited in time in order to best serve the interests of the person making the offer. Under no circumstances should a buyer make simultaneous written offers to purchase more than one piece of property (unless of course the buyer wants to purchase both). This may result in the sellers, to whom he makes the offers, accepting his terms and forming an enforceable contract. The buyer would then be legally committed to purchase both properties.

    The more common situation is often a seller who wishes to counter to two or more buyers at the same time. He is likely to find himself obligated to sell the same property to two or more buyers if more than one buyer decide to accept his terms. The proper procedure would be for the seller to make a counteroffer to the first buyer, and at the same time make his counteroffer to the second buyer contingent on the rejection of the offer by the first buyer.

    Another method would be for the seller to make a counteroffer to one buyer, placing a 24- or 48-hour limitation on the offer. If that buyer fails to accept the offer within the stated time period or changes any terms, the seller is then free to deal with another buyer or to continue negotiations with the first one, whichever is in the seller's best interest.

    3. Can you give us any information relative to the effectiveness or enforceability of transactions that are carried out electronically?

    Yes. We have previously reported on two general statutory frameworks dealing with electronic transactions, one at the state level and one at the federal level. For a discussion on the federal Electronic Signatures in Global and National Commerce Act (E-sign), analysis of Illinois' Electronic Commerce Security Act (ECSA), see the January 2013 issue of the DR Legal News®.

    Both statutes are an attempt to allow for business transactions to be completed by means of electronic communications, documentation and signatures. E-sign, the federal statute, relies to a large extent on the Uniform Electronic Transactions Act (UETA). UETA does not provide for any extraneous security measures to prove the authenticity of an electronic signature. The Illinois ECSA does give greater weight to digital signatures that can show they have gone through a security procedure. To that extent, there appears to be some inconsistency between the state and federal statutes.

    As with any transaction for the sale of real estate, the issue of whether or not the agreement is enforceable will fall within the Statute of Frauds. In short, the Statute of Frauds is a legal principle that requires certain types of transactions to be in writing to be enforceable in court. In a real estate sales transaction, there must be a sufficient writing to show a "meeting of the minds." Typically, this does not mean one, handy document signed by the parties on the "bottom line." Indeed, there must be a writing or a series of writings that shows the parties agreed to price, description, address, financing, etc. and that the party who will be held to the agreement (the one who will be sued, depending on the facts), has affixed his/her signature to the deal.

    Historically, cases on the issue come down to proof about the meeting of the minds between the contracting parties, but also proof of signature. These will continue to be the issues in the digital age. Is there a sufficient writing, either on paper or electronically and are there authentic signatures indicating the parties' intention to be bound by the agreement?

    It is important to stay current on these issues and to watch the law develop on this subject. There is a case in Massachusetts where the court refused to dismiss the case at the trial level simply because a series of e-mails was the only source of writings indicating the buyer's and seller's intention to be bound to an agreement to sell real estate. Indeed, the Massachusetts court said that this case should go to trial in order to assess whether or not the series of e-mails constituted a binding contract. Shattuck v. Klotzbach, 14 Mass. L. Rptr. 360, 2001 WL 1839720 (Mass. Super. 2001).

    The important lesson here is, in cases of real estate contracts, the issue will likely be whether there is a sufficient writing (even if electronic) to show a meeting of the minds and whether there is a sufficient signature of the parties (even if digital) to bind them to the agreement. Unless admitted by one of the parties, proof of signature will require some authentication of the identity of the signer as well as the intention that the "digital signature" serves as a signature showing intent to be bound. As with most questions of law, the court will say, "Prove it."

    4. I had a buyer's agent tell me that it was illegal to "shop" her client's offer. Is this true?

    Not necessarily. If you represent the seller in a transaction and you have received an offer to purchase the property, in the interest of serving your seller's best interests, you might justifiably call those buyer agents or other prospects that have shown an interest in this property. Of course, you would want to confer with your seller client before taking this type of action. The downside risk would be that if the buyer became aware of this, he might withdraw his offer. While you would not want to disclose the amount of the offer (because you don't want to establish any sort of false ceiling above which other interested buyers would not go), you might have helped your seller client by creating a market for the property.

    While we are dispelling some commonly held mistaken notions, let us also consider that there is no "first in time rule." In other words, if you are the listing agent and you have one offer in hand and more on the way, there is not a legal or ethical requirement that you present the offers in the order received. You are duty bound to present them as timely as practicable and to serve your seller client's best interests. So, depending on the individual facts in the situation, it might be timely to present them all together when you meet the seller after work, as an example. Your seller might direct you to hold them until he can review all offers received. You may legally and ethically follow his direction in this case.

    Here is one final thought while we are on the subject of mistaken notions. There is nothing that requires the seller to abstain from looking at other offers if he is in the midst of negotiating a contract. Let us consider that a buyer made an offer on seller's property. The listing agent presented the offer as required by law. In the meantime, another offer comes in to the listing agent. The agent for buyer #1 and her agent might think that while contract #1 is in negotiations all other bets are off. This is not the case. On these facts, a seller could look at the offer and, under general contract law principles, withdraw his counteroffer on contract #1 prior to delivery of an acceptance by buyer #1 of contract #1. Of course, in situations like the ones discussed here, you should recommend that your client consult legal counsel for advice about legal options and/or the contract status.

    5. If I am a buyer's agent in a transaction, may I use the terms of the purchase contract to make sure that my company's portion of the commission will be paid to my company? May I refuse to present the contract until the listing office agrees to modify the cooperating compensation?

    The general answer to these questions would be "no", under the Illinois Real Estate License Act of 2000 (the Act), the administrative rules of the Act and the REALTOR Code of Ethics (the Code). Section 1450.770(f) in the rules under the Act states as follows: "No licensee shall use real estate contract forms to change previously agreed commission payment terms." Standard of Practice 16-16 under Article 16 of the Code states: "REALTORS, acting as…buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to…buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation."

    Now, let us analyze what these provisions mean in the context of a hypothetical transaction where the property is listed in the MLS, your company is a MLS participant, you have the prospective buyer and you are not happy with the amount of compensation the listing firm is offering through the MLS. You have a statutory duty under the Act to serve your buyer's best interests over your own. So, if you were to write your buyer client's offer on your area's commonly used purchase contract form, adding a provision to that form that seeks to change the MLS offer of compensation by stating that the seller will owe a certain percentage or dollar amount that is greater than the MLS offer, you have potentially violated both the Act and the Code.

    It is always important to keep parties to the various related contracts straight in your mind. The parties to the purchase contract are typically the seller and the buyer. Neither the listing and selling brokerage companies, nor their agents are parties to that purchase contract. Therefore, it may be very difficult, if not impossible, for the brokers to seek enforcement of such a provision in the purchase contract even if it were allowable. On the other hand, the MLS unilateral blanket offer of compensation is a "contract" between the listing office and the cooperating office when the cooperating office performs by being the procuring cause in a successful sale with your buyer client. So, if you are the cooperating agent, it is best to seek any modification to the MLS offer of compensation at your first contact with the listing agent. Recognizing that the listing office might not agree to alter its MLS offer, you may still have agency duties to your buyer to move forward if the subject property is best for them.

    Finally, let us suppose that your company has an exclusive brokerage agreement with this buyer client. The exclusive brokerage agreement calls for your company to be paid through the MLS offer of compensation. However, there is an additional provision that states that your total commission is "X" percent and if your company does not receive the entire amount from the listing side, the buyer will owe your company the difference. Let us also assume that your buyer understands all of this completely. So, the buyer himself includes a provision in the purchase contract that says the seller will pay the amount due the buyer's brokerage firm. The buyer is a party to the contract and the buyer and seller can agree to most anything they see fit during the course of their negotiations. There still may be some questions as to the legal right of the buyer to seek enforcement of these provisions should the sale close, but at least you have not violated the Act or the Code because the action was not yours, but your client's.

    It is also important to note that, as the agent for the buyer client, you may not refuse to present an offer in order to encourage the listing side to capitulate to your demands. Buyers and sellers can do almost anything they wish in the course of contract negotiations, but you should be careful that when you are involved in negotiations, that you are following your client's direction, not your own. Should you have further questions on situations like this, you and your broker might wish to consult your company's legal counsel.

    6. Is there really a legal requirement that I present all offers made to my seller client? Is this true even if the property is already under contract?

    Yes and yes.

    The Illinois Real Estate License Act of 2000 (the Act) sets forth the agency duties that you owe your client in Section 15-15. Specifically, Section 15-15(a)(2)(B) states that a licensee must promote her client's best interest by "[T]imely presenting all offers to and from the client, unless the client has waived this duty." In addition, the REALTOR® Code of Ethics, at Article 1, Standard of Practice 1-6, says "REALTORS® shall submit all offers and counter-offers objectively and as quickly as possible." Further, Standard of Practice 1-7 goes on to say that the REALTOR® shall continue to submit all offers and counter-offers until closing unless the client has waived this obligation in writing. Thus, the authority and direction is clear that you must do this in the best interest of your client.

    The question then becomes, how can you prove that you have presented all offers and counter-offers in a timely manner? This author believes that the best way is to ask your client to make some notation on the face of the offer that has been presented that he has seen the offer or counter-offer and that it is being rejected (assuming rejection in this case). While there is no legal requirement for a seller to do this, it is a very good way to assure the other side that your seller is receiving and considering the offers or counter-offers, and to indicate that you have fulfilled your legal and ethical obligations.

    Another helpful way to show that you are fulfilling your legal and ethical obligations is to follow your local MLS rule, if it has one, saying that the agent presenting an offer or counter-offer may ask to be there for the offer presentation unless the seller objects to this. (If the seller objects, then the buyer's side would have the right to see the seller's signed written objection). If you are the agent for the seller, it only helps to assure the other side that you are presenting the offers and counter-offers in a timely and honest manner. This can be an especially helpful tool in a situation where there might be multiple offers.

    To summarize, it is your legal and ethical obligation to present all offers and counter-offers until closing on a property that is already subject to a contract. This is true unless your seller has expressly waived this duty. Then, a very good way to assure the buyer's side on unsuccessful offers that the offers have been received is to give the buyer's side some form of written acknowledgement signed by your seller client. While not required by law, it can go a very long way in assuring all concerned parties that you are fulfilling your legal and ethical obligations.

    7. Is it not the law that an exclusive-right-to-sell contract (a.k.a. exclusive listing agreement) cannot legally be effective for longer than one year?

    No, that is not the law. Indeed, an exclusive-right-to-sell contract could be executed to last for more than one year. What is required in an exclusive brokerage agreement is a definite termination date (among other requirements that can be found at Section 1450.770 in the administrative rules under the License Act). So, just as an example, a broker might legally enter into an exclusive listing contract with a seller client that would last for two years, so long as there is a definite termination date included in the contract, or if the agreement renews annually with no more than 30 days' notice required to terminate.

    8. I am an agent for the seller in a purchase transaction where the seller has been asked to pay money on behalf of the buyer in order for the deal to close. My client and I are unsure how to handle this and we are being told that all "seller concessions" are illegal. Is this true?

    No. Not all seller concessions are illegal. However, when there are concessions made by the seller to credit money or some other benefit to the buyer in a purchase transaction, it is very important to ask some questions:

    • Why is the concession being requested by the buyer?
    • Who is requesting/suggesting that the concession be made?
    • Will every "player" in the entire transaction be told about the concession?
    • Is the value of the requested concession reasonable?
    • Is the reason for the concession legitimate?
    • Is this a new suggestion being made by a "new player" in the transaction chain after the contract price has been fully negotiated between seller and buyer?
    • Is the listing agent being asked to create a "new" set of documents and/or is he being asked to change a listing or marketing price AFTER the agreement has been reached?
    • Does there seem to be collusion or a "scheme" among some of the "players"?
    • Are the concessions intended to inflate the price or do they support the inflated purchase price?

    Sometimes, in order to help a deal go together, a buyer agent might request that the seller pay $1,000 (for example) towards buyer's closing costs to help the buyer close the transaction. Assuming the buyer's lender knows this is the situation, if the buyer's lender needs to know this pursuant to the buyer's loan contract/ agreement, and assuming an independent appraisal of the subject real estate would support the value of the transaction, this might be an example of a legitimate seller concession.

    On the other hand, consider this example. Seller and buyer agree that buyer will buy a home for $200,000. The contract is signed and the buyer's agent suggests to his buyer client that the buyer use a particular mortgage broker that he knows. The buyer's agent and the mortgage broker suggest that the seller should agree to give a $20,000 "second mortgage," the buyer will write a new contract for $220,000 and they ask the listing agent to change the listing price to reflect the new contract price. At closing, the seller will "forgive" the "second mortgage" and the net purchase price will be $200,000 (exactly what the seller was hoping for).

    The buyer's agent and the mortgage broker in our example also seem quite confident that the property will appraise for the new contract price of $220,000. On this example, if you start asking some of the questions listed above, you will likely be very suspicious that someone is being defrauded. It is likely the end lender or the investor/investment pool that might own the loan in an investment portfolio who will not know that a loan was made for $200,000 with no down payment or money in from the buyer. And the appraisal amount was inflated and likely not performed in an objective and independent manner.

    What should you do if you suspect your transaction might involve loan fraud? You should advise your client to consult with her own attorney right away. If you are being asked to do something like changing amounts on a previously agreed purchase contract or changing your listing price after the fact, contact your managing broker and/or your company's legal counsel immediately because you may be taking actions that could make you and/or your company complicit in the "scheme." Even if you are at the closing table, if you become aware of facts that cause you concern, try to take your client aside to express your concerns and recommend that your client obtain legal advice immediately.

    9. The parties agree on the contract price. When the mortgage broker suggests that they increase the price in order for the seller to give some money back, credit the buyer for closing costs or otherwise facilitate the financing of the property. Is this acceptable?

    If this fact situation comes up in your practice, proceed with extreme caution. Also, don’t be tempted to go along with the mortgage broker’s direction by simply writing a new contract reflecting the new price. There are some red flags here. Sellers and buyers should be referred to their own attorneys about whether or not they should structure their deal in this way. In addition, the question remains does the ultimate lender know what is going on? In times like these it is important for members to ask important questions of their clients and not be tempted to rewrite contracts to include prices or other pertinent facts that do not accurately reflect the transaction.

    10. Is it acceptable to use electronic signatures and documents for real estate-related contracts?

    Yes, if the parties to the contract agree electronic signatures/documents will be used, then they are allowable. You do need to be sure there is not a statutory requirement to provide disclosures or notice in writing, in which case, the electronic signatures/documents would not be acceptable without  the written consent of the person to whom written notice is required to be given. An example of this would be where a purchase contract is entered and before becoming bound, the buyer has a right to receive the Illinois Residential Real Property Disclosure Form. The buyer would need to consent to receiving this form electronically if that is how this form will be provided when the entire transaction takes place on an electronic platform. If consent is not given, the disclosure form would need to be provided in hard copy. Also, keep in mind that the evidence for proving signatures or the content of contractual provisions if there is denial or disagreement by one of the parties will be different than evidence that might be used to prove a “wet” signature or agreements made “on paper.”

     

  • Disclosure

    Answers to Your Legal Questions 

    1. Residential Real Property Disclosure Act
    2. The License Law and agent ownership interest
    3. Liability in sales based on the virtual tour
    4. Short sale transactions/REO transactions
    5. Wind farms, proposed bypass construction, rock quarries, landfill sites
    6. Disclosures for lease transactions
    7. Megan's law

     

    1. What are some things licensees should be aware of relative to the Illinois Residential Real Property Disclosure Act (the Act)?

    1. Background on Seller Disclosure in Illinois. (see Attachments - Amended)

    2. It is important to know that a seller is under a specific duty to amend the original form if he gains new knowledge of material defects that were previously unreported.
    3. Under the Act, if the seller refuses or fails to provide a disclosure form, what are the buyer's rights to terminate the contract?

      The Act indicates first that a seller shall provide the disclosure form prior to the acceptance of a contract. If a disclosure form is not provided until after a contract is signed, the buyer has three business days in which to terminate the contract, only if a material defect is indicated on the form. If the disclosure form is provided prior to the contract, and a supplement to the form is made under the Act, and that supplement indicates a material defect, the buyer would not have the right to terminate the contract at this time. The only exception to that situation would be where the seller did have actual knowledge of the defect prior to completing the first disclosure form. In other words, the seller lied on the first form, had a change of heart and indicated a defect on the supplemental form.

      So, if the seller provides the initial disclosure form indicating a material defect after a contract is entered and prior to closing, the buyer could terminate the contract within three business days. The buyer would lose the right to terminate the contract after closing, or when the title transfers.

    4. What are the exemptions under the Act?

      Section 15 of the Act does contain some exemptions. Some of the more common exemptions are executors in the course of estate administration, lenders after taking the property back pursuant to some foreclosure action and relocation companies (assuming the seller being relocated has completed a form for use). Please note this list itemizes only a few of the Section 15 exemptions.

    2. What is the status of the License Act relative to an agent selling, purchasing or leasing property in which the agent has an ownership interest? Must the agent disclose any interest he/she has in the subject property?

    First, Section 10-27 of the Real Estate License Act of 2000 (the Act) provides that a real estate licensee must disclose, in writing, his/her status as a licensee to all parties in a transaction when the licensee is selling, leasing or purchasing any interest in real estate, either directly or indirectly.

    In other words, if the real estate licensee has or will have any interest at all, the parties to the transaction must receive written notice that the property is or will be broker owned. This provision applies if the licensee owns 100 percent of the property rights, if the licensee holds a beneficial interest in a trust (including Illinois land trusts), if the licensee owns stock in a non-publicly traded corporation, or if the licensee owns as a partner in a partnership.

    In the interest of consumer protection, which is one of the stated goals of the Act, members of the public should be informed in a situation where they are dealing with a licensed person who is well-educated in the practice of real estate.

    Second, if a licensee is selling, purchasing or leasing property in which the licensee is or will be the sole owner, Section 10-30 of the Act allows the licensee to advertise "By Owner" in certain situations. The property that is the subject of the transaction must be solely owned. That means the licensee owns or will own 100 percent interest in the property, the licensee owns or will own with a spouse as a joint tenant or tenant by the entirety, or the licensee owns or will own a 100 percent beneficial interest in a land trust. If a licensee is selling, purchasing or leasing property "By Owner," any yard sign or advertisement placed in any advertising medium must contain the words, "broker owned."

    Third, the licensee should be certain he/she has not agreed to list, purchase or lease through his/her sponsoring broker under the terms of any employment contract or independent contractor agreement with his/her sponsoring broker.

    Finally, it is important to know that the licensee/owner may not serve as a dual agent in any transaction in which he/she has or will have an ownership interest.

    3. A listing agent was concerned when a buyer purchased a property without ever physically seeing the listed property. The buyer was a soldier on active duty in the military and was unable to do a physical walk-through. He had, however, viewed a virtual online tour of the property that did not show marks on the basement walls from previous water damage in the basement. Buyer bought the property without ever actually seeing it, moved in, experienced flooding in the basement and threatened to file a lawsuit and/or License Act complaint against the listing agent/office for misrepresenting the property. What result?

    There is no clear answer to this question. However, we may see his type of scenario more as consumers and clients rely on technological means to examine real estate without physically walking through the property. Start by asking a few more questions. What is a virtual tour really? Is a virtual tour just a form of advertising or is it really supposed to be a "tour" that could be used in place of a physical walk-through? The answer here may very well depend on actual facts in a particular situation.

    Let us consider a couple different scenarios. First, assume that the listing agent assists or oversees the creation of a "virtual tour" that will appear on the agent’s Web site along with other information about the listing. In this scenario, let us also assume that the "tour" consists of a few still photos showing views of the main rooms/areas in the property. Also, we don't know anything about the circumstances of buyers viewing the property on-line. The listing agent might even consider adding language to explain that this tour is provided for marketing purposes only and should not be used in place of a physical visit. On these facts alone, the listing agent would have a pretty good argument that the virtual tour constitutes advertising only and the buyer should have made an effort to physically see the property. Also, the listing agent would want to make sure the seller client has completed the required disclosure form that would be given to the buyer prior to becoming bound on any contract. Thus, the seller should have the argument that any known defects have been disclosed under the Illinois Residential Real Property Disclosure Act.

    Now let us consider some facts on the other extreme. Suppose there is a virtual tour included with other information on the listing agent's Web site. The tour is one that is more like a movie version and it leads the viewer on a virtual "walk" around every room. In our example, the listing agent and seller take great care not to show the viewer the side of the basement where the water stains are present on the walls. Let's consider that this buyer is a soldier on active duty overseas and his only access to his future home prospects is via the Internet. The buyer views the virtual "movie-like" tour and based on his virtual walk-through, he contacts his agent to make an offer on the property sight unseen. The buyer agent does so, the seller accepts the contract, the seller supplies all required disclosure reports and they consummate the deal. When the soldier moves in to his new home, the basement floods terribly after the first rain and the soldier is looking for someone to sue.

    Of course there are many questions here. One question would be whether the seller disclosed the water problem on his seller disclosure report. Another might even be whether his buyer's agent had any duty to do a physical inspection of the property in place of his buyer client knowing his client's special circumstances. And still another would be whether or not the purposeful exclusion of the water-stained wall from the tour was a misrepresentation of the physical condition of the property. If the buyer agent or the buyer walked through the home, this defect would have been patent or obvious. The seller's duty is to disclose latent or hidden physical material defects that would not be obvious to someone walking through the property. On the facts given above, there could be an argument that the purposeful exclusion of the water stained wall added to the fact that the listing side knew the buyer was not going to be able to view the property himself could provide a basis for liability on the part of the seller and his agent.

    NOTE: Buyer's Agent's Role in the Virtual Sale

    This was not part of the original question, but we should also consider the duties of the buyer's agent. The buyer’s agent should take care that she is fulfilling her statutory duty to serve her buyer client's best interest. On the latter example, it would not be out of the question for the buyer agent to share in the responsibility to the buyer. The question for the buyer agent becomes whether or not there is any way to protect her against liability. This would not be easy to do given the buyer agent's statutory duties to the buyer and having the knowledge that the buyer will not be able to view the property himself. In our example, the wall stains are obvious to the person who walks through the property. The only protection for the buyer's agent might well be the affinity that the buyer develops for their agent that may result in the desire not to sue or involve them in the dispute. The buyer's agent should also take great care to recommend that inspections by experts be done in cases like these.

    As technology changes the practice of real estate brokerage and very likely changes the way consumers and clients behave, everyone should take great care to think how the information is being presented and how it will be used and/or relied upon. In the past you may have been trying to market the property and put "the best foot forward." However, you may now need to indicate that this material is for marketing purposes and should not be relied upon in lieu of a physical inspection of the property or; in the alternative, you may need to present a more balanced view in the virtual tour. And, as always, agents should remember to consult with their brokers and company legal counsel for specific guidance and advice.

    4. Must a seller provide property disclosure forms in short sale transactions? What about in REO (lender has foreclosed on the property) transactions?

    Short Sales Scenario: In a short sale transaction, the seller is still the title holder of the property. Thus, the seller will be required to provide the “standard” disclosure forms to the buyers in the transaction. These disclosures will include the form required under the Illinois Residential Real Property Disclosure Act, the form and pamphlet/flyer required under the Illinois Radon Awareness Act and the federal lead-based paint disclosure form and pamphlet required for residential properties built before 1978. None of these statutes provides any sort of exemption for properties that are being sold subject to lender approval in a “short sale.” Generally speaking, a short sale situation alone will not be enough to relieve the seller of the duty to provide these forms.

    Foreclosure Scenario: In a transaction where the lender has foreclosed on the mortgage and taken the property back (REO transaction), there are some exemptions from the various disclosure requirements. An REO seller will not be required to provide a disclosure form under the Illinois Residential Real Property Disclosure Act. Likewise, the REO seller will not be required to provide a disclosure form and flyer/pamphlet under the Illinois Radon Awareness Act. However, there does not appear to be an exemption for REO sellers under the federal lead-based paint disclosure laws. There will be no lead-based paint disclosure forms provided/required when the property is sold at the foreclosure sale. However, we believe the REO will be required to provide lead-based paint disclosure when the REO resells pre-1978 residential property to a new buyer.

    5. Must licensees disclose things such as wind farms, proposed bypass construction, rock quarries and landfill sites?

    This will depend largely on the facts and the agent should assess whether it has a direct physical impact on the subject property, what do they actually know about the situation and will it have an adverse effect on the value of the property (this is a tough one). In addition, sometimes an agent might direct the prospective buyer to published sources of related information.

    6. What property disclosures are required for residential lease transactions?

    The lead-based paint disclosure form and pamphlet would be required for those residential units built before 1978 each time there is a new tenant in the unit. A radon disclosure form would only be required in situations where someone has conducted a radon test that shows a radon hazard in a unit on the second floor and below and there has been no subsequent test showing no hazard, or there has been no remediation. 

    7. What are a licensee's duties to disclose under sex offender notification laws like "Megan's Law?"

    Much has been written and spoken about notification statutes for convicted sex offenders. Most notably in the federal arena is the statute commonly referred to as "Megan's Law." There is a similar statute in Illinois called the Sex Offender Notification Act. The two will be discussed together since the objective is the same. Both require convicted sex offenders to register with their local government in order to put the public on notice as to where they live.

    The relevant question for the real estate licensee is what, if any, duty is the licensee under to provide notice under these statutes to buyers of real estate. Neither notification statute has any specific provision placing a duty upon real estate licensees to provide these registration lists to anyone. In fact, a licensee should not disclose if there is or not a registered sex offender in the neighborhood because this information might not be accurate. However, if a licensee represents a buyer (especially a buyer with children) it might be prudent for that licensee to direct the buyer to the source of the list (Illinois State Police maintains the list). Licensees would not want to put themselves in the position of actually providing the list, as they may be taking on more than is really necessary. Keeping in mind the licensee's duty to serve her client's best interest, however, it may be prudent to direct buyers to the source of the list, and let the buyers pursue this if they so choose.

    If the licensee represents the seller, there is a very good argument to be made that there is no legal obligation to do anything. The notification statutes do not place a specific duty on the licensee, and the license law requires the seller representative to look out for the best interests of the seller. In addition, if there is a sex offender in the neighborhood, it is an off-site situation and has nothing to do with the physical condition of the property the licensee is marketing. However, for practical reasons, after discussion with the seller client, a licensee may consider directing buyers to the source of the list. This would hold especially true in a situation where there is actually a registered sex offender known to be living in the neighborhood.

    If the licensee is a dual agent, the analysis becomes even more difficult. In serving the buyer's best interest, it may be prudent to direct the buyer to the source of the list. But what about the seller's interests here? The response here may be that this information is public. As a result, if the licensee directs the buyer to the source of the list, she is not giving any information the buyer could not get anyway.

    The License Act contains language relative to disclosure of off-site conditions. Under the License Act at section 15-20, there would be no legal duty to disclose if there is a fact situation (i.e. a registered sex offender living in a neighborhood) dealing with property that is not the subject of the transaction.

    The discussion becomes one of legal duties versus practical considerations, and a licensee should look for guidance from her broker as well as the real estate company's legal counsel.

    Updated January 2012?

  • Do Not Call

    Answers to Your Legal Questions

    1. What is the Do Not Call Registry?

    2. Do the do-not-call rules prohibit cold-calling?

    3. Do the do-not-call rules apply to real estate brokerage businesses?

    4. What kinds of telephone calls are covered by the do-not-call rules?

    5. Tell me a little bit more about the Do Not Call Registry and how you access it.

    6. Can a real estate brokerage company obtain one list for all of its agents?

    7. Do the do-not-call rules apply to calls to businesses?

    8. Are there any exemptions to the prohibition on not calling telephone numbers on the Do Not Call Registry?

    9. Do the do-not-call rules deal only with telephone numbers to which calls cannot be made?

    10. How do I comply with the do-not-call rules?

    11. What if our company or some of its licensees would like to continue to cold call or telemarket? What do we need to do then?

    12. How will the do-not-call rules be enforced?

    13. What if we accidentally make a cold call to someone on the Do Not Call Registry?

    14. Should a real estate brokerage company adopt a policy with regards to cold-calling or should this be left up to individual sponsored licensees?

    15. Do the do-not-call rules apply to calls made to FSBOs?

    16. Can I call individuals who come to my open house and sign in on a guest register. Can we use this guest register as a basis for calling these individuals?

    17. My company provides a service by which consumers can call a phone number (sometimes an 800 number) to obtain information about properties that we have listed. This service captures the phone numbers of those individuals who have called and we would like to be able to call those numbers. Do the do-not-call rules prohibit such an activity?

    18. Sales agents in our office often call Sellers from expired listings of other offices to see if we can list those properties. How do the do-not-call rules impact that practice?

    19. Some of our sponsored licensees have Virtual Office Web Sites (VOWs). Can those sponsored licensees, or their representatives, telephone those individuals who have registered on their Virtual Office Web Site (VOW)?

    20. Can we call visitors to our office Web site if their phone numbers are listed on the Do Not Call Registry?

    21. Do the do-not-call rules impact any other kinds of communications besides telephone calls?

    22. Do we have to register if we have a policy in our office that does not allow cold-calling?

    Registration on the Do Not Call Registry of a phone number is effective for five years. The numbers on the list are available by area code and five area codes can be obtained at no charge. As of Oct. 1, 2016 there is a $61 charge per area code thereafter to a maximum annual fee of $16,714. You can also look up individual phone numbers free of charge on an FTC Internet page.

    1. What is the Do Not Call Registry?

    The Do Not Call Registry is a list of residential telephone numbers available through the Federal Trade Commission (FTC) Web site that cannot be called “for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services.”

    2. Do the do-not-call rules prohibit cold-calling?

    No, the rules only prohibit cold-calling or telemarketing to phone numbers listed on the Do Not Call Registry.

    3. Do the do-not-call rules apply to real estate brokerage businesses?

    Yes, both to calls to phone numbers inside the state of Illinois and calls to phone numbers outside of the state of Illinois.

    4. What kinds of telephone calls are covered by the do-not-call rules?

    Any telephone call to a residential telephone subscriber for the purpose of encouraging the use of the services of a real estate brokerage company or its sales agents or the purchase, rental or investment in any real property or inventory of the real estate brokerage company.

    5. Tell me a little bit more about the Do Not Call Registry and how you access it.

    The National Do Not Call Registry is continually updated by the FTC. The Do Not Call Registry is available through the FTC Web site. To get the list, go to https://telemarketing.donotcall.gov

    6. Can a real estate brokerage company obtain one list for all of its agents?

    Yes, a real estate brokerage company can obtain a unique identifier or account number, which can be provided to its agents. All of its agents can then access the Do Not Call Registry using that account number.

    7. Do the do-not-call rules apply to calls to businesses?

    No, the do-not-call rules only apply to residential telephone subscribers who put their telephone numbers, including cell phone numbers, on the list.

    8. Are there any exemptions to the prohibition on not calling telephone numbers on the Do Not Call Registry?

    Yes, there are several exemptions. The primary exemption is what is called the "established business relationship" (EBR) exemption. The established business relationship has two parts. The first part is an exemption for a period of 18 months from the date of the last payment or transaction with the company. The second part is that there is an exemption for a period of three months after an inquiry from a consumer concerning a property offered by the real estate brokerage company or the use of the services of the real estate brokerage company.

    Another exemption is if you have been granted express permission to call. This permission must be in writing and must list the phone number or numbers that can be called. The last exemption would be for calls to "personal acquaintances." Personal acquaintances are defined as "any family member, friend, or acquaintance of the person making the call." Past customers may become "personal acquaintances." However, to say all past customers are "personal acquaintances" and, thus, fall under this exemption would not be accurate! Remember, if challenged you will have to prove the exemption exists.

    Please note that any of these exemptions can be terminated by the consumer specifically requesting that no further calls be made to the consumer. This is true even if the consumer continues to work with you or use your brokerage services. If challenged as to whether an exemption applies, the FCC has indicated the caller will need to prove the exemption exists by clear and convincing evidence.

    9. Do the do-not-call rules deal only with telephone numbers to which calls cannot be made?

    No, the rules also deal with what you must do if you are going to cold-call or telemarket to phone numbers not on the Do Not Call Registry.

    10. How do I comply with the do-not-call rules?

    First, your company must decide whether it or any of its agents will engage in cold-calling. Whether you engage in cold-calling or not, you must have an office policy on do-not-call compliance. If you do not have an office policy in place, you would not have any defense should anyone complain. Get Illinois REALTORS®' sample office policy manual, pages 61-64.

    11. What if our company or some of its licensees would like to continue to cold call or telemarket? What do we need to do then?

    You will need to obtain a copy of the phone numbers on the Do Not Call Registry in the area codes that you will be calling. You may not call any of those numbers unless an exemption applies. Your list must be updated every 31 days from the Federal Trade Commission Web site. You are required to put into place a written policy of procedures for compliance with the do-not-call rules. Individuals who might be making cold calls or telemarketing must be trained to comply with the do-not-call rules and your procedures. You must also maintain a list or record of those callers contacted who have requested that they not be called again in the future. Requests for no future calls from individuals whose phone numbers are not on the Do Not Call Registry must be honored for a period of five years. Cold calls may be made only during the hours of 8:00 a.m. to 9:00 p.m., local time at the location where the call is received. There are special rules concerning artificial messages or automatic dialers, which you would need to review separately. All information provided must be truthful and the caller cannot mask the location or identity of the caller.

    12. How will the do-not-call rules be enforced?

    There will be several mechanisms for enforcement of rules. The first is that there could be a fine of up to $40,000 per violation. These fines would be imposed by the regulatory agency, the Federal Commerce Commission, or Federal Trade Commission based upon complaints from consumers. In addition, litigation could be commenced by the Attorney General of the State of Illinois for violations of the rules or individuals could bring a private lawsuit if they have received calls twice in a 12-month period from the same company.

    13. What if we accidentally make a cold call to someone on the Do Not Call Registry?

    There are provisions that will excuse you from a call made in error if you follow the procedures described in question number 11.

    14. Should a real estate brokerage company adopt a policy with regards to cold-calling or should this be left up to individual sponsored licensees?

    A real estate brokerage company should adopt a policy in regards to whether cold-calling will be allowed by its sponsored licensees. The way the do-not-call rules are written, it appears that the ultimate liability for violation of the rules belongs to the real estate brokerage company. In addition, the private right of action is based upon two calls within a twelve-month period from the same company. Thus, the policy should be uniform throughout the real estate brokerage company with regards to whether there will be cold calling and, if so, how it will be done.

    15. Do the do-not-call rules apply to calls made to FSBOs?

    Yes and no. Yes, the do-not-call rules would prohibit a real estate licensee from calling a FSBO Seller for the purpose of trying to obtain a listing or otherwise do business with that Seller if that Seller's phone number is listed on the Do Not Call Registry. However, if the real estate licensee were calling on behalf of a Buyer-Client who is interested in the property, there would appear to be no prohibition under the do-not-call rules to calling the FSBO Seller concerning the interest of the prospective Buyer. However, the real estate licensee must limit their discussion to the interest of the Buyer-Client and not use the call for trying to solicit a listing of the property.

    16. Can I call individuals who come to my open house and sign in on a guest register. Can we use this guest register as a basis for calling these individuals?

    You cannot call the individuals who sign the guest register if their phone numbers appear on the Do Not Call Registry unless the guest register specifically seeks permission to call the guest and the guest agrees to allow, in writing, for a call from the real estate licensee indicating the phone number or numbers that can be called.

    17. My company provides a service by which consumers can call a phone number (sometimes an 800 number) to obtain information about properties that we have listed. This service captures the phone numbers of those individuals who have called and we would like to be able to call those numbers. Do the do-not-call rules prohibit such an activity?

    Yes, the do-not-call rules would prohibit such an activity as to those phone numbers that appear on the Do Not Call Registry. If the telephone numbers do not appear on the Do Not Call Registry, then you may call those numbers. Typically, a service like this does not give the caller an indication that he or she will be called back nor that their information will be captured.

    18. Sales agents in our office often call Sellers from expired listings of other offices to see if we can list those properties. How do the do-not-call rules impact that practice?

    If the phone number of the Seller is on the Do Not Call Registry you will not be able to call them unless one of the exemptions applies.

    19. Some of our sponsored licensees have Virtual Office Web Sites (VOWs). Can those sponsored licensees, or their representatives, telephone those individuals who have registered on their Virtual Office Web Site (VOW)?

    If the telephone number of the user of the VOW is not on the Do Not Call Registry, then that phone number may certainly be called. However, assuming that the phone number is on the Do Not Call Registry, the best recommendation would be not to call that phone number unless permission is specifically granted by the person registering for the VOW. Express permission can be granted electronically, and this should be sufficient. Should the user of the VOW sign some type of a representation agreement to be represented by your sales agent who has the VOW, then there would be an existing business relationship which would permit a call from the agent to the user of the VOW. However, if there is no client relationship the question will be whether accessing the VOW constitutes an inquiry concerning the services of the agent and properties available through the agent. If accessing the VOW constitutes such an inquiry, then there would be an exemption for a period of three months after that inquiry during which the agent could call the user of the VOW. However, until clarified, the better practice is to obtain specific permission from the user of the VOW—perhaps through an "opt-in" or the answering of a specific question—to call the user at a specified phone number. Remember, the exemption provided by the existing business relationship can be terminated by a user requesting that no calls be made to that user. This is true notwithstanding the fact that the user of the VOW may continue to use that VOW even after they have indicated they do not want any calls from your sales agent.

    20. Can we call visitors to our office Web site if their phone numbers are listed on the Do Not Call Registry?

    No, not unless an exemption applies and review of a Web site would probably be considered as reviewing advertising and not an inquiry concerning the services or products of your company.

    21. Do the do-not-call rules impact any other kinds of communications besides telephone calls?

    Currently the do-not-call rules do not impact any other kind of communication other than those by telephone call. Thus, e-mails, facsimiles, and communications through the United States mail or other delivery service are not affected by the do-not-call rules. There is legislation affecting "no fax" principles. For information on that, visit Do Not Fax resources (original link is to www.illinoisrealtor.org/legal/issues/donotfax). Note there are rules that regulate unsolicited e-mails. Get information on compliance with state and federal commercial e-mail legislation (original link is to www.illinoisrealtor.org/legal/issues/email).

    22. Do we have to register if we have a policy in our office that does not allow cold-calling?

    Upon review of information published by the Federal Trade Commission (FTC), all sellers or telemarketers who make calls on behalf of sellers could be subject to fines for violating the do-not-call rules if they do not register for their area code(s) and pay any applicable fee. In other words, if a seller/telemarketer were to make a "cold call" to a person who is not on the Do Not Call Registry and for which no exemption applies, the seller/telemarketer could be subject to fines for each call made simply because they have not registered with FTC to access the DNC list. Yes, you read this correctly. According to the FTC, if you are a seller or a telemarketer, you must pay the fee (or at least register for your area code(s)), even if you never call a person who is on the list. The FTC says the collection of fees is essential in order to support maintenance of the Do Not Call Registry.

     

  • Do Not Fax Issue

    Resources and Answers to Your Legal Questions

    The Junk Fax Prevention Act

    On July 9, 2005, President Bush signed the Junk Fax Prevention Act restoring the "established business relationship" (EBR) exception that allows associations and other businesses to send unsolicited commercial faxes to their members and clients.

    In addition to restoring the EBR language, the bill requires that all unsolicited commercial faxes:

    • include an opt-out provision on the first page of the fax

    • provide a cost-free, 24-hour means for the recipient to request to be removed from the fax distribution list

    • requires that fax numbers be obtained either directly from the recipient or from a public source to which the recipient gave the number for publication (i.e., a website, advertisement or directory)

    • and "grandfathers" in fax numbers in the possession of the sender at the time of enactment.

    Background on Fax Legislation

    The Telephone Consumer Protection Act of 1991 prohibits the transmission of an unsolicited facsimile advertisement to fax machines without the express permission or invitation of the recipient.

    Since 1992, the Federal Communication Commission had maintained that an established business relationship (EBR) between the sender and the fax recipient establishes the requisite permission.

    In July 2003, the FCC reversed its longstanding position and issued a rule removing the EBR exemption. The FCC's rule revision requires anyone sending a fax advertisement to first get express written and signed permission of the recipient. Thus, the rule would prohibit real estate brokers and agents from faxing property listings to consumers who call asking for information on available properties without signed, written permission indicating the fax number to which a fax may be sent.

    Recognizing the problems created by its rule, the FCC has delayed three times the effective date of its rule that removes the existing business relationship (EBR) exemption from the Telephone Consumer Protection Act. The National Association of REALTORS® and the Illinois REALTORS® join a long list of associations advocating for reinstatement of the EBR exemption. On July 9, 2005, President Bush signed such legislation called the Junk Fax Prevention Act (read more above).

    • Read a Q&A on the fax law prepared by NAR's legal department.

    • Download model consent language drafted by Illinois REALTORS® legal counsel ("Rider to Brokerage Agreements," Form 351). It can be used by a brokerage company to gather written consent to contact a person by telephone, fax or e-mail.

    Sources: NAR, ASAE and Illinois REALTORS® Legal Counsel

    Updated January 2017

  • Drone Rules

    Commercial Drone Rules Finally Announced, 'Less' Red Tape To Fly (Published July 2016)

    New Rules (effective August 29, 2016) Still Present Significant Compliance Issues for Businesses

    By Jeffrey T. Baker, Sorling Northrup Attorneys

    Nine months after its Congressionally-imposed deadline, the Federal Aviation Administration (FAA) has finally announced its rules for the commercial use of drones. The FAA’s final rules for drones, or small “Unmanned Aircraft Systems” (UAS), will become effective in August of 2016. While the new rules purport to reduce the administrative hassle of flying legally, the FAA’s 624-page rule book still imposes a substantial compliance burden on businesses hoping to take advantage of this emerging trend.

    FAA’s Basic Requirements

    In short, the FAA’s final drone rules permit the commercial operation of small drones, not weighing more than 55 pounds, during daylight hours and that do not fly higher than 400 feet off the ground. The operator must maintain visual line-of-sight with the UAS at all times, must be at least 16 years old and must possess a remote pilot airman’s certificate issued by the FAA. The certificate must be recertified every two years. The FAA’s new rules include many other requirements, exceptions, and variations on the basic rules, such as:

    Further Operational Limitations

    • A UAS may be flown higher than 400 feet as long as it remains within 400 feet of a structure.
    • Maximum groundspeed of a UAS may not exceed 100 mph.
    • Those without a remote pilot airman’s certificate may operate a UAS but must only do so under the supervision of someone that does have the certificate.
    • Daylight is actually defined in the rules to begin 30 minutes prior to official sunrise and ends 30 minutes following official sunset. Drones may actually be flown at night provided they are equipped with anticollision lighting capable of being seen for up to 3 miles.
    • Drones may not be operated from moving vehicles unless the operation is over a sparsely populated area.

    The FAA has said it is developing an online portal where pilots may request a waiver of any of the new rules’ requirements upon satisfactory proof that the proposed flight “will be conducted safely.”

    But some rules appear to make use of drones outright impractical without such a waiver. For instance, perhaps one of the most restrictive rules is that drones may not “operate over any persons not directly participating in the operation, not under a covered structure, and not inside a covered stationary vehicle.” This rule essentially makes flying above crowded, urban areas impossible without a waiver.

    The Drone Pilot’s Certificate

    The FAA’s new drone rules require all commercial operators to possess a remote pilot airman certificate or to be under the direct supervision of a person who has been issued this certificate. To be approved for the certificate, operators will need to complete an FAA application, submit to a background check and take and pass an “initial aeronautical knowledge test” at an FAA approved knowledge testing center.

    Helpful Links

    For detailed information on the rules associated with becoming a UAS pilot, see the FAA’s advisory circular at: http://www.faa.gov/uas/getting_started/fly_for_work_business/becoming_a_pilot/.

    For detailed information on the knowledge standards required of UAS pilots, see the FAA’s draft certification standards at: https://www.faa.gov/training_testing/testing/acs/.

    The written test for UAS pilot certificates has not been completed yet, however, the FAA has published guides for applying for and obtaining the certificate. Importantly, commercial operators will need to understand that they will be responsible for demonstrating a basic understanding of airspace and flight regulations, safety procedures and flight risk management.

    One example of the type of regulations that UAS pilots will need to understand is the classifications and restrictions on the use of controlled airspace. Currently, those commercial operators with a Certificate of Authority (a Section 333 certificate issued by the FAA prior to the enactment of these new rules), must maintain a distance of 2-5 miles from most airports – the exact distance determined by the size and type of airport. The new rules, however, require permission from the control tower to fly within Class B, C, D and E (i.e., controlled) airspace. The dimensions of controlled airspace can vary from airport to airport. Most aircraft pilots rely on FAA maps to navigate these complex designations and UAS pilots will need to be familiar with these maps as well.

    The FAA has partnered with trade groups and other private ventures to develop user-friendly websites and mobile apps that will assist pilots in locating controlled airspace and even requesting permission to fly in restricted airspace. The “Know Before You Fly” site (www.knowbeforeyoufly.org) is one such initiative led by the FAA, the Association for Unmanned Vehicle Systems International and the Academy of Model Aeronautics. The site and others like it produce maps showing restricted airspace near the user and provide contact information for control facilities for nearby airports.

    Local Laws Still Apply

    Due to the delay in the FAA’s new drone rules, many states and local municipalities enacted their own restrictions on the use of drones in their jurisdictions. There is federal legislation, already passed by the U.S. Senate that would make drone regulation the exclusive province of the federal government, however, not surprisingly, many states and local governments have voiced their opposition to that effort. In the meantime, users are still subject to their own state’s and local government’s laws, in addition to these new drone rules.

    Like the FAA’s rules, some local restrictions can have the practical effect of banning all drone use. In Chicago for instance, the local drone ordinance prohibits all drone flights within 5 miles of the City’s airports. After factoring in restricted airspace around special events (i.e., major sporting events), churches, hospitals, government buildings and national parks, entire sections of the City are off limits.

    Drone Registration

    It is also important that drone users not forget about the FAA’s drone registration requirements, which are distinct from the new commercial drone use regulations just announced.

    In December 2015, the FAA created a federal drone registry that mandates registration for all drones weighing more than 0.55 pounds. Once registered, each drone will be assigned a unique identification number that must be affixed to the drone before it is flown outside. The registration costs $5.00 and can be completed at https://registermyuas.faa.gov/.

    More to Come

    While many aspects of the FAA’s prior guidance on drone use are still applicable, the new regulations for the commercial use of drones have created a complex system for operators to navigate. Generally speaking, the new rules are intended to enable more expansive use of drones in commercial applications. However, some of the rules are so restrictive that each user will need to carefully analyze the costs of compliance against the potential benefits that may be derived from incorporating their use.

    Numerous trade organizations and private groups are creating useful guides for those who are interested in pursuing commercial drone use. Among them, the National Association of REALTORS® has created a useful “Frequently Asked Questions” resource for its members that breaks down some of the key features of the new drone regulations and it is available at http://www.realtor.org/law-and-ethics/faqs-for-small-unmanned-aircraft-rule.

    The fight between local and federal regulation of drones is far from over and even the new rules themselves are subject to modification, which means drone users will need to remain alerted to local, state and federal measures that may impact this growing practice. The existing regulatory framework is complex, even without the prospect of future changes. Thus it is important that those who wish to explore commercial drone use carefully review and understand all of the steps and processes required to remain compliant.

    © Illinois REALTORS®, 2016

  • Email

    Answers to Your Legal Questions

    1. If I am an Illinois real estate licensee who sends commercial e-mail messages, or those messages where the primary purpose is to promote a commercial product or service, how can I comply with both federal and state email statutes?

    2. If I am a REALTOR® association executive, how does the enactment of the federal law affect my association?

    3. Can NAR answer questions?

    4. What does the Federal Communications Commission (FCC) say?

    5. What does the Federal Trade Commission (FTC) say?

     

    Compliance with Federal and State Commercial Email Legislation

    The federal CAN-SPAM Act largely preempts Illinois email legislation and identifies specific guidelines for commercial emails. The law is designed to keep spammers from using deceptive subject lines and nonexistent return addresses in their messages and forbid them from harvesting emails from websites.

    Illinois REALTORS®' FAQs on Commercial Email Messages

    1. If I am an Illinois real estate licensee who sends commercial email messages, or those messages where the primary purpose is to promote a commercial product or service, how can I comply with both federal and state e-mail statutes?

    The federal CAN-SPAM Act of 2003 preempts most provisions of the Illinois Electronic Mail Act of 2000 (Illinois Act of 2000). In other words, if you send commercial email messages, you will need to comply with the federal provisions. Under the Illinois statute, you would not need to be concerned if you had an existing business relationship with or prior consent from the recipient to send commercial messages. However, under the federal law that became effective January 1, 2004, you must include certain items in your email message if it is commercial in nature and does not constitute a "transactional or relationship message." (See the NAR site for a definition of transactional and relationship messages as well as other Q&As on the subject.)

    In short, commercial emails, whether they are unsolicited or not, must contain the following:

    • a legitimate return e-mail and physical postal address;

    • a clear opportunity to opt-out of any further messages;

    • a way for the recipient to e-mail the sender for at least 30 days his desire not to receive any further messages;

    • a clear and conspicuous notice that the content is an advertisement; and

    • if the content is pornographic or sexual in nature, a clear notice to that effect should be put in the subject line.

    The portion of the Illinois Act of 2000 that prohibits hiding the identity of the sender or falsifying the subject matter of the message seems to remain in effect. In other words, the federal law preempts all state laws regarding commercial email except for those laws or portions of those laws that prohibit falsification of the source or content of the email transmission.

    One positive development for the real estate practitioner may be that under the Illinois Act a real estate broker would have had to identify an unsolicited email message with the mark "ADV:ADLT" given that a minor cannot enter contracts in Illinois. Under the federal statute, which purportedly now controls, the identifier "ADLT" or some similar identifier is only required in the case of pornography or other messages with sexual content.

    2. If I am a REALTOR® association executive, how does the enactment of the federal law affect my association?

    Under the Illinois Act, you would be safe to send electronic messages to members of the association under the existing business relationship exception. Unfortunately now, under the federal statute, there is no such exception. The only email messages that would not be regulated by this law would be those that are transactional or relationship messages. This would presumably cover those messages where the primary purpose concerns those member benefits included by payment of member dues. If the message is to promote or solicit some good or service that will cost something over and above the dues amount, the association will have to meet the requirements for commercial email messages. Those requirements are outlined above in the bulleted list and in the NAR document.

    Other items of interest regarding CAN-SPAM and the Illinois Electronic Mail Act

    • You may wish to review the provisions of the federal law that deal only with "spam" or unsolicited email messages to be sure you comply in these situations.

    • Under CAN-SPAM, the Federal Trade Commission (FTC) drafted regulations to clarify the statute. One clarification that might be helpful to associations sets forth criteria for determining the "primary purpose" of an electronic message. This might help in the case of an association electronic newsletter, which also contains information about upcoming events that would have an additional cost. You need to review the content of your e-newsletter and determine whether the primary purpose of the newsletter is a member benefit or a commercial email transmission.

    • Be sure and visit with your company attorney or your local board legal counsel as to how to best comply with federal and state commercial email legislation. 

    3. Can NAR answer questions?

    CAN-SPAM FAQs

    Read the National Association of REALTORS® Q&A on the CAN-SPAM Act.

    4. What does the Federal Communications Commission say?

    FCC Rules on Commercial Email to Wireless Devices

    The National Association of REALTORS® offers an update on FCC rules for sending commercial electronic messages to wireless devices (such as cell phones, PDAs, handheld devices), effective October 18, 2004. Based on the rules, any business seeking to send a commercial electronic mail message will need to first check the FCC's wireless domain name list to assure that the commercial electronic mail message is not being sent to any of the listed domains, as the sender needs "express prior authorization" from the recipient in order to send commercial messages to those individuals.

    5. What does the Federal Trade Commission say?

    FTC Issues 'Primary Purpose' Criteria

    The Federal Trade Commission ("FTC") issued its final rules defining the criteria for determining the "primary purpose" of an electronic mail message under the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("Act"). The rules help guide senders on which electronic mail messages are commercial and therefore subject to the Act's requirements. The rules are very similar to those originally issued by the FTC in 2004, with only some minor changes made in the final version. The rules were effective March 28, 2005. Read NAR analysis of the rules and view the full rules.

    Illinois REALTORS® Legal Counsel

    Updated January 2017

  • Escrow Accounts

    Answers to Your Legal Questions

    1. If there is a dispute over earnest money, when may I release the funds?
    2. I am a broker and I maintain interest bearing savings accounts at my local bank when the parties to a transaction direct me to hold the money in an interest bearing account. On the day of closing, I transfer the money out of the interest bearing account and into a checking account in order to disburse the funds for payment of commissions or to go to the seller or buyer, depending on the specific directions. I do this because I cannot write checks out of these interest bearing savings accounts. Is this permissible under the Rules and the Illinois Real Estate License Act of 2000 (the Act)?
    3. When is the appropriate time to deposit earnest money received by the broker who will be serving as the escrow agent?
    4. Must the licensee get a separate signed release if the transaction ultimately closes according to the terms of the contract?
    5. Would it be legal for a broker serving as an escrow agent to release earnest money upon the signatures of attorneys for the parties in the course of the attorneys' representation of their clients?
    6. A reminder about FDIC insurance and brokerage escrow accounts
    7. Sample earnest money release language? 
    8. If a prospective tenant makes out the security deposit check to the listing brokerage company, could this check be used to pay the listing brokerage company’s commission?  If not, what must be done with this check?

    Suggested further and required reading: Each person licensed as a real estate broker or salesperson should take a few minutes to reread Section 20-20(a)(17) of the License Act and Section 1450.750 of the Rules under the License Act.

    1. If there is a dispute over earnest money, when may I release the funds?

    The Illinois Real Estate License Act at 225 ILCS 454/20-20(a)(17) and rules under the License Act at Section 1450.750(h) govern the release of earnest money in a dispute situation.

    • Sometimes a contract contains language governing distribution in the event of a dispute. If so, the contract should allow for good service (i.e. by personal service or certified mail), giving notice of the proposed distribution and a reasonable period of time during which the parties may respond with any objections. If no objections are received within the time given, the money may be released as proposed. The contract should, at the very least, contain provisions such as these in order to use this method of distribution in an escrow money dispute. If either party objects in writing within the time period, then the escrow agent must follow the procedures outline below. Sample Earnest Money Release Language.
    • The broker holding the earnest money must not release disputed earnest money until all parties have signed a document agreeing to its distribution, or if the contract contains the procedure outlined above and that procedure was followed.
    • Remember that, generally speaking, the listing and selling brokers are not parties to the sales contract. As a result, their signatures would not be included as required signatures on a release document. Only the buyers' and sellers' signatures, or the signatures of their attorneys (or other legally authorized agents) would be needed.
    • Another method of release involves filing a lawsuit. If a party files, the broker might deposit the escrowed funds into the court. If the broker files, it is called an interpleader action, and if the contract allows for it, he may be reimbursed for fees and expenses from the escrowed money in bringing that action.

    2. I am a broker and I maintain interest bearing savings accounts at my local bank when the parties to a transaction direct me to hold the money in an interest bearing account. On the day of closing, I transfer the money out of the interest bearing account and into a checking account in order to disburse the funds for payment of commissions or to go to the seller or buyer, depending on the specific directions. I do this because I cannot write checks out of these interest bearing savings accounts. Is this permissible under the Rules and the Illinois Real Estate License Act of 2000 (the Act)?

    The rules at Section 1450.750 under the Act govern a sponsoring broker with regard to the handling of escrow moneys. The rules do require that escrow money be deposited in an account maintained at a federally insured institution. (Section 1450.750(b)(4)). I am assuming that the interest bearing savings accounts to which you refer are federally insured. I will also assume for purposes of your question that you have the joint written direction of the parties to the transaction to hold the earnest money in an interest bearing account.

    In my review of the Act and Section 1450.750 of the Rules, I can find no requirement that escrow money be held in a demand deposit (checking type) account. It seems to me that, so long as your record keeping is complete and accurate, you ought to be able to follow the procedure outlined above. Furthermore, Section 1450.750(i)(4) indicates that this procedure would indeed be permissible. It states as follows: "If escrow moneys are transferred from an escrow account to another account for disbursement, the sponsoring broker must maintain a copy of all records reflecting a disbursement from the other account." This subsection allows the very fact situation you describe so long as your records show the disbursement. I would also suggest that your file contain some form of direction as to the disbursement of the escrowed funds, either in the form of contract language, written closing instructions or some other form of joint written direction signed by the parties.

    Disbursements are subject to record keeping requirements and time restrictions set forth in section 1450.750 (g). In other words, the money must be disbursed from an account no earlier than the day the transaction is consummated or terminated and "no later that the next business day following the sponsoring Broker's receipt of notice of the consummation or termination, or otherwise in accordance with the written direction of all principals to the transaction." (Section 1450.750(g)(1)). There is also language in the rules that allows escrow moneys to be transferred to a closing agent up to 2 business days prior to the scheduled closing.

    For further review of record keeping requirements and handling of escrow moneys, you should read the entire Section 1450.750, and consult your private attorney if you have any questions.

    3. When is the appropriate time to deposit earnest money received by the broker who will be serving as the escrow agent?

    Section 1450.750(d) in the Rules under the License Act says that the deposit must be made no later than the next business day following the "transaction." The transaction is said to exist "once an agreement has been reached and accepted real estate contract is signed, or a lease agreed to, by the parties or after the receipt of the escrow money per the terms of the contract." So, if it appears on the face of a written contract that the parties have signed, the broker serving as escrow agent would be required by the License Act to deposit the funds by the next business day. If the earnest money is received into a branch and all escrow moneys are held at the main branch, the Rules say that the money must be transmitted to the main branch by the next business day following receipt of the moneys, and then deposited by the next business day following receipt by the main office. (See Section 1450.750(k)).

    If the transaction involves some sort of "two step" process where the parties outline the main provisions of the deal, but do not intend the original writing to serve as the final contract (there will likely be clear language indicating the memorandum or intent to purchase is not binding), then the deposit of any earnest money should not be made until the next business day following the signing of the binding contract, which follows the memorandum or intent to purchase.

    4. Must the licensee get a separate signed release if the transaction ultimately closes according to the terms of the contract?

    No. The License Act and Rules say that the licensee must hold escrow moneys and disburse according to the written agreement of the principals in the transaction. The contract will probably provide for the earnest money and what happens to it at closing. The contract is signed by the parties and is generally intended to reflect the agreement of the parties. If nothing happens along the way to change the terms agreed to in the written contract, the money should be distributed according to the provisions contained in the written contract.

    In addition, in the typical (if there is such a thing) residential transaction, there is most likely a Closing Disclosure Form, which will outline the disbursement of moneys in the transaction. The principals to the transaction will likely sign the Closing Disclosure, which is just another way to document that the earnest money is being disbursed according to the written direction of the parties to the transaction.

    To whom should the escrow agent return earnest money if, during the course of the transaction, the buyer's father wrote the earnest money check out to be deposited on behalf of his daughter, the true principal in the transaction, but the deal later dies? (Assume the parties have agreed the buyer's side will receive the return of the earnest money.)

    Pursuant to License Act and Rules, on these facts, the earnest money should be returned to the buyer in the transaction, not the buyer's father. The buyer could then endorse the check over to her father if that is her desire. Otherwise, the escrow agent must have written direction signed by both the seller and the buyer before the broker could make the return check out to the father, who is not a principal in the transaction. 

    5. Would it be legal for a broker serving as an escrow agent to release earnest money upon the signatures of attorneys for the parties in the course of the attorneys' representation of their clients?

    It had been suggested previously that, in an abundance of caution, a broker serving as escrow agent should not release earnest money to the parties upon the signatures of their attorneys unless the attorneys had specific legal authority to do so (i.e., a form Power of Attorney). Section 20-20(a)(17) of the Act says that earnest money may be released upon the signatures of the parties or their "duly authorized agents." In the meantime, there has been clarification language effected for the Rules under the License Act, which states as follows: "For the purposes of this Section (Rules Section 1450.750 governing escrow accounts), 'duly authorized agent' shall mean an attorney-in-fact, an attorney-at-law who represents that he or she is acting on behalf of one of the principals to the transaction, or any other person the licensee can prove was authorized to act on behalf of a principal to the transaction."

    As a result, a broker serving as an escrow agent may release money held in escrow upon the signatures of attorneys who represent that they are acting on behalf of their clients who are parties to the transaction. One situation where this might not be advisable is where facts would indicate that the attorney is not acting at the direction of his or her client for whatever reason. As with any situation like this, the broker must analyze the relevant facts before deciding how to act in a prudent fashion. If the broker has a question, the broker should consult his company legal counsel.

    6. A reminder about FDIC insurance and brokerage escrow accounts

    A review of FDIC Insurance coverage rules has led us to offer this suggestion for all real estate brokerage offices who are handling escrow accounts.

    In order that these escrow accounts can be protected by the financial institution’s FDIC Insurance for accounts over $250,000, brokers should be sure that their escrow accounts contain a specific reference to the fact that these accounts are established for the purpose of holding monies belonging to others.

    In other words, the broker might include the words “Escrow Account” or “As Escrow Agent for…” in titling the account. If you are a broker and you are unsure whether this is the case for your company’s escrow account(s), go to your financial institution and double-check the account records. However, this might not be sufficient unless the financial institution’s file on your escrow account(s) indicates that the nature of the account is to hold monies in escrow for the benefit of the parties in real estate purchase/lease transactions, or as security deposits in the case of property management.

    If the financial institution’s records are clear that this is an escrow account and the monies are held in a fiduciary capacity then there should be FDIC coverage up to $250,000 for each person or entity for which you are holding earnest money or security deposits. We also suggest you consult with your bank and/or company attorney on this matter.

    7. Sample earnest money release language 

    Illinois REALTORS® is providing sample language for your consideration in form purchase contracts to provide a procedure by which a broker holding escrow moneys can propose a distribution of the moneys being held in escrow when a transaction does not close. Note that a procedure like this is required to be included as part of the contract between the parties (i.e. the purchase contract between seller and buyer) in order for the escrow holding broker to propose a distribution and ultimately release the moneys without additional signatures from the parties to the transaction. Also note that the written notices should be delivered according to methods that are provided for in the contract as to how notices must be given/delivered.

    This procedure does allow the escrow holding broker to disburse escrow moneys as proposed in the written notice after waiting for the time period (at least 14 days) specified in that notice to expire. The escrow holding broker could release the escrow moneys so long as there is no written objection given to the broker by a party to the transaction. Any objection must be provided to the broker in writing and in a timely manner.

    Members may wish to submit this language to their local association forms committees for possible inclusion in their form purchase contracts.  If a broker gives this language directly to his client, he should advise his client to consult his own attorney about whether or not to include this language into a contract to purchase or lease. Download sample pdf of earnest money language (original link to http://www.illinoisrealtor.org/sites/illinoisrealtor.org/files/downloads/earnestmoney.pdf).

    8. If a prospective tenant makes out the security deposit check to the listing brokerage company, could this check be used to pay the listing brokerage company’s commission?  If not, what must be done with this check?

    No, you could not use the check to pay the listing brokerage company’s commission. If it is made out to the listing brokerage company, it is, by definition, escrow money, and would need to be deposited to the brokerage company’s escrow account by the next business day after the written lease is executed (signed by landlord and tenant). The security deposit could then be released to the landlord upon joint written direction by the parties once the check has cleared the bank.  As you can see, if the landlord will be holding the security deposit, it might be best to have the security deposit check made payable directly to the landlord in a lease transaction where the listing brokerage company is only listing the property for rent and will not continue as the property manager for the property.

    Updated January 2017

  • Fair Housing

    Resources for Your Legal Questions

    REALTORS® Committed to Fair Housing Throughout the Year

    April Is Fair Housing Month

    April 2017 marked the 49th anniversary of the 1968 landmark Fair Housing Act. Each year REALTORS® recognize the significance of this event and reconfirm our commitment to upholding fair housing law as well as our commitment to offering equal professional service to all in their search for real property.


    Illinois REALTORS® is in full support and advocacy of the practice of equal opportunity in fair housing. It is our pledge to uphold the spirit as well as the letter of the law, through programs, activities and training designed to promote and further the right of equal opportunity in housing for all.

    We believe equal opportunity exists only where there is complete freedom of choice in housing and we oppose any attempt to interfere with this freedom of choice.

    We affirm our endorsement of and commitment to the Fair Housing Partnership Resolution of the U.S. Department of Housing and Urban Development and the National Association of REALTORS®, believing it to be a constructive, voluntary means of promoting equal opportunity through freedom of choice.

    We pledge our continued support of and cooperation with the Illinois Department of Human Rights in our mutual efforts to assure equal opportunity in housing for all.

    REALTOR® Code of Ethics

    Article 10 of the REALTORS® Code of Ethics provides that "REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. REALTORS®, in their real estate employment practices, shall not discriminate against any person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity."

    Protected Classes

    • Section 8 Voucher Holder Now a Protected Class Under Cook County’s Fair Housing Law (original link to www.illinoisrealtor.org/legal/issues/section8). Read Illinois REALTORS®' Q&A on the issue (original link to www.illinoisrealtor.org/legal/issues/section8) and make sure you are following the law.

    There are seven protected classes under the Fair Housing Amendments Act of 1988: race, color, national origin, religion, sex, disability, familial status.

    Title III of the Americans with Disabilities Act prohibits discrimination against persons with disabilities in places of public accommodations and commercial facilities.

    The Equal Credit Opportunity Act makes discrimination unlawful with respect to any aspect of a credit application on the basis of race, color, religion, national origin, sex, marital status, age or because all or part of the applicant's income derives from any public assistance program.

    State laws and local ordinances also protect certain classes. In Illinois, sexual orientation was added to the state list of protected classes in January 2005. "Order of Protection Status" was added to Illinois law as a protected class effective Jan. 1, 2010. See Illinois Human Rights Statute.

     

  • Home Inspections

    Answers to Your Legal Questions

    It has been a while since Illinois enacted a statute requiring that home inspectors be licensed. What does this mean to me as a real estate agent?

    Since 2003, those persons or entities that conduct home inspections in Illinois for compensation must be licensed. Real estate licensees should be aware of this fact in general. In other words, real estate licensees should know that home inspectors need a license to perform an inspection for another and for compensation. The definition of home inspection is contained in the law which can be viewed online at the website for the Illinois General Assembly, http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=1359&ChapterID=24. The Illinois Department of Financial and Professional Regulation (IDFPR) does provide a look-up function to check on a home inspector's license status.

    Along with a general awareness of the licensure requirement, as always, real estate licensees should give careful consideration to any recommendations they make to their real estate brokerage clients. Not only should real estate licensees be comfortable with the competence of any inspector recommended, but that the home inspector is licensed in Illinois.

    One thing that may have changed since the enactment of the home inspector license law is that language in form purchase contracts has probably includes the description "licensed" where the forms refer to home inspectors. Buyers are not, however, required by law to use the services of a licensed home inspector in order to complete the purchase of real estate. So, if a buyer opts to have his father (not a licensed home inspector) perform an inspection, so long as the father is not paid for the inspection, there has been no violation of the Home Inspector License Act. On the other hand, if the purchase contract language calls for an inspection by a licensed home inspector, the seller may not be inclined to take any action to remedy any defect or condition that the unlicensed inspector identified.

    It is important to remember that the federal Real Estate Settlement Procedures Act (RESPA) still prohibits naked referral fees among providers of settlement services. Home inspectors would be included in the definition of "settlement service" under RESPA. As a result, home inspectors and real estate licensees should not be agreeing to pay compensation of any kind to each other in exchange for mere referrals.

    So, to summarize, real estate licensees should know about the licensure requirement for home inspectors in general, they should be comfortable with any recommendations they make for licensed home inspectors, they should check the language in their purchase contract forms and they should not pay or receive anything of value in exchange for referrals to or from home inspectors.

    Updated January 2017

  • Lead-Based Paint

    Resources and Answers to Your Legal Questions

    Both federal and Illinois law require landlords to provide prospective tenants with a copy of a brochure which has information about lead-based paint. The Illinois Department of Public Health has stated that providing the federal brochure, titled "What You Need to Know About Lead in Your Home" satisfies both the state and federal requirements. The brochure can be downloaded free or you can order a package of 50 for $11 at www.illinoisrealtor.org/downloads.

    HUD/EPA Rules on Lead Based Paint Disclosure

    Existing Laws on Lead Paint for Property Owners/Managers/REALTORS®

    Federal law already requires property owners to:

    • Disclose any knowledge of lead-based paint or lead-based paint hazards when selling or renting a house built before 1978,
    • Allow a buyer to have a lead inspection at the buyer’s expense, after an opportunity to negotiate for this with seller, 
    • Include a lead warning statement in leases,
    • Use lead-safe work practices when making certain repairs and renovations.

    Illinois state law requires property owners to:

    • Allow inspection of a residential unit when a resident is found to be lead-poisoned.
    • Follow regulated mitigation procedures when a lead hazard has been identified.
    • Post lead hazard warning signs at work sites when property houses two or more families.
    • Allow regulated lead abatement procedures if mitigation is ineffective.
    • Disclose any lead hazard to renters and provide IDPH brochure to buyers or renters in buildings built before 1978.
    • The Lead Poisoning Prevention Act requires owners who have been notified to mitigate a lead hazard to provide the mitigation notice to a new buyer or an existing tenant. However, a new lease must not be entered until the owner has mitigated the lead hazard.

    City of Chicago regulations already require property owners to:

    • Abide by a duty to maintain lead-hazard free property.
    • Allow inspections of all units for lead hazards.
    • Abide by a duty to maintain property according to any existing mitigation plan.
    • Provide a mitigation plan, subject to CDPH approval, when a lead hazard is identified.

    For detailed information on how to comply with lead prevention laws and lead safety:

    https://portal.hud.gov/hudportal/HUD?src=/program_offices/healthy_homes/leadinfo​ 
    www.leadsafeillinois.org/owners

    2008 Rule for Renovators/Rehabbers

    Specifically, persons performing renovations for compensation must provide a brochure titled “Renovate Right” to owners and occupants of residential real property built before 1978. Find the brochure (pdf) at www.epa.gov. Note that all lead-based paint disclosure rules remain the same for disclosure in the sales or rentals of residential real estate built before 1978.

    Rule for Property Owners/ Managers 

    The Illinois Lead Poisoning Prevention Act sets out requirements for property owners/managers, retailers, and state and local departments of public health aimed at preventing the devastating effects of childhood lead poisoning.

    Lead poisoning in children can cause irreversible brain damage and even at very low levels can lead to life-long learning, behavioral and physical problems. Most children are poisoned in their own homes, and deteriorating lead paint on windows, doors, and porches in homes built before 1978 is the main cause.  

    The law requires property owners to:

    • Allow inspection by departments of public health of common areas of multi-family residential buildings when two or more units within a five-year period have had mitigation notices issued, and to allow a lead inspection by departments of public health when a pregnant woman, parent or guardian of a child under six, residing in the same building, requests an inspection.
    • Post notices in the common area of a building when the property owner has received a mitigation notice. The posted notice must say that a lead hazard has been discovered, that other units may also have a hazard, that children under 6 should be screened, where to seek further information, and whether the owner has received multiple mitigation notices. The Illinois Department of Public Health (IDPH) shall provide the notices (to be posted) along with the mitigation notice.
    • Follow mitigation plans within a time frame established by departments of public health with consideration given to the owner’s financial ability to complete repairs. The Illinois Department of Public Health (IDPH) must make an owner aware of any financial assistance programs available.
    • Note: The law also sets new penalties for violations, including prohibiting residential property owners who have willfully and knowingly failed to comply with a mitigation order from doing business with the state or state agencies for a period of time.
    • The Lead Poisoning Prevention Act requires owners who have been notified to mitigate a lead hazard to provide the mitigation notice to a new buyer or an existing tenant. However, a new lease must not be entered until the owner has mitigated the lead hazard.

    Other resources

    Lead-based Paint Manual

    Disclosure of Information and Acknowledgement (Lead-based paint and lead-based paint hazards)

    Pre-1978 Housing and Rental Leases Disclosure of Information (Lead-based paint and/or lead-based paint hazards)

     

  • Leasing

    Answers to Your Legal Questions

    1. Must I have a real estate license to engage in property management activities?

    2. Do agency duties and disclosure requirements apply in leasing/rental transactions too?

    3. If a prospective tenant makes out the security deposit check to the listing brokerage company, could this check be used to pay the listing brokerage company’s commission?  If not, what must be done with this check?

    4. What property disclosures are required for residential lease transactions?

    5. A licensee is sponsored by ABC Realty, Inc. but the licensee operates and works for his own property management company “on the side.” Is this appropriate?

    6. In a residential lease transaction, is it appropriate for a landlord to refuse to rent to tenants who are recipients of the federal Section 8 voucher program?

    Be aware of the rules before branching off into rentals at www.illinoisrealtor.org/magazine/7_2012legal.

    Illinois REALTORS® Legal Webinars cover rentals, property management and the Real Estate License Act (see Feb. 23, 2012 and March 22, 2012 webinars)

    1. Must I have a real estate license to engage in property management activities?

    Yes, to the extent that those activities are included in the Illinois Real Estate License Act of 2000 (the Act) at Section 1-10 under the definition of “Broker,” and you are doing the activities for another and for compensation, you will be working within the scope of your real estate license. The list of activities is taken from the definition of Broker under the Act:

    (1)    …rents, or leases real estate.
    (2)    Offers to…rent, or lease real estate.
    (3)    Negotiates, offers, attempts or agrees to negotiate the …rental, or leasing of real estate.
    (4)    Lists, offers, attempts, or agrees to list real estate for ...lease....
    (6)    Supervises the collection, offer, attempt, or agreement to collect rent for the use of real estate.
    (7)    Advertises or represents himself or herself as being engaged in the business of …renting, or leasing real estate.
    (8)    Assists or directs in procuring or referring of leads or prospects, intended to result in the ...lease, or rental of real estate.
    (9)    Assists or directs in the negotiation of any transaction intended to result in the ...lease, or rental of real estate.
    (10)    Opens real estate to the public for marketing purposes.
    (11)    ...leases, or offers for...lease real estate at auction.

    2. Do agency duties and disclosure requirements apply in leasing/rental transactions too?

    Yes. See the first topic above. Keep in mind that those licensees who represent landlords in leasing transactions, need to operate as disclosed dual agents with written disclosure and informed consent secured if they are representing both the landlord and tenants. An alternative is the tenant will be treated as a customer and must be given Notice of No Agency, which is more often the case when a licensee is representing the landlord. These are just two examples to make the point that the statutory duties of agency apply in leasing/rental transactions. This is true for both residential and commercial brokerage transactions.

    3. If a prospective tenant makes out the security deposit check to the listing brokerage company, could this check be used to pay the listing brokerage company’s commission?  If not, what must be done with this check?

    No, you could not use the check to pay the listing brokerage company’s commission. If it is made out to the listing brokerage company, it is, by definition, escrow money, and would need to be deposited to the brokerage company’s escrow account by the next business day after the written lease is executed (signed by landlord and tenant). The security deposit could then be released to the landlord upon joint written direction by the parties once the check has cleared the bank.  As you can see, if the landlord will be holding the security deposit, it might be best to have the security deposit check made payable directly to the landlord in a lease transaction where the listing brokerage company is only listing the property for rent and will not continue as the property manager for the property.

    4. What property disclosures are required for residential lease transactions?

    The lead-based paint disclosure form and pamphlet would be required for those residential units built before 1978 each time there is a new tenant in the unit. A radon disclosure form would only be required in situations where someone has conducted a radon test that shows a radon hazard in a unit on the second floor and below and there has been no subsequent test showing no hazard, or there has been no remediation. 

    5. A licensee is sponsored by ABC Realty, Inc. but the licensee operates and works for his own property management company “on the side.” Is this appropriate?

    No, if the property management company is engaged in licensed activities this would not be allowed under the Act. See #1 above. Licensees must only perform licensed activities for one sponsoring broker. The licensee might own or have an ownership interest in a properly licensed management company but would need to hire a managing broker to oversee the property management business.

    6. In a residential lease transaction, is it appropriate for a landlord to refuse to rent to tenants who are recipients of the federal Section 8 voucher program?

    Landlord participation in the federal Section 8 voucher program is still voluntary UNLESS there is a local ordinance that protects source of income and the source of income class includes the Section 8 voucher. It is extremely important for licensees to be aware of local ordinances like this that are often stricter than federal or state laws.

  • License Law/Business Practices

    Answers to Your Legal Questions

    1. If a real estate licensee refers business to a registered business broker in the State of Illinois, could the business broker share her fee with the real estate licensee as some sort of referral arrangement?

    2. Is it legal for me to pay a referral fee to an unlicensed person for ­referring a seller or buyer of real estate to me?

    3. If an agent is sending a mailing to his "farm list" asking for referrals, may he offer to give a donation to the referrer's favorite charity in exchange for that referral?

    4. I am hearing more about real estate offices wanting to provide "ancillary services." What are some examples of ancillary services and what concerns should I have if my office wants to provide or refer consumers to ancillary services?

    5. If I am a buyer's agent for a brokerage company that provides less than what would be considered a full array of services, what concerns might I have if I am practicing in the State of Illinois under its License Act?

    6. How does the Illinois License Act of 2000 (the Act) apply in the case of a virtual office as opposed to a "brick-and-mortar" office, and is it even possible for a sponsoring broker to maintain a virtual office?

    7. If I work mainly out of my home, would I be in compliance with the office requirements of the Act? What if I worked out of a model home site?

    8. Is it permissible for a sponsoring broker to have more than one managing broker within one office?

    9. Is it permissible for a sponsoring brokerage company to have more than one branch office in the same building or location as the main office?

    10. I am a managing broker for an office and since it is the beginning of a new year I am doing some "house cleaning." How long must I keep old files in my office?

    11. In my practice, I handle the listing and sales of "Real Estate Owned" or REO properties. Many times, the asset management company that is assisting the bank/owner of the real estate asks me to get the property cleaned up and ready for resale before I actually put the listing on the market. I incur the clean-up expenses and then I list the property for sale and I am reimbursed for these expenses out of the closing proceeds. Can I pay the expenses directly and then be reimbursed directly at closing instead of running everything through my sponsoring brokerage company?

    12. A seller has approached a listing agent about assistance in marketing his home for sale. However, rather than the “traditional” approach, the seller wants to SELL RAFFLE TICKETS to many people then a winning ticket would be drawn and the seller would transfer the home to the raffle winner. Would it be legal for the seller to sell his home in this manner?

    13. Could two sponsoring brokerage companies enter a co-listing arrangement with a seller?

    14. I have heard that a licensee could form a corporation to receive commission checks. Is this true even though my independent contractor agreement is between my brokerage firm and me? Also, if my spouse is a licensee sponsored by the same broker, could she also be a shareholder in my corporation?

    15. I have seen recently on the Internet where a mortgage lender was advertising a package to help a homeowner sell his house on his own. The package included items relative to signage and advertising. Wouldn't the lender need a real estate license to do this?

    16. I am an Illinois licensee and I have been approached by Web-based businesses seeking to sell me "qualified leads," i.e. qualified buyers and sellers of real estate, in exchange for some type of fee. Is this legal in Illinois and what are some of the issues that I should consider before "subscribing" to such a service?

    17. If someone wants me to help him sell his property in Indiana, may I do so without an Indiana real estate license?

    18. Must I have a real estate license to engage in property management activities?

    19. A licensee is sponsored by ABC Realty, Inc. but the licensee operates and works for his own property management company “on the side.” Is this appropriate?

    Business Practices

    1. If a real estate licensee refers business to a registered business broker in the State of Illinois, could the business broker share her fee with the real estate licensee as some sort of referral arrangement?

    The simple answer to that question is yes, given the facts as set forth above. However, there are some issues that should be considered here. First, assume that the business being sold is not a securities sale and contains no interest in real estate. Also, assume that the business broker to whom the transaction was referred was properly registered as a business broker with the Illinois Secretary of State's Office.

    A review of the Business Broker Act indicates it is more of a registration statute than a full-blown, highly regulatory, licensing act. As a result, the statute and its rules appear to be silent on the issue of payment of commissions or fee splitting. Given that the statute and the rules do not address the issue of commissions, it seems reasonable that a duly registered business broker could make an arrangement to share part of her brokerage fee with the real estate licensee who gave her the referral. The fee might even be shared with any member of the general public who might have made the referral, for that matter.

    Real estate licensees who are sponsored by a broker are used to receiving their compensation through their sponsoring brokers. In the fact situation described above, again assuming no interest in real estate involved in the transaction, the referring real estate licensee could receive the referral fee directly from the business broker. In other words, the act of referring a strictly business transaction would not be considered a licensed activity under the Illinois Real Estate License Act (Act).

    However, the facts would not have to change very much to make this situation fall within the Act. Assume, for example the business being sold was a small pizza business and the building lease was to be assumed as part of the transaction. Also, assume the corner on which the building was located was a very desirable location. From these facts, one might infer that the interest in real estate, the lease, was an "integral part" of the transaction even if the monetary value was not terribly great relative to the total cost of the business sale. If the lease is an integral part of the transaction, perhaps this is no longer a business brokerage transaction, but a real estate brokerage transaction.

    The real estate licensee may still choose to refer the business to a registered business broker, but the transaction becomes quite different. First, the business broker receiving the referral must also be a real estate licensee as she is now brokering a real estate transaction. Second, any referral fees would have to be paid from broker to broker pursuant to the provisions of the Act. In other words, it is important at the outset to establish what type of transaction is involved. If it is purely a business brokerage transaction, the only statutory scheme involved may be the Business Broker Act. If the transaction includes real estate as an integral part of the transaction, or can be defined as a "dominant element" of the transaction, the Real Estate License Act may also apply.

    2. Is it legal for me to pay a referral fee to an unlicensed person for referring a seller or buyer of real estate to me?

    No. Generally speaking, you can not pay anything of value to an unlicensed ­person in exchange for referring real estate brokerage business to you. You are licensed and the Illinois Real Estate License Act (the Act) applies to you. Section 10-15(a) says that “no compensation may be paid to any unlicensed person in ­exchange for the ­person performing ­licensed activities in ­violation of this Act.” If you look at Section 1-10 of the Act under the definition of Broker, you will see that if a person assists in “procuring or ­referring of leads or prospects, ­intended to result in the sale, exchange, lease, or rental of real ­estate” for another and for compensation, that person needs a real estate license. ­Finally, if you go to ­Section 20-20(a)(38) you will find that if you pay compensation in violation of ­Section 10-15 of the Act, your license is subject to discipline.

    The bottom line is that a real estate licensee may not pay an unlicensed person (who is not a party to the transaction) anything of value in exchange for a real estate referral. If you do, you can get in trouble for this. Also, keep in mind that compensation can be anything of value from cash to ­televisions to baseball tickets.

    3. If an agent is sending a mailing to his "farm list" asking for referrals, may he offer to give a donation to the referrer's favorite charity in exchange for that referral?

    First, it is important to remember that the act of referring a prospect for the purchase, sale or rental of real estate, if done on behalf of another and in exchange for compensation would fall within the definition of "Broker" under the Illinois Real Estate License Act (225 ILCS 454/1-10). So, if an unlicensed person or entity makes a referral, he, she or it may not be compensated for it. Otherwise, the referrer would need a real estate license. As a result, the question above is really this: Can the offer to give a donation to the referrer's charity be considered compensation? The answer to this question is not really clear, and may well depend on specific facts in each case.

    For instance, this question can become very tricky, should the facts change just a little. Let us assume that the "farm list" consists of those members of the licensee's church. Let us also assume that the offer is to make a donation to the church as the only "charity." While the referrer might still be without compensation, what if the church becomes very active in encouraging its members to refer this particular agent's services? Is the church now engaged in licensed activities for which it is receiving compensation in the form of the donations? It is not clear what the Illinois Department of Financial and Professional Regulation (IDFPR) would say in this situation.

    Let us consider yet one more example. Suppose the licensee is trying to generate clients, so the licensee says, "If you buy or sell through me, I will make a donation to your favorite charity." Now, there is no problem offering an incentive to a person who will become a party to a transaction. This is well established by the holding in the Coldwell Banker Residential Real Estate Services of Illinois, Inc. v. Clayton case. (475 N.E. 2d 536). The analysis here is that, since the client to whom the benefit is offered is the buyer or seller, she is not engaged in any licensed activity (the act of referring another) because she is accepting the offered inducement for herself. On the other hand, would the charity receiving the donation be considered to be engaged in licensed activities if the charity were actively encouraging its members or constituents to use the services of a particular agent in return for a donation? It is unclear whether IDFPR would analyze how "active" the charity was in seeking donations.

    One conservative way to handle the above situation would be to ask the client to identify the charity receiving the donation upon the closing of the transaction, at which time the donation could be made accordingly. On the other hand, the most conservative way for the licensee to handle the fact situation in the last example may be to give the donation amount directly to the seller or buyer client since this is clearly allowed pursuant to Coldwell Banker v. Clayton. The client could then give the donation to the charity if the client so chooses.

    4. I am hearing more about real estate offices wanting to provide "ancillary services." What are some examples of ancillary services and what concerns should I have if my office wants to provide or refer consumers to ancillary services?

    You are right to ask this question and it is really a very broad topic to cover in somewhat limited space. I will try to provide a general overview for you, and if you have concerns on specific issues, you might need to conduct further and more specific research.

    "Ancillary services" really, are any service that a person might need in connection with a new home or property, or that would assist a person moving to a new location. Your real estate office might actually provide some of these services or it might refer a consumer or client to providers of the services needed. "Ancillary services" could include, and not be limited to, the following:

    • appraisal services
    • lending services (i.e., loan origination, loan brokerage, loan underwriting)
    • title insurance services
    • auction services
    • marketing home warranty plans
    • homeowners' insurance
    • general liability insurance
    • home inspection services
    • moving companies
    • home repair, rehabilitation, construction services
    • any type of professional services that might be needed by someone moving to a new area

    If your office is going to provide ancillary services, then your broker will want to be sure you are in compliance with all applicable laws, regulations and guidelines depending upon the service provided. If your office will be making a referral to a provider, then your broker should have a written policy on the subject of referring, which might include a list of providers that have a reputation for doing good work.

    Keep in mind that the Illinois Real Estate License Act of 2000 (Act) applies to your real estate practice and specific provisions will apply if your office is providing or referring ancillary services. You will want to pay special attention to Section 10-10 of the Act that requires real estate licensees to make disclosures related to any and all compensation received in the course of a transaction. For instance, not only must the real estate commission be disclosed to clients, but if there is any compensation to be paid to the licensee by a third party, that must be disclosed. If the licensee receives a referral fee for referring a service provider, disclosure is required. If the licensee has an ownership interest in the referred service provider, once again, the disclosure requirement is triggered. In addition, federal law (Real Estate Settlement Procedures Act or RESPA), prohibits anything of value to be given in exchange for a referral of business between settlement service providers. (See below.)

    As a REALTOR® member, there are also duties to disclose under your National Association of REALTORS® Code of Ethics. In addition, if your office is an ancillary service provider, the Act might require that your real estate brokerage office be separate and distinct from the office of the ancillary service provider. (See Section 5-45(d) of the Act). Finally, you should check to make sure that your broker has written office policies and procedures in place to give you guidance in situations involving providing or referring ancillary services.

    Other Laws that Affect Ancillary Services

    If your office provides ancillary services or refers consumers to other ancillary service providers, you will want to make sure your broker is in compliance with other laws that might also apply depending on the service provided.

    • If the ancillary service involves lending, your office will want to be aware of the federal Real Estate Settlement Procedures Act (RESPA). RESPA might require disclosures to be made if there is common ownership between the brokerage and any other settlement service (in this case, the lender or mortgage broker as one example). RESPA also prohibits the payment of "naked" referral fees between settlement service providers, which would include real estate agents and most anyone involved in providing the loan, other settlement services or those services that show up on the Closing Disclosure.
    • If the ancillary service involves mortgage brokerage activities, your broker would need to be concerned with the application of the Illinois Residential Mortgage License Act of 1987.
    • If your brokerage firm has any affiliation with an appraisal service, RESPA would apply in addition to the Illinois Appraiser Licensing Act of 2002.
    • If your firm offers auction services of personal property, you will need to be a licensed auctioneer under the Auction License Act. On the other hand, your real estate brokerage license may be sufficient if your office will conduct auctions of real estate only.
    • If you sell any type of insurance, you will need to comply with any additional laws that license or regulate insurance sales.
    • Home inspectors must be licensed under the Illinois Home Inspector License Act.

    This discussion provides just a glimpse into some of the other regulatory schemes that might come into play when a real estate brokerage firm branches out into ancillary services or refers ancillary service providers. The list given above is not an exhaustive one. So, hopefully, it is obvious to you from this information that if your office is considering providing any type of ancillary service, that the broker consult with legal counsel and develop written policies, procedures and disclosure forms to give sound guidance to the firm's sponsored licensees. Your office should also have policies and procedures concerning the referral of ancillary services.

    5. If I am a buyer's agent for a brokerage company that provides less than what would be considered a full array of services, what concerns might I have if I am practicing in the State of Illinois under its License Act?

    That is a good question. Your main concerns will deal with the statutory agency duties that you will owe to your buyer clients. To start with it is important to know that all real estate licensees doing business in Illinois are governed by the provisions contained in the Illinois Real Estate License Act of 2000 (the Act). Specifically, the Act sets forth certain statutory duties that real estate agents owe their clients when representing them. Since you are a buyer's agent, let us concentrate on that side of a transaction when analyzing your question. If you look at Section 15-15 of the Act you will find the statutory duties that a real estate licensee owes his/her clients. This list includes performing the terms of a brokerage agreement between a broker and the client and promoting the best interest of the client by seeking a transaction that fits the client's needs. This includes obeying directions of the client and acting in a manner that promotes the client's (buyer's in this case) best interests over the licensee's self interest.

    In addition, if you have entered into an exclusive buyer agency or brokerage agreement with a buyer client, you owe certain minimum services to your buyer client. These minimum services are set forth in Section 15-75 of the Act and basically require the exclusive agent to be involved when negotiations commence in a real estate transaction and throughout the process of those contract negotiations. The Act provides that if your buyer brokerage agreement does not contain these minimum services then, by definition and operation of law, your agreement is non-exclusive.

    So, as the buyer agent, you will be involved in helping your buyer client find properties that meet certain criteria that the buyer client has likely described for you. When either you or the buyer client locates a property that the buyer might be interested in, generally you would contact the listing office to set up a showing of the property. In some business models that make substantial use of information available on the Internet, the buyer might be instructed to contact the listing agent to set the appointment to physically view the property. The buyer client might be instructed to tell the listing agent the buyer has his own agent who will become involved later on in the process.

    However, once a property is identified, the buyer agent should seriously consider accompanying his/her buyer client to a showing. Keep in mind your statutory duties include serving your buyer client's best interests and performing those services indicated in the buyer's brokerage agreement, including certain minimum services if you have an exclusive agreement. Would you really want your client to view the property with the seller's agent? The seller's agent is looking out for his seller client and not your buyer. Is this the type of situation in which you want to place your buyer client?

    There could also be circumstances where the seller's agent will not agree to show the property to your buyer client. In that event, the seller might agree to show his property to your buyer client. This might be just fine if you have a buyer client who is very knowledgeable and understands all the subtle nuances of buying real estate and not giving away too much. On the other hand, if you have not fully educated your buyer client about taking care not to give up information that might otherwise be confidential to your buyer or that might hurt the buyer's bargaining position, there is a very good chance your buyer client could hurt himself if he were to meet with the seller directly. If the seller or the seller's agent is showing the property to your buyer client, you should not be surprised if your buyer client is subjected to the "hard sell" where any defect or negative feature might be minimized.

    In addition, you might run into situations where brokers of listing companies have made business policy decisions for their own companies that they will not pay or will pay some reduced rate to a buyer brokerage company where the buyer agent does not do the "legwork" for his own buyer client. Listing offices might believe that putting their sellers' agents in direct contact with unrepresented buyers might increase their potential liability and risk exposure, or simply that the listing agent might be expending more time out of his/her schedule, which might increase costs to the listing company.

    Certainly, with technological advances happening at a break-neck pace, the practice of real estate brokerage will change. Change can be great and encourage progress. But all licensees in Illinois are governed by the requirements of the Act, with the utmost concern being whether the agent is serving his client's best interests. It is important for anyone practicing real estate brokerage in Illinois to obtain competent guidance from their managing brokers and their company attorneys to make sure they comply with the Act.

    One of the most important questions for any agent to ask himself is "Who is my client, and how do I best serve my client?"

    6. How does the Illinois License Act of 2000 (the Act) apply in the case of a virtual office as opposed to a "brick-and-mortar" office, and is it even possible for a sponsoring broker to maintain a virtual office?

    In short, the provisions of the Act apply to all offices and the Act does not make any provision for a "virtual" office as opposed to a "real" office. The Act does require that a sponsoring broker maintain an office where the "general public is invited to transact business and where records may be maintained and licenses displayed . . . ." (Section 1-10, definition of "Office"). In addition, Section 5-45(d) of the Act requires every sponsoring broker to have a physical or "real" office located in Illinois. Section 5-45(d) states in pertinent part that ". . . each sponsoring broker shall maintain a definite office or place of business within the State for the transaction of real estate business . . . ."

    7. If I work mainly out of my home, would I be in compliance with the office requirements of the Act? What if I worked out of a model home site?

    As any good lawyer loves to say, it depends upon the facts. Let us consider the "home office" question first. In the rules under the Act, a licensee's residence will not be considered an office unless it is held out to the public as a place where real estate brokerage services are provided to the public. If the facts are that you are a broker and this is your only office, this must be properly registered with IDFPR, with a sign showing that it is a real estate brokerage office, and that meets all of your local zoning codes, ordinances and/or neighborhood covenants and restrictions. If you are a salesperson or a broker who is otherwise sponsored by another broker and you do only "homework" at your home office, then you would likely not need to register or license this office. However, if you are a sponsored licensee who never goes into the office where you are sponsored and you meet clients at your home office and otherwise transact real estate brokerage business at your home office, there is a very real possibility that IDFPR would require your "home office" to be licensed as a branch office with a license for that branch and a managing broker assigned to oversee the brokerage operations taking place in the home office.

    Now, let us consider the "model home office" scenario. In situations where an agent from one sponsoring broker's firm reports to the model home every day for an indefinite period of time and never reports to the sponsoring broker's office where the agent is registered as her primary office. Virtually all of the agent's transaction files are kept in the model home, the agent meets both seller and buyer prospects at the model home and the agent might even be renting the space from the developer. On those facts, the sponsoring broker would need to register this location as a branch of its company with a proper branch license and a managing broker assigned.

    8. Is it permissible for a sponsoring broker to have more than one managing broker within one office?

    NOTE OF CAUTION: This answer must be qualified after informal discussions with administrators within the Illinois Department of Financial and Professional Regulation (IDFPR). According to conversations with IDFPR officials, agency records ask for the name of the managing broker, implying that each office of a sponsoring broker would have only one managing broker assigned to any one office. It is quite understandable that IDFPR would want one contact person when it is trying to exercise its enforcement and compliance functions under the Act. Per the rules under the Act, that person is the named managing broker. As a result, if a sponsoring broker elects to name more than one managing broker for one office, the sponsoring broker should consult with the sponsoring broker's own attorney to review the Act and provide specific legal advice on this subject. In addition, IDFPR will insist that, at least for its records, there is only one "named" managing broker for any one real estate brokerage office.

    This author submits that the short answer to this question is "yes." The definition of Managing Broker in Section 1-10 of the Illinois Real Estate License Act of 2000 (the Act), defines a managing broker as "a broker who has supervisory responsibilities for licensees in one, or, in the case of a multi-office company, more than one office…." Clearly, from this language, a managing broker can manage more than one office of the same company, but there is nothing in the Act that says that one office could not have more than one managing broker. Therefore, the argument could be made that a sponsoring broker might designate more than one managing broker for one office.

    Sponsoring brokers could have very valid reasons for doing this. For example, XYZ Realty, Inc. might have a commercial and a residential division within the same office. So, XYZ might appoint Jane Doe the managing broker of the commercial division and John Smith the managing broker in charge of residential sales. A brokerage company might have a separate property management/rental division for which it would want a managing broker with particular expertise in supervising the group of licensees who mainly deal with rental properties.

    Yet another example would be where a large office might sponsor many licensees in one office location, so, in order to more closely supervise those licensees, the sponsoring broker might elect to designate several managing brokers to oversee smaller groups of licensees, recognizing that the sponsoring broker is the ultimate responsible party. However, there will be one "named" managing broker on file with IDFPR to be the contact person.

    9. Is it permissible for a sponsoring brokerage company to have more than one branch office in the same building or location as the main office?

    This could be possible under the Illinois Real Estate License Act of 2000 (the Act), but you would want to make sure that you meet all requirements for a branch office if you elect to open a separate office that is, for all practical purposes, in the same location as the main office.

    First, you would need to review Section 5-45(a) in the Act. This provision says: "If a sponsoring broker maintains more than one office within the State, the sponsoring broker shall apply for a branch office license for each office other than the sponsoring broker's principal place of business." Thus, if a sponsoring broker elects to have a branch office, according to the language cited above, it should be a different location, or at least a different suite or office number than the principal brokerage office, even if in the same buildling.

    Presumably, the sponsoring broker could set up a branch that is located within the same building as the main office, but the branch should be distinguishable from the main office if it will really be a separate branch. In other words, it should have a distinct address. This might include a different floor, suite or office number than the address for the main office.

    The branch office would need to apply for and receive a branch office license from the Illinois Department of Financial and Professional Regulation (IDFPR) before operating as a separate branch. The branch would have a specific office manager assigned to oversee the licensees that are primarily engaged in the real estate business out of that branch only. It would need to have separate signage indicating that the office is a branch of the main brokerage office. Files would need to be kept at that office location. The branch office would need to file a Consent to Audit form with IDFPR and would have to be sure that any escrow account and other records were kept there in compliance with the Act and the administrative rules under the Act.

    The bottom line principle is this: If a sponsoring broker elects to open a branch office and to license the office as a separate branch, whether it is in a different town, across the street or even across the hall from the main office, it would need to be operated as a separate branch under the Act. It must not be set up as window dressing only. The sponsoring broker would want to have a legitimate business reason for opening a separately licensed branch and treat it as such. For example, if ABC Realty, Inc. has its main office at Suite 400, Primrose Lane and "ABC Realty, Inc. South Branch" at Suite 300, Primrose Lane, those licensees who work primarily out of the South Branch must in fact work primarily out of the South Branch. Records for each office must be kept in the appropriate office so that any IDFPR auditor or investigator would be able to examine records in the appropriate office location.

    So, if a sponsoring broker has a good business reason for opening a separate branch office, even if it is to be physically close to the main office, the sponsoring broker must take care that it is indeed operated as a true branch office and not a sham to fulfill some other need that might not be related to compliance with the Act.

    10. I am a managing broker for an office and since it is the beginning of a new year I am doing some "house cleaning." How long must I keep old files in my office?

    This is a good question and one on which you should consult with your company attorney and accountant. In addition, you might take a look at Section 1450.755 in the administrative rules under the Act. This rule discusses what records you should keep for the Illinois Department of Financial and Professional Regulation (IDFPR). Then if you are wondering how long to keep records, you should consider different time limits that might apply in different situations. Some very broad time limits that might apply would be the five-year limit on administrative actions through IDFPR, three to seven years for matters involving the Internal Revenue Service (IRS) and ten years for actions on written contracts. You might consider that there are some records in your office that you would need to keep forever, such as your articles of incorporation and by-laws for your company if you are incorporated. These are some very general guidelines and examples. You should consult with your own experts when making file retention and destruction decisions for your business and you might take a look at Illinois REALTORS®' Sample Office Policy Manual which contains a sample retention/destruction schedule.

    11. In my practice, I handle the listing and sales of "Real Estate Owned" or REO properties. Many times, the asset management company that is assisting the bank/owner of the real estate asks me to get the property cleaned up and ready for resale before I actually put the listing on the market. I incur the clean-up expenses and then I list the property for sale and I am reimbursed for these expenses out of the closing proceeds. Can I pay the expenses directly and then be reimbursed directly at closing instead of running everything through my sponsoring brokerage company?

    This is a tough and close question. However, typically these expenses are performed in an effort and as part of a continuing chain of events that will lead to you listing the property for sale. As a result, you are engaged in the clean-up activities that might include painting, lawn care, changing locks etc. all moving towards listing and ultimately selling the property.

    As a result, any compensation received, even reimbursement for expenses should be paid through your sponsoring broker. In addition, pursuant to the Illinois Real Estate License Act of 2000 (the Act) and its administrative rules, your sponsoring broker can be held ultimately responsible for your actions relating to real estate management and brokerage, thus your sponsoring broker should be exercising some degree of oversight and control in this situation.

    Generally, the safest course of action is to run these expenses and reimbursements through your sponsoring brokerage company, but you and your sponsoring broker may wish to consult your own attorney to analyze how your business is structured and for specific legal advice on this subject.

    12. A seller has approached a listing agent about assistance in marketing his home for sale. However, rather than the “traditional” approach, the seller wants to SELL RAFFLE TICKETS to many people then a winning ticket would be drawn and the seller would transfer the home to the raffle winner. Would it be legal for the seller to sell his home in this manner?

    The short answer to this question is no, the seller could not legally sell his home by this method in the State of Illinois. Generally speaking, gambling or conducting a raffle in Illinois would require a license to do so legally, pursuant to state gaming laws. Licenses to hold raffles, lotteries or games of chance are granted to not-for-profit organizations that apply for licenses through their local governmental authorities. On the facts above, the owner of the home would not likely qualify for such a license to conduct this type of raffle. As a result, it would not be wise for a licensed real estate agent to assist the seller with ticket sales for a chance to win the seller’s home. If the seller insists upon proceeding in this manner, the licensee should advise the seller to seek legal advice before doing so.

    This article obviously does not explore in depth whether there would ever be a way for a seller to sell his home by means of holding a raffle; for example, by giving the proceeds to charity. The seller’s attorney should be consulted on this matter in order to give the seller specific legal advice after thoroughly researching and considering the gambling statutes in Illinois.

    13. Could two sponsoring brokerage companies enter a co-listing arrangement with a seller?

    Yes. However, the two sponsoring brokerage companies should consult with their attorneys and their insurance companies, and have a written agreement between them that spells out the rights, duties and responsibilities of each company. If the companies have an agreement like this, then both companies could be shown as the “listing broker” in the form listing brokerage agreement.

    Scope of Law

    14. I have heard that a licensee could form a corporation to receive commission checks. Is this true even though my independent contractor agreement is between my brokerage firm and me? Also, if my spouse is a licensee sponsored by the same broker, could she also be a shareholder in my corporation?

    Section 10-20(e) of the Illinois Real Estate License Act of 2000 (the Act), does say that a licensee may form a corporation set up for the purpose of receiving real estate compensation, even though the independent contractor/employment agreement is between the firm and the individual licensee. Section 10-20(e) explicitly states, however, that this corporation must be "solely owned by that licensee." In other words, if you are a licensee, and based on the advice of your attorney and/or tax advisor, you have formed a general-purpose corporation to receive your compensation, you must be the only shareholder in that corporation. As a result, your spouse could not hold any shares in the same corporation.

    Keep in mind, if your spouse is also a licensee sponsored by the same firm, whether she is a salesperson, broker or assists you as a licensed assistant (with a broker or salesperson's license), she must be sponsored by the same sponsoring broker as you are, and not you or your "Section 10-20(e)" corporation. She would also be required to have an independent contractor/employment agreement between her and the sponsoring brokerage firm. She might want to explore forming her own corporation to receive compensation depending on her individual circumstances and practice.

    On the other hand, if your spouse is not licensed but she assists you in your real estate practice as an unlicensed assistant, your "Section 10-20(e)" corporation might be able to hire her as an employee. You should consult your attorney/tax advisor about any withholdings that would be required. Once again, it is important to remember whether licensed or not, she could not be a shareholder in the "Section 10-20(e)" corporation.

    Section 10-20(e) is a very limited exception to the general rule that a sponsoring broker must make payment of compensation for the performance of licensed activities to the licensee who performed those activities. That section does not require that the licensee's corporation obtain a real estate license. The reason for this is that a licensee can only perform licensed activities for one sponsoring broker. If the "Section 10-20(e)" corporation needed its own license, that corporation would have to be the licensee/shareholder's sponsoring broker. 

    15. I have seen recently on the Internet where a mortgage lender was advertising a package to help a homeowner sell his house on his own. The package included items relative to signage and advertising. Wouldn't the lender need a real estate license to do this?

    Typically, those are licensed activities as defined under Section 1-10 of the Act, specifically under the definition of "Broker." That definition says if you perform any of the itemized activities for another and for compensation or expectation of compensation, a real estate license would be required. Perhaps, the lender that prepares these "FSBO Kits" could argue that they are being provided for free to the homeowner so the lender is receiving no compensation and would thus fall outside the requirements of the Act.

    However, there is some expectation on the part of a lender that it will receive the loan business as a direct result of providing the "FSBO Kits." As part of the kit, there might even be some requirement that the seller give the lender a lead on the buyer for the loan business. This is surely an expectation of compensation, even if a somewhat indirect one. A strong argument could be made that, in fact, the lender would need a real estate broker's license in order to legally offer a program such as the one described above.

    16. I am an Illinois licensee and I have been approached by Web-based businesses seeking to sell me "qualified leads," i.e. qualified buyers and sellers of real estate, in exchange for some type of fee. Is this legal in Illinois and what are some of the issues that I should consider before "subscribing" to such a service?

    There are a host of issues to consider as technology evolves and Web-based businesses inevitably spring up. The frontier we know as the Internet is like the Wild West because there are very few regulations that deal specifically with Web-based businesses. However, the practice of real estate brokerage traditionally has been highly regulated and this remains the case today. We must now analyze how Web-based real estate businesses based outside of Illinois might work (or not) within the confines of state regulation. We will limit our discussion to the practice of real estate brokerage in Illinois.

    First, consider the definition of "broker" under the Illinois Real Estate License Act of 2000 (the Act). In order to assist others in the sale, purchase or lease of real estate in Illinois for compensation, one must have an Illinois real estate license. There are 12 enumerated activities that constitute licensed activities under the definition of "broker" under the Act. Among the enumerated activities is the "referring of leads or prospects" of real estate business for compensation. See Section 1-10, paragraph (8) under the definition of "broker" in the Act.

    So, if a person contacts an Illinois real estate licensee, offering to make a referral of a buyer, seller or renter and asks to be paid for that referral, generally speaking, the referring person must have a real estate license. If the referring person is licensed in another state (or country), there could be a legal arrangement where the Illinois broker might agree to pay the out-of-state broker a referral fee. For example, an Arizona broker has a buyer prospect moving to Illinois. He calls the Illinois broker asking for a referral fee if his Arizona buyer ends up buying real estate in Illinois and the Illinois broker acts as the buyer's agent. This scenario would be legal under the Illinois Act.

    What we see happening, however, is this: The Arizona company sets up a Web site that will target Illinois consumers. The program connected to the Web site might seek to qualify Illinois buyers, sellers or renters of Illinois real estate. The Arizona company then markets its Web-based "qualification" program to Illinois real estate licensees and offers to sell these qualified leads to the Illinois licensees for some agreed fee.

    There are a couple issues here. Does the Arizona company have a real estate brokerage license at all? If not, this is not legal in Illinois. If the Arizona company is licensed in Arizona but specifically targets Illinois consumers who will be interested in Illinois real estate, it is clear under the Illinois Act that an Illinois real estate brokerage license would be required in this scenario.

    The next question is whether or not the Arizona company has a physical office in Illinois. The Act requires that real estate brokers practicing real estate in Illinois have a physical office from which they would transact Illinois real estate brokerage business, unless their Arizona office is properly registered in Illinois under Section 5-45(d) of the Act.

    So, if an Arizona real estate brokerage firm wants to farm for real estate leads within Illinois, and sell those leads (in other words, be paid for referrals) to Illinois licensees, the Arizona firm must have an Illinois real estate brokerage license and must have a physical office in Illinois or a properly registered Arizona office in order to be in compliance with the Act.

    Now, let us assume that the Arizona company does have an Illinois brokerage license. The Illinois licensee considering whether or not to enter into any agreement to purchase these leads, or to pay for these referrals, ought to check the company's track record to be sure these really are quality leads that will justify the fee being paid. 

    With new ways of doing business springing up every minute, it is important to remember that real estate brokerage will evolve and change, but it is still a regulated industry. There is still a requirement for those seeking to practice real estate brokerage in Illinois to have an Illinois real estate license in Illinois before legally engaging in that business within these geographic borders or targeting prospects within these geographic borders.

    17. If someone wants me to help him sell his property in Indiana, may I do so without an Indiana real estate license?

    It is important to remember that your Illinois real estate license will govern those licensed activities that you perform within the state of Illinois. If you hold an Illinois real estate license, you are not automatically authorized to practice real estate brokerage anywhere in the world. To the extent that another jurisdiction has a statutory framework requiring a real estate license in order to engage in real estate brokerage, you would be subject to the laws of that state or jurisdiction. In reference to your specific question about practicing in Indiana, you would need to have an Indiana real estate license sponsored by an Indiana licensed broker in order to legally perform real estate brokerage services within Indiana's borders.

    It does appear somewhat odd to be discussing geographic borders in the age of the Internet when it seems that borders are disappearing, or becoming less relevant, at breakneck speed. However, real estate licensees are still practicing within a highly regulated industry and they must continue to observe and comply with existing statutes and regulations. Generally speaking, most states will require a real estate license in that state in order to perform real estate brokerage services there.

    Going back to our Indiana scenario, if you were to physically show the Indiana property to the prospective buyer, you would undoubtedly be subject to the Indiana real estate licensing requirements. Not only would your broker likely not have access to Indiana courts to seek enforcement of any commission agreement, you might be subject to discipline under the Indiana licensing laws.

    To add another twist to our example, let us consider that the owner of the Indiana property is an Illinois resident and he would like you to place the "listing" on your Illinois multiple listing service (MLS). Would this be legal under the Illinois Real Estate License Act?

    You might be able to enter into some sort of exclusive agreement with the owner to market the property within Illinois by placing it in your MLS. However, anything that would require that real estate services be performed in Indiana would very likely require an Indiana license. Thus, you will probably need to at least act in conjunction with a firm licensed in Indiana in order for the brokerage services to be completed and the transaction brought to conclusion. You might be able to receive compensation for advertising the property in the Illinois MLS, but beyond that, you would need to refer to the Indiana licensed brokerage firm. In addition, you would need to look at the rules of the local MLS to determine whether or not you could include a listing that might involve a brokerage firm that does not participate in that MLS (i.e., the Indiana "co-listing" firm).

    It is important to consider that the more brokerage services you perform for your client concerning the Indiana real estate, the more fuzzy the lines could become on two basic issues. First, regarding regulation, are you subject to the Indiana licensing authority if you perform any services beyond a simple referral? Second, regarding fees, will there be a forum available to your firm if you are forced to sue for non-payment of commissions earned?

    As one final note, Indiana (which we have used for illustrative purposes only) does have reciprocity with Illinois. What this means to you is that if you hold a current active Illinois real estate license, you might be able to receive an Indiana license through some abbreviated procedure, which would likely require a test covering Indiana law. You can view the states with which Illinois has reciprocity at the Web site of the Illinois Department of Financial and Professional Regulation, www.idfpr.com/DRE/reciprocity2000.asp.

    If your firm wishes to provide brokerage services outside of Illinois' borders, despite the ease with which this can be done given all the virtual tools we have today, you must still comply with the applicable laws governing the state or jurisdiction involved. As a result, you should check with your managing broker and with company legal counsel for specific advice on the subject of practicing real estate brokerage outside of Illinois.

    18. Must I have a real estate license to engage in property management activities?

    Yes, to the extent that those activities are included in the Illinois Real Estate License Act of 2000 (the Act) at Section 1-10 under the definition of “Broker,” and you are doing the activities for another and for compensation, you will be working within the scope of your real estate license. The list of activities is taken from the definition of Broker under the Act:

    (1)    …rents, or leases real estate.
    (2)    Offers to…rent, or lease real estate.
    (3)    Negotiates, offers, attempts or agrees to negotiate the …rental, or leasing of real estate.
    (4)    Lists, offers, attempts, or agrees to list real estate for ...lease....
    (6)    Supervises the collection, offer, attempt, or agreement to collect rent for the use of real estate.
    (7)    Advertises or represents himself or herself as being engaged in the business of …renting, or leasing real estate.
    (8)    Assists or directs in procuring or referring of leads or prospects, intended to result in the ...lease, or rental of real estate.
    (9)    Assists or directs in the negotiation of any transaction intended to result in the ...lease, or rental of real estate.
    (10)    Opens real estate to the public for marketing purposes.
    (11)    ...leases, or offers for...lease real estate at auction.

    19. A licensee is sponsored by ABC Realty, Inc. but the licensee operates and works for his own property management company “on the side.” Is this appropriate?

    No, if the property management company is engaged in licensed activities this would not be allowed under the Act. See #1 above. Licensees must only perform licensed activities for one sponsoring broker. The licensee might own or have an ownership interest in a properly licensed management company but would need to hire a managing broker to oversee the property management business.

    Updated January 2012

  • Mortgage Assistance Relief Services (MARS)

      

    Resources and Answers To Your Legal Questions

    1. Rules on MARS July 15, 2011

    2. Disclosures required, certain other limits apply

    3. Sample disclosure language Form #1 - General Commercial Communications Disclosures

    4. Sample disclosure language Form #2 - Sample Consumer Specific Commercial Communication Disclosure

    5. Sample disclosure language Form #3 - Disclosure When Providing an Offer of Mortgage Relief

    6. MARS update from NAR on March 29, 2011

    7. Federal rules that cover short sale negotiations by real estate licensees

     

    1. Rules on MARS July 15, 2011

    News regarding forbearance from FTC enforcement of some MARS Rules against real estate professionals  

    On July 15, 2011, the National Association of REALTORS® (NAR) issued a press release stating that the Federal Trade Commission (FTC) will not undertake enforcement actions against real estate professionals who assist distressed homeowners in their attempts to consummate a short sale transaction.

    This release is a result of NAR meetings with FTC about the unintended consequences of discouraging short sales with disclosures that are confusing or misconstrued by distressed homeowners. For now, FTC will not enforce the disclosure requirements or the ban on advance fees against real estate professionals who meet certain criteria. It is important to note the following with regard to this forbearance:

    • FTC says in its statement that it will not take any enforcement action against real estate brokers/agents who are:
    1. licensed and maintain good standing pursuant to any applicable state law requirements;
    2. in compliance with state laws governing the practices of real estate professionals; and (emphasis added)
    3. assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.”
    • FTC will continue to enforce the FTC Act and MARS Rules that prohibit deceptive practices;
    • FTC will continue to enforce the FTC Act and MARS Rules if the real estate agent is providing other MARS services (i.e. loan modification and not assisting with a short sale).

    FTC’s oversight of MARS Rules transferred to the Consumer Financial Protection Bureau (CFPB) on July 21, 2011 so this agency will determine “whether any modification of the MARS rule is warranted with respect to real estate professionals who assist a consumer in negotiating or obtaining a short sale.”

    FTC statement on MARS Rule: https://www.ftc.gov/news-events/press-releases/2011/07/ftc-will-not-enforce-provisions-mars-rule-against-real-estate] It is not known what CFPB’s position will be on modification of the MARS Rules. The CFPB has said that it will enforce these rules as written by the FTC unless notice is provided indicating a proposed change. NAR also notes that State Attorneys General would still have authority to enforce “the Rules as written” but as a “practical matter” NAR believes the enforcement in the circumstances outlined above should end.

    FTC makes no specific mention with regard to Rules Section 322.6 regarding knowingly or consciously avoiding knowing whether another MARS provider is complying with MARS rules.  Real estate professionals should still be cautious when referring consumers to MARS providers. Stay tuned for further information on this subject.

    Updated January 2012

    2. Disclosures required and certain other limits apply

    All disclosures must be clear and prominent.

    Clear and prominent – defined in the rules for:

    • text communications,
    • oral or audible communications (This method of communication requires slow and deliberate delivery in a reasonably understandable volume and pitch),
    • video communications, and
    • interactive/on-line communications.

    See the rule at 16 CFR Part 322.2 for specific clear and prominent requirements using the different methods of delivery listed above.  For text communications, in whatever media, the type must be “easily readable; in a high degree of contrast from the immediate background on which it appears; in the same languages that are substantially used in the commercial communication; in a format so that the disclosure is distinct from other text, such as inside a border; in a distinct type style, such as bold; parallel to the base of the commercial communication, and, …each letter of the disclosure shall be, at a minimum, the larger of 12-point type or one-half the size of the largest letter or numeral used in the name of the advertised website or telephone number to which consumers are referred to receive information relating to any mortgage assistance relief service.”

    For oral/audible communications the required disclosures must be preceded by the statement, "Before using this service, consider the following information."

    The sample disclosure language below is for written/text communications using any media.

    3. FORM #1 - General Commercial Communications Disclosures

    (For use when a real estate licensee holds himself out as an “expert” or as being in the business of providing mortgage relief assistance services.  Would a reasonable consumer assume this is your business?)

    IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure) (Name of Company) is not associated with the government, and our service is not approved by the government or your lender.  Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage you credit rating.

    Download model form (.doc)

    Source:  National Association of REALTORS®, http://www.realtor.org/letterlw.nsf/pages/0211mars

    4. FORM #2 – Sample Consumer Specific Commercial Communication Disclosure

    (To be given to seller client when you become aware that the transaction will be a short sale.)

    Below is the mandatory language that a real brokerage firm must use when making the Consumer-Specific Commercial Communication disclosure required by the FTC’s MARS rule. 

    This disclosure is required when a real estate professional either negotiates a short sale with a lender on behalf of a seller or arranges for a MARS provider to conduct these negotiations on behalf of the seller. The disclosure must be made before any negotiations take place. This language should appear in a memo or letter with the firm’s name, referencing the seller’s property that will be the subject of the short sale negotiations.

    To learn more about the MARS rule, click here. As always, real estate professionals should consult their attorney when creating legal documents.

    MORTGAGE ASSISTANCE RELIEF SERVICES DISCLOSURE

    The following disclosure is made pursuant to the Federal Trade Commission’s MARS Rule (16 C.F.R.  §322 et seq.).

    IMPORTANT NOTICE

    You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services.

    (Name of brokerage) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. 

    If you stop paying your mortgage, you could lose your home and damage your credit rating.

    ______________________________       _____________________
    (Broker’s name)                                                Date
    (Title)
    (Firm name)

    _________________    _____________________
    Seller                                 Date

    _________________    _____________________
    Seller                                 Date

    Download model disclosure form (.docx)

    Source:  National Association of REALTORS®, http://www.realtor.org/letterlw.nsf/pages/0211mars

    5. FORM #3 - Disclosure When Providing an Offer of Mortgage Relief

    (To be given to seller client when you receive the lender’s approval letter and must be on a separate page from the lender's approval letter. The lender’s approval letter must contain information about the difference in terms between the existing loan and the new deal, including any deficiency).

    IMPORTANT NOTICE:  Before buying this service, consider the following information (in two point-type larger than the font size of the disclosure):  This is an offer of mortgage assistance we obtained from your lender [or servicer].  You may accept or reject the offer.  If you reject the offer, you do not have to pay us.  If you accept the offer, you will have to pay us [same amount as discussed previously] for our services.  If you stop paying your mortgage, you could lose your home and damage your credit rating.

    Download model form (.doc)

    Source:  National Association of REALTORS®, http://www.realtor.org/letterlw.nsf/pages/0211mars

    6. MARS update from NAR (March 29, 2011) - Illinois REALTORS® received information from NAR regarding the FTC’s position on the enforcement of MARS rules and how it pertains to real estate brokers who might be negotiating short sales within their practice of real estate brokerage. The information is quoted from an internal email from NAR’s legal department.

    7. Federal Rules that cover Short Sale Negotiations by Real Estate Licensees

    The Federal Trade Commission (FTC) implemented federal rules that went into effect on Dec. 29, 2010 with certain provisions becoming effective on Jan. 31, 2011 covering the business of short sale negotiations between lenders and owners of underwater properties. The acronym used is MARS which stands for Mortgage Assistance Relief Services.

    Do these rules apply to real estate licensees?  Yes, in certain circumstances they do apply. As a result, it is very important that you read the National Association of REALTORS’® (NAR’s) article on this subject "New FTC Rule Requires Short Sale Disclosures"

    As you can see from the article, there is a prohibition against taking up-front fees when and if you are negotiating a short sale transaction. You may have to make general disclosures if you are holding yourself out as a MARS/short sale expert. You need to make specificdisclosures if you are negotiating a short sale on a client’s behalf.  In addition, if you represent buyers who seek to negotiate with the seller’s lender, you will need to comply with these MARS rules. Keep this in mind if you represent any kind of “intermediary” who is using some method of purchase (like an option contract for example) in order to “assist” the seller by accomplishing a short sale.

    It is also very important that you are aware that you could be in violation of these rules for referring or assisting in procuring a MARS provider for a seller without having some idea about the MARS provider’s method of negotiating for the short sale relief. The rules state:

    It is a violation of this rule for a person to provide substantial assistance or support to any mortgage assistance relief service provider when that person knows or consciously avoids knowing that the provider is engaged in any act or practice that violates this rule. (16 CFR Part 322.6)

    In other words you could violate these rules if you refer your distressed seller to a MARS provider who is violating the rule or if you don’t educate yourself to some extent regarding their practices. You should also inquire as to the disclosures they are making to the seller. 

  • Minimum Services

    Answers to Your Legal Questions

    1. Introduction
    2. What is the definition of exclusive brokerage agreement?
    3. What are the required minimum services?
    4. What is the rationale for these required minimum services?
    5. What could happen if a licensee does not perform the required minimum services pursuant to an exclusive brokerage agreement?
    6. May these duties be waived?
    7. Is there a specific requirement to have the statutory language in the exclusive brokerage agreement?
    8. How do minimum services requirements apply to commercial brokers, or those brokers that service builders or developers?
    9. Do these minimum service requirements prohibit disclosed dual agency?
    10. What if there is a listing in the local Multiple Listing Service (MLS) that directs the buyer agent to consult the seller directly?

    1. Introduction: FAQs about Exclusive Brokerage Agreements and Minimum Service Requirements Under the Real Estate License Act of 2000 (the Act)

    Following are frequently asked questions concerning the exclusive brokerage and minimum service requirements contained in Section 15-75 of the Real Estate License Act of 2000 ("Act").

    The minimum services requirement is both business-model neutral and fee-structure neutral. They apply to commercial and builder/developer brokerage agreements as well as sales of existing residential properties. Further, there is nothing in the Act dealing with fee structure.

    The Section 15-75 requirements do not deal with multiple listing services. However, there is the possibility that if a multiple listing service has a policy that the multiple listing service will only accept exclusive brokerage agreements for entry into the multiple listing service, that the legislation could have an impact upon those listings placed in multiple listing services. However, the decision as to whether entry into a multiple listing service is limited to exclusive brokerage agreements is an independent business decision to be made by each local multiple listing service.

    2. What is the definition of exclusive brokerage agreement?

    Pursuant to Section 1-10, under the definition of "exclusive brokerage agreement," it is a written brokerage or agency agreement that provides that the sponsoring broker has the sole right, through one or more sponsored licensees, to act as the exclusive designated agent or representative of the client and that meets the requirements of Section 15-75 of the Act.

    In other words, if a client hires one sponsoring broker to be the exclusive broker, then no licensees sponsored by other brokers are allowed to assist the client of the exclusive broker. In addition, if the brokerage agreement is an exclusive one, the exclusive sponsoring broker is required by the Act to provide certain minimum services for that client.

    3. What are the required minimum services?

    The minimum services required under the Act in all exclusive brokerage agreements are set forth in Section 15-75. The sponsoring broker, through its sponsored licensees, must:

    1. Accept delivery of and present to the client all offers and counteroffers to buy, sell or lease the client's property or the property the client seeks to purchase or lease;
    2. Assist the client in developing, communicating, negotiating, and presenting offers, counteroffers and notices that relate to the offers and counteroffers until a lease or purchase agreement is signed and all contingencies are satisfied or waived; and
    3. Answer the client's questions relating to the offers, counteroffers, notices and contingencies.

    In short, the sponsoring broker's job, through its designated agents, is to assist in the "brokerage" of real estate, which is producing a buyer for a seller's property or a tenant to lease a landowner's property, providing assistance through the negotiation process until a deal is reached. The essence of agency is assisting the client throughout the negotiation process, particularly in situations where the client is prohibited from seeking the assistance of any other real estate broker. This is not to say that the services provided will be exactly the same in all situations. The client may be more or less involved in the negotiation process, but the fact remains, the agent acting under the exclusive agreement will be duty-bound to remain in that process to some extent. If the client does not accept this, then perhaps the client does not want to sign an exclusive agreement, but an open or non-exclusive one instead, since the minimum services are not required by the Act in those situations.

    4. What is the rationale for these required minimum services?

    The answer is two-fold. First, the required minimum services help to protect the consumer client. Second, the required minimum services help prevent potential agency issues for the agent in the transaction who might represent the opposing party.

    On the issue of consumer protection, if a seller client, for example, has signed an exclusive right to sell agreement with a sponsoring broker, no licensee sponsored by any other broker may assist the seller should he or she have any questions. If no minimum services are required, then the seller may be effectively left without any assistance if the seller's own broker does not assist the seller and other agents could not assist the seller because of the existence of the exclusive agreement.

    On the issue of agency, assume as above, that a seller client has signed an exclusive right to sell agreement. A buyer agent brings a buyer to the seller represented by an exclusive broker. If no minimum services are required, the buyer's agent might be directed to contact the seller directly. The buyer's agent follows these directions and contacts the seller. The seller finds himself at a loss relative to the negotiation process and has some questions. He begins to ask questions of the buyer's agent that are really more appropriate for his own agent. The buyer's agent is in a very difficult position because he can't be a disclosed dual agent since the seller has previously signed an exclusive agreement with his own agent, yet the seller's agent is not involved in the process. In fact, it is a violation of the Act for the buyer's agent to interfere with the exclusive brokerage agreement of the listing agent.

    5. What could happen if a licensee does not perform the required minimum services pursuant to an exclusive brokerage agreement?

    Failure to provide minimum services has been added to the "Bad Acts" list under Section 20-20(a) of the Act. So, a violation could result in action against the sponsoring broker's license and/or the individual licensee's license ranging from letters of reprimand, suspension, monetary fines and/or loss of license to name a few.

    6. May these duties be waived?

    Yes, but the definition of exclusive brokerage agreement contains the requirement for the performance of the Section 15-75 minimum services. Thus, if the minimum services are waived in the brokerage agreement, the agreement will be a non-exclusive one by definition under Illinois law.

    7. Is there a specific requirement to have the statutory language in the exclusive brokerage agreement?

    Not necessarily. First, the sponsoring broker should review all exclusive brokerage agreement forms used in the broker's office to determine if the language contained in them sufficiently describes the minimum duties owed to clients. If not, then the sponsoring broker might either elect (1) to add a statement to the exclusive brokerage agreement forms that makes reference to the fact that the broker will, through its designated agents, perform those services set forth in Section 15-75 of the Act or (2) add all of the minimum services language verbatim from Section 15-75 to the exclusive brokerage agreement forms.

    7. How do minimum services requirements apply to commercial brokers, or those brokers that service builders or developers?

    The provisions apply to all exclusive agreements whether commercial, builder sales of new homes or the resale of existing homes. This legislation is both fee structure neutral and business model neutral. It applies to all exclusive brokerage agreements, regardless of fees charged by the broker and regardless of who the client is. So, if a commercial owner signs an exclusive brokerage agreement to sell or lease his building, the sponsoring broker will be responsible for providing the minimum services. However, since every situation is different and the needs of the client may differ, the actual services provided may also differ. If, after the sponsoring broker has explained the requirements of the Act and the different brokerage agreements it might offer, the commercial owner should decide whether he wants to be represented by only one broker in an exclusive agreement, or does he want an open, or non-exclusive agreement.

    8. Do these minimum service requirements prohibit disclosed dual agency?

    No. If a seller client has entered an exclusive brokerage agreement with the sponsoring broker, and the seller's designated agent finds a buyer for the property, with proper written disclosure and the informed consent of both buyer and seller, the agent could proceed as a disclosed dual agent and still satisfy the minimum services requirements. The disclosed dual agent is now acting in a somewhat limited role and will probably become more of a messenger/delivery-type agent, than a counselor as to what price the buyer should offer or what price the seller should accept. The parties will have consented to this more limited role by signing the required dual agency disclosure form.

    9. What if there is a listing in the local Multiple Listing Service (MLS) that directs the buyer agent to consult the seller directly?

    If your local MLS accepts only those listings based on exclusive agreements, (which is an independent business decision that each MLS will make or has made), you should assume that an exclusive brokerage agreement is involved. If the buyer agent is directed to contact the seller directly, the buyer agent might try to reach the exclusive seller's agent or broker in an effort to educate her about the minimum service requirements. Perhaps the transaction can proceed from there with the two agents involved. If the seller's agent insists that you contact and work with the seller directly, you must try to pursue the deal for the buyer client. As a result, you might call the seller to schedule a showing. At that time, you would probably want to give the seller a Notice of No Agency Relationship that would inform the seller that you represent the buyer. This should indicate to the seller that he should not divulge his confidential information to you because you might use it in your buyer client's favor.

    When you give a Notice of No Agency, remember not to act as the seller’s agent. For example, if the seller asks you a question like, "What price should I accept?" or "At what price should I counter this offer?" send him to his own exclusive agent for advice and do not act as his agent.

     

  • MLS

    Answers to Your Legal Questions

    1. If I have a buyer client and I am not a member of the MLS on which my buyer's preferred property is listed, should I assume that my company would be paid the cooperating portion of the commission anyway?

    2. As a listing agent, may I list a property on a multiple listing service (MLS) at a price I know to be far below what I believe to be the actual market value? My strategy is to generate many offers for the property listed, thus creating a "bidding war" atmosphere. My seller client will continue to reject all offers until the offers come closer to the actual market value.

    3. If I am the listing agent and I have received a contract that is signed by the seller and the buyer but the lender must agree to the terms of a short sale, must I post that there is a contract pending in the MLS?

    1. If I have a buyer client and I am not a member of the MLS on which my buyer's preferred property is listed, should I assume that my company would be paid the cooperating portion of the commission anyway?

    No. What is that trite expression about never assuming? You know what it is. At any rate, if you and/or your company are not members of the MLS where there is an offer of compensation outstanding, you must remember that this offer is being made only to participants in that MLS. So, if you want your company to be paid, you would want to negotiate a commission at your first contact with the listing agent/broker. Then, if the listing office agrees to pay your firm in the event your buyer is the successful purchaser, you should reduce that agreement to writing. The agreement would be between the listing firm and your firm, not between the seller and buyer. This could be helpful to you and your firm because the written agreement might provide a basis upon which you could take some action against the listing company in the event you are not paid at the closing.

    If the listing agent is a REALTOR® member, he has a duty under the REALTOR® Code of Ethics to cooperate with you even if he does not have a duty to pay you. He should keep in mind that he owes duties to his seller client to sell the property in an expeditious fashion. Sometimes, as you can see, even though they are related, the duties to compensate and to cooperate are separate ones.

    One more way to seek payment is to have an exclusive buyer brokerage agreement with your buyer client. This agreement might call for your office to be paid from the listing side of the transaction, but in the event that does not happen, the buyer client would become obligated to pay your company all or a portion of the cooperating commission. This agreement would be one of the factors your buyer would consider in deciding what kind of offer to make.

    2. As a listing agent, may I list a property on a multiple listing service (MLS) at a price I know to be far below what I believe to be the actual market value? My strategy is to generate many offers for the property listed, thus creating a "bidding war" atmosphere. My seller client will continue to reject all offers until the offers come closer to the actual market value.

    This practice appears to be a misuse of the MLS and its intended purpose. The MLS is intended to be an information exchange and a vehicle by which the unilateral offer of compensation is made from one participating office to other participating offices. On these facts, it looks like the MLS is being used to create an “auction” on the listed property.

    A listed price on the MLS will be viewed as just that: a listed price at which the property is available for sale. If you do not include any limiting language to qualify this, then MLS participants will believe the property is available at or near the list price. While you might generate many offers, you might also have cooperating offices saying that they brought ready, willing and able buyers at the listed price and therefore, your listing office will owe a commission to the coop office. You might argue that there is no successful sale until there is a closing between your seller and their buyer, but you may find yourself making that argument many times over.

    The language in your listing contract probably provides for your listing commission to be paid upon presentation of a full price, non-contingent offer being brought to your seller at a stated price. The price specified in your listing is probably different than the one you have indicated on the MLS in this scenario, and is probably closer to what you believe the real market price to be. That fact alone should tell you that there is something inherently wrong with how you are pricing the property in the MLS.

    While it is not illegal or unethical to assist a seller in selling his property by auction, it might be both illegal and unethical to do so by using the MLS as your means of creating the "auction."

    There is also some question as to whether or not this presents a deception problem under advertising guidelines. To the extent that the listing in the MLS can or would be considered advertising, if there were no information provided that this is not the actual offering price, have you engaged in deceptive advertising? Section 10-30 of the Real Estate License Act of 2000 (the Act) states as follows:

    No advertising shall be fraudulent, deceptive, inherently misleading, or proven to be misleading in practice. It shall be considered misleading or untruthful if, when taken as a whole, there is a distinct and reasonable possibility that it will be misunderstood or will deceive the ordinary purchaser, seller, lessee, lessor, or owner….

    In addition, Article 12 of the REALTOR® Code of Ethics, states that REALTORS® shall be careful to present a true picture in their advertising and in representations that they make to the public. These standards require the listing agent to, at the very least, include some language to indicate that the very low listing price is somehow qualified. You may need to check your local MLS rules/guidelines to see if that is even possible.

    To summarize, the practice of placing a property on the MLS at a price far below what your professional judgment tells you the price should be, would be a potential violation of the Act (which requires you to make truthful representations). It would also be a potential violation of your REALTOR® Code of Ethics in that your dealings with other agents must be based on honesty and, quite possibly, a violation of your MLS rules if you use the MLS to create an "auction." Note that some MLSs have auction sections that would then accept this listing as an "auction" listing.

    If you are going to assist your seller client in selling his property by means of an auction, then representations that you make and the forum in which you offer the property for sale should indicate that the sale is an auction. As always, if you think this is the "strategy" for you, discuss it with your managing broker if you are not the managing broker, and with your company legal counsel before putting a plan like this into action.

    3. If I am the listing agent and I have received a contract that is signed by the seller and the buyer but the lender must agree to the terms of a short sale, must I post that there is a contract pending in the MLS?

    Yes, as a general rule you must report contingencies to your Multiple Listing Service (MLS). First, you must look at the rules that govern your local/regional (MLS) in which you are a participant. The National Association of REALTORS® Model Rules under the Handbook on Multiple Listing Policy, Section 2.5, say that status changes to a listing must be reported to the MLS within a certain number of hours as determined by your local MLS. If the seller and buyer have signed a contract, under a "normal" listing situation, the listing agent would not need to continue to market the property for sale, subject of course to the seller's specific direction and serving the seller's best interests as required by the Illinois Real Estate License Act. The listing agent would likely post or check a box saying that the listed property is subject to a contract and might even mark other boxes to indicate what contingencies are pending. Some MLSs have check boxes for contingencies like attorney review/approval, financing, inspections etc. If a listing has been taken in a short sale situation, there is typically a contract formed and signed by the seller (who is still the owner of the property because there has been no foreclosure sale at this time) and the buyer. The lender(s) still need to agree to the terms of this short sale. Without any other facts or different MLS rules language, these facts would suggest that the listing agent must report this contract status to the agent's MLS. It would be wise to state in the remarks section that the listing that is under contract is contingent upon lender’s approval. In this way, any other prospective cooperating agents have an idea whether they would be paid and other prospective buyers can be made aware of a pending contract. Once again, the listing agent should check his particular MLS rules on this.

    From the seller's, and more particularly, the lender's point of view, it would sometimes be better not to report that there is a contract pending and to keep the listing on "active" status in the MLS. This would be done in hopes of attracting additional offers to the listing. On the other hand, the buyer wants the "contract pending status" to show up in the MLS so that fewer interested buyers will seek this listing when they see it is under contract. The short sale situation makes this question a bit more complicated and to some extent the contract status and the relative certainty that this contract will actually close may well depend on how much, if any, feedback or information the listing agent has from the lender who must decide whether to accept a certain amount of money under this contract. Sometimes, the listing agent will know the exact number the lender must have and closing will be more of a certainty. On the other hand, if this is the "first round" of negotiations, the parties may not have a clear idea as to what the lender will accept and perhaps it could be argued that reporting this "contract contingency" is premature, even though on the face of the contract there are signatures of both seller and buyer. Nevertheless, the Model MLS rules say when there is a signed contract, the contracts and contingencies must be reported to the service.

    Given the fact that the listing agent has a duty to report the contract with the lender "approval" contingency, sellers and buyers may wish to negotiate provisions into the contract that will give either party the right to terminate the contract if the lender has not accepted the terms of the proposed transaction by a certain date or time. So, the listing would appear on the MLS as being under contract with the lender contingency; but if the trigger date in the contract is not met by the lender, either the seller or the buyer could terminate the contract and it would go back on the MLS as an "active" listing. Of course, any contract provision of this nature would require careful negotiations and drafting by attorneys for the respective parties to the contract. This is yet another example as to why attorney involvement might be important earlier in the negotiations of a short sale situation. Also, it will be important to check your local MLS rules on the subject of contingency reporting requirements.

    Updated May, 2017

  • Municipal Inspection Programs

    Resources and Answers to Your Legal Questions

    Over the years, Illinois REALTORS® and local associations have learned of abuses in the enforcement of pre-sale home inspection ordinances or in the procedures of the municipal building inspectors. Some of these municipal abuses include the following:

    • The denial of the payment of the real estate transfer tax until the inspection is performed or until all required repairs are completed.

    • Requiring the buyer to make an exorbitant escrow payment in the case of the sale of "as is" properties.

    • The requirement of cosmetic repairs or repairs that are not consistent with "health and safety" standards.

    • Forcing owners to make their properties open to inspection without consent from the owner. This is typically done by denying the issuance of an occupancy certificate or the issuance of a landlord rental license.

    • Requiring owners of multi-family buildings to convert the use back to its original use (single-family). In many cases, the municipality permitted the multi-family use for several years.

    These procedures and practices by municipal building officials have resulted in lengthy delays and expenses in the real estate transaction process. Also the constitutional rights of homeowners and landlords as well as the right to the free transfer of property are jeopardized with these municipal procedures and requirements.

     

  • Personal Assistants

    Answers to Your Legal Questions

    Q. There has been some confusion as to what an unlicensed personal assistant can or cannot do relative to hosting open houses or broker tours. Will you please clarify these issues?

    There continues to be some confusion as to whether or not an unlicensed personal assistant may sit for a broker tour.

    First, it is necessary to clarify the definition of broker tour. This would be a situation where one broker's listing would be held open for a group of licensees to view the property. In other words, the home is not open to the public but to a group of licensees. The key here is that it is not open to the public, thus subjecting the unlicensed personal assistant to far fewer possibilities of engaging in licensed activities. The Administrative Rules under the License Act Section 1450.740 (b) (20) allow an unlicensed assistant to sit at a property for a broker tour that is not open to the public; while 1450.740 (c) (1) prohibits them from hosting open houses, kiosks or home show booths or fairs that puts them in direct contact with the public.

    There have been reports of broker tours being scheduled, but on the day of the tour, an open house sign has been placed in the yard. This would imply that the public is invited, and in that event, the unlicensed personal assistant could not serve as host.

    • Personal Assistants Manual - Download the PA Manual for free (www.illinoisrealtors.org/downloads). It's your guide working with licensed and unlicensed real estate personal assistants. It contains sample contracts, proposed rules, benefits and questions and answers.
  • Procuring Cause

    Answers to Your Legal Questions

    Scenario A

    Scenario B

    Q. Please offer some thoughts on the concept of procuring cause when the cooperating broker is seeking commission on a Multiple Listing Service (MLS) offer of compensation. Many real estate professionals seem to think that there is some black-and-white rule as to who is the procuring cause in the sale. Some will swear that the procuring cause would be the office that first shows the property. Others are certain the winner in a procuring cause case is the office of the agent who wrote the purchase contract. Which is it?

    Neither. First and foremost, it is important to remember that there is no bright-line rule as to who is the procuring cause in the sale. You must first consider the definition of procuring cause. While not verbatim from the National Association of REALTORS® (NAR) "Code of Ethics and Arbitration Manual," the definition goes something like this: The procuring cause will be the agent who originated the chain of events, without abandonment (agent leaving client) or estrangement (client leaving agent), that leads to the successful sale with that buyer.

    Therefore, an arbitration hearing panel would need to consider all the facts and circumstances presented by both sides of the argument and determine who best fits within the definition of procuring cause. NAR produced a 17-question "Arbitration Worksheet" available at www.realtor.org that lists pertinent questions for the panel to ask in a hearing. (To find it, use NAR's Google search option and type in "procuring cause.") The worksheet features some columns to help guide the decision makers as they consider the facts and the answers to the questions. The Legal Hotline Attorney will not give you an assessment of your chances of success (or failure) in a procuring cause hearing. You will discuss the definition of procuring cause and some of the factors that a panel would consider if you were to go to a hearing on the issue. Here are some common questions from the Hotline.

    Hotline Scenario A

    Calls come in from an agent for the cooperating office and there is no question that this was the only cooperating agent in the sale. The buyer was ready, willing and financially qualified to proceed to closing on the sale. The seller, for any number of reasons, backs out of the deal. Is the cooperating office entitled to the commission on the listing office's Multiple Listing Service (MLS) offer of compensation?

    If you read the pertinent section of the "NAR Code of Ethics and Arbitration Manual," you will find that NAR's definition of "successful transaction" means a "sale that closes or a lease that is executed." So, if the seller backs out of the deal, even if the buyer is ready to proceed, but there is no closing, according to current NAR guidelines, the dispute should not proceed to a hearing.

    Hotline Scenario B

    There is an MLS offer of compensation outstanding and Buyer Agent #1 brings Buyer #1 to the seller through the listing office. However, the sale is contingent upon the removal of an existing right of first refusal. Assume Buyer #2 is the holder of that right of first refusal and he decides to exercise that right and buy the property from the seller. In this situation, Buyer #1 does not go to the closing table. The deal closes between seller and Buyer #2. Buyer Agent #1 will argue that her office is entitled to the compensation offered through the MLS.

    Once again, per NAR policy, there is "no predetermined rule of entitlement." One factor that will be considered by the panel will be agency relationships and whether there was an agency relationship with the buyer. In this case, there is really no relationship between Buyer Agent #1 and Buyer #2. Therefore, it is not safe to assume that since there was a contract at one time between Seller and Buyer #1, that Buyer Agent #1 is automatically entitled to the MLS offer of compensation as the procuring cause of the sale. Arbitration panels have decided differently on this issue.

    As you can see from just these two examples, it is impossible to predetermine the "winner" in an MLS commission dispute. If the parties to the dispute agree, they might decide to use mediation as an alternative to arbitration. You can read more about the mediation option for dispute resolution online at nar.realtor/policy/mediation.

    Finally, if you are a broker in your office, you might consider having an office policy that includes the requirement for an exclusive buyer agency agreement with the buyer client. While this is definitely your company's individual business decision, it could provide your company one more avenue for payment. The existence of an exclusive buyer agency agreement will be one factor in an arbitration panel's consideration of a procuring cause argument, and while it may not be a deciding factor, it could be a factor in your favor. Also, it can provide a contractual basis for payment by your client for whom you are providing valuable services.

    If you find yourself in a commission dispute, you should visit with your managing broker and your own company legal counsel for advice on how best to proceed.

     

  • Radon

    Resources and Answers to Your Legal Questions

    Radon Disclosure Requirements

    Radon FAQs

    1. To which real estate transactions does the Act apply?
    2. Where can I obtain the disclosure form and the pamphlet?
    3. Does the real estate agent have any duties under the Act?
    4. Which agent should initial the "Agent's Acknowledgment Section," the seller's agent or the buyer's agent?
    5. What happens if the seller does not give the disclosure form and pamphlet PRIOR to the buyer's offer to purchase the residential real property?
    6. Must the seller agree to testing and/or remediation for radon under the Act?
    7. Does the Act apply to new construction?
    8. Are the disclosure form and pamphlet required in the sale of a condominium unit that is located in a 5-unit townhouse arrangement; or what about where the condominium is located on the 50th floor of a multi-unit high-rise building?
    9. What are the exclusions under the Act?
    10. Must a seller disclose that he did a "home" or "self" test for radon and not one performed by a professional radon inspector?
    11. Must a seller disclose if he has had radon remediation done on the dwelling?
    12. What if the seller has questions about his/her obligations under the Act?

    Radon Disclosure Requirements

    • Illinois REALTORS® has advised members of the slightly revised Radon Disclosure form that should be used effective Jan. 1, 2013. Click here for the revised form (old link to www.illinoisrealtor.org/sites/illinoisrealtor.org/files/Forms/422.pdf). In the abundance of caution, listing brokers should begin using the new forms for any listing that does not have a purchase contract pending.

    REALTORS® should have general knowledge about the existence of the Illinois Radon Awareness Act and that the provisions impose some duties on sellers.

    In short, before a buyer becomes bound on a contract to purchase real estate the seller is required to provide a pamphlet entitled "Radon Testing Guidelines for Real Estate Transactions" and the Illinois Disclosure of Information on Radon Hazards. The language of the latter is set forth by statute. The language in the form was amended recently and became effective Jan. 1, 2013. Specifically, the sellers must provide purchasers with the most current records and reports pertaining to elevated radon concentrations within the dwelling.

    The pamphlet is provided by the Illinois Emergency Management Agency Division of Nuclear Safety (original link broken iema.illinois.gov/dns.asp) (IEMA). Visit its Radon Publications page for the "Radon Testing Guidelines for Real Estate Transactions" pamphlet and fact sheet.

    Nothing in the Act requires a seller to test for radon or to engage in "mitigation activities."

    The Act excludes certain types of transactions, which are summarized as follows: Transfers made pursuant to court order, transfers resulting from foreclosure, transfers by fiduciaries of estates, transfers among co-owners, transfers pursuant to testate or intestate succession, transfers made to a spouse or other "lineal" blood relative, transfers made by relocation companies (if the relocation company has the required documents from the original seller) transfers to or from a governmental entity, and transfers involving a dwelling unit that is on the third story or higher above ground level.

    FAQs for the Illinois Radon Awareness Act

    1. To which real estate transactions does the Act apply?
      Generally, the Act applies to transactions involving the purchase of residential real property. Residential real property is defined under the Act as follows: "any estate or interest in a manufactured housing lot or a parcel of real property improved with not less than one nor [sic] more than 4 residential dwelling units." Disclosure is also required in some residential lease transactions where a test shows a radon hazard that has not been remediated by an IEMA licensed contractor, or subsequent test shows no hazard.
    2. Where can I obtain the disclosure form and the pamphlet?
      Download both of these from Illinois REALTORS®’ Radon Resources Free Downloads (original link to www.illinoisrealtors.org/downloads).
    3. Does the real estate agent have any duties under the Act?
      The real estate agent does not have any duties that are specifically set forth in the Act. However, the disclosure form for sales transactions does have a section for the real estate agent to initial and sign acknowledging that the agent informed the seller of seller's obligations under Illinois Law.
    4. Which agent should initial the "Agent's Acknowledgment Section," the seller's agent or the buyer's agent?
      Since it is the seller's obligation to comply with the Act, it stands to reason that the seller's agent who has the property listed would be the agent who would initial the acknowledgement section on the disclosure form. On those facts, the buyer's agent would likely have no obligation. However, if the property is not listed and the only agent involved in the transaction is the buyer's agent, the buyer's agent might very well bring the Act requirements to the attention of the seller (while serving the buyer client's interests). In this case, a buyer agent might initial the agent's acknowledgment section of the form. It should also be noted that the definition of "agent" in the Act does define agent as one who is "acting on behalf of a seller or buyer of residential real property."
    5. What happens if the seller does not give the disclosure form and pamphlet PRIOR to the buyer's offer to purchase the residential real property?
      The Act states that the seller must "complete the required disclosure activities prior to accepting the buyer’s offer and allow the buyer the opportunity to review the information and possibly amend the offer." If the disclosure is not made then, according to the Act, the buyer will not become obligated under the contract to purchase the residential real property. This would presumably not preclude a buyer from proceeding to close on the purchase notwithstanding the seller's failure to disclose. There are no other penalty-type provisions under the Act.
    6. Must the seller agree to testing and/or remediation for radon under the Act?
      No. The seller and buyer are free to negotiate whether there will be any testing for radon and/or remediation should test results indicate unacceptably high radon levels in the residential property that is the subject of the transaction.
    7. Does the Act apply to new construction?
      Yes. There is no exclusion for newly constructed residential property.
    8. Are the disclosure form and pamphlet required in the sale of a condominium unit that is located in a 5-unit townhouse arrangement; or what about where the condominium is located on the 50th floor of a multi-unit high-rise building?The first situation would require the seller to accurately complete the disclosure form and provide the pamphlet to the buyer for any of the 5 units that were less than 3 stories above the ground level. However, for any residential units whether condominium or townhouse, located at least three stories above ground level, there would be no radon disclosure required.
    9. What are the exclusions under the Act?
    • Transfers pursuant to a court order
    • Transfers from a mortgagor to a mortgagee in the context of foreclosure proceedings
    • Transfers by a fiduciary in the administration of a decedent's estate, guardianship, conservatorship or trust
    • Transfers from one co-owner to one or more co-owners, transfers pursuant to testate (with a will) or intestate (without a will) succession
    • Transfers to a spouse or another blood relation
    • Transfers from a relocation company who has taken title (so long as the original seller has provided the required disclosures to the relocation company)
    • Transfers to or from any governmental entity
    • Transfers of any unit (including condos or coops) located on the third story or higher above ground level.

    10. Must a seller disclose that he did a "home" or "self" test for radon and not one performed by a professional radon inspector?

    ​Yes. The language in the Act says that the seller "is required to provide the buyer with the most current records and reports pertaining to elevated levels of radon concentrations…." This language does not make any distinction between tests conducted by a professional and those conducted by the seller. As a result, the general answer is that the seller should provide results of a "home" test if those are the most current records.

    11. Must a seller disclose if he has had radon remediation done on the dwelling?

    Yes. If there has been mitigation or remediation, the seller needs to disclose pursuant to the statutory language contained in the disclosure form. Chances are that there is some documentation to pass along to a new owner regarding a radon remediation system or some information concerning mitigation that would be shared.

    12. What if the seller has questions about his/her obligations under the Act?

    The seller should be advised to seek legal advice from his/her attorney concerning his/her obligations under the Act.

    May, 2017

  • Rental 'Scraping' Scam

    Answers to Your Legal Questions

    Occasionally, Illinois REALTORS® receives calls from members who suspect their sales listings have been posted on craigslist.org as rental listings when these properties are not for rent at all. The listing agents believe their listings are being posted on craigslist as part of a scam, or plan to dupe those who respond to the fake rental ads out of money.  If you believe this has happened to you, or if you want to learn more in order to prevent this from happening to you, go to: www.craigslist.org/about/scams. This site offers helpful tips for recognizing different scams and provides contact information for various agencies who will investigate these situations.

    If you believe you or someone else is in danger of physical harm, always start with a call to the local police

    Updated: April 30, 2014

    The Illinois REALTORS® Legal Center (original link is www.illinoisrealtor.org/legal) is a resource for members of the Illinois REALTORS® related to the laws, regulations and policies that govern the real estate industry in Illinois.

  • Real Estate Settlement Procedures Act (RESPA)

    Answers to Your Legal Questions

    In 1974, Congress enacted the Real Estate Settlement Procedures Act (RESPA) to address problems in the real estate settlement process including: abusive practices that increased costs to homebuyers lack of understanding about the settlement process and its costs.

    RESPA's purpose is twofold:

    • to provide consumers with information about the real estate mortgage transaction and the costs associated with it
    • to prohibit certain practices, such as referral fees between settlement service providers, that result in higher costs and reduced quality to consumers

    For more information on regulations, go here: NAR on RESPA 

    Home Warranty Clarification

    Updated May 2017

  • Seller Disclosure

    Resources and Answers to Your Legal Questions

    Background

    REALTORS® Obligation

    Sellers' Obligation

    Buyers' Rights

    Background

    • Illinois is one of most states that require mandatory disclosure of property condition.
    • Illinois REALTORS® was instrumental in passing the law that requires disclosure in Illinois.
    • The form gives as much information as possible about the current condition of the property.
    • The form consists of 23 questions about the condition of the property including (but not limited to): the structure, including the roof, foundation, walls and floors; flooding; furnace; electrical, plumbing and air conditioning systems; well and drinking water; and high levels of lead paint, radon and asbestos. 
    • Delivery of the disclosure form is required in most sales transactions before signing a written contract.

    REALTORS®' Obligation

    • A REALTOR®’s duties to a client make it a good business practice to advise a seller of their obligation and possibly provide the form for the seller to complete when working as a seller’s agent or to inform a buyer generally of their rights under the law when working as the buyer’s agent. They should advise legal counsel when necessary or when specific questions arise.

    Sellers' Obligation

    • Most sellers are responsible for completing the disclosure form and honestly disclosing only those matters they know about. Of course, if a seller has no actual knowledge about something, he could answer "no" (or not aware) about any of the items on the form, but if he has a question, he should be referred to his attorney for specific advice.
    • Sellers must supplement the disclosure in written form if the seller gains actual knowledge of a material defect after the original disclosure form was delivered to a prospective buyer. No particular form for supplemental disclosure is required so long as it is in writing.

    Buyers' Rights

    • If a buyer is not presented with a seller disclosure form before becoming bound on the contract, the buyer may have certain rights to rescind the contract if there are undisclosed material physical defects.
    • The form does not substitute for any inspections and buyers should strongly consider having inspections done or negotiating warranties with the seller. 
    • If the form is presented to the buyer after the purchase contract is signed and prior to closing and it reveals material defects, the buyer could have three business days to terminate the contract. Once again, specific legal advice is highly recommended.
    • Section 55 gives the buyer certain rights to terminate the contract if the seller refuses or fails to provide the disclosure document prior to the conveyance of the residential real property.

    http://www.illinoisrealtor.org/legal/issues

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  • Short Sales

    Answers to Your Legal Questions

    1. What is a short sale?

    2. How do the listing process and contract negotiations differ from the "norm" when the property will be subject to a short sale?

    3. Is it true some lenders won't approve the transaction initially?

    4. What if the seller tries to make a side deal of some sort?

    5. If I do take a listing that will be a short sale, is there anything I can do with regard to the cooperating commission offered in the MLS if the lender requires that I reduce the listing commission?

    6. Who is the right buyer for a short sale transaction?

    7. Is Illinois a "judicial foreclosure state" or "non-judicial foreclosure state," and what is the time frame for the process?

    8. Use of form purchase contracts in a short sale

    9. Can you really be a disclosed dual agent in a short sale?

    10. Dealings with a short sale company
    11. Does the Mortgage Rescue Fraud Act (765 ILCS 940/1 et seq.), which applies to distressed property consultants apply to me as a real estate licensee? 

    12. Changes in the listing process in short sale situations

    13. If I am a listing agent for a property that will be subject to a short sale and lender approval, should I advise the seller to stop making payments on the seller’s loan?

    14. Must a seller provide property disclosure forms in short sale transactions? What about in REO (lender has foreclosed on the property) transactions?

    15. I am the listing agent in a short sale situation and a buyer brings an offer that includes an option to purchase my short sale listing for a particular price. The option contract buyer has asked me to assist in finding another buyer with the intent of having consecutive closings. What are issues that I should be concerned about in this scenario?

    16. What if lender approves a short sale but does not forgive the indebtedness/promissory note?

    The following is a series of Q&As from the Illinois REALTORS® Legal Hotline.

    1. What is a short sale?

    A short sale is a situation in which the real estate seller owes more money on the loan(s) secured by the real estate than the sale of the property will likely produce on the market. The seller is in a distressed situation, but the bank/lender has not yet taken title from the seller through the foreclosure process. At this point, there might be a window of opportunity for the seller to put the real estate on the market and try to sell it in order to at least partially satisfy the lender who holds the mortgage.

    2. How do the listing process and contract negotiations differ from the "norm" when the property will be subject to a short sale?

    If the seller decides to list the property with you as the real estate broker you need to take care to try to learn as much as possible about your prospective seller's situation as it relates to the property. You need to ask your seller some hard questions (taking care that you treat your sellers equally across the board). For example, on your seller prospect checklist, you might have a question that addresses the status of any loan(s) that is/are secured by the real estate to be listed. If the seller is behind in his monthly payments, it will be important for you to know this. When you prepare your comparative market analysis (CMA) for your seller prospect you can consider what you think the market will bring for the real estate and then look at what the seller owes to the lender(s) to analyze whether it is reasonable to sell the property as opposed to letting it go into the foreclosure process. It will likely be better for the seller's credit rating if the seller can avoid losing the property through foreclosure. If it is your opinion that you will be able to secure a price on the market that would be "saleable" to the lender(s), then you might decide to take the listing.

    You take the listing knowing that any transaction entered will be subject to lender approval. It will be helpful to know the list of lenders and to try and find the person at each institution that will be able to make a decision when it is time to approve/disapprove the transaction. Hopefully, you can locate the correct person. That will make life easier once there is a contract for the lender(s) to consider.

    Once you place the property in your local/regional multiple listing service (MLS), if you know at this time that the transaction will absolutely have to be approved by the lender, then you should include a notation to this effect in the listing information if that is permitted by your MLS. This will be another contingency affecting the transaction, along with inspections, attorney review, and buyer financing to name a few. This puts cooperating brokers on notice that there could be another layer in the negotiations and that it might take a little more time to consummate the transaction. This might also mean something to the cooperating broker in terms of the commission amounts to be paid. (See the Q&A on page 8 for more detailed discussion on this subject).

    Now let's say that a buyer's broker brings an offer on this listing. Most of the time, the parties will negotiate to an acceptable contract subject to a contingency that the lender must approve the contract. Hopefully, you have a good contact at the lender so when the contract has been negotiated you can submit to this contact person to begin the lender approval process.

    3. Is it true some lenders won't approve the transaction initially?

    Lenders may not approve the transaction on the initial "pass." While it is probably true that most lenders don't really want the property back, they seem to want everyone to share in the "misery." The lender's goal will be to realize as much money out of the sale as possible. So you may find that the lender asks you, the listing broker, to reduce your commission. If there are junior lien holders, there may be more negotiations of amounts that might satisfy them in order to get them to sign releases of their liens. The lender will want to know more about the seller's other resources that might be available to reduce the deficiency. The lender might also want to know the seller's story and how the seller arrived in this position. If the lender asks you to reduce your commission, you should visit with any cooperating broker right away to see if they will agree to share in the reduction. The bottom line is that the short sale might be a viable option for a seller in financial trouble with his home, but be prepared for the lender to try to realize as much as possible out of the deal and to have others involved in the transaction take a "hit" as well.

    4. What if the seller tries to make a side deal of some sort?

    I have also heard certain fact situations where the seller will try to make a "side deal" where the buyer agrees to purchase personal property or pay seller's expenses in order that seller might walk away with some cash at closing. Remember in the short sale situation where the lender does not yet own but must approve the transaction, you still represent the seller and must follow seller's direction as well as keep seller informed. In the instant example, the seller does not want to disclose this "side deal" to the lender. This could be a legal problem for your seller. The seller may have some obligation to inform the lender as to all sources of money related to the transaction. The seller should be directed to consult with his attorney in this case and you should discuss the situation immediately with your managing broker and your company's attorney. You do not want to become complicit in loan fraud. As a matter of fact, in other residential real estate transactions, where personal property is being sold as a part of the transaction but not as part of the purchase price of the real estate this must be disclosed on the Real Estate Transfer Tax Declaration form. Indeed if the value of the personalty is above a certain threshold, the seller must attach an itemized list of the property with values to the Real Estate Transfer Tax Declaration form.

    5. If I do take a listing that will be a short sale, is there anything I can do with regard to the cooperating commission offered in the MLS if the lender requires that I reduce the listing commission?

    Maybe. The National Association of REALTORS® (NAR) does include in its model policies that cooperating commissions offered through an MLS must be conditioned only on the procuring cause of the sale and must be stated as a percentage of the gross selling price or as a definite dollar amount. However, NAR policy also says that local MLSs may in their own discretion "adopt rules and procedures enabling listing brokers to communicate to potential cooperating brokers that gross commissions established in listing contracts are subject to court approval or lender approval; and that compensation payable to cooperating brokers may be reduced if the gross commission established in the listing contract is reduced by a court or by a lender." In other words, you should check with your local/regional MLS to see what its rules say about a listing broker's ability to make remarks saying that the gross listing commission may be subject to court or lender approval. Then, if this is allowed by the local/regional MLS, the listing office should communicate the "potential reduction in compensation payable to cooperating brokers or the method by which the potential reduction in compensation will be calculated…."

    NAR policy goes on to say that the listing broker must clearly communicate this to potential cooperating brokers before they produce the offer that "ultimately results in a successful transaction." It is also important to check your local MLS rules for the exact language. It is important that you keep cooperating brokers informed along the way as situations in a short sale develop, especially when it becomes clear that the lender is going to ask for a reduction in commission. Without disclosing to the cooperating broker what the total listing commission is, you can explain how you propose to share or split the reduction requested between your listing office and the cooperating office. If the cooperating brokerage won't agree to share in the reduction and the matter goes to arbitration, a panel will consider issues such as when did the listing office learn of the reduction and did they communicate this timely to the cooperating office. If the listing office was dutiful in its communications with the cooperating brokerage, this will be a helpful fact for the listing broker. Keep in mind, the lender who is taking a hit in the short sale transaction will be looking for company.

    6. Who is the right buyer for a short sale transaction?

    The right buyer in a short sale transaction must be patient and have money ready to proceed once the seller's lender does review the transaction. Many times, obtaining lender approval will take quite a bit of time. A recent article indicated that the average time for a lender response on a short sale contract was 4.5 weeks. So your buyer should not be in a hurry, not need to move into a home right away and not be making offers on other properties without the advice of legal counsel. In addition, the buyer should be well qualified financially or have their financing arranged. Think about this. If your buyer's contract shows that your buyer is ready to close at any time with no issues on buyer's loan, this will likely make your contract "package" more attractive to seller's lender than another contract where buyer's financing may be in doubt.

    7. Is Illinois a "judicial foreclosure state" or "non-judicial foreclosure state," and what is the time frame for the process? (Note: We recognize this question deals with the foreclosure process as opposed to the "short sale" situation which is typically pre-foreclosure, but we still thought this relevant and worthy of mention in this area).

    Illinois is a "judicial foreclosure state" which means if there is real property that is subject to a mortgage security interest held by a lender, the lender must seek a sale of that security through the courts in the form of the judicial foreclosure proceeding.

    Authors and attorneys Steven B. Bashaw and Patricia M. Nelson offer a very good summary of the timetable for a "typical, uncontested default case" as follows:

    1. pre-complaint proceedings, during which the borrower misses payments and may be trying to work things out with the lender;
    2. the filing of the complaint;
    3. jurisdiction, that is, when the borrower is served or notice is published;
    4. summary or default judgment in the lender's favor;
    5. the expiration of the borrower's redemption period, which is the later of seven months from the date of service or three months from the date of judgment;
    6. sale;
    7. confirmation of sale, with the order of possession stayed for thirty days;
    8. possession, meaning the eviction of the borrower; and
    9. a petition on the part of the lender for any deficiency, or, rarely, on the borrower's part for any surplus.

    The authors suggest that the timetable in an uncontested judicial foreclosure in Illinois will take at least one year.

    [This excerpt was taken from an article written by Helen W. Gunnarsson for the February 2008 Illinois Bar Journal, p. 78, citing "Basic Foreclosure Issues: Mortgage Foreclosure Defense for the Legal Aid and Pro Bono Attorney," by Patricia M. Nelson and Steven B. Bashaw, published by Chicago Volunteer Legal Services [CVLS]].

    8. Use of form purchase contracts in a short sale

    This "Short on Shorts" revolves around the practice of real estate brokerage and the use of forms including purchase contract forms. It is important for real estate practitioners to be mindful that they practice real estate brokerage and not to slip unwittingly into the unauthorized practice of law. As you are well aware, the seminal case in Illinois for real estate licensees for guidance on this issue is commonly known as the "Quinlan & Tyson Case." The direction that comes out of that case when seeking to draw some sort of line between the practice of real estate brokerage and the practice of law is that the real estate licensee may fill in blanks to complete business and factual information on a form contract that is commonly used in the community. It is important to note that a form provided as a handout at a seminar may not qualify as one that is commonly used in the community and may also present unauthorized practice of law issues for the real estate licensee who is tempted to hand these to clients for their use.

    Why do we raise these issues in the context of short sales? Purchase contracts in short sale situations may require some very specialized language that will go beyond what the usual form language will generally provide. In a proposed short sale situation, lender approval will be required. Now, let's imagine that the seller's real estate agent added that phrase to the form purchase contract that is commonly used in his community. He has just engaged in the unauthorized practice of law. He is not filling in blanks with business or factual information. Indeed, he is adding a substantive (and quite important) contingency provision to the seller's contract. What does "lender approval" really mean? Whatever "lender approval" means is for the seller and seller's attorney to define. What if you are the buyer's agent and the buyer is back-up contract number two to the contract number one that is lost somewhere on the lender's desk. Should you do your buyer client the favor of drafting the language that will make this contract contingent upon the termination of the first contract? No. You should not. This is for your buyer client to determine with the advice and assistance from the buyer client’s attorney. These are just two examples of instances where the agent would be going beyond the scope of filling in the blanks with business and factual information when providing brokerage services.

    It is important to recognize in the context of a proposed short sale transaction that as the agent you recommend legal advice when it is needed and maybe don't wait till the "attorney review" or "attorney approval" period. There is nothing that requires you to wait until that time. Recommend legal advice when it is needed and sometimes it is needed during purchase contract negotiations.

    9. Can you really be a disclosed dual agent in a short sale?

    Let us take a moment to analyze the question above.

    In a short sale situation, what is the listing agent trying to do for the seller client? Typically, the listing agent is trying to sell the property for enough money to satisfy the seller's lender and thus, encourage the seller's lender to accept something less than the total amount owed by the seller on the loan for the property. As we are learning from our practices and from the published information on the subject of short sales, getting a short sale approved by the lender and then ultimately closing on an approved short sale is not an easy task. The listing agent must have consent from the seller client to talk directly to the seller's lender or lenders. The listing agent will need consent from the seller to disclose to prospective buyers that the listing is subject to a proposed short sale (assuming the lawsuit to begin the foreclosure process is not yet on file at the court house). The listing agent will likely be negotiating offers that may well become contracts that will be presented to the lender(s) for possible approval. The listing agent will need to have a good contact person in the lender's loss mitigation section. The listing agent will be dealing with a seller that is distressed. Something may have happened in the seller's life that makes it impossible for him to make his loan payments and he is faced with the very real situation that he is losing his home and may not have another place to go. In short, the seller may very well be grumpy and/or sad.

    The buyer's agent on the other hand is trying to find just the right home for her buyer client at the right price. If you are already the listing agent can you counsel your buyer as to the right price to offer? The answer to that question in disclosed dual agency is no. When you act as a disclosed dual agent, your role is limited as to what you can do for both the seller client and the buyer client. You are really more the messenger and provider of information. You are specifically prohibited under the IL Real Estate License Act of 2000 (the Act) at Section 15-45(a) from counseling the seller about what price to take or counseling the buyer about what price to offer. It may well be in a buyer's best interests when trying to buy a property subject to a prospective short sale to start on the lower side. As a disclosed dual agent, you could not give that advice. In addition, it may not be in the buyer's best interest to become involved in a proposed short sale situation given the fact that there will likely be delays in the process. What if the buyer needs to find a property right away? Wouldn't you want to be able to make your buyer client fully aware of possible delays and to suggest that your buyer client's attorney consider contract language that might allow your buyer to cancel the subject contract in favor of another one, should the delays become too long? If you do this, have you not hurt your seller client? Remember in paragraph number one we left our seller grumpy and/or sad. This may not be the best fact situation in which to attempt to undertake disclosed dual agency representation. You and your clients may be better off if you refer the buyer to another licensee for representation in this situation.

    As always, you should assess the facts of each case. If you are troubled, ask your broker and/or your company's legal counsel for advice as to office policies, procedures and quite possibly, prohibitions.

    10. Dealings with a short sale company

    For purposes of the next two scenarios assume these facts: Seller owes more on his loan than the sale of the home will bring on the market. The listing agent will need to identify and contact the loss mitigation specialist at the bank and submit negotiated contracts to the bank to see if the bank will accept an amount in settlement of the seller's debt after paying expenses of the sale.

    Situation #1

    The real estate brokerage company (listing company) has a distressed seller's listing. It will be a possible short sale as described above. The listing company recognizing that it does not have a lot of expertise in short sales enlists the aid of a "short sale company." The short sale company represents that it can help the seller and the listing company negotiate with the bank to help the seller settle his debt with as little damage to seller's credit as possible.

    An offer comes in for $160,000 for the property. In fact, in this proposed contract, the short sale company enters into an option to buy the seller's property for $160,000 and in exchange for the short sale company's agreeing to buy this option to purchase the property the seller pays this company some nominal amount of money. The short sale company then seeks to sell this "contract" to the bank, telling the bank if it approves the contract the "short sale company" will exercise the option, buy the property for $160,000 and seller's debt with the bank will be settled. In the meantime, another offer comes in to the listing agent from a well-qualified buyer for $180,000. The listing agent calls the short sale company to have this offer presented to the seller. The short sale company refuses to do this because there is already a "contract pending." Seller may not even be told of this higher offer. The short sale company says they don’t have to present this offer to the seller because they now have "ownership" in the property by virtue of the option to purchase and they are now dealing directly with the bank. As the listing agent, what do you do and who is your client here?

    In this example, the seller is at least one of your clients so you must present the $180,000 offer to the seller. Another concern for the listing company is whether the listing company had authority from the seller client to "hire" the short sale company. If the short sale company has a legitimate ownership interest in the property, you may have to present it to the short sale company too. On these facts, it does not appear that the short sale company has an interest in serving the seller's best interests, but is representing itself at this point. It appears that this company is poised to exercise its option to buy the property for $160,000 and then take title from the seller, remove the seller from his home and resell the property for a profit. (The short sale company might even be interested in knowing more about the $180,000 buyer prospect). In this "business model" the short sale company that might sign option contracts with many different sellers in similar situations and it doing so might really be brokering sales of distressed properties. The short sale company may not qualify as an "investor" in the real estate, where they would buy the property at a fair market price and then resell later. It appears that the short sale company is trying to take advantage of a distressed seller by buying the property for a price that is well below what the market might still be willing to pay (remember we have another offer out there for $180,000) and resell for the profit. The short sale company will profit and the seller may well be harmed. In our example, the listing agent owes agency duties to the seller and the listing agent is in the tough positions of being the one who enlisted the "aid" of the short sale company.

    Before a listing company even considers any sort of business relationship with a short sale company the listing agent and broker should check sources like the Attorney General's office, the Better Business Bureau and the Illinois Department of Professional Regulation to check their record and reputation. The listing company should also consult with its own attorney and the seller before entering into any such business arrangement in order to be sure there is authority from the seller client to enter such a relationship.

    Situation#2

    The short sale company enters into an option contract to buy seller's property and then the short sale company seeks the assistance of the listing company to market the option contract for sale on the local Multiple Listing Service (MLS).

    Here are some issues to consider in this situation: Does the short sale company have the requisite authority to hire the listing company? The short sale company may have some rights under the option contract, but the seller still holds title to the property. In order for the listing company to place the listing in the MLS, the listing company will need authority from all owners. The listing company's attorney should be consulted to advise the listing company on this issue. The other major concern here would be whether the short sale company is really looking to "use" the listing company's real estate brokerage license on a per deal basis in order to avoid obtaining a real estate license itself. By hiring the listing company, the short sale company gains access to the MLS. Again the question becomes, who is the listing company's client, the short sale company, the seller or both? It is entirely possible that the short sale company is not really "investing" in real estate but "brokering" the real estate where they exercise their option to buy the property at a low price and then immediately turn around and sell it at a higher price. Is this difference in price a return on their investment or really a brokerage fee? Has the short sale company not acted as a middleman in the transfer of ownership from the original seller to a buyer through the use of the option contract? Are they doing this as a "business model?" If the answers to these questions are yes, you can see there is an argument to be made that this is brokerage disguised as "investment."

    After considering these two situations, you might reach this conclusion: The better way to proceed may be to take the listing (if in the listing agent's business judgment there would be an ability to "sell" a package to the bank who might consider a short sale transaction), present all offers to the seller client, negotiate a contract with a well-qualified buyer (see earlier Short on Shorts), submit the package to the bank and proceed to a closing with the seller. In the end, the bank will be paid an amount it has agreed to take. Using our first example above, the listing agent may well have gotten a contract price of $180,000 for the property which in the long run may have helped the seller client by reducing the amount of the deficiency on the loan and presenting a more attractive package to the bank.

    It is important to note that in difficult market conditions, there are legitimate ways to do business and there seems to be a plethora of illegitimate ways to do business where people are looking for a "fast buck." Study up, consult legal counsel when necessary, check references of business associates and be careful out there.

    11. Does the Mortgage Rescue Fraud Act (765 ILCS 940/1 et seq.), which applies to distressed property consultants apply to me as a real estate licensee?  

    Generally speaking, a distressed property consultant as it is defined in the Mortgage Rescue Fraud Act does not include a real estate licensee when the licensee is performing real estate brokerage services under the IL Real Estate License Act of 2000.  However, if a real estate licensee is not performing real estate brokerage services and is ONLY acting as a distressed property consultant, he/she should consult with his/her attorney about the provisions and restrictions contained in the Mortgage Rescue Fraud Act.  

    12. Changes in the listing process in short sale situations.

    A real estate brokerage company is considering making some changes to its initial procedures when signing up seller clients to exclusive listing contracts.  The company wants to engage a title company to do an initial title search on the subject property in order to see liens that might attach to the property and they might want to get pay-off numbers from the lender(s). The brokerage company wants to know if they can institute this procedure on a selective basis?

    The answer to the last question is no, the brokerage company should not institute these procedures on a selective basis. In other words, the broker is picking and choosing (perhaps based only on a prospective seller client interview) whether to investigate title and lender information.  This procedure could give rise to fair housing complaints.  If a real estate brokerage company is going to institute such pre-listing procedures, they should establish a uniform checklist that will give the brokerage company objective information that might include questions about the financial condition of the seller and that, when answered in a way that would indicate a potential for short sale, might trigger the further research requirement.  If the brokerage company is going to do this, the company should consult with its attorney on possible fair housing and agency issues.
     

    13. If I am a listing agent for a property that will be subject to a short sale and lender approval, should I advise the seller to stop making payments on the seller’s loan?

    No. You should not give this advice for two major reasons. First, you must consider that the mortgaged loan that is related to the real estate that you are trying to market for sale is a contract between the seller and the lender.  For you to advise the seller on this contract to which you are not a party may well be the unauthorized practice of law. The seller should be advised to talk to his own attorney if he asks you this question. Second, as a third party that is not a party to this contract, if you are giving advice that is contrary to the lender’s interests, you may be engaged in tortious interference with that contract between the lender and your seller client.  As you can see, these are two very good reasons for sending your seller client to seller’s own attorney for specific legal advice on the issue of ceasing to make payments on the loan.

    14. Must a seller provide property disclosure forms in short sale transactions? What about in REO (lender has foreclosed on the property) transactions?

    Short Sales Scenario: In a short sale transaction, the seller is still the title holder of the property. Thus, the seller will be required to provide the “standard” disclosure forms to the buyers in the transaction. These disclosures will include the form required under the Illinois Residential Real Property Disclosure Act, the form and pamphlet/flyer required under the Illinois Radon Awareness Act and the federal lead-based paint disclosure form and pamphlet required for residential properties built before 1978. None of these statutes provides any sort of exemption for properties that are being sold subject to lender approval in a “short sale.” Generally speaking, a short sale situation alone will not be enough to relieve the seller of the duty to provide these forms.

    Foreclosure Scenario: In a transaction where the lender has foreclosed on the mortgage and taken the property back (REO transaction), there are some exemptions from the various disclosure requirements. An REO seller will not be required to provide a disclosure form under the Illinois Residential Real Property Disclosure Act. Likewise, the REO seller will not be required to provide a disclosure form and flyer/pamphlet under the Illinois Radon Awareness Act. However, there does not appear to be an exemption for REO sellers under the federal lead-based paint disclosure laws. There will be no lead-based paint disclosure forms provided/required when the property is sold at the foreclosure sale. However, we believe the REO will be required to provide lead-based paint disclosure when the REO resells pre-1978 residential property to a new buyer.

    15. I am the listing agent in a short sale situation and a buyer brings an offer that includes an option to purchase my short sale listing for a particular price. The option contract buyer has asked me to assist in finding another buyer with the intent of having consecutive closings. What are issues that I should be concerned about in this scenario?

    You are right to be concerned and there are many issues to consider. I will attempt to list a few below for your consideration.

    On these facts there is no buyer’s agent, so are you going to proceed as a disclosed dual agent? If so, you would need to be sure you have made written disclosure about your limited role to both the seller and the buyer and you would need consent forms signed by each. Then, even if you have consent from both sides, you really must ask yourself if it is possible to adequately represent the interests of the opposing parties on this special set of facts. Consider that the seller will need to get as much as possible from the sale in order to secure his lender’s approval of the contract. Also, the lender might be reluctant to approve an option contract where the option might not be exercised if no acceptable contract comes in for the option contract buyer. Then consider that the buyer has an interest in seeking subsequent buyers for the property so the buyer can exercise the option, purchase the property and resell/flip it for the higher price very shortly after the buyer’s closing on the first option contract.

    Is it possible for you to adequately represent the competing interests here: finding a transaction that is acceptable to the seller and seller’s lender to reduce or get rid of seller’s debt, and then also to assist the buyer in finding a new buyer for the property presumably at a higher price than this buyer has agreed to pay in his option contract?

    You should also consider whether your original seller has given adequate consent for the buyer to market the option contract in an effort to find a new buyer at a higher price. There should be some language in the option contract that discloses what is really happening and where the seller agrees to allow the option contract buyer to market the property (subject to the option contract) hoping to find a new buyer at a higher price. You should explain this to the seller and direct the seller to his attorney for specific advice here.

    Do you need to have a “listing” with the option contract buyer to re-market the property for sale to a subsequent buyer? The answer is quite likely yes, assuming that your original seller client has given consent to market the property subject to the option contract. Keep in mind that advertising rules apply and that your marketing must be truthful and complete, i.e. the new buyer’s contract will be subject to the first deal closing when the option contract buyer exercises that option.

    Does it make a difference if the seller will still owe on his original loan if and when the seller approves an amount for the short sale? In other words, will the seller be subject to a deficiency judgment and could this change your role in this scenario? The answer here is also quite likely, yes. Why? This is because the seller might be more interested in finding those subsequent higher offers himself so that he might reduce the deficiency amount owed to his lender than if the seller and the lender agree that a quick sale with no deficiency judgment is preferable just to get the property “off the books.”

    As you can see these are complicated issues and it is important, as always, to consider who your client(s) is/are and how can you best represent your client(s). All concerned should get good legal advice and make sure that adequate disclosures are being made when required.

    16. What if a lender approves a short sale but does not forgive the indebtedness/promissory note?

    A fact situation was recently brought to the attention of Illinois REALTORS® legal counsel regarding a lender approving a short sale but not forgiving the indebtedness/promissory note. The Illinois REALTORS® legal counsel has been warning about this possibility in several discussions on short sale situations. What can happen in a short sale situation is that the lender/servicer agrees to a short sale and the release of the mortgage(s) but the seller or their representative never asks for a release of the balance due on the promissory note secured by the first mortgage, as well as the second or any subsequent mortgages.

    A release of the mortgage is a release of a security instrument or agreement. A release of the mortgage does not typically release or forgive the indebtedness or promissory note. The seller needs an agreement to release the promissory note(s) or a return of those notes hopefully marked paid in full or cancelled. There are times when the lender/servicer approves a short sale but refuses to forgive the note/indebtedness because the lender/servicer believes the seller simply wants out because the property is under water, but has the resources to pay the balance.

    A potential concern is the balance due on these notes will be sold for pennies on the dollar just to recover some money for the lender/servicer and that the factors who buy them will try to collect the balances and create more problems for sellers who thought they were out from under the debt. Be aware of this scenario if you are involved in short sales and make sure your sellers are also aware of this issue.

    Source: Illinois REALTORS® Legal Counsel

  • Social Media

    Answers to Your Legal Questions

    What are some common concerns and watch areas that real estate licensees should be mindful about with regard to the use of social networking tools and social media by real estate licensees?

    Social media is the buzz phrase and still THE popular subject. When thinking about these questions, it might be nice to unplug, go sit on an island and listen to the “tweets” of real live birds. But alas, the use of social media is here to stay. So now we must consider how to use social networking tools in a responsible way that might even help us in our professional, our personal lives and now maybe even our “avatar” lives.

    It might be helpful to begin the discussion with a thought that is taken from another article. When you think about it, social media is really a new form of communication. People communicate via word of mouth, television, radio, telephone, fax, e-mail, the list goes on. Granted social media might reach a wider audience quicker and perhaps stay longer, but it is nevertheless another form of communication. Now we need to consider how we might use these forms of communication in the context of our professional lives as real estate licensees.

    Remember this: You are always licensed and can’t be partly so. Therefore the Illinois Real Estate License Act, the REALTOR® Code of Ethics and other regulations will apply to your business related communications whether you are saying it with your real voice to another person, talking on the telephone, texting, “tweeting,” chatting on Facebook or “You-tubing.” The difference between your face-to-face conversations and your electronic ones is that anything you type or video is creating a record. As a result, we can likely expect to see more lawsuits involving such subjects as copyright infringement, invasion of privacy, defamation, libel and slander.

    Just to give a concrete example, the online version of the Wall Street Journal, in an article by M.P. McQueen on May 21, 2009, stated that in 2007 there were “106 civil lawsuits against bloggers and others in social networks and online forums” compared to 12 lawsuits of this nature in 2003. (Citing a study done by the Citizen Media Law Project at the Berkman Center for Internet and Society at Harvard University). The same article states that trial awards against bloggers totaled $17.4 million dollars. Those figures alone just might be enough to convince you to think before you type or video.

    As a licensee it is important for you to check your office policy with regard to the use of social media. If your company does not have one it should. You can see the Illinois REALTORS® sample Social Media Policy available for download in the Illinois REALTORS® Legal Center (old link to www.illinoisrealtor.org/sites/illinoisrealtor.org/files/Legal/socialmediapolicy.pdf). It may be hard to believe but some companies will not allow its licensees to use social media within the office at all.

    In addition, if you are allowed to use social media within your office, check to see if there is a person to whom you should go with any questions or concerns. In the Illinois REALTORS® sample Social Media Policy, this person is called the Office Internet Consultant. Your social media office policy will likely cover such items as protection of clients’ confidential information, being truthful in your communications via the use of social media, acting in a professional manner, using company equipment or discussing company business on your own equipment or others’ equipment. There will likely be some time and scope limits placed on licensees using office equipment when employing the use of social networking tools, the Internet or ­emails. Office policy might cover areas such as advertising, collecting information, emailing, blogging, linking and the use of copyrighted or protected information.

    If you wish to use social media in your real estate brokerage practice for assisting your clients, make sure you have their authority to do so. Your brokerage agreements should contain provisions that authorize you to employ these methods. Remember that social networking tools might allow others to comment on the clients’ information and not all comments will be flattering. You need to protect the clients’ confidential information, so be careful about what you say for instance on Facebook or on your blog. And it is always important to remember who your client is and operate in your client’s best interest no matter what method you are using to perform brokerage services for your client.

    As noted earlier, you are always licensed so when you are using social media in your advertising efforts be mindful of the regulations that apply. The Illinois Real Estate License Act (Act) and the rules under that Act will apply to any advertising you do in your real estate practice even when using social networking tools. The REALTOR® Code of Ethics applies to your advertising and representations you make in your profession regardless of the forum. And, don’t forget that the federal CAN-SPAM requirements will apply to commercial messages sent by email or some other electronic method. For a summary of these requirements you can go to the Illinois REALTORS® “Email and Website Requirements” document, www.illinoisrealtor.org/legal/issues/email (old link to: www.illinoisrealtor.org/legal/issues/email).

    As you can see there are many things to keep in mind when it comes to responsibly navigating the brave new world of social media. Monitor your sites regularly. Know your office policy and consult with the appropriate experts in your office if you have a question. Bottom line, be careful out there.

    Consider these related topics:

    • Concerns for licensees who engage in social networking (old link to November 2008 IL REALTOR® magazine www.illinoisrealtor.org/Member/publications/realtor/2008/November/legal.asp)

    • Sample social media policy (governing the use of email, internet and social networking tools) (old link to www.illinoisrealtor.org/sites/illinoisrealtor.org/files/Legal/socialmediapolicy.pdf)
    • Social networking webcast (old link to www.illinoisrealtor.org/sites/illinoisrealtor.org/files/webinars/SNPolicy.wmv)

    Copyright Illinois REALTORS®. This content cannot be reprinted in parts or in its entirety without expressed written consent to Illinois REALTORS® (old link to www.illinoisrealtor.org/contact).

  • Surveillance Equipment

    Answers to Your Legal Questions

    Real Estate and the Use of Audio, Video, Drones & Phones

    By Todd Turner, Sorling Northrup Attorneys

    Photos and virtual tours of real estate have become common tools for real estate licensees trying to attract buyers. Starting out with exterior photos of homes listed in the MLS, and then growing with the Internet to include exterior and interior photographs of listings on brokers’ web pages. As technology advanced, virtual tours went from a novelty to a staple in the REALTOR® tool box. Potential buyers now expect to be able to “see” and “tour” homes from their computer—even prior to contacting their own buyer’s agent or the listing agent. It is estimated that perhaps as many as nine out of 10 buyers searched online during the home buying process according to a National Association of REALTORS® and Google study. Realtor.org (Jan 16, 2013).

    As the cost of video cameras and webcams has become reachable for the average consumer, not only are buyers using the technology, so are sellers. Video surveillance for the purpose of protecting one’s home, possessions, or watching children at home while the owner is away (the so-called concept of the “nanny cam”) has proliferated. When an owner wants to sell a home, the existing surveillance or security system can be used to monitor potential buyers as they tour the house during showings and open houses. Video security is also a tool sometimes used by agents when showing a vacant home or open house as a means of security for the agent—by deterring criminal behavior and physical assault or by at least hopefully having video of any perpetrator of criminal behavior available for police to use.

    An even newer use of video and photography that is catching on with buyers is the videoing or photographing the property they are viewing. This issue is generating many questions on the Illinois Association of REALTORS® Legal Hotline, especially, the basic question: “Can a buyer or buyer’s agent take video or photos of the property they are viewing during a showing whether it is a private showing or an open house?” Unfortunately, there is no “yes” or “no” answer to this question in Illinois case law or statute. There are some things that REALTORS®, however, ought to know and think about as they face this question.

    1. Eavesdropping Law in Illinois

    First, you need to be aware of Illinois law regarding eavesdropping—the potentially illegal activity of listening to or recording someone’s conversation without their knowledge. Illinois’s Criminal Code prohibited eavesdropping. (720 ILCS 5/14-1 et seq.). Although the average person generally knows that “eavesdropping” can be illegal, many are not aware of how strict the Illinois law is (or, as you will see, was).

    An eavesdropping device is any device that is “capable of being used to hear or record oral conversation or intercept, retain, or transcribe electronic communications whether such conversation or electronic communication is conducted in person, by telephone, or by any other means . . .”  This would include a common video camera or smartphone video that usually records sound. They would be considered eavesdropping devices, even if you turned the sound feature off because the device would still be “capable” of recording a conversation. Section 14.2 of the Eavesdropping Act goes on to say that it is an offense if a person: “(1) knowingly and intentionally uses an eavesdropping device for the purpose of hearing or recording all or any part of any conversation . . . unless he does so (A) with the consent of all of the parties to such conversation. . .”. Under state law, to record audio of a conversation, all parties to the conversation have to give consent to being eavesdropped. Consent can be actual or implied. Implied consent is found, for instance, where notice is posted that audio recording is taking place or when you hear the often repeated phrase when calling a business, “this call may be recorded for training and quality control purposes,” and you continue to stay on the line.

    Illinois had one of the most restrictive private person eavesdropping statutes in the country. However, on March 20, 2014, the Illinois Supreme Court overturned the eavesdropping statute. People v. Melongo, 2014 IL 114852. In this case the Court found that the statute was overbroad because it required consent of all parties, even when there was no expectation that a conversation was private, such as a “loud argument on the street, a political debate on a college quad, yelling fans at an athletic event . . . .”  It also criminalized what should be innocent conduct by criminalizing “the publication of any recording made on a cellphone or other such device, regardless of [whether or not there was] consent.”  Therefore, previous legal news items put out by IAR on eavesdropping are no longer accurate in light of the court’s ruling.

    However, Illinois will undoubtedly formulate a new eavesdropping statute soon. It will probably no longer require the consent of all parties to a conversation in all situations. Because we do not yet know what a new eavesdropping law will look like, best practices for REALTORS® and sellers is to go ahead and let potential buyers know that conversations may be picked up either by telling them directly or by posting notice that audio devices in the property may record conversations. Posting notice may be the best method to use so that if you fail to tell someone directly and get their consent, posted notice will show implied consent.

    2. Video Recording

    The second issue to keep in mind is that even if you are using a device that is not capable of recording sound, there is a limitation placed upon video recording or live video feed by Illinois law at 720 ILCS 5/26-4 which deals with disorderly conduct. This section is more applicable to sellers who are recording video or using a live video feed in their home. While consent is not required by Illinois law if you are videoing persons in your own home, section 26-4 requires that you must have the consent of a person (in this case a buyer) to record a person in certain locations, including a bathroom. Therefore, under the law, a seller could not video a prospective buyer viewing a bathroom without consent.

    3. Photographing or Taking Video of a Home

    Third, how should an agent handle a situation where the buyer at a private showing or an open house wants to photograph or record video of the home they are viewing? More and more often, especially with the proliferation of quality cameras and video recorders in the typical smart phone, buyers want to take videos or photos in order to help them remember later what the home looked like, or the photos or video are to be used to show to a spouse, for instance, who could not be present for the showing. Must the potential buyer obtain actual consent from the seller or the seller’s agent, or may the potential buyer take photos or videos since they are already there with the consent of the seller? As stated above, there is no Illinois law on point regarding this issue. Best practices that we recommend are for the buyer to obtain the seller’s consent. Therefore, if you are representing the buyer, you should ask the listing agent if it is okay if the potential buyers take photos or videos. Because oftentimes the sellers, themselves, are not present at the showing, a buyer’s agent ought to try and ask the sellers’ agent prior to the showing to allow the listing agent the time to ask the sellers. Perhaps a buyer’s agent should routinely ask for permission when setting up a showing so as to avoid the situation where the seller is unavailable to the listing agent to ask for permission.

    Additionally, listing agents may want to ask their clients before any showing or open house whether they are okay or not with a potential buyer taking photos or videos of the home. Many sellers may agree because perhaps this will help sell the home, but other sellers may believe that this is an invasion of their privacy and/or have items in the home that they do not want photographed that might be valuable and a target for criminals posing as buyers. Additionally, once a potential buyer has taken the photos or videos, the sellers have no way to control how the photos will be used. Most buyers will be honest and only use them for their own, honest purpose, but in the digital age, the photos and videos can be uploaded to the Internet and be accessible to anyone online who may use the images in a negative or embarrassing way.

    If a seller does not want photos or video of their home taken by potential buyers, the sellers’ agent should instruct someone asking for a showing that the sellers have asked that no images of the interior of the home be made. At an open house, a sellers’ agent may want to post notice near the front entry or other conspicuous location that instruct visitors that taking photos or video of the interior of the home is not allowed. In reality, however, there is only so much that an agent can do. Some potential buyers may still take photos or videos anyway, whether blatantly or surreptitiously with their camera phone. An agent should not try and physically intervene in such a situation, but they may want to give a reminder about a seller’s wishes and report what happened to the sellers. Some persons take the view that if a person has put their house on the market for sale and allows tours, then the buyers are free to photograph or video all that they wish. Legally, however, that is not necessarily the case. (See e.g. Garden Web.com http://ths.gardenweb.com/forums/load/realestate/msg0201264118540.html) That is a lengthy online comment thread on what is the proper etiquette if a buyer wants to take images of the interior of a seller’s home during a showing.

    This web page revealed a lot about how buyers, sellers, and real estate agents felt about the issue. Some comments stated that once you invite a person into your home you have no control over their behavior. This statement, legally, is flat-out, dead wrong. When you invite someone into your home, even when the home is up for sale, the owner has not lost the right to control conduct of the buyer. In other words, a seller can invite someone into the home and set limits on what the invitee is allowed to do. If you do not want pictures taken, you can require that invitee to leave the premises. Theoretically, a seller might have an action for trespass when an invitee’s conduct exceeds the authority granted by the owner of the home. However, this requires a lawsuit and is totally impractical to address an immediate problem. Most postings showed that many believed that asking permission was the proper thing to do, although many thought it acceptable to take photos without asking for permission. Again, best practices are to obtain a seller’s consent before taking images of the interior of the home. Failing to ask for consent is not necessarily illegal or in violation of any case law, however, you do not want to be a participant in the first lawsuit by a seller for invasion of privacy or trespass over this issue.

    4. Use of Drones

    A new twist on photography of a seller’s home is the use of unmanned drones carrying cameras in order to take outdoor photos of a seller’s home for display in the MLS or on a listing broker’s website. This, of course, should only be done with the seller’s consent. There are legal issues, however, to take into account when using drones. Foremost is that the Federal Aviation Administration (FAA) takes the position that using drones for commercial purposes violates the law. At the date of writing this article, only one person has been fined by the FAA for violation of FAA regulations while using a drone. The operator was using his drone for hire to take photos and video near the campus of the University of Virginia. The FAA imposed a $10,000 fine on the drone operator. The drone operator took his case to the Office of Administrative Law Judges of the National Transportation Safety Board. The Administrative law judge ruled against the FAA and dismissed the FAA’s action. The Administrative law judge ruled that the provision under which the FAA was fining the drone operator were not properly adopted rules, and he ruled that drones should be treated as model aircraft by the FAA which had only imposed voluntary guidelines regarding the flying of such craft such as operating under certain altitudes and certain distances from airports. Federal Aviation Administration v. Raphael Pirker (Docket CP-217) (March 6, 2014). The FAA has said that it is going to appeal the order to the U.S. Court of Appeals for the District of Columbia and could also try issuing emergency rules that could be implemented and used against other operators. Therefore, the legality of using drones for commercial purposes such as photographing homes you have listed is not yet clear.

    The National Association of REALTORS® along with the Aircraft Owners and Pilots Association and other groups have sent a letter to the FAA urging the FAA to adopt rules for the use of drones for commercial purposes in order to provide for clarity and safety. The Washington Post, (April 8, 2014 by Brian Fung). According to this same article, an FAA spokesperson said that they hope to publish formal rules on small drones “later this year.”

    An online search for the use of drones in real estate sales will reveal a number of REALTORS® are already using drones in various parts of the country, including Illinois. Drones are being piloted by real estate agents themselves, while others are piloted by a third-party contractor. The drones are being used in “increasing numbers to capture new angles on high-end homes for sale.” Realtor.com, “Drones Could Be Next Tool for Real Estate Agents” (Jan. 2, 2014 by Erik Gunther).

    Besides the basic question as to whether it is currently legal to use drones in this manner, a number of other legal concerns arise. For instance, privacy. If you are taking photos you might catch a neighbor in his own yard who has not given any permission to anyone to photograph him or his property. Another issue is liability for damage to property or injury to a person if a drone should crash. You would want to make sure that the drone operator had adequate liability insurance. The next question would be whether an agent who hired a drone operator could be liable for such damages, and should they carry their own additional insurance for aviation mishaps.

    The technology is here to stay and will become more and more common in the real estate profession. Others say that this will only be a fad in the profession because of the cost-benefit analysis—will drones really deliver more and quicker sales over and above what current photography and virtual tours do? Inman News reports that “NAR and other groups claim that the drone industry will create an estimated 100,000-plus jobs and $82 billion in economic impact during the first decade it is integrated into the FAA’s regulatory framework . . .”  Inman.com “NAR Joins Push for FAA Rule on Commercial Drone Use” (April 8, 2014). It will be interesting to see how things work out over the next few years. This is a topic you may want to keep your eye on as the legal issues are addressed.

    DR Legal News, May 2014

  • Transfer Tax

    Brief Explanatory Statement of Facts

    Home rule municipalities (those municipalities with a population over 25,000), subject to the restriction mentioned below, are permitted to enact a real estate transfer tax which is a tax imposed on the seller or buyer of real property at the time of the transfer. Usually, the tax is based on the sales price. In most cases, the seller is responsible for the payment of the tax although some municipalities (including Chicago) require the buyer to make the tax payment. The average local transfer tax in the Chicago area is $5 per thousand of the sales price of the property. As an example, a $5/$1,000 transfer tax on a $200,000 home would be $1,000. The highest local transfer tax is in Chicago and it is $10.50 per thousand ($7.50 on the buyer and $3 on the seller). The transfer tax payment is not deductible on state or federal tax returns.

    All counties in Illinois are permitted, under state law, to impose a 50-cents-per-thousand transfer tax.

    Since 1997, Illinois law requires home rule municipalities to hold a public hearing or referendum on any proposal to increase an existing transfer tax or impose a new transfer tax. The one exception to the referendum provision is in the city of Chicago. A 2008 law allowed Chicago, without referendum, to increase its real estate transfer tax by up to $1.50 per $500 of value to help fund the Chicago Transit Authority.

    Implications

    The transfer tax is another cost borne by the property owners who already carry an excessively high portion of the tax burden. After years of paying property taxes to fund local government, a homeowner is required to pay another property tax simply because he or she is selling the home. The tax is especially burdensome on homeowners struggling to work their way up the housing ladder as it further erodes the equity they may have when they sell their home. One of the chief obstacles to homeownership for working families is the total amount needed for the downpayment and for closing costs.  When the transfer tax is assessed on the buyer, that tax only makes that obstacle that much larger.

    http://www.illinoisrealtor.org/sites/illinoisrealtor.org/files/Advocacy/TransferTax.pdf

  • Website Requirements

    Resources and Answers to Your Legal Questions

    1. Illinois Real Estate License Act of 2000
    2. REALTOR® Code of Ethics, Article 12
    3. REALTOR® Code of Ethics, Article 15
    4. Federal CAN-SPAM Requirements for Commercial Emails

     

    1. Illinois Real Estate License Act of 2000

    Each page (HTML document) of the Website must include:

    • Company name or assumed name as registered with the Department of Financial and Professional Regulation (DFPR);
    • City and state of company’s principal office;
    • Licensee’s name, if it is the licensee’s site;
    • If marketing property at the site, it should also include the city and state where the property is located.

    If the broker (or broker’s site) or salesperson (or salesperson’s site) are not licensed in the state of the marketed property then where the broker/salesperson is licensed. If this information is on a frame that appears with each page on the Website then it need not be on each page (HTML document) of the Website.

    Must keep updated so the information is accurate.

    Must include name of listing broker with each property shown unless behind a password protected firewall.

    The first or last page of any electronic communication from a sponsoring broker must include:

    • Company name or the assumed name registered with DFPR;
    • City and state of the company’s main office or the office from which the message originated.

    The first or last page of any electronic communication from a real estate licensee must include:

    • Licensee’s name;
    • Name of the company with which the licensee is affiliated;
    • City and state in which the licensee’s office is located.

    (The above information regarding electronic communications for both sponsoring broker and licensee does not apply if the communication is a message in response to a member of the public and the required information has previously been provided.)

    2. REALTOR® Code of Ethics, Article 12

    Applies to all forms of communication including communication by electronic means. This would include Website advertising, email messages, blog entries, social media, text messaging or any other electronic means of communication that relate to the practice of real estate brokerage.

    REALTORS® must:

    • Disclose status as real estate professional in a “readily apparent” manner;
    • Make sure all communications are honest and truthful;
    • Truthful representations include the use of URLs and domain names that are not:
      • Deceptive or framed in an unauthorized manner,
      • Manipulated to produce a deceptive or misleading result,
      • Deceptive in the way they direct Internet traffic (i.e. using metatags, keywords or other devices to divert traffic in a deceptive manner).
    • Be sure the recipient knows the communication is from a real estate professional;
    • Include the company name in any advertising;
    • Ensure that information included on Website is kept current, and if not, promptly take corrective action;
    • Disclose the state of licensure in a “readily apparent manner”;
    • Disclose if the REALTOR® will share or sell information gathered via the Internet;
    • Not use URLs or domain names that do not present a “true picture”.

    3. REALTOR® Code of Ethics, Article 15

    • REALTORS® shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses or their business practices.
    • These principles apply to electronic communications such as blogs, social media, email messages etc.

    4. Federal CAN-SPAM Requirements for Commercial Emails

    Applies to “commercial electronic mail message(s)” defined as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service (emphasis added) (including content on an Internet website (sic) operated for a commercial purpose)” and a commercial message does not include a transactional or relationship message.

    • All commercial email messages must contain:

      • A legitimate return email and physical address (which can include a post office box or a private mail box that the sender has accurately registered with the U.S. Post Office or a commercial mail agency that follows U.S. Postal Service regulations);
      • A conspicuous way to opt-out of receiving the commercial e-mail messages;
      • The opt-out is available for at least 30 days after transmission;
      • A clear and conspicuous notice that the email is an advertisement or solicitation.
    • The sender may not:
      • charge a fee to opt out;
      • require personal information to opt out.
    • The recipient must be able to opt out:
      • by sending an email message; and
      • by requesting to opt out through a website.

    Note: Senders of electronic commercial messages to wireless devices must check for wireless domain names that require express consent to receive these messages.

    If you participant in a Multiple Listing Service (MLS) that has an Internet Data Exchange (IDX) Policy, you will also need to comply with your particular IDX policy requirements by virtue of your participation in your MLS. You should check your local/regional policy for those requirements.

    Also note: This information does not take the place of specific legal advice and only constitutes general rules without the rules being applied to specific factual situations. So, before establishing policies and procedures consult with your own attorney for specific legal advice.

    Updated May 2017

    Copyright Illinois REALTORS®. This content cannot be reprinted in parts or in its entirety without expressed written consent to Illinois REALTORS® (old link: www.illinoisrealtor.org/contact).