05 License Law and Regulations (3)

Decision

A decision should be completed within 150 days of the hearing of the disciplinary case. It will contain the judge's analysis, taking all evidence into consideration, leading to their final opinion. Copies of the decision will be sent to all parties.

Reprimand

A reprimand is the mildest form of punishment.

Unlicensed Real Estate Assistants

After reading about so many possible ways to violate the New York Real Estate License Law, you might be feeling a little nervous. What if you hire an unlicensed assistant? After all, I harped on about how it's illegal to compensate anyone for real estate activities who don't have a real estate license. Not to worry, Mustafa. Just make sure your assistant is only performing tasks that don't require a license.

Turn 'Em In (revocation or suspension)

All brokers' and salespersons' licenses and pocket cards must be returned to the DOS within five days after the receipt of notice of a revocation or suspension. Another option is for the broker or salesperson whose license has been revoked or suspended to make and file an affidavit in the form prescribed by the DOS. This affidavit shows that the failure to return such a license and pocket card is due either to loss or destruction.

Agency Disclosure Form for Landlord and Tenant

Another important disclosure form is the New York State Disclosure Form for Landlord and Tenant. This is similar to the buyer/seller disclosure form, only in this case, the agent must give it any landlord or tenant so as to inform them of the agency relationship upon the first substantive contact with them. You can see the form here. It is not a binding contract! Like the other disclosure form, it discusses rights and obligations of each role so that the landlord or tenant can be as informed as possible. The form defines: Landlord's agent Tenant's agent Broker's agents Dual agent Dual agent with designated sales agents It spells out the responsibilities and duties of each. The agent is obligated to give the landlord or tenant this form and ask them to sign it. However, the landlord or tenant is not required to sign it. In that case, the agent needs to fill it out and put "refused to sign" in the signature part. The agent can hand out the disclosure form either in person or through e-signature software.

Notice of Complaint

Anyone who thinks a licensee has committed a license violation can file a complaint with the DOS. If the complaint falls under the jurisdiction of the DOS, the DOS must investigate. The DOS can also initiate its own investigations (i.e., without someone filing a complaint with them). Once the DOS begins an investigation, it will notify the licensee in writing and seek a response. If the licensee is a salesperson or an associate broker, the sponsoring broker is notified of charges as well.

Denial of License

Before the DOS makes a final decision about denying someone's license (i.e., in response to a license application or license renewal application), they will notify the applicant in writing, inform them of the reasons for the proposed denial, and give them an opportunity for a hearing. If the applicant is a salesperson or applying to be a salesperson, their supervising broker will also be informed. In the hearing, the applicant will have the burden of proof to prove by substantial evidence that they meet the qualifications for licensure.

Agency Disclosure Form for Buyer and Seller

During potential sales transactions, a real estate agent is required to give the New York State Disclosure Form for Buyer and Seller upon first substantive contact with a customer. You can see the form here. It is not a binding contract! This form is important because it helps a customer know whose interest the agent represents. After all, if Max is selling his house, and he's speaking to the buyer's agent, it's important for Max to know who the agent works for. It's not Max! Agency Disclosure Form for Buyer and Seller (cont.) The form defines: Seller's agent Buyer's agent Broker's agents Dual agent Dual agent with designated sales agents It spells out the responsibilities and duties of each. The agent is obligated to give the buyer or seller the form and ask them to sign it. However, the buyer or seller is not required to sign it. In that case, the agent needs to fill it out and put "refused to sign" in the signature part. The agent can hand out the disclosure form either in person or through e-signature software.

Listings Violations Example

Ed uses an MLS. He shows a listing from the MLS to a potential buyer, Francine. Francine doesn't like Ed because Ed showed up late and then fell asleep in the empty fireplace while she was looking around. (Ed needs to stop partying so hard. 🎉) Francine calls Ed and delicately asks if there's anyone else she can work with. Ed cannot tell her no. Instead, he must tell her who else using the MLS can help her.* *Note: In this scenario, Francine is Ed's customer, not client. If she were a client, they would have to sever their relationship first.

Bookkeeping Violations

Failing to immediately deliver duplicate originals to all involved parties. This holds for any document relating to a real estate transaction. Failing to keep adequate paper and/or electronic records. This pertains to the sale or mortgage of one- to four-family dwellings, condos, or co-ops. Records need to be maintained for three years.

Listings Violations MLS

Failing to provide a list of multiple service participants if asked to by a client (for example, if a client wishes to be shown an MLS property by another agent). A multiple listing service, more commonly referred to as an MLS, is a database in which local member brokers share listings so that fellow member brokers can procure buyers for those properties and establish compensation for properties sold jointly. An MLS thus increases the number of properties for sale among member brokers. A commission is divided between the broker who listed the property and the broker who sold the property.

Misrepresentation

I'll go over this in more detail in other levels, but there are several kinds of misrepresentation: Innocent Negligent Fraudulent

Appeal

If the licensee is found guilty, they are allowed to appeal, or initiate an Article 78 proceeding. They have 30 days after the administrative judge's decision to appeal. An Article 78 proceeding is a type of legal proceeding in which an aggrieved party seeks to challenge actions of administrative agencies and other government bodies. It is used to appeal the decision of a New York State or local agency to the New York courts.

Property Condition Disclosure Statement

In New York, every seller of residential real estate has to sign the Property Condition Disclosure Statement. Have a look at it here. This requirement is a result of the Property Condition Disclosure Act, which is part of Article 14 of the Real Property Law, which is in turn part of our old friend, the New York Real Estate License Law.

Revocation vs. Renunciation

In revocation, the person who granted the agreement now rejects it. In renunciation, the person who accepted the agreement now rejects it.

Listings Violations

Interfering with another broker's listings. Interference can include trying to negotiate the sale, exchange, or lease of property that is under exclusive listing with another broker. Establishing an exclusive listing agreement which automatically renews. New York prohibits automatic renewals, so the agent and seller need to sign forms to renew. An exclusive listing is when the seller agrees to list their property with only one broker during the listing term.

Fraud

It is a license violation to commit fraud or fraudulent practices. Fraud is a really big category, but essentially, fraud is an intentionally deceptive or misrepresentative act which gives the perpetrator power or gain over someone else.

Miscellaneous Violations

Keeping any information after termination of association: It's okay to keep copies for personal reference, but all originals must be turned over to the broker. Failing to complete continuing education requirements: Remember, the time frame is two years between license renewals. Putting incorrect information on license applications: This includes omitting information about criminal record, checking the wrong boxes, etc. Violating any discrimination law regarding selling, renting, or advertising residential or commercial properties. Discrimination can occurs on grounds of race, creed, color, national origin, age, sex, disability, sexual orientation, marital status, family status, or military status. Soliciting an owner to sell, lease, or list a property when the property is in a cease and desist zone. We will cover cease and desist zones more in other levels, but a cease and desist zone occurs when the Secretary of State has prohibited such solicitation in a certain area because the owners have complained about brokers and salespersons constantly trying to get them to sell or lease. Once this zone has been established and these owners have properly filed with the Secretary of State, it is illegal to keep soliciting them. A rule establishing a cease and desist zone is good for five years and can be renewed. Violating any provision of Article 12-A. Demonstrating incompetency or untrustworthiness as a salesperson or broker.

Negligent Misrepresentation

Negligent misrepresentation is similar to innocent misrepresentation because it is not necessarily true that the broker meant to deceive the purchaser. In this case, the broker makes a statement about a property without knowing if the statement is true or false. So, while in innocent misrepresentation, the broker believes their statement to be true; in negligent misrepresentation, the broker has no reasonable grounds to believe it to be true. To return to our previous example, the broker may have no idea if the roof leaks or not, and makes a guess to reassure the purchaser. Negligent misrepresentation can also happen if the broker forgets to mention an important fact about the property when asked about it. This gets into failure to disclose, which we will discuss later. Like innocent misrepresentation, negligent misrepresentation is constructive (i.e., it does not admit intent).

Fraudulent Misrepresentation

Now for the worst one: fraudulent misrepresentation, which occurs when the broker intentionally lies about the property. So, say our example broker knows that the roof leaks, and tells the purchaser that the roof is just fine and dandy. That's fraudulent misrepresentation. This lie can be visual, too, as perhaps this villainous broker edits a picture to fade the crumbled parts of the roof out. Fraudulent misrepresentation is active (i.e., it does admit intent).

Mishandling of Funds

On to other kinds of license violations. There are many ways to mishandle funds, including: Failing to remit funds held for a client. If a broker collects money on the client's behalf, or if there is unexpended money in the client's account, the broker needs to give the client this money in a reasonable amount of time. Otherwise, they have failed to remit funds. Accepting a commission from anyone other than their sponsoring broker. This pertains to salespersons. Receiving compensation from more than one party in a transaction without the consent of all parties. So, for example, in a dual agency situation, where a broker represents both the buyer and seller, if the broker does not get consent from both buyer and seller, they have committed this license violation.

Owner's Consent Violations

Putting a sign on property without the owner's consent. Trying to sell or lease a property without the owner's consent.

Unlicensed Real Estate Assistants: Tasks

So, what's a real estate assistant allowed to do? According to the DOS, they can: Answer the phone, forward calls, and take messages Arrange appointments, by telephone, for the licensee Follow up on loan commitments after a contract has been negotiated and generally secure status reports on loan progress Assemble documents for closing Write ads for the approval of broker- and place-approved classified advertising Type contract forms for approval by broker Compute commission checks Place or remove signs from property Order items of repair as directed by the broker Prepare flyers and promotional information for approval by broker Schedule appointments for licensees to show listed property Gather information for a comparative market analysis Gather information for an appraisal Monitor licenses and personnel files Perform secretarial and clerical duties such as typing of letters and filing

Property Condition Disclosure Statement: Requirements

Some requirements for the Property Condition Disclosure Statement: The original form or a copy must be delivered to the buyer or the buyer's agent BEFORE the signing of a binding contract of sale. A copy of the statement containing the signatures of both seller and buyer must be attached to the contract. If a buyer does not receive the statement, they get a $500 credit toward the purchase.

Criminal Court

The DOS cannot imprison anyone. However, a criminal court can try a misbehaving agent alongside the DOS. Violation of license law is a misdemeanor, which is a criminal offense defined as less serious than a felony and triable in a court of special sessions. For a misdemeanor, criminal court can impose: A fine of $1,000 or less, Imprisonment for a year or less, or Both Other court outcomes can include restitution (paying money back) or being held liable for damages up to four times the amount of restitution.

Fine

The DOS may impose a fine not exceeding $1,000, payable to the DOS.

Hearing

The DOS must notify the licensee at least ten days before a scheduled hearing. The hearing occurs before an administrative law judge. The licensee can have an attorney or a non-attorney representative present, and is welcome to bring witnesses. The licensee (and/or their counsel) will have the opportunity to defend themselves against the charge(s) during the hearing. The licensee (and/or their counsel) should be prepared with documentation and other evidence. Evidence includes, but is not limited to, court documents; certificates showing rehabilitation, education or training; letters of recommendation; receipts; pictures; and any other relevant documents. The Division of Licensing Services must prove its case against the licensee by substantial evidence. The length of each hearing varies, depending on the issues, evidence, and witnesses. Most hearings are completed within a single day, though.

Property Condition Disclosure Statement: An Overview

The questions in the Property Condition Disclosure Statement cover a wide range. Here are its categories and example questions: General information: How long have you owned the property? Are there certificates of occupancy related to the property? Environmental: Was the property ever the site of a landfill? Is there asbestos in the structure? Structural: Is there any water damage to the structure or structures? How old is the roof? Mechanical systems and services: What is the water source? What is the type of sewage system?

Property Condition Disclosure Statement: FYI

The seller's liability for undisclosed defects has nothing to do with whether or not they provide the disclosure form. If the seller does not provide the form, this does not mean they are liable for undisclosed defects. Similarly, if they do provide the form, this does not mean they are liable for undisclosed defects. The seller's agent should provide a blank copy of the form to the seller, but they should not help them fill it out. Nor should they provide legal advice about whether or not to fill it out. The statement is not meant to prevent a sale. Nothing in here is meant to prevent the the purchaser from buying, including purchasing the property "as is." The seller must revise the statement as needed. If a seller learns that they have filled something out incorrectly in the disclosure, they need to deliver a revised statement to the buyer as soon as possible. Once the deal is over, there is no need to provide a revised statement. So, once the title has been transferred or the buyer is occupying the property, there is no need to provide a revised statement.

Fraud vs. Misrepresentation

There's a lot of overlap between fraud and misrepresentation. Here are the subtle distinctions: All fraud is misrepresentation. Not all misrepresentation is fraud. The big difference is that fraud is intentional. Misrepresentation can be intentional (i.e., fraudulent misrepresentation), but doesn't have to be. So, fraud always misrepresents the material facts, but misrepresentation is not always fraudulent, since it's not always intentional. Got it?

Disclosure for Uncapped Wells

This is not part of the Property Condition Disclosure Statement, but the Real Property Law also requires that a seller of real property disclose to a buyer the existence of any uncapped natural gas wells that the seller knows to exist on the property. You can find this in Section 242 of the Real Property Law. This must be disclosed BEFORE entering into a binding contract.

Property Condition Disclosure Statement: Exemptions

Transfer Pursuant to a Court Order A transfer pursuant to a court order, including, but not limited to, a transfer order by a probate court during the administration of a decedent's estate, a transfer pursuant to a writ of execution, a transfer by a trustee in bankruptcy or debtor-in-possession, a transfer as a result of the exercise of the power of eminent domain, and a transfer that results from a decree for specific performance of a contract or other agreement between two or more persons So, the exemption here is for court-ordered transfer of property. For example, say property has been awarded to Matt as part of a settlement. This transfer of property does not require the Property Condition Disclosure Statement. Transfer to a Mortgagee A transfer to mortgagee or an affiliate or agent thereof by a mortgagor by deed in lieu of foreclosure or in satisfaction of the mortgage debt In other words, if a mortgagor deeds their property back to the lender to avoid foreclosure, they do not need to give the Property Condition Disclosure Statement to the lender. Transfer to a Beneficiary A transfer to a beneficiary of a deed of trust As you may remember from Level 3, a deed of trust is an instrument of conveyance that involves a trustor, trustee, and beneficiary. So, say that Colin is now eighteen, and can accept the property left to him in a deed of trust (i.e., Colin is the beneficiary). This transfer of property does not require the Property Condition Disclosure Statement. Transfer Pursuant to a Foreclosure Sale A transfer pursuant to a foreclosure sale that follows a default in the satisfaction of an obligation that is secured by a mortgage If a property is sold in a foreclosure sale, the Property Condition Disclosure Statement is not needed. Transfer After Default A transfer by a sale under a power of sale that follows a default in the satisfaction of an obligation that is secured by a mortgage Notice a common theme? If the property does default, the disclosure statement need not be brought. Transfer by a Mortgagee A transfer by a mortgagee, or a beneficiary under a mortgage, or an affiliate or agent thereof, who has acquired the residential real property at a sale under a mortgage or who has acquired the residential real property by a deed in lieu of foreclosure In a previous exemption, the transfer was to the lender. Here, the transfer is from the lender. Transfer by a Fiduciary A transfer by a fiduciary in the course of the administration of a descendent's estate, a guardianship, a conservatorship, or a trust I'll get into this more in other levels, but a fiduciary is an individual upon whom is placed the highest levels of trust and confidence when acting on behalf of another; specific fiduciary duties include obedience, loyalty, disclosure, confidentiality, accountability, and reasonable care. Often this is a person who manages assets. So, for example, the executor of a will is a type of fiduciary. If they transfer a property, they do not need to provide the Property Condition Disclosure Statement. Transfer Between Co-Owners A transfer from one co-owner to one or more other co-owners For instance, Lou co-owns a farm with Ashlynn. Lou transfers part or all of his part of the farm to Ashlynn. He need not give her the disclosure statement. Transfer to a Spouse or Relatives A transfer made to the transferor's spouse or to one or more persons in the lineal consanguinity of one or more of the transferors Lineal consanguinity sounds like a Harry Potter spell, but it just means a direct blood relationship, like to a mother or to a daughter. Transfer in Divorce A transfer between spouses or former spouses as a result of a decree of divorce, dissolution of marriage, annulment, or legal separation or as a result of property settlement, agreement incidental to a decree of divorce, dissolution of marriage, annulment or legal separation So, if you get divorced, and your ex-spouse buys you out of your shared property, you don't need to give them a disclosure statement. Transfer to or from the State A transfer to or from the state, a political subdivision of the state, or another governmental entity For example, consider the transfer of property in a case of eminent domain. The state seizes land to be used for a highway (offering compensation, of course). They do not need to provide the land's (former) owner with the Property Condition Disclosure Statement. Transfer of New Property A transfer that involves newly constructed residential real property that previously had not been inhabited The idea here is that because the property is brand new, all disclosures have been taken care of elsewhere in the transaction process. This exemption also implies that because the property is brand new, there isn't anything wrong with it. Ha, I say! Cynical Ace (which, admittedly, you don't see very often, since I'm a beautiful bubbly butterfly) finds this rather naive. Transfer by a Sheriff A transfer by a sheriff For example, consider a sheriff's sale, which is a public auction where lenders, banks, and other litigants can collect money lost on property. It occurs at the end of the foreclosure process. Transfer Pursuant to a Partition Action A transfer pursuant to a partition action A partition action, as you remember, is a way to terminate and sever ownership rights in a particular property when the parties have different plans and motivations as to what should be done with the property they own jointly.

Consequences to a Sponsoring Broker

When a salesperson violates the law, they are punished. However, the sponsoring broker can bear responsibility, too. Here's what happens to a supervising broker when their salesperson violates license law: The supervising broker is held accountable if they knew or should have known about the violation, or if they found out about the violation and nevertheless kept any fees or commissions. In either case, the supervising broker is subject to discipline by the DOS. The broker in the above case has vicarious liability, that is, they are responsible for the wrongful acts of their salesperson.

Practicing Law Without a License

With anything legal, the licensee should tell their buyers and sellers to consult an attorney. All of the following are license violations for real estate licensees: Practicing law when not licensed. Drawing up legal documents such as deeds. Giving any opinion or advice regarding a title. Giving any opinion or advice on any document or any matter where the opinion or advice could be interpreted as legal advice. Stay in your lane, Mustafa... let the lawyers do the lawyering, and you can do the real estating.

Innocent Misrepresentation

With innocent misrepresentation, the broker makes a misrepresentation of a material fact in order to induce the purchaser to rely upon that fact. As a result, the purchaser loses money. This kind of misrepresentation is called "innocent" because the broker believes their statement to be true, but it turns out to be false. For example, a broker may believe that a roof is entirely leakproof. Turns out, their statement is wrong. One good rain and the purchaser is sitting in bed with an umbrella! Innocent misrepresentation is the hardest to prove and the most common. And, as Britney Spears might say, it's not that innocent, because it has similar legal repercussions to negligent misrepresentation. Innocent misrepresentation is constructive (i.e., it does not admit intent).

Failure to Disclose

You must be transparent with everyone you work with. All of the following are license violations: Directly or indirectly buying property under their own listing; likewise, acquiring any interest in a property without being transparent about this with the listing owner. If a broker buys property for a client, and they have interest in that property, they must tell all involved parties; if the broker is selling a property in which they have interest; they must tell the purchaser. Accepting services of another broker's employee without the broker knowing about it. In other words, Broker Billy can't utilize Broker Sally's licensee, Nila, without Broker Sally signing off. Failing to promptly tell an owner of any offers to purchase their property. An exception is if the seller gives some circumstance under which they are not to be informed. So, say John gets an offer on his house for $150,000. He would be perfectly happy with this, but his broker, Sam, wants a higher commission. Therefore, Sam wants an offer of at least $200,000. Sam doesn't tell John about the offer. What if a higher offer never comes? John is out of luck. Do you remember our example about the broker who knew the roof was leaking, but didn't tell the purchaser? That's a failure to disclose. There are several important disclosure forms that are required for various transactions. We'll get into them in the next screens.

misdemeanor

a criminal offense defined as less serious than a felony and triable in a court of special sessions

multiple listing service

a database in which local member brokers share listings so that fellow member brokers can procure buyers for those properties and establish compensation for properties sold jointly

suspension

a disciplinary measure resulting in the temporary withdrawal of an individual's real estate license, during which time the individual is prohibited from performing acts that require a license

escrow

a process in which funds and/or financial documents are held by a disinterested third party on behalf of the other two parties in the real estate transaction until specific conditions are satisfied

Article 78 proceeding

a type of legal proceeding in which an aggrieved party seeks to challenge actions of administrative agencies and other government bodies; used to appeal the decision of a New York State or local agency to the New York courts

violation

an act, deed, or condition contrary to law or permissible use of real property

net listing

an agreement in which the seller names an amount they will accept for a property and if the sales price exceeds that amount, the broker receives the excess as commission; illegal in New York Example: Cameron wants to sell his house fast. He tells his broker, Josh, that he wants to net $80,000, and that Josh can have whatever the amount of the sale is left after Cameron gets his $80,000. If Cameron and Josh do this in New York, it's illegal. But why is a net listing agreement illegal, you ask? I'll tell you, little Acelet. Consider the previous example. Josh, the broker, will have a much better idea of the house's market value than Cameron will. Say the market value is worth $300,000. Under their net listing agreement, Josh will net an exorbitant sales commission, much more than what Cameron will net. If this feels icky to you (that's the technical term 😉), you can see why some states, like New York, make net listing agreements illegal.

kickback

any money, fees, commission, credit, gift, gratuity, thing of value, or compensation of any kind made to the facilitator of a transaction, usually covertly and/or illicitly One way this is relevant for brokers and salespersons is that they cannot give a referral fee to anyone who sends them a client UNLESS that person is licensed in real estate. So, if Joe refers a possible buyer to you for the condo you are selling, Joe doesn't get any money from you unless he has a license. Any under-the-table money to Joe is a kickback. Get your kicks elsewhere, Mustafa, and don't get into shady dealings with non-licensed individuals who want a slice of the pie. Other names for a kickback are improper commission splitting, undisclosed referral fee, secret profit, and after-the-fact referral fee. Rebating part of a commission to a seller, buyer, tenant, or landlord is okay as long as this is a business incentive and not a payment for a real estate license-required activity.

administrative discipline

the enforcement of real estate license laws by the New York Department of State through reprimand and denial, as well as the suspension and revocation of licenses If the licensee is found guilty, the DOS will impose disciplinary action, called administrative discipline. Administrative discipline is the enforcement of real estate license laws by the New York Department of State through: Reprimand Fine Denial of license Suspension of license Revocation of license

commingling

the illegal act of mixing personal funds with a client's funds Commingling is the illegal act of mixing personal funds with a client's funds. Instead of commingling, the agent needs to place their client's money in an authorized trust bank account within three business days of receiving the funds. The account needs to have "escrow" or "trust" in the title. Escrow is a process in which funds and/or financial documents are held by a disinterested third party on behalf of the other two parties in the real estate transaction until specific conditions are satisfied.

revocation

the termination of an agreement by the person who granted it, such as when a principal terminates an agency relationship or withdraws an offer