2015 TREC
UPDATES
Eve Maxwell
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ADVERTISING
 T.C.A.
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Licensees name no larger than smallest font in
the Firm name as licensed with TREC
Only applies to signs and billboards
 Rule
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62-13-310(b)
1260-02-.12(1)
Rule covers all Formats and mediums
Must be done in Firm name and licensee name
as registered with TREC
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Advertising
 Rule

One of PB’s supervisory responsibilities to
review and approve all advertising prior to
dissemination TREC cannot approve
advertising
 Rule

1260-02-.12(2)(b)
1260-02-.12(2)(e)
No licensee shall advertise in a false,
misleading, or deceptive manner
4
ADVERTISING
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Team Advertising
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Broker Act does not recognize teams
Cannot create impression that team is a separate,
licensed Firm
Even if several licensees within a Firm work together
as a team, TREC views those licensees as affiliated
with Firm and PB remains responsible to supervise
all activities of affiliated licensees
Affiliated licensees cannot establish separate office –
that would be a branch office and would require a
Firm license and PB
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ADVERTISING
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Firm Name and Phone number must be in all
advertising
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Consumer must know how to reach the Firms’ PB if
a problem surfaces or if questions arise
Inducements Rule 1260-02-.12(5)(a)(b)
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Unsubstantiated selling claims and misleading
statements or inferences prohibited
Any offer, guaranty, warranty made to induce an
individual to enter into agency relationship or
contract must be in writing and must disclose all
pertinent details on face
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ADVERTISING
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Inducements Rule 1260-02-.12(5)(a)(b) cont.
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FTC and Consumer Protection Act
Coming Soon and Pocket Listings
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Limited exposure to market
Still must comply with Broker Act
Promptly present all written offers until a contract is
signed by all parties(Rule 1260-02.08)
Put clients interests above own (TCA 62-13-404)
Diligently exercise reasonable skill and care
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ADVERTISING
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Coming Soon and Pocket Listings cont.
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Services provided with honesty and good faith
Misrepresentation – is properly legitimately coming
to market or ploy to build buzz about the property
Signed written authorization from owner to put sign
on property (Rule 1260-02-.12(2)(c)
Seller understand minimal options for exposure of
property even with internet-not all sites will pick up
Antitrust, Fair Housing, Discrimination
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ADVERTISING
 Internet

Rule 1260-02-.12(4)
 Firm
name and phone number conspicuously
appear on each page of website
 Written authorization to list
 Must be kept current and accurate
 Aggregators, syndicators, scrapers want to
reconstitute and rebrand licensee data
 One click away(twitter)
9
PROPERTY MANAGEMENT

Included as activity which requires a license as defined in TCA
62-13-102(4)(A)(B)

Must be conducted through Firm and all monies and transactions
go through Firm(TCA 62-13-312)

Operate under name as licensed with TREC
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If LLC, Corp, must have license to manage, lease, sell (generally
no exemption under Broker Act—Attorney General Opinion)

Only manage without license if own properties solely as an
individual
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PROPERTY MANAGEMENT

Cannot be licensed and try to hold self out as unlicensed

All licensees shall identify themselves as licensees

Great Responsibility – cognizant of requirements of LLTenant, Fair Housing, ADA, Fair Credit Reporting Act,
Broker Act and other regulations

Money belonging to third parties must be held in trust
account. Separate dollars for each tenant

Property Management Agreement
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Escrow accounts

Rule 1260-02-.09
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Requires separate rental deposit and earnest dollar
trust accounts to be established
Dollars do not ever belong to licensee, they belong
to third party
Rule allows for deposit with third party, but must be
specifically established in purchase and sale
contract
If you do not receive the earnest dollars as specified
in contract, immediately notify seller/client as
represents breach of contract. Same if any monies
received NSF.
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Escrow accounts

Rule 1260-02-.09 cont.
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Reasonable skill and care, honesty and good faith
Affiliated licensees must pay over earnest monies
received immediately upon receipt
If you place with third party, get signed receipt from
third party—Purchase and Sale Contract must
specifically set forth third party name and address
Broker may properly disburse funds upon reasonable
interpretation of contract which authorizes broker to
hold funds
May disburse funds upon written agreement signed by
all parties having interest in and is separate from
contract authorizing him to hold
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Escrow accounts
 Rule
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
1260-02-.09 cont.
Funds in escrow or trustee accounts shall be
disbursed in proper manner without delay
Funds should be disbursed or interplead within
21 calendar days from date of receipt of written
request for disbursement—no particular form of
written request required
No “Operating” Escrow account
14
SHORT SALES, REO,
FORECLOSURES
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Communication is key to make sure client, whether
buyer or seller, understands issues/process involved
Making Home Affordable Options
Does Seller intend to sell in short sale process or is
property priced low just for licensee to drive consumers
to call and then give information about other properties
Know all facts about current liens on property, so can
apprise client of potential obstacles
Seller is under no obligation to give written rejection of
an offer nor to give reasons for rejection of offer
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SHORT SALES, REO,
FORECLOSURES
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Short sales are a process and licensee represents
buyer/seller –not bank- Investment of time which
might not yield transaction which closes
Negotiate on behalf of your client – loyal to
interests of your client
Very specific, regimented timetables and
document requirements by HUD and most lenders
Deadline missed or package incomplete, deal is
usually gone
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SHORT SALES, REO,
FORECLOSURES
 Frequent
source of complaints—party to
transaction does not think that their offer was
presented to seller of lender if REO
 TCA

47-18-5401 and TCA 47-18-5402
Prohibit upfront payment of fees by
homeowners to anyone assisting with loan
modifications
17
Online transfers
 Confirmation
from web allows licensee to go
to work
 New PB pays transfer fee online and signs
affidavit online that transferring licensee was
released by former broker, has E&O and has
an active TN license Within 5 calendar days
must transmit fully executed TREC 1
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Online transfers

If licensee cannot locate former PB or licensee
cannot get former PB to sign TREC 1 releasing,
form on TREC website that licensee can sign and
submit to TREC for release
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Transaction does not reflect in TREC system for
several days, but confirmation allows transfer

Facilitate change in firms and expose consumers
to less risk of harm because transferred listings
move seamlessly to new firm
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT

Often consumer is a customer before becomes a
client (specific bilateral agency agreement to
provide services)

TCA 62-13-403 – Duties to All Parties
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Diligently exercise reasonable skill and care in
providing services
Provide services with honesty and good faith
Disclose adverse facts of which licensee has actual
knowledge or notice
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT

Adverse Facts – conditions or occurrences generally recognized
by competent licensees that have negative impact on value of
real estate, significantly reduce structural integrity of
improvements or present significant health risk to occupants of
property **TCA 62-13-102(2)

Confidentiality—unless authorized by parties specifically to
disclose information or required to be disclosed by Broker Act
Disclose to each party timely and accurate information regarding
market conditions which might affect transaction only when
information is available through public records and when
requested by a party
Timely account for trust funds and all other property received
from parties
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT

Do not engage in self dealing nor act on behalf of
licensees immediate Family or other individual,
organization or business entity in which licensee has
personal interest without prior disclosure and timely
written consent of all parties (Owner/Agent)
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Read with Rule 1260-2-.11
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Personal Interest – Full disclosure of true position if
purchase of true position if purchase or attempt to
purchase or acquire interest or option in property listed
with licensee or their Firm or which their Firm have
been approached by owner to represent without Full
disclosure
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT
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Read with Rule 1260-2-.11 cont.
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After acquiring personal interest, directly or indirectly make
Full disclosure to prospective purchasers who tender offers
All licensees ID selves as licensee when buying or selling
property for themselves
Do not recommend to any party use of services in which
licensee has interest or might get referral Fee or other
compensation without timely disclosure of licensees interest
or Fact referral Fee may be received
Note 62-13-312(b)(18) failing to disclose to owner licensee’s
true intent or true position if the licensee directly or indirectly
through a third party, purchases for itself or acquires or
intends to acquire any interest or option to purchase property
which has been listed with licensee’s office to sell or lease
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT

Duty to client: TCA 62-13-404
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Obey all lawful instructions, be loyal to interest of
client – place before all others in negotiations and
other activities except where loyalty duty would
violate duties to customer under 403 or to another
client
Assist client, schedule showings, receive offers,
counter offers, Forwarding promptly Rule(Rule 126002-.08 - present all offers written until contract
signed by all parties) requires prompt delivery of
documents and to make certain all terms and
conditions of offers and of transaction included in
contract
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DUTIES TO CUSTOMER,
CONSUMER, & CLIENT
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Duty to client: TCA 62-13-404 cont.
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Answer questions client may have in negotiation
within scope of expertise
Advise forms, procedures, steps after execution for
successful closing
Client not required to reject an offer nor to give
reasons for accepting one offer over another offer
Importance of education

New TILA-RESPA Rules by Consumer Protection
Bureau – 8/1/15 Implementation—crucial to be
familiar with to advise clients re steps for successful
closing
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E & O insurance

Continuous coverage

Must have coverage at time of transaction to be covered and claim
must be made when you have coverage – active or “tail” coverage

Think of E & O insurance as Financial health insurance – if you
don’t have it when you are sick, you are out of luck.

Limits: $100,000.00 per licensee per claim (damages);
$300,000.00 aggregate all claims per licensee during each
consecutive Annual Policy Term

Certain Sublimits for discrimination, escrow,
lockbox($5,000.00/$10,000.00) Environmental
($100,000.00/$300,000.00)
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E & O insurance


Lockbox is device to allow authorized persons
without a key to enter a locked door. Claim
alleging property damage or loss of use of
property resulting from property damage in
distribution, operation or use of lock box on
property not owned, occupied by or leased to
Insured.
Does Not apply to any claim made based upon,
arising out of or attributable to any negligent act,
error, or omission or discriminatory conduct
committed or alleged to have been committed
prior to insured’s own retroactive date.
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E & O insurance
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Claim-written demand for money or services or service
of a lawsuit or institution of arbitration or mediation
against Insured seeking damages and alleging a
negligent act, error or omission in the performance or
failure to perform professional services.
Complaints-E&O will pay max of $2,500.00 with respect
to all claim expenses incurred in handling a complaint
filed with TREC when Insured is respondent, as long as
complaint issues would be covered by policy. Will not
pay civil penalties or other costs assessed by TREC.
Maximum during annual policy term is $5,000.00
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E & O insurance
 22
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Exclusions
Fraudulent, dishonest, criminal or malicious
acts committed by Insured or with Insured’s
knowledge or at Insured’s direction
Bodily Injury, sickness, disease, mental
anguish, pain, suffering, emotional distress or
death of any person
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E & O insurance

Personal Interest – professional services relating to
property in which any of the following had more than a
25% interest: Insured, Insured’s spouse, any entity,
partnership or trust in which Insured or Insured’s
spouse owned or controlled more than 25% ownership
or financial interest or services related to property
purchased or attempted to be purchased by Insured,
Insured’s spouse, any entity, partnership or
trust in which Insured or Insured’s spouse
owned or controlled more than 25%
ownership or financial interest
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E & O insurance
 Developed/Constructed
Property/Personal
Interest--professional services related to
property developed or constructed by Insured,
Insured’s spouse, any entity, partnership or trust in
which Insured or Insured’s spouse owned or
controlled more than 15% ownership or financial
interest
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E & O insurance
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22 Exclusions
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Environmental – limited to $100,000 claim
Commission dispute ≠ professional services
Prior Acts
Acts which prejudice Insurance company’s ability to defend
(admission of liability; default judgment)
Fines, penalties, assessments, punitive damages, exemplary
damages, multiplied damages, or matters deemed
uninsurable under applicable law
Conversion-theft
Pollution/Mold/Fungi/Microbes -includes asbestos, radon,
lead, nuclear reaction or radioactive contamination, spores,
mycotoxins, odors an any manner transmitted, actual,
alleged, threatened
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E & O insurance
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Claims
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Failure to disclose defects in property
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Misrepresentation as to acreage, boundaries
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Mistake in advertisement or MLS
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Sewer or septic
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Title issues (restrictive covenants, easements – RV)
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Zoning
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E & O insurance
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Claims cont.
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Forged or altered documents (no power of attorney)
– Don’t use POA – assume liability
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Selling wrong property
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Recommend services
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Foreclosed properties
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E & O insurance
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Claims cont.
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Documentation problem – paper trail important
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Selling same property to 2 different people
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Update property disclosure – seller
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Professional services which require real estate
license
35
TREC Complaint Process
 TREC
must open all complaints filed if
jurisdiction—open anonymous complaints
also
 Once complaint filed, copy sent to respondent
by certified mail
 Respondent has 10 days from date sign
green certified mail receipt card to respond
 Respond thoroughly and timely
36
TREC Complaint Process
 Send
all supporting documents and any other
paperwork pertinent to defense
 Copy of response sent to complainant
 Complainant may choose to send additional
information, but once response is filed,
respondent is not required to file additional
responses each time respondent receives
information sent by complainant
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TREC Complaint Process
 Legal
reviews files and writes a synopsis of
allegations and response to present to
Commission at monthly meeting-synopsis is
anonymous-contains no names or locations
 Probable Cause determination by
Commission at the initial phase
 TREC cannot recover monies, require specific
performance, order restitution, shut down a
business, decide commission issues
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TREC Complaint Process
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TREC can only take action against the license of the
licensee
TREC can dismiss, issue Letter of Warning or
Instruction or authorize Consent Order which might
include payment of civil penalty (to state), educational
hours, voluntary suspension, voluntary revocation and
will always contain requirement of attendance at a
complete regularly scheduled TREC monthly meeting
Respondent can accept terms of Consent Order within
30 days of receipt and resolve matter by signing this
offer of settlement or can request a formal hearing
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TREC Complaint Process
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Formal Hearing is like a trial and is before an
Administrative Law Judge who rules on procedural
matters and the Commission who sits as the “jury”
Advisable to bring an attorney for formal hearing
Costs of formal hearing usually assessed to respondent
and can run around $1,500.00-$2,000.00, which must
be paid in addition to any civil penalty assessed
At conclusion of formal hearing, Commission can
suspend, revoke, downgrade or take any of the actions
previously outlined, in combination with one another
If respondent does not agree with outcome at formal
hearing, can appeal to Chancery Court. Complainant
has no right of appeal
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TREC Complaint Process

Fail to supervise:
 Advertising
 Property Management
 Unlicensed Activity
 Agency – non disclosure, reasonable skill and care,
good faith/honesty putting clients interest first
 Fiduciary duties
 Escrow/Trust Account violations
 Unlicensed Branch Office
 62-13-312(b)
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DIGITAL/ELECTRONIC
SIGNATURE – LEGAL IN TN
 Digital
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More secure method authentication- unique to
person – verifiable integrity – verification
documents/data not modified
Non-repudiation – binding – cannot deny
 Electronic
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Digitized handwritten signature typed name
Secret code or pin number
42
Sewer/septic
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Disclosure critical

Rule 1260-2-.37 – Septic System Inspection Letters and
TCA 66-5-212 Disclosure of Known Perk tests
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Licensee preparing offer to buy shall provide in offer and
make buyer aware that for a fee, septic system inspection
letter available through TN Department of Environment and
Conservation(Rule)
Seller shall, prior to entering contract with buyer, disclose in
contract itself or in writing, including acknowledgement of
receipt, the presence of any known exterior injection well and
the results of any known percolation test or soli absorption
rate performed on the property that is determined or accepted
by the Dept of Environment and Conservation (Statute)
43
Sewer/septic
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
TCA 66-5-212(c) Sinkhole Disclosure: Effective 7/1/2015
The new statute states:
(c)(1)In addition to any other disclosure required by this part, the
seller shall, prior to entering into a contract with a buyer,
disclose in the contract or in writing, including acknowledgement
of receipt, the presence of a known sinkhole on the property.
(2)For purposes of this section, “sinkhole”:
(i)Means a subterranean void created by the dissolution of
limestone or dolostone strata resulting from groundwater
erosion, causing a surface subsidence of soil, sediment, or rock;
and
(ii)Is indicated through the contour lines on the property’s
recorded plat map. (Tenn. Code Ann. 66-5-212(c))
44
Sewer/septic

Number of bedrooms for which septic approved or
“perked for” TCA 47-18-104(41)(A)(B)(C)
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(C) Real estate licensee representing owner must have
actual knowledge transmitted from owner to licensee to
be in violation of (B) which gives rights of rescission
and treble damages if advertised and marketed as
having more bedrooms than permitted and no
disclosure of actual number permitted occurs prior to
execution of sales agreement
Communicate and explain difference between septic
and sewer
If sewer/city water available, but property still on septic,
disclose clearly to client and customers
45
LICENSEE TIPS FROM TREC
 Active
and Retired licenses are eligible to be
renewed if conditions for renewal are metrenewal fee must always be paid to renew
 Inactive license does not mean you are taking
some time off. It is a non renewable statutory
status which TREC places license in if licensee
sends in TREC 1 to retire but has not completed
CE (62-13-322)
46
LICENSEE TIPS FROM TREC
 License
is a suspended status means
licensee cannot engage in real estate
activities(i.e., no take listings, no show
houses, no lease, no contact clients)
 License can be suspended for failure to pay
child support, failure to pay student loan,
E&O, failure to complete all terms of signed
Consent Order, Consent Order or Final Order
of Commission
47
LICENSEE TIPS FROM TREC
 Commission
will revoke license if remain in
E&O suspended status for 12 months
 Auto revocation by Commission if licensee
pleads guilty or is convicted of offense set
forth in Broker Act and fails within 60 days of
conviction to provide Commission with
certified copies of court paperwork (62-13312(f) and refer 312(b)(12))
48
LICENSEE TIPS FROM TREC


Renewal v Reinstate- Renewal notices are simply
courtesy reminders and are not required by
statute or rule. No excuse for failure to renew that
did not get a renewal notice Renewal must be
paid and all conditions necessary for renewal
must be met or license will not renew
TREC does not distinguish between a “traditional”
firm and a “referral” firm—must have active
license, E&O and are governed by all parts of
Broker Act and Rules
49
LICENSEE TIPS FROM TREC



Unlawful for any licensee to compensate or
employ any person not a licensee(62-13-302(a)
Licensee may pay a commission or referral fee to
a licensee of another state if such nonresident
does not conduct in TN any of the negotiations for
which a commission or fee is paid. No cooperative
brokerage agreement in TN
Monies must be paid through firm/principal broker
with whom affiliated (62-13-312(b))
50
LICENSEE TIPS FROM TREC


Remember if you change your home, mailing, or
business address, you must notify TREC within 10
days. There is no charge for a home change of
address, but it is important that TREC is aware of such
a change. If your home address is your mailing
address, make sure that both addresses get changed.
This is particularly important if a licensee is retired,
because home is then where all TREC mail is sent
State mail is not forwarded—therefore, if you are not at
the address TREC has in its system, your TREC mail
will come back to TREC and you will miss important
information
51
LICENSEE TIPS FROM TREC

Please keep copies of every document that you
send to TREC. If a document gets lost or the
auditors have a question about a document, then
you will have it readily available and that will
expedite things for all of us

There are only a few E & O insurance policies that
will follow you when you leave a place of
employment. Please make sure when you
change firms that you check to make sure that
you have the required E & O and supply TREC
with proof of same
52
LICENSEE TIPS FROM TREC
 Principal
Brokers—make sure that you send
in Broker Releases in a timely manner for
affiliated licensees who no longer work for
you. TREC does not want you to be held
liable for actions of affiliated licensees who do
not work for you, but are still in the TREC
system as your affiliate, because no
paperwork has been received. Broker
Releases require no fee and are effective as
soon as received by TREC office
53
LICENSEE TIPS FROM TREC
 Please
make sure that all license expiration
dates are checked regularly. Now that the
licenses expire at all different times, it is
especially important to keep up with expiration
dates. The Reinstatement Policy makes
compliance with its provisions a condition
precedent to reinstatement, so in order to
work without interruption, make sure you
renew in a timely fashion
54
LICENSEE TIPS FROM TREC
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
All Commissions must be paid through the firm and to
the licensee as that person’s name appears on their
license. A broker cannot pay a corporation or other
entity set up by the licensee under Tennessee law
If you are a PB, make sure that you pay the
Professional Privilege Tax—otherwise a hold will be
placed on your license renewal
Licensees can only be affiliated with one firm at a time,
except for a PB who can be the PB of two firms if they
are physically located in the same location Affiliated
licensee can never be affiliated with more than one firm
at a time
55
Questions