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RANMLEGISLATIVE

CONFERENCELEGAL UPDATE

Presented By: Ashley Strauss-Martin, Esq.January, 2011

TODAY’S AGENDA• DATA SECURITY AND PRIVACY

• 2010 CHANGES TO THE CODE OF ETHICS

• NEW IRS 1099 REPORTING REQUIREMENTS

• CASE LAW UPDATE - BREAK

• YOUR RICE INSURANCE POLICY

• RANM FORMS – REVISED AND NEW

DATA SECURITY AND PRIVACY

• WHAT IS A PRIVACY POLICY?– DOCUMENT THAT SAYS HOW YOUR

BUSINESS – WIDELY DISTRIBUTED (MAY BE ON WEBSITE)

– COLLECTS– SHARES– PROTECTS AND– DESTROYS.....PERSONAL DATA


• WHAT IS A DATA SECURITY PROGRAM?– PROVIDED TO AND IMPLEMENTED BY

EMPLOYEES (INTERNAL)– SAFEGUARDS TO PROTECT THE

SECURITY, CONFIDENTIALITY AND INTEGRITY OF PERSONAL DATA

– INCLUDES PROPER DISPOSAL OF DATA


• DO YOU KEEP SENSITIVE, PERSONAL INFORMATION IN YOUR FILES?– CREDIT CARD INFO– BANK INFO– SOCIAL SECURITY NUMBERS– HEALTH INFORMATION – DRIVER’S LICENSE NUMBERS


• IF THIS INFORMATION FALLS INTO THE WRONG HANDS:–FRAUD–IDENTITY THEFT–REPUTATIONAL

HARM TO BUSINESS


• LAWS – 29 STATES HAVE DATA DISPOSAL LAWS –

LAWS THAT GOVERN THE DISPOSAL OF PERSONAL DATA HELD BY BUSINESSES/GOV’T

– 46 STATES, PLUS THE DISTRICT OF COLUMBIA, PUERTO RICO AND THE VIRGIN ISLANDS HAVE ENACTED LAWS REQUIRING NOTIFICATION OF SECURITY BREACHES INVOLVING PERSONAL INFORMATION. FOUR STATES HAVE NOT.

– NEW MEXICO HAS NEITHER


• LAWS – GRAMM-LEACH BLILEY FINANCIAL

MODERNIZATION ACT APPLIES TO FINANCIAL INSTITUTIONS AS DEFINED UNDER THE ACT

– THEFT RED FLAGS AND ADDRESS DISCREPANCY RULES APPLIES TO THOSE THAT REGULARLY ARRANGE FOR CREDIT (PROVIDE GOODS OR SERVICES NOW, PAY LATER) MANDATORY COMPLIANCE 12.31.10http://www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm

– NO COMPREHENSIVE FEDERAL DATA SECURITY/PRIVACY LAWS, YET…..

DATA SECURITY – FTC’S 5 KEY PRINCIPLES FOR YOUR

DATA SECURITY PROGRAM• TAKE STOCK – KNOW WHAT YOU HAVE• SCALE DOWN – KEEP ONLY WHAT YOU NEED• PITCH IT- PROPERLY DISPOSE OF WHAT YOU

NO LONGER NEED• LOCK IT- PROTECT WHAT YOU KEEP• PLAN AHEAD – CREATE A PLAN TO RESPOND

TO SECURITY INCIDENTS

DATA SECURITY • TAKE STOCK

– PERFORM AN INFORMATION INVENTORY• WHY DO YOU COLLECT THE INFO• WHO SENDS PERSONAL INFO

(CONSUMERS, I.C.s, EMPLOYEES, MEMBERS, BANKS, BROKERAGES, ETC.)

• WHO IS COLLECTING IT (MEMBERS, EMPLOYEES, I.C.s)

DATA SECURITY • TAKE STOCK

– PERFORM AN INFORMATION INVENTORY• HOW IS IT BEING COLLECTED (I.E. WEBSITES,

E-MAILS, MAIL, INTERVIEWS ETC.)• WHERE DO YOU KEEP INFO COLLECTED

(DISKS, FILE CABINETS, LAPTOPS, MOBILE DEVICES ETC.)

• WHO HAS ACCESS (EMPLOYEES, MEMBERS, VENDORS, PUBLIC ETC.)

• WHAT KINDS OF INFO (TELEPHONE NO.s, POSTAL ADDRESSES, S.S. NO.s, D.L. NO.s)

DATA SECURITY • TO TAKE THIS INVENTORY,

TALK TO …..– TECHNOLOGY STAFF– HUMAN RESOURCES– ACCOUNTING– OUTSIDE SERVICE PROVIDERS– INDEPENDENT CONTRACTORS

DATA SECURITY • TO TAKE INVENTORY, LOOK AT….

– ALL COMPUTERS– LAPTOPS– FLASH DRIVES– DISKS– HOME COMPUTERS– MOBIL DEVICES– ANYWHERE SENSITIVE DATA IS STORED

DATA SECURITY • SCALE DOWN

– IF YOUR ASSOC. OR BROKERAGE DOES NOT HAVE A LEGITIMATE BUSINESS NEED FOR THE PERSONAL INFORMATION, THEN……

DON’T COLLECT IT!

DATA SECURITY • SCALE DOWN

– IF THERE IS A LEGITIMATE BUSINESS NEED FOR THE INFORMATION, THEN KEEP ITONLY AS LONG AS IT’S NECESSARY. ONCE THE BUSINESS NEED IS OVER THEN PROPERTY DISPOSE OF IT!

DATA SECURITY • IF YOU MUST KEEP TO COMPLY WITH

THE LAW, DEVELOP AND ADHERE TO A DOCUMENT RETENTION POLICY– WHAT MUST BE KEPT– FOR HOW LONG– HOW TO SECURE IT– HOW TO DISPOSE OF IT

DATA SECURITY • COLLECTING CREDIT CARD INFO? FTC TIPS

– ONLY PRINT TRUNCATED CREDIT OR DEBIT CARD OF CONSUMER RECEIPTS AND DO NOT INCLUDE EXP. DATE

– DON’T RETAIN C.C. ACCT. NO.s OR EXPIRATION DATES UNLESS YOU HAVE AN ESSENTIAL BUSINESS NEED TO DO SO

– CHECK DEFAULT SETTINGS ON YOUR SOFTWARE THAT READS C.C. NO.s AND PROCESSES THE TRANSACTIONS. CHANGE TO MAKE SURE IT DOESN’T AUTOMATICALLY KEEP INFORMATION THAT YOU DON’T NEED

DATA SECURITY • LOCK IT – FTC’S WHAT-TO-CONSIDER

– PHYSICAL SECURITY– ELECTRONIC SECURITY– EMPLOYEE TRAINING– SECURITY PRACTICES OF

CONTRACTORS AND SERVICE PROVIDERS

DATA SECURITY • PHYSICAL SECURITY

– PAPER DOCUMENTS AND TANGIBLE FILES SHOULD BE IN A LOCKED ROOM

– LIMIT ACCESS TO EMPLOYEES WITH LEGITIMATE BUSINESS NEEDS – KNOW WHO THESE PEOPLE ARE

– REQUIRE EMPLOYEES TO PUT FILES AWAY, LOG OFF COMPUTERS, LOCK FILE CABINETS AND OFFICE DOORS AT END OF DAY

– OFF SITE – LIMIT EMPLOYEE ACCESS TO THOSE WITH LEGITIMATE BUSINESS NEEDS

DATA SECURITY • ELECTRONIC SECURITY

– ID COMPUTERS WITH PERSONAL INFO– INDENTIFY ALL CONNECTIONS TO THOSE

COMPUTERS, (INTERNET, WIRELESS DEVICES)– ASSESS VULNERABILITY OF EACH CONNECTION– DON’T STORE PERSONAL INFO ON COMPUTER

W/INTERNET CONNECTION IF CAN BE AVOIDED– ENCRYPT SENSITIVE INFO THAT YOU SEND TO

THIRD PARTIES– WHEN TRANSMITTING C.C. INFO, USE SECURE

SOCKETS LAYER (SSL) OR OTHER SECURE CONNECTION THAT PROTECTS INFO

DATA SECURITY • ELECTRONIC SECURITY

– PAY ATTENTION TO SECURITY OF WEB APPLICATIONS

– REQUIRE USE OF THUMB PRINT, SMART CARD, TOKEN OR OTHER BIOMETRIC (AS WELL AS PASSWORD) TO ACCESS

– PASSWORD MANAGEMENT (REQUIRE USE OF STRONG PASSWORDS, PROHIBIT SHARING OF, CHANGE VENDOR-DEFAULT PASSWORDS IMMEDIATELY, WARN EMPLOYEES ABOUT FAKE CALLS FROM “IT” STAFF, LOCK-OUT AFTER PERIOD OF INACTIVITY ETC.)

DATA SECURITY – ELECTRONIC SECURITY

• LAPTOP SECURITY (DO YOU REALLY NEED TO STORE ON LAPTOP, ENCRYPT IT, TRAIN EMPLOYEES TO BE MINDFUL OF SECURITY WHEN TRAVELING)

• FIREWALLS• WIRELESS AND REMOTE ACCESS (ENCRYPT)• DETECTING BREACHES (INTRUSION

DETECTION SYSTEM, MONITOR INCOMING AND OUTGOING TRAFFIC)

DATA SECURITY • EMPLOYEE TRAINING

– BACKGROUND/REFERENCE CHECKS– ASSURE UNDERSTANDING OF COMPANY’S DATA

SECURITY PROGRAM– REQUIRE IMMEDIATE NOTIFICATION OF BREACH– KNOW WHO HAS ACCESS TO WHAT– ONCE NO LONGER EMPLOYED, HAVE NO

ACCESS– IMPOSE DISCIPLINARY MEASURES FOR

SECURITY POLICY VIOLATIONS

DATA SECURITY • SECURITY PRACTICES OF CONTRACTORS

AND SERVICE PROVIDERS– OUTSOURCING? INVESTIGATE COMPANY’S

DATA SECURITY PRACTICES AND COMPARE TO YOURS

– REQUIRE THAT THEY NOTIFY YOU OF ANY SECURITY INCIDENTS EVEN IF NO DATA IS COMPROMISED

– REQUIRE THEY ADHERE TO ALL APPLICABLE FEDERAL AND STATE LAW REGARDING DATA SECURITY

DATA SECURITY • PITCH IT

– SHOULD BE PART OF YOUR POLICY– WHAT IS “PROPER DISPOSAL”? CANNOT

BE READ OR RECONSTRUCTED– FTC RECOMMENDATIONS:

• BURN, SHRED, PULVERIZE PAPER RECORDS• USE WIPE UTILITY PROGRAMS OR

OTHERWISE FOR ELECTRONIC RECORDS• MERELY “DELETING” INSUFFICIENT• EMPLOYEES WORKING FROM HOME MUST

FOLLOW SAME PROCEDURES

DOCUMENT RETENTION POLICY

• PROCESS FOR CREATING -CHECKLIST– ID SOURCES AND TYPES OF INFO– ID AND DOCUMENT CURRENT POLICIES– EVALUATE EXISTING POLICIES– CREATE A POLICY– LEGAL REVIEW OF DOCUMENT RETENTION

POLICY– DISTRIBUTE TO EMPLOYEES AND ICs AND MAKE

SURE THEY FOLLOW IT– PERIODICALLY REVIEW FOR RELEVANCE


• ISSUES TO CONSIDER– FORMAT USED TO MAINTAIN DOCUMENTS– PRIVACY CONSIDERATIONS AND PROPER

DOCUMENT DESTRUCTION (I.E. EMPLOYMENT RECORDS GOVERNED BY STATE OR FEDERAL PRIVACY LAWS)

– OTHER LEGAL CONSIDERATIONS (I.E. IRS AUDITS GENERALLY 3 YRS, BUT IRS CAN AUDIT A RETURN 7 YEARS LATER IF NEGLIGENCE IS INVOLVED AND INDEFINITELY IN THE CASE OF TAX FRAUD, REC REGS AND SOL ON CLAIMS


• EX. OF DOCS YOU MAY MAINTAIN – ACCOUNTING RECORDS– CORPORATE RECORDS– ELECTRONICALLY STORED INFO– EMPLOYMENT RECORDS– LEGAL DOCUMENTS– MLS DOCUMENTS– ASSOCIATION DOCUMENTS– PROPERTY RECORDS– PENSION AND PROFIT SHARING

DATA SECURITY • PLAN AHEAD – WHAT IS YOUR

BREACH NOTIFICATION POLICY?– WHO WILL RESPOND– ACTION UPON LEARNING OF BREACH– INFORMATION TO BE COLLECTED

RELATED TO BREACH– IMPLICATIONS OF BREACH– PROCEDURES TO BE FOLLOWED

IF NOTIFICATION IS REQUIRED OR ELECTED– ACTION FOLLOWING BREACH AND

NOTIFICATION

WEBSITEPRIVACY POLICY

• DOCUMENT THAT DISCLOSES HOW YOUR BUSINESS COLLECTS, SHARES, PROTECTS & DESTROYS PERSONAL INFO – CONSIDER AND ADDRESS– HOW NOTICE IS PROVIDED TO CONSUMERS

(CLEAR AND CONSPICUOUS, EASILY ACCESSED)– TYPE OF INFO COLLECTED (INFO

VOLUNTEERED BY USER, DATE/TIME OF VISIT, STATISTICAL INFO, DOMAIN NAME, BROWSER USED)

– HOW INFO IS COLLECTED (VOLUNTEERED OR AUTO COLLECTION)

WEBSITEPRIVACY POLICY

– WHY INFO IS COLLECTED (TO IMPROVE WEBSITE, UNDERSTAND THOSE USING SERVICES, SEND NOTICES, SHARE W/ OTHERS

– WHAT HAPPENS TO INFO COLLECTED (EXPLAIN HOW INFO IS STORED, DATA RETENTION POLICY, DISPOSAL POLICY)

– USER’S ABILITY TO ACCESS COLLECTED INFO (EXPLAIN UNDER WHAT CIRCUMSTANCES USER CAN ACCESS HIS INFO, HOW TO CONTACT YOU W/ CONCERNS, CAN USER OPT-OUT?)

– I.D. AND CONTACT OF WEBSITE OPERATOR– EFFECTIVE DATE OF POLICY


ONCE YOU CREATE IT……..

IMPLEMENT IT!•


• KEY RESOURCES– WWW.REALTOR.ORG –

• NAR’S DATA SECURITY & PRIVACY TOOLKIT– CHECKLISTS – MODEL POLICIES – TIME FRAMES/SUGGESTIONS FOR RETENTION– EXAMPLE OF LETTER WHEN BREACH OCCURS

– WWW. FTC.GOV• FTC PUBLICATION: PROTECTING PERSONAL

INFORMATION: A GUIDE FOR BUSINESS• RED FLAG RULES

http://www.realtor.org/�

2010 KEY PROFESSIONAL STANDARDS CHANGES

• REVISED SOP 3-2– REALTORS SHALL WITH RESPECT TO OFFERS

OF COMPENSATION TO ANOTHER REALTOR, TIMELY COMMUNICATE TO BE EFFECTIVE, ANY CHANGE OF IN COMPENSATION OFFERED FOR CO-OPERATIVE SERVICES MUST BE COMMUNICATED TO THE OTHER REALTOR PRIOR TO THE TIME SUCH THAT REALTOR PRODUCES SUBMITS AN OFFER TO PURCHASE/LEASE THE PROPERTY

– CORRESPONDING CHANGE IN MLS RULES –SECTION 5 (COMPENSATION SPECIFIED ON EACH LISTING) (1/10)

KEY PROFESSIONAL STANDARDS CHANGES

• NEW SOP 3-9

REALTORS SHALL NOT PROVIDE ACCESS TO LISTED PROPERTY ON

TERMS OTHER THAN THOSE ESTABLISHED BY THE OWNER OR THE

LISTING BROKER (1/10)


• Article 10 revised – REALTORS® shall not deny equal professional services to any

person for reasons of race, color, religion, sex, handicap, familial status, or national origin, or sexual orientation. 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, or national origin, or sexual orientation.

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, or national origin, or sexual orientation. (1/11)


• Standard of Practice 10-3 revised– REALTORS® shall not print, display or

circulate any statement or advertisement with respect to selling or renting of a property that indicates any preference, limitations or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or sexual orientation (1/11)


• REVISED ARTICLE 11 (1ST PARAGRAPH)– THE SERVICES WHICH REALTORS PROVIDE TO THEIR

CLIENTS AND CUSTOMERS SHALL CONFORM TO THE STANDARDS OF PRACTICE AND COMPETENCE WHICH ARE REASONABLE EXPECTED IN THE SPECIFIC REAL ESTATE DISCIPLINES IN WHICH THEY ENGAGE; SPECIFICALLY, RESIDENTIAL REAL ESTATE BROKERAGE, REAL PROPERTY MANAGEMENT, COMMERCIAL AND INDUSTRIAL REAL ESTATE BROKERAGE, LAND BROKERAGE , REAL ESTATE APPRAISAL, REAL ESTATE COUNSELING, REAL ESTATE SYNDICATION, REAL ESTATE AUCTION AND INTERNATIONAL REAL ESTATE (1/10)


• REVISED SOP 11-1– WHEN REALTORS PREPARE OPINIONS OF REAL

PROPERTY VALUE OR PRICE, OTHER THAN IN PURSUIT OF A LISTING OR TO ASSIST A POTENTIAL PURCHASER IN FORMULATING A PURCHASE OFFER, SUCH OPINIONS SHALL INCLUDE THE FOLLOW UNLESS THE PARTY REQUESTING THE OPINION REQUIRES A SPECIFIC TYPE OF REPORT OF DIFFERENT DATA SET: (1/10)


• REVISED SOP 12-5– REALTORS® SHALL NOT ADVERTISE NOR

PERMIT ANY PERSON EMPLOYED BY OR AFFILIATED WITH THEM TO ADVERTISE REAL ESTATE SERVICES OR LISTED PROPERTY IN ANY MEDIUM (E.G., ELECTRONICALLY, PRINT, RADIO, TELEVISION, ETC.) WITHOUT DISCLOSING THE NAME OF THAT REALTOR®’S FIRM IN A REASONABLE AND READILY APPARENT MANNER (1/10)


• REVISED SOP 12-5 - ADDED– THIS STANDARD OF PRACTICE ACKNOWLEDGES

THAT DISCLOSING THE NAME OF THE FIRM MAY NOT BE PRACTICAL IN ELECTRONIC DISPLAYS OF LIMITED INFORMATION (E.G., “THUMBNAILS”, TEXT MESSAGES, “TWEETS”, ETC.). SUCH DISPLAYS ARE EXEMPT FROM THE DISCLOSURE REQUIREMENT ESTABLISHED IN THIS STANDARD OF PRACTICE BUT ONLY WHEN LINKED TO A DISPLAY THAT INCLUDES ALL REQUIRED DISCLOSURES (1/11)


• REVISED SOP 15-2– The obligation to refrain from making false or

misleading statements about competitors other real estate professionals, competitors’ their businesses, and competitors’ their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means (1/10)


• REVISED SOP 15-3– The obligation to refrain from making false or

misleading statements about competitors other real estate professionals, competitors’ their businesses, and competitors’ their business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the REALTOR® controls once the REALTOR® knows the statement is false or misleading (1/10)


• REVISED SOP 16-20– REALTORS, PRIOR TO OR AFTER TERMINATING

THEIR RELATIONSHIP WITH THEIR CURRENT FIRM IS TERMINATED, SHALL NOT INDUCE CLIENTS OF THEIR CURRENT FIRM TO CANCEL EXCLUSIVE CONTRACTUAL AGREEMENTS BETWEEN THE CLIENT AND THAT FIRM. THIS DOES NOT PRECLUDE REALTORS (PRINCIPALS) FROM ESTABLISHING AGREEMENTS WITH THEIR ASSOCIATED LICENSEES GOVERNING ASSIGNABILITY OF EXCLUSIVE AGREEMENT (1/10)


• New Professional Standards Policy Statement #57, Case Interpretations are Official Policy– The Case Interpretations of the Code of Ethics approved by the

National Association’s Professional Standards Committee and published in Interpretations of the Code of Ethics illustrate and explain the principles articulated in the Articles and Standards of Practice. While a REALTOR® cannot be found in violation of a Standard of Practice or a Case Interpretation, both are official statements of National Association policy and are not merely advisory. Both can be cited by complainants in support of alleged violations of Articles and by hearing panels in support of decisions that an Article(s) has been violated (11/10)

•


• Section 48, Submission to Arbitration, was amended to add the following paragraph:– Associations are encouraged but not required

to refund part or all of the parties’ deposits in cases where disputes are resolved through mediation. Associations are also encouraged to adopt and follow a consistent policy regarding the disposition of arbitration deposits (5/10)


• Section 54, Costs of Arbitration, was amended to add the following paragraphs:– NOTE: Associations are strongly encouraged to refund all or part

of parties’ filing deposits where disputes are resolved through mediation. If an association elects to adopt this optional procedure, the following should be incorporated as part of the association’s dispute resolution procedures:

“ Where parties successfully mediate an otherwise arbitrable dispute, their arbitration filing fees will be refunded” or “Where parties successfully mediate an otherwise arbitrable dispute _ % (or--- $ ) of their filing fee will be refunded” (5/10)

NEW IRS REPORTING REQUIREMENTS

• Current Law – ANYONE ENGAGED IN A TRADE OR BUSINESS IS

REQUIRED TO FILE A FORM 1099 FOR PAYMENTS OF $600 OR MORE IN ANY YEAR FOR ITEMS INCLUDING (BUT NOT LIMITED TO) RENT, SALARIES, WAGES, AND GAINS. THE RULE IS IMPOSED TO ASSURE THAT THOSE WHO HAVE RECEIVED PAYMENTS ACTUALLY REPORT THE INCOME. THE PAYOR FILES THE FORM 1099 WITH THE IRS AND WITH THE PARTY WHO RECEIVED PAYMENTS


• IN THE CASE OF REAL ESTATE, INCLUDES– FULL-TIME PROPERTY MANAGERS – THOSE WHOSE PRIMARY BUSINESS IS

PROPERTY MANAGEMENT AND OTHER REAL ESTATE SERVICES

– SOME ENGAGED IN LEASING ACTIVITIES COULD ALSO FALL WITHIN THIS REQUIREMENT IF THEY RECEIVE RENTAL PAYMENTS ON THE LEASE OR OTHERWISE MANAGE THE PROPERTY


• NOT THE SAME AS THE 1099 ISSUED TO ABs AND CO-OP BROKERS– QBs MUST FILE FORMS 1099 FOR

PAYMENTS MADE IN EXCESS OF $600 TO THEIR ABs AND TO CO-OP BROKERS

– REQUIRED EVEN IF CO-OP BROKER IS PAID THROUGH ESCROW CO.

– DOESN’T APPLY TO CORPS, JUST INDIVIDUALS


• 1099s AND LANDLORDS – THE RECENTLY-ENACTED SMALL

BUSINESS LEGISLATION (HR 5297) INCLUDED AN EXPANSION OF THE 1099 REPORTING RELATED TO A TRADE OR BUSINESS. TO DATE, ONLY THOSE REAL ESTATE PROFESSIONALS ENGAGED IN PROPERTY MANAGEMENT-TYPE BUSINESSES HAVE BEEN REQUIRED TO FILE FORMS 1099


• 1099s AND LANDLORDS– CONGRESS HAS EXTENDED THE FORM

1099 REQUIREMENT TO ANY PERSON WHO RECEIVES RENTAL INCOME. THIS REQUIREMENT WOULD APPLY TO ANY LANDLORD (INCLUDING A SMALL INVESTOR), RATHER THAN ONLY THOSE WHO ARE IN THE BUSINESS OF MANAGING PROPERTY


• 1099s AND LANDLORDS– STARTING IN 2011, ANY PERSON WHO

RECEIVES RENTAL INCOME MUST PROVIDE A FORM 1099 FOR ALL PAYMENTS OF $600 OR MORE MADE TO SERVICE PROVIDERS SUCH AS

• PLUMBERS• CARPENTERS• YARD SERVICES• REPAIR PEOPLE


• 1099s AND LANDLORDS– PURCHASE OF GOODS NOT INCLUDED

WITHIN THE REPORTING REQUIREMENT– FORM 1099 PROVIDED TO THE IRS AND

TO THE SERVICE PROVIDER– THE NEW REQUIREMENT APPLIES TO

RESIDENTIAL & COMMERCIAL PROPERTY– START NOW, 1099s WILL HAVE TO GO

OUT BY JAN. 31, 2012


• 1099s AND BUSINESSES– BEGINNING 2012: ALL BUSINESSES,

INCLUDING REAL ESTATE BUSINESSES, SELF-EMPLOYED INDIVIDUALS AND INDEPENDENT CONTRACTORS WILL BE REQUIRED TO MAKE A 1099 REPORT OF ANY AGGREGATE ANNUAL PAYMENT OF $600 OR MORE TO ANY PERSON FROM WHOM THEY ACQUIRED GOODS OR SERVICES


• SEVERAL AMENDMENTS WERE OFFERED TO THE SMALL BUSINESS LEGISLATION THAT WOULD HAVE REPEALED OR AT LEAST MITIGATED THE IMPACT OF THIS NEW REQUIREMENT. THOSE EFFORTS FAILED

• THE AMENDMENTS WOULD HAVE IMPOSED THE REQUIREMENT ONLY ON THOSE BUSINESSES WITH MORE THAN 25 (OR 50) EMPLOYEES AND/OR PAYMENTS OF MORE THAN $5000 TO ANY PARTICULAR VENDOR OR SERVICE PROVIDER

• NAR IS PARTICIPATING WITH GROUPS SEEKING TO REPEAL OR MODIFY THIS REQUIREMENT

CASE LAW UPDATE• KELLER V. GREATER AUGUSTA ASS'N

OF REALTORS®, INC., (S.D.GA. 1.12.11) – ASSOC. FINED MEMBER FOR LISTING HIS NAME,

WEBSITE ADDRESS, AND/OR PHONE NUMBER IN THE “PUBLIC REMARKS” OR “PROPERTY DESCRIPTION” SECTIONS OF CERTAIN MLS LISTINGS

– MLS RULES PROHIBITED ADVERTISEMENTS IN THE “SECTIONS VIEWABLE TO THE PUBLIC THROUGH THE MLS WEBSITE, INCLUDING BUT NOT LIMITED TO: PHOTOS, PUBLIC REMARKS, DIRECTIONS, ETC.”

CASE LAW UPDATE• KELLER V. GREATER AUGUSTA ASS'N OF

REALTORS®, INC.• MEMBER FILED LAWSUIT CLAIMING ASSOC.’S

RULES VIOLATED THE SETTLEMENT BETWEEN NAR AND THE U.S. DOJ OVER NAR’S VIRTUAL OFFICE WEBSITE RULES BY DISCRIMINATING AGAINST INTERNET BROKERAGES

• MEMBER ALSO CLAIMED THAT ASSOC.’S RULES CONSTITUTED AN UNLAWFUL RESTRAINT OF TRADE, AND BROUGHT ALLEGATIONS FOR ALLEGED HARM UNDER STATE LAW

CASE LAW UPDATE• KELLER V. GREATER AUGUSTA

ASS'N OF REALTORS®, INC., • THE ASSOCIATION FILED A MOTION TO DISMISS

THE MEMBER’S LAWSUIT• THE COURT DISMISSED THE MEMBER’S

FEDERAL ANTITRUST ALLEGATIONS.• THE COURT FOUND THAT THE MEMBER HAD

FAILED TO ALLEGE ANY FACTS THAT SUPPORTED HIS FEDERAL ANTITRUST CLAIMS


REALTORS®, INC.– MEMBER CLAIMED THAT THE RULES IMPACTED THE

ABILITY OF BROKERAGES TO COMMUNICATE WITH CUSTOMERS OVER THE INTERNET AND FAVORED MORE TRADITIONAL, OFFICE-BASED BROKERAGES

– BUT, MEMBER FAILED TO SET FORTH ANY FACTS SHOWING HOW THE RULE FAVORED ONE BUSINESS MODEL OVER ANOTHER

– COURT ALSO RULED THAT THE NAR SETTLEMENT WITH THE DOJ HAD NO RELEVANCE TO THE MEMBER’S CLAIMS AND THAT THE MEMBER FAILED TO ALLEGE DAMAGES CAUSED BY THE ALLEGED ANTI-TRUST VIOLATIONS

CASE LAW UPDATEKELLER V. GREATER AUGUSTA ASS'N OF

REALTORS®, INC.– THE FEDERAL ANTITRUST LAWS EXIST TO

PROTECT COMPETITION, NOT COMPETITORS. THE MEMBER CLAIMED DAMAGES FOR ALLEGED HARM TO HIS BROKERAGE, NOT HARM TO COMPETITION IN THE MARKET. B/C MEMBER ONLY ALLEGED HARM WAS TO AN INDIVIDUAL COMPETITOR, HE HAD FAILED TO STATE AN ANTITRUST CLAIM FOR DAMAGES. THUS, THE COURT DISMISSED THE ANTITRUST ALLEGATIONS WITH PREJUDICE


REALTORS®, INC.– SINCE THE COURT DISMISSED THE MEMBER’S

FEDERAL ANTITRUST CLAIMS, ONLY HIS STATE LAW CLAIMS REMAINED. THE COURT DECLINED TO EXERCISE JURISDICTION OVER THESE CLAIMS AND SO DISMISSED THESE CLAIMS WITHOUT PREJUDICE, ALLOWING THE MEMBER TO REFILE THOSE CLAIMS IN STATE COURT IF HE CHOOSES TO DO SO. THEREFORE, THE COURT DISMISSED THE MEMBER’S ENTIRE LAWSUIT

CASE LAW UPDATE• Maro v. Lewis, 697 S.E.2d 684 (S.C.

Ct. App. 2010)– SELLER OWNED A COMMERCIAL PROPERTY

CONTAINING A NUMBER OF BUSINESSES– SELLER LISTED THE PROPERTY FOR SALE WITH

BROKER IN MAY 2005– SIX-MONTH LISTING AGREEMENT CONTAINED A

90 DAY PROTECTION PERIOD CLAUSE (“PPC”)

CASE LAW UPDATE• MARO V. LEWIS, 697 S.E.2D 684

• PPC SAID THAT IF A PERSON WHO WAS INTRODUCED TO PROPERTY DURING THE TERM OF THE LISTING AGREEMENT EVENTUALLY PURCHASED PROPERTY W/I 90 DAYS AFTER THE EXPIRATION OF LISTING AGREEMENT, THEN THE BROKER RECEIVED A COMMISSION

• AGREEMENT ALLOWED SELLER TO IDENTIFY PERSONS TO WHOM SELLER HAD MARKETED PROPERTY PRIOR TO THE LISTING AGREEMENT, BUT SELLER NEVER IDENTIFIED ANYONE

• AGREEMENT REQUIRED SELLER TO REFER ALL POTENTIAL BUYERS TO BROKER


– BROKER MARKETED PROPERTY DURING THE TERM, BUT FAILED TO ATTRACT A BUYER BEFORE EXPIRATION OF AGREEMENT (11/05)

– A BUYER INTRODUCED TO THE PROPERTY BY SELLER (DURING LISTING) LATER PURCHASED PROPERTY

– BROKER NEVER MET THE BUYER– 1ST DEAL BETWEEN BUYER & SELLER WAS IN

AUGUST 2005, BUT CONTRACT FELL APART – THREE MORE PURCHASE AGREEMENTS

BETWEEN THE PARTIES, CLOSED MAY 2006


– SELLER REFUSED TO PAY BROKER COMMISSION

– BROKER FILED LAWSUIT CLAIMING SELLER HAD BREACHED THE LISTING AGREEMENT

– SELLER ARGUED THAT THE TRANSACTION HAD CLOSED OUTSIDE OF THE PROTECTION PERIOD

– WHAT DO YOU THINK HAPPENED AT TRIAL LEVEL?


– A DIRECTED VERDICT IS A RULING BY THE TRIAL COURT THAT, AS A MATTER OF LAW, A PARTY HAS NOT PROVEN ITS CASE. HOWEVER, IF THE JURY COULD HAVE CONCLUDED THAT THE FACTS DID SUPPORT THE PARTY’S CASE, THEN THE COURT MUST ALLOW THE JURY TO RESOLVE THE FACTUAL DISPUTE

– COURT OF APPEALS REVERSED THE TRIAL COURT & SENT THE CASE BACK TO THE TRIAL COURT FOR RECONSIDERATION BY A JURY

–


– BREACH OF CONTRACT ALLEGATIONS: SELLER ADMITTED HE HAD AN ENFORCEABLE CONTRACT W/ BROKER & THAT HE HAD BREACHED THAT CONTRACT BY NOT FULFILLING CERTAIN OBLIGATIONS IMPOSED BY THE CONTRACT, SUCH AS REFERRING INTERESTED BUYERS TO THE BROKER

– COURT SAID THAT A JURY COULD FIND THAT IF THE SELLER HAD REFERRED THE EVENTUAL BUYER TO BROKER, BROKER WOULD HAVE COLLECTED HER COMMISSION


– BREACH OF CONTRACT/FRAUDULENT ACT CLAIM: PARTY MUST SHOW: THAT THE PARTIES HAD A CONTRACT; ONE PARTY BREACHED THE CONTRACT WITH A FRAUDULENT INTENTION; AND THE BREACH WAS ACCOMPANIED BY A FRAUDULENT ACT

– COURT FOUND THAT A JURY COULD FIND THAT SELLER HAD A FRAUDULENT INTENT WHEN HE ENTERED INTO A SALES CONTRACT DURING LISTING PERIOD W/O INFORMING THE BROKER


– BROKER: ENTITLED TO COMMISSION B/C THE1ST

SALES CONTRACT WAS SIGNED DURING LISTING

– TRIAL COURT HAD RULED THAT PURCHASE HAD TO CLOSE DURING THE LISTING PERIOD

– LISTING: “BROKER FEE SHALL BE EARNED, DUE, AND PAYABLE WHEN AN AGREEMENT TO PURCHASE, OPTION, EXCHANGE, LEASE OR TRADE IS SIGNED BY [SELLER].”

– APP. CT.: EVENTUAL BUYER SIGNED 1ST

CONTRACT IN AUG. 2005, DURING LISTING

CASE LAW UPDATE• WHEELER V. SAJOVICH, NO. 03-09-00367,

2010 WL 2540689 (TEX. APP. JUNE 23, 2010)

• A TEXAS COURT HAS CONSIDERED WHETHER A REAL ESTATE BROKER WHO HELPED HIS CLIENTS LOCATE INVESTMENT OPPORTUNITIES BREACHED HIS FIDUCIARY DUTY WHEN THE BROKER PURCHASED ONE OF THE INVESTMENT OPPORTUNITIES FOR HIS OWN ACCOUNT

CASE LAW UPDATE• WHEELER V. SAJOVICH

– QB OWNS AND OPERATES A BROKERAGE– QB ALSO SERVES AS PRESIDENT OF A

COMPANY USED TO PURCHASE PROPERTIES AT FORECLOSURE SALES (COMPANY)

– AB WORKS FOR BOTH THE BROKERAGE & CO. – INVESTOR ENTERED INTO AGREEMENT W/

BROKERAGE WHEREIN HE AGREED TO WORK EXCLUSIVELY WITH BROKERAGE, AND ACKNOWLEDGED THAT HE UNDERSTOOD THAT THE BROKERAGE WOULD OFFER THE SAME PROPERTIES TO ITS OTHER CLIENTS


• INVESTOR ALSO ENTERED INTO DEAL WITH COMPANY WHEREIN COMPANY WOULD SEND INVESTOR A LIST OF PROPERTIES FOR SALE AT FORECLOSURE AUCTIONS

• IF INVESTOR WAS INTERESTED, HE WOULD LET QB OR AB KNOW HIS MAXIMUM BID AMOUNT AND WOULD WIRE THE NECESSARY FUNDS TO COMPANY’S CLIENT ACCOUNT

• IF THE BID WAS UNSUCCESSFUL, COMPANY WOULD RETURN MONEY TO INVESTOR


• COMPANY AGREEMENT INFORMED INVESTOR THAT IT REPRESENTED MULTIPLE CLIENTS AND WOULD OFFER PROPERTIES TO OTHER CLIENTS

• AND THAT BROKER MAY BENEFIT FINANCIALLY FROM THE TRANSACTIONS, IN ADDITION TO BROKERAGE FEES THAT MIGHT BE PAID TO BROKERAGE

• OVER 3-YR PERIOD, INVESTOR BOUGHT 3 PROPERTIES THROUGH BROKERAGE/COMPANY & BID ON OTHERS

• DURING THIS PERIOD, INVESTOR’S AGREEMENT W/ BROKERAGE EXPIRED AND WAS NOT RENEWED, ALTHOUGH INVESTOR TESTIFIED THAT HE ASSUMED THE TERMS OF THE AGREEMENT REMAINED IN PLACE AND THE AB CONTINUED TO SEND HIM MLS LISTINGS


• IN 2006, AB SENT E-MAIL ABOUT A MULTI-UNIT APARTMENT BUILDING TO INVESTOR AND 20 OTHER CLIENTS. NO ONE RESPONDED TO THE E-MAIL, SO QB BEGAN INVESTIGATING THE ACQUIRING OF THE PROPERTY THROUGH THE COMPANY

• COMPANY’S OFFER WAS ACCEPTED• BROKER TESTIFIED THAT WHEN HE MADE THE OFFER,

HE DIDN’T KNOW WHERE HE’D GET CLOSING FUNDS • HE USED COMPANY CLIENT ESCROW FUND ACCOUNT

BALANCE STATEMENT TO SHOW SELLER THAT HE HAD SUFFICIENT FUNDS TO CLOSE, BUT USED CORP. FUNDS OF COMPANY FOR PURCHASE, NO CLIENT FUNDS


• INVESTOR WHO WAS OUT OF TOWN AT THE TIME THE ORIGINAL EMAIL WAS SENT BY AB CALLED AB A FEW DAYS LATER ABOUT HIS INTEREST IN THE PROPERTY. HE VISITED THE PROPERTY THE FOLLOWING WEEKEND AND THEN MET WITH THE QB

• QB PROPOSED A JOINT VENTURE WHERE INVESTOR WOULD PURCHASE THE PROPERTY FROM THE QB AND THEN CONVERT THE UNITS INTO CONDOS. THE QB TOLD INVESTOR THAT HE NEEDED A DECISION BY THE NEXT DAY


• 2 DAYS LATER, INVESTOR CALLED QB AND WANTED TO PURCHASE PROPERTY, BUT NOT UNDER TERMS DISCUSSED. QB TOLD INVESTOR THAT IT WAS TOO LATE B/C HE HAD PRESENTED THE OPPORTUNITY TO ANOTHER CLIENT. ULTIMATELY, QB HELD PROPERTY AND SOLD IT 10 MONTHS LATER FOR A PROFIT

• INVESTOR FILED A LAWSUIT AGAINST QB, AB, BROKERAGE AND COMPANY ALLEGING BREACH OF CONTRACT, BREACH OF FIDUCIARY DUTY, AND FRAUD

• DEFENDANTS FILED COUNTERCLAIMS AGAINST THE INVESTOR

• TRIAL COURT RULED FOR DEFENDANTS. INVESTOR APPEALED


• INVESTOR ARGUED THAT THE TRIAL COURT DID NOT PROPERLY ANALYZE HIS BREACH OF FIDUCIARY DUTY ALLEGATIONS AGAINST QB/BROKERAGE, AS THERE WERE FACT ISSUES TO BE CONSIDERED BY A JURY

• INVESTOR ARGUED THAT THE QB BREACHED HIS FIDUCIARY DUTY BY SECURING A BENEFIT FOR ITSELF DURING THE COURSE OF THE AGENCY RELATIONSHIP

• INVESTOR STATED THAT THE USE OF THE ESCROW STATEMENT AND FAILING TO DISCLOSE ALL NECESSARY FACTS TO HIM ABOUT THE APARTMENT BUILDING PURCHASE SUPPORTED HIS ALLEGATIONS

• WHAT DID APPELLATE COURT DO?


• AGENCY RELATIONSHIP DOES IMPOSE CERTAIN OBLIGATIONS UPON THE PARTIES, BUT COURTS ALSO LOOK TO ALL ASPECTS OF THE RELATIONSHIP TO DETERMINE WHETHER IF THERE’S A BREACH OF FD

• CONTRACT BETWEEN BROKERAGE AND INVESTOR LIMITED THE FIDUCIARY OBLIGATIONS BY DISCLOSING TO INVESTOR THAT PROPERTIES MAY BE OFFERED TO MULTIPLE INDIVIDUALS

• PROPERTY WAS ALREADY UNDER CONTRACT BEFORE INVESTOR EXPRESSED ANY INTEREST IN PURCHASING

• BROKERAGE HAD FULFILLED ITS OBLIGATIONS • AFFIRMED THE TRIAL COURT

LET’S TAKE A BREAK!

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