TEXAS REAL ESTATE COMMISSIONProperty Management Issues

HB 747 Changes to the Act

§1101.002(1)(A)(x) - Definition of real estate broker now includes a person who controls the acceptance or deposit of rent from a resident of a single-family residential real property unit

•Requires a license if done for or with the expectation of receiving “valuable consideration”

•May require licensure of a property management company or division that would not have been subject to licensing under old law

•May require licensure of persons who work for licensed brokerage firms who may not have been subject to licensing requirements under old law

•On-site property managers are still exempt from licensing requirements

22 TAC §535.4

• Defines for purposes of the Act“Controls the acceptance or deposit of rent” “Single family residential property unit”

• May require a license for employees or independent contractors in a brokerage firm depending upon Who “controls” the money held for clients by the

firmWhat types of properties are managed by the firm

22 TAC §535.4

A person controls the acceptance or deposit of rent from a resident of a single-family residential real property unit and must be licensed under the Act if: The person has the authority to use the rent to pay for services related to management of the property; or The person has the authority to deposit the rent into a trust account and sign checks or withdraw money from the account

22 TAC §535.4

A single-family residential unit includes a single family home or a unit in a condominium, co-operative, row-home or townhome. The term does not include a duplex, triplex or four-plex Unless the units are owned as a condominium, cooperative, row-home or townhome.

• Bookkeepers and accountants do not need to be licensed if they collect rent but do not sign checks to service providers or clients

• If the employee/contractor handles all aspects of managing the trust account funds, i.e. “controls” the acceptance or deposit of rent, a license will be required

Effect on Brokerage Firms

Property Management RulesClarification of Existing Rules, Effective

Jan. 1, 2011

• A broker is responsible for any property management activity conducted by sponsored salespersons and for all advertising done by sponsored salespersons

• A broker must ensure that all trust accounts, including but not limited to property management trust accounts, are handled by or on behalf of the broker with appropriate controls

Property Management Rules New Rules Effective Jan. 1, 2011

• A broker must notify all parties in writing when a broker makes a disbursement to which all parties have not previously agreed in writing

• A broker may deposit and maintain additional funds in a trust account to cover bank service fees as long as detailed records are kept for any funds deposited under this exception

What does this mean for brokers?

• Brokers have always been responsible for property management activities of sponsored salespersons – the rules clarify that a salesperson cannot operate a property management company “on the side” without appropriate supervision by the sponsoring broker if what the company does requires a license

• The DBA of a property management division or group must be filed with TREC

What else does this mean for brokers?

Cont’d• All advertising and DBAs for property management businesses must comply with TREC rules

• Get parties to agree in advance that all parties to a transaction must provide written authorization for disbursement to any one party before releasing money to that party; if you disburse funds to a party without such prior authorization, you must notify all parties of the disbursement

• It is okay to keep a small amount of your own funds in a trust account to cover bank service fees with proper accounting

Existing Rules – Trust Accounts

• A broker who maintains trust funds must either keep a separate trust account or use an escrow agent

• Trust account records must be maintained for four years • Records must include a record of each deposit and

withdrawal from the account • Placing trust funds in an operating or personal account is

prima facie evidence of commingling. • If a licensee acquires ownership of money held in trust,

the money must be removed from the trust account within 30 days after the licensee acquires ownership of the money

Existing Rules – Trust Accounts

• A broker may give a salesperson signature authority on any trust account; but the broker is responsible and accountable for all trust funds received by the broker and all deposits to or disbursements from the trust account.

• A salesperson may not maintain a trust account. Any money received by a real estate salesperson that is to be held in trust must be delivered to the salesperson's sponsoring broker to be deposited according to the client’s instructions or agreement.

Existing Rules – Trust Accounts

• A broker may, but is not required to, maintain separate trust accounts for security deposits, rent, and for other trust funds.

• If a broker maintains a trust account, that account must be clearly identified as a trust account.

• If trust funds held by a broker are deposited in a non-interest bearing account, the broker is not liable for interest or for charges on the funds unless there is an agreement to the contrary.

Existing Rules – Trust Accounts

• Trust funds may be held in interest bearing accounts. In the absence of an agreement to the contrary signed by the person depositing the funds, any interest earned must be distributed to the equitable owners at the time the interest is earned.

Any Questions?