Legal FAQs for REALTORS®
Brokerage Liability Issues

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Legal disclaimer

Is the legal fund ever used for purposes not directly related to REALTORS®? (updated Nov. 1, 2002)

Very rarely. Ultimately, the board of directors must make a determination if the use of the Legal Fund satisfies the purposes and intent of the fund. Persons who are not members of the REALTOR® organization have asked TAR to file amicus briefs in cases in which no REALTOR® is involved. For example, litigants in one case involving antitrust issues asked the association to file briefs with the court. In another case, litigants in a city-zoning dispute asked the Texas Association of REALTORS® to file briefs with the court. After careful review, the board of directors chose not to file the requested briefs. However, the fund has been used to pay for expenses in filing briefs in cases involving homestead issues (as discussed above), contractual issues and other issues. It has also been used to fund the filing of analyses and comments before governmental agencies. In each of these cases, the board of directors determined that there was a significance to REALTORS® as a class.

Is it difficult for a Texas REALTOR® to obtain assistance from the legal fund? (updated Nov. 1, 2002)

There is a formal application and certification that an applicant, or his attorney, must complete. The application is submitted to the applicant’s local association for review. The local association may forward the application to the Texas Association of REALTORS® Legal Review Committee recommending that the application be approved, or it may deny the application and return it to the applicant. The Legal Review Committee, in turn, makes a recommendation to the Texas Association of REALTORS® Board of Directors either to approve or deny the application. Probably, the most crucial requirement to satisfy in the application process is that the case must be of significance to REALTORS® as a class or the real estate industry as a whole.

What kind of cases or actions has the Texas Association of REALTORS® Legal Fund been used for in the past? (updated Nov. 1, 2002)

Every six months, the Texas Association of REALTORS® Legal Review Committee reviews applications and requests for funding from the Legal Fund from Texas REALTORS® and litigants involving cases that significantly affect the entire real estate industry. A brief summary of three recent cases is noted below. Case 1: A REALTOR® was sued by a buyer who alleged the agent failed to properly advise him that the property lay near an environmentally contaminated site. At the time of the contract, the agent provided the buyer with a detailed written statement (signed by the buyer) about the toxic dangers and health hazards posed to residents of the subdivision, since it was known that a nearby site was environmentally contaminated. The REALTOR®'s errors-and-omissions insurance carrier refused coverage on the basis that the claim involved bodily injury that was excepted from the policy. The buyers originally alleged damages in excess of $30 million. The legal fund assisted the defendant in resolving the case favorably. Case 2: The association filed an amicus brief in an Austin case in which a savings and loan association filed suit against the attorney general of Texas, arguing that federal regulations preempted the Texas Constitution regarding its homestead protection. The Austin Federal District Court disregarded the savings and loan’s claims and upheld the Texas Constitution. The Fifth Circuit Court of Appeals reversed and held that the Texas Constitution had been superseded. The case was ultimately moot as a result of Congressional action initiated by Rep. Gonzales of San Antonio that amended the Home Owner Loan Act so that it was clear that Congress did not intend to supersede the Texas Constitution. Through the Legal Fund, the Texas Association of REALTORS® was able to monitor and participate in the action. Case 3: A REALTOR® was sued by a buyer alleging that the agent did not disclose that the property lay in a flood-prone area or that the property had previously flooded. The buyer purchased the property under an assumption and refinanced the lien six months after closing. At the time of the purchase, flood maps for the area showed the property not to lie in a flood hazard area. About a month after closing, the flood maps were revised and included the property in a flood hazard area. At the time of the refinance a survey incorrectly stated that the property did not lie in a flood hazard area. Three years after the purchase, the property flooded and the buyers then learned that the property had previously flooded. The case proceeded to a jury which found for the defendant REALTOR®. The Legal Fund was able to assist the REALTOR® in defeating the unfounded claim.

What is the purpose of the legal fund? (updated Nov. 1, 2002)

The Legal Fund is used for a number of expressed purposes: 1. Helping Texas REALTORS® understand their legal rights and duties under law 2. Providing legal assistance for matters pending in court or governmental agencies 3. Defraying all or a portion of legal expenses for pending litigation in which a member is a party 4. Defraying legal expenses for cases in which the association intervenes or files briefs as a friend of the court 5. Monitoring and participating in the actions of governmental agencies 6. Reimbursing travel expenses of Texas REALTORS® who participate in form-development task forces

What is the Texas Association of REALTORS® Legal Fund? (updated Nov. 1, 2002)

The Texas Association of REALTORS® Legal Fund is maintained by the association through the oversight of the Legal Review Committee. The fund is used only for purposes authorized by the Texas Association of REALTORS® Board of Directors and may only be accessed by REALTORS® through a formal application process. It is primarily reserved for paying the legal expenses of cases that are significant to Texas REALTORS® as a class or the real estate industry.

Are there any additional restrictions or limitations for access to the legal fund? (updated Nov. 1, 2002)

The rules and regulations of the legal fund set forth specifically all of the application procedures and the requirements that must be met before assistance from the legal fund may be authorized. For copies of the procedures or applications, contact the Legal Affairs Department.

Do I have to check the National Do Not Call Registry before soliciting listings of those who have a for sale by owner sign in their yard or sellers with expired listings in the MLS? (Updated Sept. 22, 2014)

Yes. You should check the do-not-call list before soliciting such listings to avoid violating the law.

There is an exception to the do-not-call rules: If you have a prior business relationship with the owner that ended within 18 months, you can call him. This exception does not apply if the owner has asked your company to place his number on the company do-not-call list.

There are no do-not-knock or do-not-mail laws that would prohibit these methods of soliciting business, so you could consider sending a nicely worded letter to the owner or making a personal visit to the home.

One of the agents I sponsor wants to also work part time selling homes for a local home builder. Are there any risks I should be aware of before agreeing to this? (Updated April 4, 2014)

You should consult an attorney regarding the risks involved and how to protect yourself from liability before agreeing to this situation.

A person employed by a builder to sell the builder’s homes is exempt from the Real Estate License Act. If he were working exclusively for the builder, he would be exempt from the act and you would not be responsible for his activities. However, while working as a salesperson under you as his sponsoring broker, he is covered by the provisions of the act and you are responsible for his real estate-related activities. This includes possible civil liability for negligent or other inappropriate activities.

One risk you face is that the lines of activities, duties, and responsibilities between the two positions can become blurred, especially to a buyer. Things such as car signs, business cards, and client referrals could lead a buyer to believe that your agent was acting as a real estate salesperson while working for the builder. A court or TREC hearing officer might reach the same conclusion and assess liability or responsibility on the broker.

Is the legal fund like an errors and omissions insurance policy? (updated Nov. 1, 2002)

No. The legal fund is not a substitute for errors-and-omissions insurance. The Texas Association of REALTORS® strongly encourages members to maintain E&O insurance. There are many lawsuits in which a Texas REALTOR® may be involved that are not significant to Texas REALTORS® or the real estate industry as a whole. In fact, the Legal Review Committee recommends that a number of applications be denied each year.

Can a lender advertise on my website? (Updated Sept. 22, 2014)

Yes, as long as you follow the rules set out in the Real Estate Settlement Procedures Act (RESPA). These rules come into play any time that a real estate broker in a position to refer mortgage business to a lender is paid a “thing of value” by the lender.

A broker may charge a lender a flat fee to place the lender’s banner ads or hyperlinks on the broker’s website, but the payment must be reasonable and commensurate with the value of the service. Some brokers charge a small fee every time someone clicks through to the lender’s website. This appears permissible under RESPA guidelines as long as the fee is minimal and not tied to whether that click results in a loan.

A transactionally based fee is prohibited by RESPA. For example, a broker could not charge the lender a fee for every click that results in a closed loan.

Is the legal fund the same as the recovery fund? (updated Nov. 1, 2002)

No. The Real Estate Recovery Fund is a fund created by the Real Estate License Act that is maintained by the Texas Real Estate Commission (the state agency regulating Texas real estate brokers and salesmen). The Recovery Fund is funded by a $10 fee paid with every broker’s or salesman’s original license application. The recovery fund is a state-run consumer protection fund used to reimburse aggrieved persons who suffer actual damages by reasons of certain acts committed by brokers, salesmen, or their unlicensed employees or agents. A number of statutory elements must be satisfied by the consumer before he can file a claim for payment out of the recovery fund, including first obtaining a judgment against the broker or salesman that is not satisfied.

The Residential Lease Application states that our company must make our office privacy policy available to rental applicants upon request. Where can we find information about what we should include in our privacy policy? (updated March 31, 2014)

The Texas Association of REALTORS® created a model privacy policy to help you develop your office's policy about the maintenance and destruction of customers' and clients' personal information. Download a PDF of the Model Privacy Policy just for Texas REALTORS® from the Risk-Reduction Tools page

How can I help make clear to the IRS that my agents are independent contractors, not employees? (updated Dec. 9, 2014)

One way you can do this is by using the Independent Contractor Agreement for Sales Associate (TAR 2301) and the Statement of Understanding (TAR 2302). The independent contractor agreement formally defines the obligations and rights of a broker and an agent and outlines provisions that make it clear the agent is not an employee.

The Statement of Understanding contains statements, agreed to by the agent, which would help confirm the existence of an independent contractor relationship under the law. It should be completed annually to reaffirm the relationship that exists between you and your agents.

Brokers who carefully maintain independent contractor relationships and follow the terms of the agreement can reduce their risk of the IRS, the Texas Workforce Commission, or other government agencies asserting that there are employer-employee laws applicable to the relationship. While a written independent contractor agreement and statement of understanding are not required by law to establish and maintain an independent contractor relationship, it’s a good idea for brokers to use both. Records that include the independent contractor agreement and annual statements of understanding would provide persuasive evidence about the nature of the relationship between the parties.

Can a brokerage allow a mortgage company to sponsor a luncheon that offers CE for its agents? (updated March 23, 2015)

It depends. A mortgage company or title company sponsoring an educational event to promote its services can do so as long as the cost associated with the event doesn’t cover any of the agents’ other expenses they would otherwise have to pay, such as the cost of the CE credit. The mortgage company can’t sponsor the luncheon on the condition that it will receive referrals, either. And the company must promote its services during the event to qualify for the Real Estate Settlement Procedures Act (RESPA) advertising exemption.

I know that Texas Real Estate Commission rules require a broker to maintain written policies and procedures for the broker’s sponsored salespersons. I recently got my broker’s license, but I don’t sponsor any agents. Am I still required to have a manual? (Updated June 5, 2015)

No. The Texas Real Estate Commission recently adopted a clarification to the TREC rule regarding the requirement for a broker to maintain a written policies and procedures manual. Now it is clear that only a broker who sponsors salespersons or who is a designated broker for a business entity must maintain up-to-date written policies and procedures. A broker who sponsors salespersons is subject to this rule regardless of how long the broker sponsors the salespersons. A broker who is the designated broker for a business entity is subject to this rule whether or not the business entity sponsors salespersons. 

Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on Any legal or other information found here, on, or at other sites to which we link, should be verified before it is relied upon.

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