Four times a year, the WRA sends out a Department of Safety and Professional Services (DSPS) Report informing you of the regulatory activities affecting your practice. DSPS Report information includes details as to impending form changes, administrative code revisions, DSPS’ implementation of legislative changes, and recent disciplinary actions of the Real Estate Examining Board (REEB).
All real estate licensees are subject to discipline by the REEB as well as litigation. REALTOR® members, however, have chosen to hold themselves to a higher standard by agreeing to honor the REALTOR® Code of Ethics when they join the REALTOR® family.
The following are a few examples of recent DSPS disciplinary cases as well as the possible Code of Ethics violation that may have occurred based on the DSPS disciplinary facts.
While some of the examples are likely situations where your moral compass would have steered you differently, others are good reminders of how important it is that as REALTORS® you dot your proverbial “I”s and cross those “T”s.
Diverting trust account funds
Facts: A broker-employer assigned a salesperson to provide bookkeeping services for a property management business. An audit performed by the DSPS identified deficiencies in bookkeeping and a shortfall in the trust accounts maintained. The salesperson had signatory authority for the trust account, which was established to hold rents and security deposits of renters on behalf of the owners of the managed property. The broker-employer later noticed funds missing from the trust account along with unpaid bills for the property. The salesperson diverted funds from the trust account without authority.
Violations: Wis. Admin. Code § REEB 24.03(2)(b) by failing to act to protect the public against fraud, misrepresentation and unethical practices.
Discipline: The board accepted the salesperson’s voluntary surrender of her right to renew her salesperson license. If she wishes to reinstate her license, she may not do so prior to five years from the date of the order and shall submit a new application for licensure. She was ordered to pay $344.00 if she ever seeks to reinstate her license or applies for any other credential regulated by the DSPS.
Possible REALTOR® Code of Ethics Violation: Article 8 (Realtors® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients’ monies, and other like items.)
Buyer access to property without escort
Facts: A broker represented a buyer in an offer to purchase a two-unit rental property. The seller attached a lockbox that contained keys to both apartments: to the upstairs unit for sale as well as the downstairs unit. The seller informed all parties that any buyer must be escorted at all times while on the premises. One day, the broker left the lockbox open to allow the buyer access to the property without an escort. By leaving the lockbox open, the broker also exposed the keys to the property’s lower unit, potentially endangering that unit’s resident.
Violations: Wis. Stat. § 452.133(l)(b) by failing to provide brokerage services with reasonable skill and care.
Discipline: The broker’s license was limited to the following parameters:
- Within 90 days, the broker must successfully complete courses in the topics of property management and ethics offered by a provider pre-approved by the board, including taking and passing any exam offered for the courses.
- The broker must submit proof of successful completion of the ordered education by submitting verification from the institution providing the education.
- The license limitations will be removed and a full, unrestricted license will be granted after satisfying the order.
- Within 90 days, the broker had to pay $500 and costs in the amount of $345.
Possible REALTOR® Code of Ethics Violation: Article 11 (The services which Realtors® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably 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. Realtors® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.)
White collar crime
Facts: The broker in question was first issued his license in 1982. In 2006, a seller entered into a WB-6 Business Listing Contract-Exclusive Right to Sell with the broker for the sale of a business, and the contract was subsequently extended on multiple occasions.
In 2008, the broker indicated that he had a buyer — Scott Lenz and/or Hwy 55 Used Truck Sales LLC — for the business, but that the buyer needed assistance with a down payment. The broker asked the seller if he would advance a down payment to the buyer. The seller thereafter issued a check from the business account in the amount of $75,000. The check was made out to “Wi Realestate” with a memo of “closing expense.” The check was to serve as an advance on closing to provide a method for the buyer to have a down payment on the purchase of the business and residence. The broker endorsed the check and deposited it into his business account at the State Bank of Chilton.
The next year, the broker again noted that the buyer needed additional money for a down payment, and the seller issued a check from the business account in the amount of $35,000 to “Wi Realestate” with a memo of “business sale.” The broker endorsed the check and deposited it into his business account at the State Bank of Chilton.
The transaction failed to close, and the broker informed the seller that the money was invested in an account with Bank of America, and the seller requested a return of the money. The following month, the seller received a bankruptcy notice from the broker.
Upon further investigation, the local sheriff’s department was unable to locate any company named “Hwy 55 Used Truck Sales LLC” or any interested buyer named “Scott Lenz.” A review of the broker’s numerous bank accounts revealed that he never placed the seller’s money into his real estate trust account and instead used it for personal matters.
A different seller later entered into a listing contract with the broker for the sale of commercial property. Between June and September 2009, the seller issued three checks from his business account, totaling $80,000, to the broker’s company. The purpose of these funds was to provide a potential buyer with a cash incentive to make an offer to purchase the property. Those three checks were endorsed by the broker and deposited into his business account at the State Bank of Chilton.
The property did not sell, but the broker did not return the $80,000 to the seller. In November 2013, the broker was charged with two counts of felony theft business setting. In December 2013, the broker informed the DSPS that he was still practicing real estate and had an active listing.
Violations: The broker violated the following:
- Wis. Stat. § 452.13(2)(c) and Wis. Admin. Code § REEB 18.031(3)(a) by failing to deposit client funds in an interest-bearing common trust account.
- Wis. Stat. § 452.133(1)(f) by failing to safeguard trust funds held by the broker.
- Wis. Stat. § 452.133(1)(a) by failing to provide brokerage services honestly and fairly.
- 452.133(2)(a)1 by failing to place his client’s interests ahead of his own.
- Wis. Stat. § 452.133(3)(b) by acting in a transaction on his own behalf, and (6) Wis. Admin. Code § REEB 24.03(2)(b) by failing to protect the public against fraud, misrepresentation and unethical practices.
Discipline: The broker’s right to renew his broker license was revoked. While the license was expired, the board determined it was appropriate and necessary to impose discipline and to revoke the right to renew his license. The broker is also responsible for the $4,801.98 administrative hearing cost.
Possible REALTOR® Code of Ethics Violations:
Article 1 (When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non- agency capacity, Realtors® remain obligated to treat all parties honestly. (Amended 1/01)
Article 8 (Realtors® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients’ monies, and other like items.)
Article 11 The services which Realtors® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably 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. Realtors® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.)
Write it down
Facts: The broker’s license was first issued on August 17, 1993, and current through December 14, 2014. In 2011, the broker entered into a WB-36 Buyer Agency/Tenant Representation Agreement with a buyer. The agreement specified the broker was to negotiate the procurement of a property known as Plainfield Truck Stop on the buyer’s behalf. The buyer paid the broker $70,000 to be deposited into the broker’s trust account for the purchase of the truck stop. Later in the year, the broker transferred ownership of the truck stop from the broker’s trust account to another entity — of which the broker was a part owner. The broker failed to put any agreements other than the WB-36 Buyer Agency/Tenant Representation Agreement in writing.
Violations: The broker violated the following:
- Wis. Stat. § 452.133(1)(b) by failing to provide brokerage services with reasonable skill and care.
- Wis. Stat. § 452.133(2)(c) by failing to fulfill an obligation required by the agency agreement.
- Wis. Admin. Code § REEB 24.08 by failing to put all financial obligations and any other commitments regarding transactions in writing.
Discipline: Within 90 days, the broker shall successfully complete six hours of education in the topics of business ethics and consumer protection offered by a provider pre-approved by the board’s monitoring liaison, including taking and passing any exam offered for the courses and pay costs in the amount of $690.
Possible REALTOR® Code of Ethics Violations:
Article 9 (Realtors®, for the protection of all parties, shall assure whenever possible that all agreements related to real estate transactions including, but not limited to, listing and representation agreements, purchase contracts, and leases are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing. (Amended 1/04)
Article 11 (The services which Realtors® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably 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. Realtors® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.)
Resources
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.