In Delaware, real estate brokers and agents must comply with record-keeping regulations set forth by the Delaware Real Estate Commission. While text messages are not specifically addressed in Delaware’s statutes, regulations require that any communication containing material information related to a transaction be retained, which can include text messages if they are relevant to the transaction. Here’s an outline of Delaware’s record retention requirements and how they apply to text messages:

1. Record Retention Requirements: According to Delaware Administrative Code Title 24, Section 2925 and Delaware Real Estate Commission regulations, real estate brokers must maintain transaction records for at least three years following the conclusion of the transaction. Required records include contracts, disclosures, agreements, and any other documentation or communications that are material to the transaction.

2. Inclusion of Text Messages: While text messages are not explicitly mentioned, Delaware’s requirements to retain “correspondence” and “communications” related to the transaction include all material information. If a text message contains transaction-related information—such as offers, client instructions, contract amendments, or negotiation details—it should be retained as part of the transaction records.

3. Electronic Communication: Delaware broadly interprets electronic communication to include emails and potentially text messages if they contain material transaction information. Therefore, text messages with important transaction details should be treated as part of the required transaction records.

4. Method of Archiving: Delaware does not mandate a specific format for archiving electronic communications, but brokers must ensure that records are secure, accessible, and retrievable for the retention period. Options for archiving text messages include printing them for physical files, saving them digitally, or using secure archiving software designed for organizing communications.

5. Consequences of Non-Compliance: Failing to retain required records, including material electronic communications, can result in disciplinary actions from the Delaware Real Estate Commission. Penalties may include fines, license suspension, or revocation.

Summary

In Delaware, real estate brokers should retain text messages containing material information related to transactions as part of their required records. These records must be preserved for a minimum of three years in a retrievable format. Including relevant text messages in record retention practices helps brokers ensure compliance with Delaware’s record-keeping regulations.

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E&O Risk

The risk to a brokerage concerning errors and omissions (E&O) insurance in relation to record retention of text messages and electronic communications is significant. E&O insurance generally provides protection against claims of negligence, misrepresentation, and failure to perform duties as expected. If a brokerage fails to archive important communications—including text messages—that document critical aspects of a real estate transaction, it can expose the brokerage to increased liability, and E&O insurance may not fully cover the consequences in certain situations. Here are key risks and considerations:

1. Potential for Gaps in Transaction Records:

   • If a brokerage does not properly archive text messages that contain vital transaction information (such as offers, counteroffers, client instructions, or contract amendments), it may create gaps in the documentation of a transaction. In a dispute, the absence of these records can weaken the brokerage's ability to defend itself and may lead to claims that cannot be fully supported or disproven.

   • If critical communications are missing, clients may allege that the brokerage acted negligently or misrepresented information, and E&O insurance may not cover claims if the brokerage did not follow industry standards for record-keeping.

2. Violation of Regulatory Requirements:

   • Most states have regulations that require brokers to retain all material records for specific periods. Failing to comply with these record-keeping regulations can lead to regulatory penalties and disciplinary actions by the state real estate commission.

   • E&O insurance often does not cover regulatory fines or penalties, meaning that the brokerage could be solely responsible for any costs incurred as a result of non-compliance.

3. Increased Likelihood of Claims Due to Incomplete Communication Records:

   • In the absence of complete and accessible records, brokerages may face higher risks of claims alleging failure to disclose, miscommunication, or misunderstanding of terms. This is particularly relevant in real estate transactions where documentation of all communications is critical to resolving any disputes that arise.

   • Without comprehensive records (including relevant text messages), brokerages may struggle to prove they acted appropriately, which can lead to larger settlements or judgments that may impact their E&O policy premiums or insurability.

4. Possible E&O Policy Exclusions:

   • Many E&O policies have exclusions related to "known wrongful acts" or "acts of intentional non-compliance." If a brokerage knowingly neglects to retain necessary records, or if record-keeping negligence is proven, E&O coverage may be limited or denied for claims resulting from this oversight.

   • Insurers may consider a failure to retain legally required records as an act outside the scope of covered professional services, thus potentially excluding coverage for claims related to missing documentation.

5. Impact on Policy Renewals and Premiums:

   • Repeated or severe claims arising from record-keeping issues can impact the brokerage's insurance premiums, making it more expensive to maintain E&O coverage.

   • If a pattern of poor documentation or non-compliance with record retention is identified, an E&O insurer may choose not to renew a brokerage's policy, forcing the brokerage to seek other (potentially more costly) insurance options.

6. Defensibility in Claims Situations:

   • Retaining text messages and other communications can be crucial in defending against claims. For instance, if a client claims that a certain promise or representation was made, well-kept records can help demonstrate what was actually communicated.

   • Without archived text messages, a brokerage may have to rely solely on testimony, which may not be as persuasive as contemporaneous written records in legal proceedings.

Risk Mitigation Strategies for Brokerages

To mitigate these risks, brokerages should:

• Establish a clear policy for retaining all relevant electronic communications, including text messages, emails, and digital correspondence, and ensure all agents are trained to comply.

• Invest in archiving technology that captures and stores electronic communications in a secure, accessible, and compliant manner.

• Regularly audit compliance with record-keeping policies to ensure agents are properly retaining required communications and that records are easily retrievable.

• Work closely with E&O providers to understand the requirements and best practices for documentation to ensure comprehensive coverage.

By maintaining thorough, organized records of all communications, including text messages, a brokerage can better protect itself against claims, demonstrate regulatory compliance, and strengthen its defensibility if claims arise, thereby optimizing its E&O insurance coverage and reducing the risk of adverse financial consequences.