In Florida, real estate brokers and agents are required to follow record-keeping regulations set by the Florida Real Estate Commission (FREC) and governed by Florida statutes. While text messages are not explicitly mentioned in Florida law, electronic communications that are material to real estate transactions may need to be retained, which can include text messages when they contain relevant transaction details. Here’s how Florida’s record retention laws apply to text messages:

1. Record Retention Requirements: According to Florida Administrative Code Rule 61J2-14.012 and Florida Statutes § 475.5015, real estate brokers must retain transaction-related records for at least five years after the transaction’s conclusion. This includes contracts, agreements, disclosures, and other documents that are material to the transaction.

2. Inclusion of Text Messages: Although not explicitly stated, Florida law requires brokers to retain “correspondence” and “communications” that are material to a transaction. Text messages containing significant transaction-related information—such as offers, counteroffers, client instructions, and contract amendments—should be considered part of the transaction records and retained.

3. Electronic Communication: The Florida Real Estate Commission broadly interprets electronic communications, generally including emails and possibly text messages when they contain material information related to a transaction. Brokers are encouraged to treat relevant text messages as part of their transaction record.

4. Method of Archiving: Florida law does not prescribe a specific method for storing electronic communications, but brokers must ensure that records are accessible and retrievable throughout the retention period. Brokers may archive text messages by printing them, saving them in digital form, or using software designed for secure, organized record-keeping of electronic communications.

5. Consequences of Non-Compliance: Failure to retain required records, including relevant electronic communications, may result in disciplinary actions by the Florida Real Estate Commission. Penalties for non-compliance can include fines, license suspension, or revocation.

Summary

In Florida, real estate brokers should retain text messages that contain material information about a transaction as part of their required records. These records must be kept for a minimum of five years in a retrievable format. Including pertinent text messages in record-keeping practices helps ensure compliance with Florida’s real estate transaction record retention laws.

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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.