In Tennessee, real estate agents and brokers must comply with record-keeping requirements set by the Tennessee Real Estate Commission (TREC). While text messages are not explicitly mentioned in Tennessee statutes or TREC rules, communications material to a real estate transaction—including text messages—are generally understood to fall under these requirements. Below is an overview of Tennessee's laws and their implications for archiving text messages:

1. Record Retention Requirements

• Under Tennessee Code Annotated § 62-13-312 and TREC regulations, brokers must retain transaction records for three years from the date of the transaction’s conclusion.

• Required records include contracts, offers, agreements, disclosures, and any communications that are material to the transaction.

2. Inclusion of Text Messages

• TREC rules require brokers to retain "all correspondence and communication" relevant to a real estate transaction. Text messages may fall under this category if they document:

  • Offers and counteroffers

  • Negotiation details

  • Amendments to agreements or contracts

  • Client instructions or approvals

  • Any other significant transaction-related information

• Text messages that pertain to material aspects of a transaction should be treated as part of the required documentation.

3. Electronic Communication

• TREC recognizes electronic communications (e.g., emails) as part of the records that must be retained. By extension, text messages are considered electronic records if they are used for business purposes.

• Brokers and agents should ensure text messages containing transaction-related details are archived in the same manner as other correspondence.

4. Method of Archiving

• Tennessee law does not mandate a specific method for archiving electronic communications, but brokers must ensure records are complete, secure, and retrievable for the entire retention period.

• Options for archiving text messages include:

  • Printing and storing text conversations with transaction files

  • Exporting text messages to digital formats for electronic storage

  • Utilizing software solutions designed to capture and securely store text messages for compliance purposes

5. Consequences of Non-Compliance

• Failure to retain required records, including relevant text messages, can lead to disciplinary action by TREC, such as:

  • Fines

  • Suspension or revocation of the broker’s license

• Missing records can also increase liability in disputes or legal claims, as incomplete documentation may hinder a broker's ability to defend their actions.

6. Best Practices for Compliance

• Establish clear office policies requiring agents to retain all transaction-related communications, including text messages.

• Use platforms or tools that automatically archive text messages exchanged with clients.

• Regularly audit transaction files to ensure all relevant records, including electronic communications, are included and properly stored.

Summary

In Tennessee, real estate brokers are required to retain all material communications, including text messages, for a minimum of three years. While not explicitly mentioned, text messages containing significant transaction details should be archived to ensure compliance with TREC rules. Implementing reliable systems for text message retention reduces regulatory risks and enhances legal protection.

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E&O Risk

Errors and Omissions (E&O) insurance is designed to protect real estate professionals from claims alleging negligence, errors, or failure to perform professional duties. Failing to properly archive text messages related to real estate transactions introduces several E&O risks, including:

1. Inadequate Documentation

• Risk: Missing or incomplete records can lead to claims that an agent or broker failed to disclose material information, misrepresented facts, or did not follow client instructions.

• E&O Implication: Without archived text messages to demonstrate compliance, agents and brokers may be unable to defend against claims, increasing the likelihood of a settlement or judgment against them.

2. Non-Compliance with Regulatory Requirements

• Risk: Real estate commissions often require brokers to retain all communications material to a transaction. Failure to retain text messages may result in regulatory violations.

• E&O Implication: A regulatory investigation triggered by missing documentation can lead to penalties and may result in higher E&O premiums or difficulty renewing coverage.

3. Disputed Agreements or Instructions

• Risk: Text messages often include verbal agreements or informal instructions from clients. If these are not archived, disputes may arise about what was agreed upon or communicated.

• E&O Implication: Claims of misunderstanding or failure to follow instructions can lead to costly litigation if text messages that support the agent’s position are not available.

4. Claims of Negligence or Fraud

• Risk: Plaintiffs may allege that important details were communicated via text and then ignored, misrepresented, or mishandled.

• E&O Implication: Missing texts could suggest negligence, incompetence, or even fraudulent intent, exposing the broker or agent to liability.

5. Third-Party Communication Risks

• Risk: Texts exchanged with third parties (e.g., contractors, inspectors, or other agents) often involve critical transaction details. Failure to document these interactions can lead to disputes if issues arise from the transaction.

• E&O Implication: Lack of records can lead to shared or sole liability in disputes with third parties.

6. Inconsistent Policies and Procedures

• Risk: If a brokerage lacks clear policies on retaining text messages, agents may selectively or inconsistently document communications.

• E&O Implication: Inconsistent documentation can undermine a defense against claims and expose the brokerage to liability for failure to maintain adequate records.

Mitigating E&O Risks

1. Adopt Clear Communication Policies:

   • Require agents to conduct all transaction-related communications through systems that allow for archiving.

   • Establish clear guidelines for saving and retaining text messages.

2. Use Technology to Archive Text Messages:

   • Implement tools or apps designed to capture and store text messages automatically such as Memo2File.

3. Train Agents:

   • Educate agents about the importance of archiving all material communications, including text messages, and how to use archiving tools.

4. Perform Regular Audits:

   • Periodically review transaction files to ensure all required communications, including texts, are properly archived.

5. Consult E&O Providers:

   • Work with your E&O insurance carrier to understand coverage limitations and requirements for maintaining transaction records.

Summary

Failing to properly archive text messages exposes real estate agents and brokers to E&O risks, including regulatory penalties, litigation, and increased insurance costs. Implementing robust policies and tools for capturing and retaining all material communications is critical to mitigating these risks and ensuring compliance with industry standards.