The Texas Real Estate Commission (TREC) does not have a specific rule explicitly mentioning "text messages" by name in its regulations. However, TREC's general requirements for brokers to retain "all records relating to a real estate transaction" under 22 Texas Administrative Code §535.2(i) and §535.156 encompass all forms of communication, including text messages, if they are used to conduct business or substantiate a transaction.

Here’s how this interpretation is derived:

1. General Record-Keeping Obligations

Texas Administrative Code (TAC) §535.2(i):

This section states:

• A broker must maintain, for at least four years, records of:

  • All real estate activities conducted by or through the broker.

  • Any communications and documents that are material to a transaction.

Material Communications Include Texts:

TREC does not limit the types of records or communications included in this obligation. Since text messages often involve transactional details (e.g., negotiation terms, contract amendments, client instructions), they are interpreted as part of the "communications" brokers are required to retain.

2. Broker Supervision and Oversight

TAC §535.156(b):

• A broker is required to provide active oversight of their sponsored agents, including ensuring that agents comply with record retention requirements.

• This responsibility implicitly includes monitoring how agents handle and archive transactional communications, including text messages.

3. Electronic Records and Substantive Communications

While TREC does not specifically call out "text messages," the use of electronic communications, such as emails and texts, is widely acknowledged as a standard method of communication in modern real estate transactions. TREC’s rules apply to all forms of communication that:

• Are part of the negotiation process.

• Include substantive transaction-related information.

For instance:

• If an agent and a client discuss a counteroffer or approval of terms via text, those messages are considered transactional and must be retained under TREC’s general record-keeping requirements.

4. Industry Standards and Guidance

TREC’s rules align with the broader legal and regulatory environment governing real estate in Texas. Brokers and agents are held to the standard of retaining "all transaction-related communications", which by industry interpretation includes text messages.

Additionally:

• Many Errors and Omissions (E&O) insurers and legal advisors recommend retaining text messages because they are often considered discoverable in legal disputes or TREC investigations.

• To ensure compliance, many brokerages proactively implement tools to archive all electronic communications, including texts.

Key Takeaway

While TREC does not explicitly name “text messages” in its record-keeping rules, its requirements under TAC §535.2(i) and §535.156 include all transaction-related records and communications. This broad interpretation encompasses text messages when they contain substantive information about a transaction.

If you'd like further confirmation or clarity, consulting a real estate attorney or directly reviewing TREC’s rules and guidance is recommended.

In Texas, real estate brokerages that fail to archive and retain transaction-related text messages risk denial of coverage under their Errors and Omissions (E&O) insurance policies. This is because E&O insurance policies typically require strict adherence to record-keeping practices and provide coverage only for claims where proper documentation supports the brokerage's defense. Below are the key risks and exclusions that could lead to a denial of coverage: 

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Texas Real Estate Brokerage E&O Risk

1. Non-Compliance with Record Retention Laws

Risk:

• Under Texas law (TAC §535.2(i)), brokers must retain transaction-related records, including communications, for at least four years. If a brokerage fails to archive text messages and this non-compliance is revealed in a claim or investigation, it can void coverage under the following grounds:

  • Failure to adhere to regulatory requirements.

  • Breach of professional standards outlined in the policy.

E&O Exclusion:

• E&O policies often exclude claims arising from illegal or non-compliant practices, including violations of record-keeping requirements.

2. Inability to Substantiate the Brokerage’s Defense

Risk:

• In disputes, text messages often provide critical evidence of:

  • Client communications.

  • Negotiation details.

  • Disclosures or approvals.

• If the brokerage cannot produce these communications because they were not archived, it may undermine its ability to defend against allegations of negligence, misrepresentation, or failure to disclose.

E&O Exclusion:

• Many E&O policies include a clause requiring the insured to cooperate fully and provide all necessary documentation to substantiate their defense. If text messages are missing, the insurer may deny coverage for failing to meet these obligations.

3. Allegations of Negligence or Misrepresentation

Risk:

• A client could allege that the brokerage failed to disclose critical information or acted negligently during a transaction. Text messages are often key to proving what was communicated and when.

• Without archived text messages, the brokerage may be unable to refute such claims, leading to a settlement or judgment against them.

E&O Exclusion:

• Insurers may deny coverage for claims where there is a failure to provide evidence that reasonable steps were taken to avoid the alleged negligence or misrepresentation.

4. Claims of Fraud or Misconduct

Risk:

• If a claim arises from a text message that is later discovered (e.g., through discovery in a lawsuit) and the brokerage failed to produce it initially, it may raise questions of concealment or bad faith.

E&O Exclusion:

• Most E&O policies exclude claims involving fraud, concealment, or intentional misconduct. Even if unintentional, the inability to produce texts may lead to suspicion of wrongdoing.

5. Failure to Meet Contractual Obligations

Risk:

• Many real estate transactions require brokers to document all communications and agreements as part of their contractual duties. Missing text message records could result in a claim for breach of contract.

E&O Exclusion:

• E&O policies often exclude claims arising from the insured's failure to fulfill contractual obligations, especially if it stems from poor record-keeping.

6. Increased Legal Costs Due to Missing Evidence

Risk:

• In litigation or mediation, the absence of archived text messages may require additional resources to recreate timelines or reconstruct missing communications.

• This can increase legal costs, which may not be fully covered by the E&O policy.

E&O Exclusion:

• Some policies limit coverage for "avoidable" legal expenses or deny coverage if the insured fails to take reasonable steps (like archiving) to mitigate risks.

7. Failure to Supervise Agents

Risk:

• Texas regulations (TAC §535.156) hold brokers responsible for supervising their agents, including ensuring compliance with record retention requirements. If an agent’s failure to retain text messages leads to a claim, the brokerage could be held liable for lack of supervision.

E&O Exclusion:

• Many E&O policies exclude claims arising from inadequate supervision of employees or agents.

Recommendations for Mitigating E&O Risks

1. Implement Text Archiving Tools:

   • Use software to automatically archive all text communications related to transactions.

   • Ensure the system is compliant with Texas’s 4-year retention requirement.

2. Establish Clear Policies:

   • Require agents to use approved methods (e.g., brokerage-provided phone numbers or apps) for all transaction-related communications.

   • Prohibit the use of personal devices for client communications unless they are part of the archiving system.

3. Train Agents and Staff:

   • Educate all agents about record-keeping obligations and E&O policy requirements.

   • Provide training on using archiving tools effectively.

4. Audit Compliance:

   • Periodically review records to ensure all transaction-related text messages are archived and accessible.

5. Document Procedures:

   • Maintain written policies and procedures demonstrating compliance efforts, which can strengthen defenses in an E&O claim.

Conclusion

Failing to archive text messages exposes Texas brokerages to significant E&O risks, including:

• Denial of claims due to non-compliance with laws or policy terms.

• Inability to defend against allegations of negligence or misrepresentation.

• Exclusions for lack of supervision or cooperation during claims investigations.

By implementing robust text archiving and compliance systems, brokerages can mitigate these risks and ensure continued E&O coverage.

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Risk Mitigation Strategies for Texas Real Estate 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.

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Memo2File is specifically designed for real estate agents and brokers to properly archive and retain text messages related to a transaction.  

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Texas Mortgage Originators

In Texas, mortgage originators are subject to federal and state laws that require the retention of communications, including text messages, if they relate to mortgage transactions or advertising. These laws are designed to ensure compliance with consumer protection standards, regulatory requirements, and transparency in the mortgage industry.

1. Federal Requirements

A. Truth in Lending Act (TILA) and Regulation Z

• Requires lenders and originators to maintain records of all loan terms and conditions provided to consumers.

• Communications, including text messages, that contain disclosures, terms, or loan conditions must be retained for at least two years under Regulation Z (12 CFR § 1026.25).

B. Real Estate Settlement Procedures Act (RESPA) and Regulation X

• RESPA mandates record retention for communications that may impact settlement services or loan servicing.

• Text messages discussing loan terms, fees, or services related to the loan transaction may fall under these requirements.

C. Gramm-Leach-Bliley Act (GLBA)

• Requires safeguarding customer information. Text messages containing personally identifiable information (PII) or sensitive financial details must be secured and retained as part of compliance.

D. Consumer Financial Protection Bureau (CFPB) Requirements

• Mortgage originators are held to strict standards for transparency and fair practices. The CFPB can audit firms to ensure compliance with federal laws, including those related to record retention and communication.

E. E-Sign Act

• The E-Sign Act permits electronic communications as part of mortgage transactions, but these communications must be retained in a manner that ensures they are accurate, accessible, and reproducible.

2. State-Level Requirements in Texas

A. Texas Secure and Fair Enforcement for Mortgage Licensing Act (Texas SAFE Act)

• Administered by the Texas Department of Savings and Mortgage Lending (SML), the SAFE Act requires licensed mortgage loan originators (MLOs) to maintain accurate records of their transactions.

• Records must include all communications, such as emails, texts, or calls, if they pertain to the origination or negotiation of mortgage loans.

B. Texas Administrative Code (TAC) Title 7, Part 4, Chapter 81

• These rules set forth detailed requirements for mortgage originators licensed under the SAFE Act. Specifically:

  • Records of all loan documentation, advertising materials, and communications must be retained for at least 3 years after the date of the transaction.

C. Advertising and Consumer Protection

• Text messages used for marketing or advertising purposes must comply with both TILA/Reg Z and state advertising standards. These communications must:

  • Include accurate and clear representations of terms.

  • Avoid misleading statements.

  • Be retained to demonstrate compliance in case of audits or investigations.

3. Retention Periods

• Federal Retention Standards: Typically 2 years for TILA/Reg Z and RESPA-related records.

• Texas-Specific Standards: Generally 3 years after the loan transaction date, per the Texas SAFE Act and TAC Chapter 81.

4. Audit and Compliance Oversight

Agencies that Audit Mortgage Originators in Texas:

1. Texas Department of Savings and Mortgage Lending (SML):

   • Conducts periodic audits of licensed MLOs to ensure compliance with state and federal laws.

2. Consumer Financial Protection Bureau (CFPB):

   • Can investigate and audit mortgage originators for compliance with federal laws, including TILA, RESPA, and GLBA.

3. State Securities Board (for certain activities):

   • Oversees compliance in cases involving financial misrepresentation or consumer fraud.

5. Importance of Text Message Archiving

Mortgage originators often use text messaging to communicate with clients, discuss loan terms, or provide updates. These messages are subject to retention if they include substantive information related to the transaction. Examples include:

• Loan rate discussions.

• Closing cost details.

• Client approvals or instructions.

Failure to retain such messages can result in:

1. Regulatory Penalties: Fines or sanctions from SML or CFPB.

2. Legal Exposure: Lack of documentation in disputes or litigation.

3. Reputational Damage: Loss of trust from consumers and partners.

6. Recommendations for Mortgage Originators

1. Adopt Archiving Solutions:

   • Use compliant archiving tools to automatically retain all electronic communications, including text messages.

2. Establish Communication Policies:

   • Implement policies requiring all transaction-related communications to be conducted via approved and archivable platforms.

3. Train Employees:

   • Ensure that staff understand the record retention requirements and use compliant tools for all client interactions.

4. Conduct Regular Audits:

   • Periodically review record-keeping practices to ensure compliance with both state and federal laws.

Summary

Mortgage originators in Texas must retain all transaction-related communications, including text messages, for at least 3 years under state law and 2 years under federal regulations. Texts discussing loan terms, client approvals, or other substantive details are considered part of the record. To ensure compliance, originators should implement robust archiving systems and adhere to clear record retention policies.  Memo2File is designed for mortgage originators to properly archive and retain text messages related to a transaction.  

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Sample: Text Archive for Real Estate