Real Estate Brokerages

In Washington State, real estate brokerages must comply with record-keeping laws outlined in the Revised Code of Washington (RCW) and Washington Administrative Code (WAC). These laws require brokerages to maintain complete transaction records, which may include text messages if they contain material information related to real estate transactions. The Washington State Department of Licensing (DOL) oversees compliance for real estate professionals.

1. State Requirements for Record Retention

• Retention Period:

  • Under RCW 18.85.285 and WAC 308-124C-050, real estate brokers and firms must retain transaction records for at least three years from the date of the transaction's closure.

• Records to Be Retained:

  • Records that must be retained include:

    • Offers, counteroffers, and purchase agreements

    • Contracts and disclosures

    • Correspondence and communications, including electronic communications (e.g., emails and text messages), that are material to the transaction

2. Inclusion of Text Messages

• Material Communications:

  • Any text messages that include significant transaction-related information, such as:

    • Negotiations or agreements

    • Client instructions or approvals

    • Disclosures or amendments to contracts

    • Confirmation of terms or conditions

  • These messages are considered part of the transaction record and must be retained.

• Electronic Record Definition:

  • WAC 308-124C-050 specifies that electronic communications are part of the records that need to be retained, including formats like emails and text messages.

3. Methods for Archiving Text Messages

• Acceptable Archiving Practices:

  • Manual Archiving:

    • Text messages can be exported and saved in digital formats or printed and stored with transaction records.

  • Automated Tools:

    • Brokerages can use software solutions designed to capture and archive text messages automatically, ensuring compliance with retention requirements.

  • Centralized Storage:

    • All archived records, including text messages, must be stored securely and be retrievable during the retention period.

4. Regulatory Oversight and Inspection

• Inspection by the DOL:

  • The Washington DOL has the authority to audit or inspect a brokerage’s transaction records, including electronic communications like text messages, to ensure compliance.

• Secure and Accessible Records:

  • Records must be kept in a secure, organized manner that allows for easy access during audits or inspections.

5. Consequences of Non-Compliance

• Penalties:

  • Failure to retain required records, including text messages, can result in:

    • Fines or penalties

    • Suspension or revocation of a brokerage or broker license

  • Non-compliance could also expose the brokerage to liability in legal disputes if important communication records are missing.

• Increased Liability:

  • Missing text messages may make it difficult to defend against claims of negligence, misrepresentation, or failure to disclose.

6. Best Practices for Compliance

1. Develop a Policy:

   • Create a clear office policy requiring agents to retain all material communications, including text messages.

2. Use Compliance Tools:

   • Implement technology that captures and archives text messages automatically, ensuring compliance and ease of retrieval.

3. Train Agents and Staff:

   • Educate agents on what types of text messages need to be archived and how to do so correctly.

4. Audit Records:

   • Conduct regular audits to ensure that all required communications, including text messages, are being retained and archived properly.

Summary

In Washington State, real estate brokerages must retain all transaction-related communications, including text messages, for a minimum of three years. Text messages containing material information are considered part of the official transaction record under WAC 308-124C-050. Brokerages should implement robust systems and policies for capturing and archiving text messages to comply with regulatory requirements, minimize liability, and prepare for potential audits.

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Common E&O Risks Related to Failing to Archive Text Messages

1. Failure to Meet Regulatory Compliance:

   • Washington laws (WAC 308-124C-110 and RCW 18.85.275) require retaining transaction-related records for at least three years. Non-compliance could result in regulatory penalties and weaken a claim’s validity under an E&O policy.

2. Inadequate Documentation of Transactions:

   • If a dispute arises (e.g., over contractual terms or negotiations) and relevant communications like text messages are not available, it may be challenging to provide evidence to defend against the claim. This lack of documentation could be construed as negligence or failure to follow industry standards.

3. Breach of Firm Policies:

   • Many real estate firms implement policies requiring brokers to submit and archive communications related to transactions. Failure to follow these internal policies may be viewed as noncompliance, reducing the firm’s ability to defend the claim and potentially voiding E&O coverage.

Exclusions That May Lead to Denial of E&O Coverage

1. Willful Non-Compliance or Negligence:

   • If the failure to retain text messages is deemed willful or reckless, E&O policies may exclude coverage for claims arising from such acts.

2. Violation of Laws or Regulations:

   • Many E&O policies contain exclusions for claims related to violations of laws or regulations. If not archiving text messages leads to a breach of WAC 308-124C-110 or RCW 18.85.275, the insurer may deny coverage.

3. Breach of Contractual Obligations:

   • If a broker's inability to provide text records affects contractual obligations (e.g., failure to deliver agreed-upon information), the policy might exclude claims resulting from such breaches.

4. Failure to Follow Firm Guidelines:

   • E&O policies often require adherence to firm policies and procedures. Noncompliance with record-keeping policies, such as not submitting or archiving text messages, may trigger exclusions.

5. Claims Resulting from Incomplete Records:

   • If missing text messages lead to a dispute where the broker is unable to adequately defend their actions, insurers may view this as a failure to meet professional obligations, potentially excluding coverage.

Best Practices to Mitigate Risks

1. Use Archiving Solutions: Employ platforms or software that automatically archive and retain text messages for compliance with Washington law and firm policies.

2. Educate Brokers: Train brokers on the importance of retaining all communications related to transactions, including text messages.

3. Document Policies: Ensure the firm’s record retention policies align with Washington laws and E&O coverage requirements.

4. Review E&O Policy Terms: Regularly review the exclusions and conditions of your E&O policy to ensure compliance and avoid unintended lapses in coverage.

Failure to archive and retain text messages can not only result in legal or regulatory penalties but also weaken the ability to defend against claims, increasing the likelihood of coverage denial under an E&O policy.

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Sample: Text Archive for Real Estate

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In Washington State, mortgage loan originators (MLOs) and mortgage brokers are subject to both federal and state record-keeping laws. These laws require the retention of communications, including text messages, if they are material to a mortgage transaction. The Washington State Department of Financial Institutions (DFI) oversees compliance with state-specific regulations for MLOs.

1. Federal Regulations

• Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA):

  • Federal regulations require MLOs to maintain records of all material communications, including disclosures, terms, fees, and borrower interactions.

  • Records must be retained for a minimum of five years under TILA (Regulation Z) and RESPA (Regulation X).

  • Text messages containing material transaction-related information (e.g., fee disclosures, loan term discussions) are considered part of these required records.

2. Washington State Regulations

• Mortgage Broker Practices Act (MBPA):

  • Under RCW 19.146.060 and WAC 208-660-450, mortgage brokers must retain "all records related to loan transactions" for at least three years.

  • This includes:

    • Loan applications

    • Correspondence and communications, including electronic records such as emails and text messages

    • Documentation of borrower interactions that impact the loan terms or process

• Definition of Records:

  • Washington law specifically includes electronic communications as part of required records when they:

    • Include loan terms, disclosures, or conditions

    • Reflect agreements, negotiations, or material changes to the transaction

3. Archiving Text Messages

• What Must Be Retained:

  • Text messages that document:

    • Loan discussions (terms, fees, interest rates)

    • Disclosures provided to the borrower

    • Instructions, agreements, or negotiations between the borrower and the MLO

    • Any material communication that could impact the loan process

  • These must be archived as part of the transaction record.

• Acceptable Methods for Archiving:

  • Brokers and MLOs can archive text messages by:

    • Printing and storing them in the transaction file

    • Exporting them to digital formats for inclusion in electronic records

    • Using software or third-party solutions designed to capture and archive text messages securely

• Accessibility and Security:

  • Records, including text messages, must be stored securely and be accessible for inspection by the DFI for the required retention period.

4. Consequences of Non-Compliance

• Regulatory Penalties:

  • Failure to retain required records, including text messages, can result in:

    • Fines

    • Suspension or revocation of a mortgage broker or MLO license

    • Increased scrutiny or audits from the Washington DFI

• Legal Risks:

  • Missing text messages could lead to claims of non-disclosure, misrepresentation, or fraud, increasing liability exposure in consumer disputes.

5. Best Practices for Compliance

1. Adopt a Record-Keeping Policy:

   • Establish a policy requiring the retention of all material communications, including text messages, related to mortgage transactions.

2. Use Archiving Technology:

   • Implement systems or apps that automatically capture and store text messages securely for the required retention period.

3. Training and Awareness:

   • Train staff to identify which communications must be archived and how to ensure compliance.

4. Conduct Audits:

   • Regularly review transaction files to confirm all necessary communications, including text messages, are included and accessible.

Summary

In Washington State, mortgage originators are required to retain all material communications, including text messages, for a minimum of three years under state law and five years under federal law. These records are critical for compliance with the Mortgage Broker Practices Act and federal regulations. Properly archiving text messages using reliable tools and clear policies can help mortgage professionals avoid regulatory penalties and legal disputes.