Q: What transaction documents does the California Department of Real Estate (“DRE”) require the Broker to keep and for how long? Also, I like to keep my own “Agent file” with the extra copies of contracts, disclosures, and inspection reports. What are the rules regarding how long I have to keep these documents?
A: The DRE treats Brokers files differently than Agent files so the answers to your questions are not the same for the two different files.
I. BROKER FILES AND DOCUMENTS:
A. Required Transaction Documents – What Documents Agents Must Turn in to the Broker
DRE Regulation 2725 governs everything involved with Broker Supervision. That provision requires each Broker to have policies, rules and procedures in place to review, oversee, inspect and manage “documents which may have a material effect upon the rights or obligations of the parties to the transaction.”
The DRE does not have a list of required documents and the language used above does not provide much guidance. In audits and complaint investigations, DRE investigators consider a wide array of documents to be “transaction documents.” Listing Agents are required to maintain a copy of all offers presented on their listings (no matter how many they receive) and the place to maintain that documentation is in the Broker file. Conversely, if an Agent writes multiple offers for a Buyer, those offers must be turned in by the Agent and maintained by the Broker.
The best definition of what transaction documents the Agents must turn into the Broker file is the following: Anything presented to or prepared for a client regardless of whether or not the document is ever signed.
This definition would include all of the following documents which Agents must turn in to the Broker file:
- All Offers that Agents write or receive whether accepted, countered or rejected;
- All documents evidencing negotiations, including Counter Offers, Addenda, Amendments and Requests for Repairs, whether accepted, countered or rejected;
- All Listing Agreements and related documents (such as the RLA-CAA form) even if that Listing was cancelled or expired; and
- All Notices regarding a client’s rights, duties or obligations including Notices to Perform, Demands to Close Escrow and all of the PEAD forms.
B. E-Mails & Text Messages – That Agents Must Turn in to the Broker
The legal definition of the term “document” includes emails and thus the DRE considers all emails to clients, third parties (such as vendors) and other Agents that are related to the listing, buying, selling or renting of real property to be transaction documents whether on a listing, an escrow, a lease or related to offers that are written and are not accepted. Those emails that transmit transaction documents are also going to be considered “transaction documents.”
Text messages that are “non-ephemeral” must also be uploaded into the Broker file. “Ephemeral” in this context means texts that set up appointments (“see you at 11:00”) or just shoot the breeze (“Hope you are enjoying your vacation”). These texts do not need to be saved.
However, texts that provide information to or about a client that are substantive are “non-ephemeral.” Some examples of text messages that are “non-ephemeral” that need to go into the file: “Just found out the roof leaks, call me;” “We cannot get the inspector to the property before Sunday; need extension of time on contingency;” and “Escrow needs to close early to accommodate the Seller.”
C. Minimum Time Period to Retain Documents
A Broker must retain transaction documents for a minimum of 3 years (Business & Professions Code §10148): while the law only sets a minimum number of years, litigation defense attorneys usually recommend that Broker files be kept a minimum of 5 to 7 years. Each Broker must establish their own File Retention policy for how long transaction documents will be kept before they are destroyed (usually referred to as “purged”).
In the past, Brokers had based their File Retention Policy on the availability and cost of storing documents in offices or warehouse facilities. Now that the DRE allows for the electronic storage of transaction documents, Brokers may or may not want to change their existing File Retention Policy.
II. AGENT FILES AND DOCUMENTS:
There is no requirement for Agents to keep their own “Agent file” for even one day after the transaction closes or cancels. Your responsibility as an Agent is to make sure that all required transaction documents, emails and text messages have been turned into your Broker.
Although many Agents prefer to keep their own Agent file, this can be a two-edged sword. On one hand, Agents want to keep these files as a “security blanket,” feeling that if they have these files, they have documents which may later come in handy if the Broker has destroyed their files or if they have transferred to another Brokerage.
However, if those Agent files are kept, then the Agents have at least “constructive knowledge” if not “actual knowledge” of everything that is in those files. Unfortunately, in a subsequent transaction involving the same Property, too many Agents forget to pull their old Agent files and copy all of the disclosures and reports that may contain information about the value, condition, desirability, use or development of that Property. At that point, the Agents can face a fraud claim if they have not provided the new Buyer with all of those documents.
PRACTICE TIPS:
BROKERS:
- Brokers should consult with their litigation defense attorney regarding how long their attorney recommends retaining transaction files and then establish a document management policy regarding how long to keep files, and also a routine for purging old files.
- Brokers should establish an electronic filing/indexing system for keeping track of all Broker files, expired listings, and all offers which were not accepted by Sellers, with a clear indication of where to find those files.
- Because Broker files often contain personal, consumer information (FIRPTA forms and loan documents), care must be given to properly purge those files (such as with industrial shredding machines or a shredding service) so that no one can access the personal information.
AGENTS:
- At the Close of Escrow or the cancellation of every listing or transaction, Agents should be sure that all documents presented to or prepared for a client, regardless of whether or not the documents are ever signed,are turned into the Broker for filing.
- All Agents should have their clients sign or initial “Rejected” on ALL unaccepted contract documents (Offers, Counters, Addenda, Amendments Request for Repairs, etc.) and make sure those documents are sent to the Broker for filing.
- Agents who decide to keep their own Agent files should establish a filing/indexing system with a clear indication of where to find those files if the Agent lists or sells the same Property again, or to aid their attorney in response to a claim or a subpoena for records.
- If you take a listing on a Property for which you or your Broker has a file, or you represent a Buyer who is buying a Property for which you or your Broker has a file, be sure that those files are pulled and copy all disclosures, inspection reports, bids, etc., which may contain information about the value, condition, desirability, use or development of that Property. Follow your brokerage company policy for how those historical documents are to be provided to the new Buyer.
- Review your files and seriously consider destroying any personal, consumer information (such as Taxpayer Identification Numbers and Credit Card Numbers) rather than maintaining that information. That way you cannot improperly reveal personally-identifiable information.
- If, and when, agents do destroy their agent files, remember brokers and agents are subject to state and federal privacy rules and they may not just re-cycle those documents. Any files with personally-identifiable information (including addresses, phone numbers, SSN’s, credit card numbers, etc.) must be shredded, preferably with industrial shredding machines or shredding services.
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