BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Document Retention by Brokers and Agents
Q: What transaction documents are required by the California Bureau of Real Estate, or CalBRE, to be kept by the broker?
Also, I always like to keep my own “agent file” with all of the extra copies of contracts, disclosures, inspection reports, etc. What are the rules on how long I have to keep these? And, is there a good general rule as to what is recommended for keeping these files?
A: There are different answers for broker files and agent files.
I. BROKER FILES AND DOCUMENTS:
A broker’s document retention requirements are set forth in CalBRE Regulation 2725 which requires 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 obligation of a broker to retain such documents and files for a minimum of 3 years is found in Business & Professions Code 10148:
“A licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction is not consummated.”
Broker documents and files can be kept in electronic form if the broker complies with the requirements of Commissioner Regulations 2729 and 2729.5.
CalBRE interprets the Code to require brokers to keep:
A. All offers, even those rejected by sellers; and,
B. All listings, even expired listings that did not sell.
While the law requires broker documents and files to be kept a minimum of 3 years, litigation defense attorneys usually recommend that they be kept a minimum of 5 years.
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. So long as your broker has all documents required by the CalBRE in her/his file, the CalBRE requirements are met.
So, assuming an agent has made sure that all documents that meet the above requirement are in the broker file, along with any additional documents that the broker may require, then agents do not need to keep a separate file.
While many agents prefer to keep an 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 after three years, or if they have left that broker and are now working at another brokerage.
However, there can be problems when an agent keeps his/her own agent files. With such files, agents arguably have at least “constructive knowledge” of what is in all of those files. Unfortunately, in a subsequent transaction involving a property, all too many agents forget to look in their agent files to find and give to buyers all disclosures, inspection reports, etc., that may have information affecting the value, condition or desirability of the property.
If a claim is made, it is common practice for attorneys to issue a subpoena for records of ALL broker/agent files related to that property. This means that the agent file will likewise have to be produced pursuant to the subpoena. If there are disclosures or reports in that agent file which were not given to the buyer in the transaction which is the subject of the claim, then the attorney for the buyer will allege a failure to disclose, or even an intentional failure to disclose which may not be covered by the broker’s E&O insurance.
PRACTICE TIPS:
BROKERS
1. Brokers should consult with their litigation defense attorney regarding how long their attorney recommends retaining broker files. Some litigation counsel will recommend longer than 5 years now because the cost of keeping electronic files is significantly less than paper files.
2. Brokers should establish a document management policy regarding how long to keep files, and also a routine for purging old files.
3. Brokers should set of a filing/indexing system for keeping all expired listings, and all offers which were not accepted by sellers.
AGENTS:
4. Listing agents should have all sellers sign or initial “Rejected” on ALL unaccepted contract offers and return them to the broker for filing.
5. At the close or cancellation of every transaction, agents should be sure that all documents required by the CalBRE and the broker are in the broker file.
6. Legally there is no need for agents to keep a separate agent file.
7. If an agent does decide to keep their own agent files, the files should be indexed so all files related to any property can be readily located.
8. If an agent does keep a file, it is best not to keep disclosures and inspection reports. If an agent forgets to check old files when involved with a property a second time, and later there is a claim and all files are subpoenaed, these old disclosures and reports could be the basis for a failure to disclose claim against the agent and the broker.
9. If you take a listing on a property for which you have an agent file, or you represent a buyer who ratifies a contract on such a property, be sure to pull all related broker and agent files and copy all disclosures, inspection reports, bids, etc., which may affect the value or desirability of the property and provide them to the buyer’s agent if you are the listing agent; or directly to the buyer if you are the buyer’s agent.
10. In providing the above information, agents should include a cover sheet identifying the documents being transmitted by name, date and number of pages; along with an explanation that these are historical documents from a prior transaction and may not reflect the current condition of the property, and are not a substitute for buyer’s own inspection and investigations of the property.
11. Do not disclose personal information of the clients in prior transactions, such as a FIRPTA Seller Affidavit with seller’s social security number. If in doubt, check with your broker.
12. Agents should ask themselves whether keeping a separate agent file is worth the extra work and potential concerns outlined above.
13. 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.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2016 06/03/16