The Alabama Real Estate Commission (AREC) held its monthly meeting at the University of South Alabama last week, a location originally planned for 2020 but delayed due to COVID-19. At the meeting, James “Jim” Dye was officially sworn in as commissioner for the 6^th Congressional District, bringing the Commission up to its full slate of 9 commissioners. Continue reading for an update on the rest of the meeting, including what not to do with a trust account.

License renewals ended on September 30 and almost 37,000 licenses were renewed. There were 35,253 unique, individual licenses at the time of the meeting, with 8.8 new licenses added per day in September. This continues a decline in new licenses over the last several months. Roughly 12,500 of the licenses are on inactive status.

As you know, part, if not most, of the costs of a real estate license keeps AREC in operation. This year, $6.1 million was collected by AREC, which amount will fund AREC for two years under the two-year renewal cycle.

Commissioners heard a brief update on the first meeting of the Broker Task Force. Over the last several months, we have reported on the formation of a Broker Task Force, whose main task, as stated at the meetings, was to review and make recommendations on changing the licensure requirements for brokers. According to the report last week, the first meeting was, at least in part, a discussion on the issues or questions to be addressed, and quite a few came up at the meeting. Stay tuned for more updates on the Task Force.

Commissioners heard five complaints (three of which were checks returned insufficient funds), one application for determination of licensing eligibility, one request for an extension of the deadline to apply for a salesperson license, and one hardship request for a home operation.

One complaint on misused trust account funds was particularly of note. In the case, an owner and agent of a brokerage advanced commission payments to the brokerage out of the earnest money in a brokerage’s trust account in order to pay operating expenses. The qualifying broker was unaware of the transactions since they were affected electronically. After a while, the owner then turned the accounts completely over to the qualifying broker at which point shortages in the trust account were discovered and the owner confessed. The qualifying broker made the account whole from the qualifying broker’s own funds, which were eventually repaid when the owner repaid the brokerage. Commissioners did not bring a complaint against the qualifying broker but revoked the owner’s real estate license and fined the owner $2500 (the maximum penalty by law).

While several lessons can be gleaned here, it is important to highlight that one of the worst things a licensee can do is improperly account for or use trust funds, whether earnest money, rent, or otherwise. A brokerage must have safeguards in place to ensure trust accounts are appropriately balanced. In situations like the above where multiple people have access and use of a trust account, all account holders should review monthly statements. In fact, having multiple parties review the accounts is a best practice, and a third-party audit is a good way to accomplish this. Also, do not advance commission payments out of earnest money before a deal closes!

AREC’s next meeting will be back in Montgomery on November 17 at 9 am. As usual, there will be no December meeting.