The Alabama Real Estate Commission (AREC) gathered last Thursday, January 16, for the first meeting of the year. At the meeting, commissioners discussed agency changes, approved a new administrative rule on open records requests, and heard cases, including several dealing with shortages in escrow accounts and one with improper table funding. Continue reading for highlights from the meeting.

Commissioners discussed at length a proposal from one of the commissioners related to the default position of licensees as transaction brokers. The proposal is to move the default relationship between a licensee and a consumer from a transaction broker to that of a fiduciary. Currently, the law states that a licensee is not an agent of a consumer without a written agency agreement (i.e. listing agency agreement or buyer’s agency agreement). Up until an agency agreement is signed by the parties, the licensee continues as a transaction broker by state law. Under the proposal, a licensee would be assumed to be the agent or fiduciary of the customer unless a written agreement specifies otherwise. The commissioner making the proposal explained that most customers assume this already – that a licensee represents them in a fiduciary status regardless of having a written agreement, and that this proposal would better protect consumers.

Commissioners discussed the issue at length but did not come to any decision other than agreeing to discuss the issue further. 

Commissioner approved a new rule to be proposed related to fees for records requests. Under the state Open Records Act, agencies like AREC are required to respond to and provide records to the public. The Act allows AREC to recoup costs, like printing and staff time, spent on any records request. Specifics of the rule, including the fee amount, are not currently known as the rule is not yet available for review. Stay tuned in the next month or two for additional details.

Several items of interest were reported on an administrative note. New licensee applications continue to come in at around 6 a day since the last meeting, and late renewals continue to be made. Over 37,800 unique licenses have been issued by the commission, although quite a number of these are inactive. 

Several cases before commissioners dealt with escrow accounts and resulted in stiff fines or revocation. In one case, a licensee “borrowed” money from an escrow account after money was allegedly stolen by a contractor during a rehab. The licensee used the escrow funds of other clients to finish the rehab and cover the stolen funds. A motion to revoke the licensee’s license failed, but the maximum fine of $2,500 was imposed on multiple charges and both the personal and company license. 

In another case dealing with property management, an audit revealed a shortage of over $100,000 dollars in one escrow account and an overage of $32,000 in another. Testimony revealed that much of the shortage was accounted for except for close to $4,000. The qualifying broker for the property management company testified that the accounting firm used has some issues but also could not explain the remaining shortage. Commissioners voted to revoke his license. 

Failure to properly account for money in escrow accounts is one of the frequent flyer issues heard by commissioners and one of the most likely to lead to a revocation. The best practice is for the qualifying broker to reconcile the statements of escrow accounts against the company books at least monthly. Simply having an administrator or even using an accounting firm will not protect the qualifying broker if issues arise with no real oversight.

Another case of note dealt with “table funding” of agents. Table funding is the term used when a salesperson is paid by the closing agent or attorney. As a reminder, Alabama law does not allow table funding because agents must receive commission payments directly from their qualifying broker. In the case, the qualifying broker and the company were found guilty and fined $250 each. 

The next meeting of the real estate commission will take place in Montgomery on February 20 at 9:00 am.