We missed a month of legal hotline question calls and the answers our legal team provided. Here is a very broad range of questions!
Q. Is a brokerage required to have an escrow account?
- A brokerage is only required to maintain an escrow account if they hold transaction funds. 254 CMR 3.10 requires that all money paid over to a real estate broker during the pendency of a transaction be immediately deposited in a bank escrow account, unless otherwise agreed to in writing by the parties. An escrow account is one in which the broker maintains the funds on behalf of the parties to the transaction, but has no claim to the funds. A broker holding such funds is obligated to maintain a proper accounting of all funds held and retain those records for a minimum of three (3) years.
Q. Can a real estate broker operate as the principal broker for more than one brokerage?
- Yes, an individual holding a Massachusetts Broker’s License is not restricted to working for only one broker. The single affiliation requirement contained within Mass. General Laws Chapter 112, Section 87VV only applies to individuals holding a salesperson’s license. A brokerage may, however, have an internal policy restricting the ability of affiliated brokers to work at other brokerages. Any such policies should be contained within the office policies and/or the independent contractor agreement.
Q. Can a landlord screen potential tenants based on their credit report?
- Yes, credit can be used as a screening tool with a few very important caveats. As with any other criteria used to screen prospective tenants, the requirement must be uniformly applied to all applicants. Additionally, if a landlord elects to deny an application based on credit, the applicant must be provided a Notice of Adverse Action, which can be done orally, electronically, or via hard copy. If the Notice is provided orally, as a best practice, the applicant should also be sent the Notice via email or USPS. The Notice must include the following information:
- The credit score, if it was used to make the determination;
- The name and contact information of the credit reporting agency;
- The reason(s) for the denial;
- Notice of the individual’s right to a free copy of their credit report and how to obtain a copy; and
- Notice of the individual’s right to dispute the accuracy of the information in the report.
Landlords with specific questions regarding appropriate screening policies and processes should be advised to seek independent legal counsel.
Q. Are there any limitations on the types of transactions a real estate licensee may engage in?
- Once an individual is properly licensed as either a broker or a salesperson in Massachusetts, they are legally permitted to engage in any type of real estate transaction throughout the Commonwealth. Licensees, however, may be subject to discipline under 254 CMR 3.14(e) if they assume any duties or responsibilities that they are not adequately prepared to undertake or for which they have not achieved competency. Additionally, Article 11 of the REALTOR® Code of Ethics contains a similar requirement:
REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client.
REALTORS® seeking clients in geographic areas or transaction types in which they are unfamiliar or inexperienced are well-advised to seek the assistance of their broker or another licensee who possesses the requisite skill.
Q. Can a real estate broker directly compensate a salesperson who has unaffiliated with that broker and affiliated with a new broker?
- Yes. Although Massachusetts General Laws Chapter 112, Section 87VV prohibits a salesperson from accepting “any valuable consideration for the performance of any act as a real estate salesman from any person except the broker with whom he is affiliated,” the Board of Registration for Real Estate Brokers and Salespersons has clarified the manner in which compensation may be remitted to a formerly affiliated salesperson. The former broker may distribute the commission owed to the salesperson in accordance with the contractual terms between the salesperson and the former brokerage. This underscores the importance of brokers and their affiliated salespersons entering into a comprehensive Independent Contractor Agreement, as well as a separation agreement that addresses pending transactions at the time of the salesperson’s departure from the brokerage.
Written by: Justin Davidson, General Counsel; Catherine Taylor, Associate Counsel; Jonathan Schreiber, Legislative & Regulatory Counsel; and Kate Berard, Associate Counsel.
Services provided through the Massachusetts Association of REALTORS® is intended for informational purposes and does not constitute legal advice, nor does it establish an attorney-client relationship. The Massachusetts Association of REALTORS®, by providing this service, assumes no actual or implied responsibility for any improper use of responses to questions through this service. The Massachusetts Association of REALTORS® will not be legally responsible for any potential misrepresentations or errors made by providing this service. For more information regarding these topics authorized callers should contact the MAR legal hotline at 800-370-5342 or e-mail at email@example.com.