Do you know the answers to our top Legal Hotline questions?

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IAR gets calls all the time on its Legal Hotline asking for guidance on real estate issues. We asked Legal Hotline attorney Betsy Urbance to share with us the top questions and answers from the third quarter. Test your real estate knowledge below.

Scope of Real Estate License

Q.  Is it legal for me to pay referral fees to unlicensed individuals for ­referring real estate sellers or buyers to me?

A.  No. Generally speaking, you cannot pay anything of value to an unlicensed ­person in exchange for referring real estate brokerage business to you.

If you are licensed, the Illinois Real Estate License Act (the Act) applies to you. Section 10-15(a) says “no compensation may be paid to any unlicensed person in ­exchange for the ­person performing ­licensed activities in ­violation of this Act.” Section 1-10 of the Act, under the definition of ­Broker, says a person who assists in “procuring or referring of leads or prospects, intended to result in the sale, exchange, lease or rental of real ­estate” for another and for compensation, needs a real estate license. Finally, ­Section 20-20(a) (38) says licensees who pay compensation in violation of ­Section 10-15 will be subject to discipline.

The bottom line is real estate licensees may not pay unlicensed people (who are not party to the transactions) anything of value in exchange for a real estate referral.  If you do, you can get in trouble. Also, keep in mind that compensation can be anything of value, from cash to ­televisions to baseball tickets.

Purchase Contract

Q.  How should I handle multiple offer presentations, and how can I be sure my offer is presented if I am the buyer’s agent?

A.  The License Act and the Code of Ethics require licensees to present all offers as soon as practicable, unless sellers waive the right to see them. Above all, the bottom line for the listing agent is to keep the seller client informed and follow the seller’s lawful direction.

  • Offers must be presented in a manner that are in the seller-clients’ best interest. But agents aren’t legally required to share offers with seller-clients in the same order they’re received.
  • If possible, listing agents should present all offers at the same time.
  • Agents aren’t legally required to disclose to all other buyers that there are other offers.  Agents should consult with seller clients about offers on the table and check their office policies. The REALTOR® Code of Ethics, Standard of Practice 1-15, requires REALTORS® to divulge the existence of offers on the property as long as the seller clients approve.
  • After considering all terms of each offer, it is the seller’s decision to reject, counter or accept.
  • With regard to assuring the offer is presented, model MLS rules give the buyer’s agents the right to attend presentations of their clients’ offers unless sellers object in writing. Buyer representatives may then ask to see copies of sellers’ written objections. Buyer representatives do not have the right to be present during discussions about offers. (Check local MLS rules for similar provisions.  Note: As a practical matter, this rule is not likely to be invoked, but it is probably in your MLS rules.)

Agency

Q.  What can be done in situations where listing agents have bank-owned properties (lenders get properties back through foreclosure) and listing agents are non-responsive to buyer clients’ offers?  May I go around the listing agents and work directly with the sellers?

A. No, it is not legal for you to “go around” listing agents and work directly with sellers. The Illinois Real Estate License Act (the Act) requires licensees to deal through exclusive listing agents. So you may not go directly to sellers without consent from listing agents. On the other hand, the Act does not apply to unlicensed buyers who can go directly to sellers to make sure their offers have been received. We typically do not know how sellers are directing listing agents to proceed with offers that come in.  Listing agents have a duty to present all offers to the sellers until closing, unless seller clients are directed otherwise.

If listing agents seem unresponsive, you can contact managing brokers for status reports on your buyers’ offers.  Or you could ask for something in writing signed by the sellers. However, keep in mind that sellers of foreclosed properties might not be willing to sign anything to prove offers are received or considered.  I encourage listing agents to communicate with buyers’ agents to at least describe the procedures listing agents are following in presenting offers to the seller clients.

If you have proof that listing agents are stonewalling, you should file a ­complaint at the Illinois Department of Financial and Professional Regulation’s Division of Real Estate (DRE).  When listing agents are REALTORS®, you can also file ethics complaints with local associations.  Use the processes in place to encourage others to follow the rules and comply with the Act.

Disclosure of Defects

Q.  Was there a recent change made to the Illinois Residential Real Property Disclosure Act?

A.  Yes.  Effective Jan. 1, 2015, PA-98-0754 adds the words “windows” and “doors” to question #6 on the Illinois Residential Real Property Disclosure Form.  These changes are the result of a case where the court held that leaking windows and doors were not included in the definition of walls, and thus the seller had no obligation to disclose defective conditions involving windows and doors.  PA 98-0754 fixes this issue.

IAR legal team expands to offer Transaction Helpline

Jeffrey T. Baker

As more IAR members discover the purpose of the Transaction Helpline, the more familiar they’ll be with Jeffrey T. Baker.

Baker is the Sorling Northrup attorney who’ll answer questions about the real estate contracts REALTORS® use with buyers and sellers.  During the past six weeks, he’s started to get the word out to managing brokers letting them know about the creation of the Transaction Helpline, and its separate phone number (844-647-3833) and email address (jbaker@iar.org).

As a result of his appearance at the IAR Fall Conference & Expo in Chicago and a brief explanation of his expertise in a newsletter to managing brokers, he’s getting an increasing number of inquiries.  So far, he says most of the situations involved questions about inspections, disclosures and earnest money payments.  As time goes on, he is convinced the situations will become more varied.

Growth of Legal Services
For more than 20 years, IAR has offered legal information and assistance to REALTORS®, mostly involving state licensure issues and questions about the REALTOR® Code of Ethics.  However, he says that in recent years, an increasing number of questions involved real estate contracts.

For years, IAR members with legal questions have spoken directly with Legal Hotline Attorney Betsy Urbance.  They have also seen the webinars she’s participated in on various real estate topics. She continues to be your contact in those areas.  The addition of Baker expands the legal services available to members.

“A lot of trade associations don’t provide legal services to their members like the Illinois Association of REALTORS®,” says Baker.  “It’s a great service for our members.”

For Example
One question Baker recently answered was:

Q. What are the Buyer’s options when the contract is lawfully terminated but the holder of the earnest money will not return the funds?

A. Questions related to earnest money are some of the most often asked questions and the answer really depends on the facts of each case. The general rule that will apply in almost every case is that if there is a dispute as to who is entitled to the funds, then the holder may not disburse the funds without either joint written direction from the parties or a court order. From this general rule, there are several specific ones that may apply to any one transaction. For instance, if one party makes a claim for the funds but does not file a legal action in court, the holder of the funds may turn the funds over to the State Treasurer’s unclaimed property division if 6 months has passed since the time of the initial claim. Or, if the holder of the funds would like to disburse pursuant to the directions contained in a written contract, the holder may notify the principals of the transaction of its intention and plan for disbursement and if a written objection is not received within at least two weeks of the notice, then the holder of the earnest money may disburse the funds according to the disclosed plan of disbursement. The holder of the earnest money could even file a legal action itself to determine the rightful owner of the funds, though this is very rare. When a Buyer is attempting to obtain a return of its earnest money though and is unable to receive the written consent of the Seller or even cooperation from the holder of the earnest money for that matter, the Buyer’s only option is litigation to force the return of the funds.

Misconception
Baker says the REALTORS® he’s spoken with usually begin their inquiries to the Transaction Helpline with two questions in mind.  First, they want to know if their situation has legal ramifications.  Second, they want to know what to tell their clients.

“I tell managing brokers I am NOT the attorney for buyers or sellers.  That’s a misconception we want to avoid.  For the time of the call or email, we are the attorneys for the REALTORS®. We are able to look at the contracts they are using and legally interpret the language for the brokers.”

“While we want to educate our REALTORS®, I also tell the brokers to direct clients – the buyers and sellers or the landlords and tenants – to speak to their own attorneys with their own legal questions We don’t want the REALTORS® to ‘practice law’ or give advice that a lawyer should be giving to their own clients.”

Baker notes that although Illinois real estate contracts are very similar in theme and intent, the 34 local associations have slightly different versions for residential, commercial or land transactions. He estimates he must be familiar with more than 50 contracts, along with their riders, addendums and contingencies.

So in the future, as you consider issues surrounding real estate contracts – whether they are residential, commercial, farm land, etc. – don’t hesitate to contact Baker.  He is your IAR resource, and he’s only a phone call or email message away.

10 ways to know if you need a real estate license to manage property in Illinois

IAR gets thousands of calls a year for legal guidance. One hot topic off the association’s Legal Hotline was property management, which, when you do it for another person and for compensation, requires a properly sponsored real estate license.

The question: Must I have a real estate license to engage in property management activities?

The answer: To the extent that those activities are included in the Illinois Real Estate License Act of 2000 (the Act) at Section 1-10 under the definition of “Broker,” and you are doing the activities for another and for compensation, you will be working within the scope of your real estate license.

The list of activities taken from the definition of Broker under the Act is:
(1) . . . rents or leases real estate.
(2) Offers to . . . rent or lease real estate.
(3) Negotiates, offers, attempts or agrees to negotiate the . . . rental or leasing of real estate.
(4) Lists, offers, attempts or agrees to list real estate for . . . lease . . .
(6) Supervises the collection, offer, attempt or agreement to collect rent for the use of real estate.
(7) Advertises or represents himself or herself as being engaged in the business of . . .  renting or leasing real estate.
(8) Assists or directs in procuring or referring of leads or prospects, intended to result in the . . . lease or rental of real estate.
(9) Assists or directs in the negotiation of any transaction intended to result in the . . . lease or rental of real estate.
(10) Opens real estate to the public for marketing purposes.
(11) . . . leases or offers for . . . lease real estate at auction.

Read the Legal Hotline Top 5.

What typical property disclosure forms are required for sales and lease transactions?

Don’t leave anything out when you are preparing an owner to sell a property. There are several forms required under various statutes. Here’s a rundown on the basic forms you need to be aware of.

  • One is the property disclosure form required under the Illinois Residential Real Property Disclosure Act which needs to be completed by the owner of residential property (from one to four dwelling units) to be sold in a transaction that is not otherwise exempt. This disclosure must be made even if the owner does not occupy the property.

The first question on the form asks if the owner has occupied the residence in the last 12 months. If the answer is “no,” it provides an indication to the prospective buyer as to the owner’s knowledge, or lack thereof, about the other conditions disclosed on the form.

The property disclosure form is not required in lease transactions. The key for licensees with this disclosure is to make sure the owner is aware of the form and his or her obligation.  Licensees should not be answering the questions on the form.

  • Another disclosure that must be made under federal law is the lead paint disclosure. This disclosure is required for sale or lease transactions of pre-1978 housing. There are very few exceptions if the property was built before 1978 and contains residential units.
  • The third type of required property disclosure is for radon in most residential sale and some residential rental transactions. The major exception for sale transactions is if the residential unit is on the third floor of a building or above.  Radon disclosure applies to residential properties containing four or fewer units.

In rental transactions, the radon disclosure does not need to be made unless there has been a radon test showing the existence of a radon hazard which has not been remediated. Once there has been a test showing that there is a radon hazard, then remediation by either the party that occupies the unit or by the owner would mitigate against any future radon disclosure.

For more questions and answers, check out the September edition of D.R. Legal News.

Seven facts REALTORS® should know about Illinois’ medical marijuana law

Do you know how the state’s pilot medical marijuana law will affect you and other members of your community?

You can get plenty of useful information from a September article in the D.R. Legal News, written by Lisa Harms Hartzler of Sorling Northrup Attorneys.  Hartzler examines a variety of aspects of the law that took effect Jan. 1, known as the “Compassionate Use of Medical Cannabis Pilot Program Act.”

Though you may hunger for more of her insights, you can whet your appetite with these seven tidbits:

Fact number 7 – Local governments can’t unreasonably interfere with the cultivation, dispensing and use of medical marijuana. However, the act allows reasonable local zoning ordinances that do not conflict with the law.

Fact 6 – Illinois law prohibits the location of a growing facility within 2,500 feet of a school or day care or residential zone.

Fact 5 – The medical marijuana business is expensive. A cultivation center state permit costs $200,000 and applicants must obtain a $2 million surety bond or escrow account. Add to this the costs of staffing, utilities and locating a facility for growing and processing.

Fact 4 – To legally use medical marijuana, individuals must have one of 40 debilitating diseases and obtain an ID card from the Illinois Department of Public Health.

Fact 3 – Landlords and property managers cannot refuse to lease or penalize a person who is legally authorized to purchase and use marijuana for medical purposes.  However, landlords and property managers can prohibit marijuana smoking consistent with existing smoke-free laws.

Fact 2 – Employers can’t refuse to hire an individual because he or she is a registered medical marijuana patient.

Fact 1 – Even with the change in Illinois law, the use of medical marijuana in “public” places is illegal.