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Best Practices for Defensive Transaction Management

Posted by PRO Thu, 31 Aug 2006 19:59:00 GMT

Best Practices for Defensive Record Keeping


A comprehensive paper trail helps you and your associates to avoid misunderstanding with clients.  It also helps to identify mistakes that could lead to litigation.  Do you or your associates use the following best practices for documenting a transaction?


  • Do you document your sources of information?  When passing on information obtained from another source, such as local zoning board, or school system, document your conversation or print the report from the source and with the client.  Keep those notes on file.
  • Do you keep a telephone log that summarizes all business calls?  Note the date and time of the call, the name of the caller, and a one to two line summary of the conversation.
  • Do you teach associates how to structure a complete transaction file that includes documents such as disclosure statements as will as detailed notes?  Develop a checklist for the front of the file that lists each document that should be present.  To avoid documents “disappearing, “add a checkout box that must be initialed before a document is removed.
  • Do you instruct associates to keep records of what types of housing each prospective buyer asked to see, all housing options offered, all services provided, and the dates of showing.  Retain these files for at least two years, since fair housing complaints may be filed for two years after the incident.
  • Do you send sellers written updates on showings and feedback?  Phone calls are great, but written documents are a more tangible defense if a dispute arises.
  • Do you indicate on correspondence who is receiving copies?  For important documents, consider certified mail, courier, or other options that provide a confirmation that the documents were received.
  • Do you request a letter from the lending institution stating the reason if a mortgage loan is denied?
  • Do you send copies of changes in listing terms, such as price reductions or changes in the listing period to the seller, cooperating broker, and the transaction file?
  • Do you use confirmation letters to shift the burden of response to the other party?  The recipient of a confirming letter is asked to take some action if the content does not match his or her understanding of what was said.


Best Practices for Defendable Transaction Files


  • Signed or acknowledged brokerage relationship disclosure form
  • Listing agreement, including comparable market analysis
  • Profile sheet with supporting public records documentation
  • Property condition disclosure form
  • All marketing materials, including newspaper ads and printouts of online listings
  • Relocation or referral information, if applicable
  • Correspondence and phone logs with buyers, sellers, and other parties to the transaction
  • Inspection reports
  • Lead paint or other hazardous materials disclosure forms, if applicable
  • Copy of purchase contract and addenda
  • Copies of invoices for any repair work completed that was required for the sale
  • Settlement statement (HUD 1 form), if available
  • Escrow account records relating to the transaction


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Best Practices in Transaction Management

Posted by PRO Tue, 12 Sep 2006 14:27:00 GMT

“Transaction Management” refers to that group or combination of manual, electronic or digital tools, procedures and processes used to administer, facilitate, manage and communicate the status and/or completion of a real estate transaction.


BEST PRACTICES: Real estate professional’s responsibilities to the Customer


1.            Develops and maintains a comprehensive, complete, accurate and up-to-date electronic file on every transaction and updates this file daily.


2.            Has a transaction file which includes all information, offers, counter offers, contracts, market analyses, CLUE reports, notes about all conversations, agreements, discussion, disclosures, addendums, contact information about client, co-op sales associates, brokerages, timetables, etc.


3.            All information contained within the transaction file is available electronically (email or fax) to clients immediately upon request from the firm’s client or customer


4.            All offers, counter offers and other communications are on approved forms, typed (or completed on a computer) or written very legibly.  If substantial changes are made to an offer, the offer is re-prepared so that it absolutely clear and readable to all parties to the transaction.


5.            All offers are presented in person by the customer’s real estate professional, unless geography prevents this from being practical.


6.            When multiple offers are presented, assures that the seller reviews, considers and determines the disposition of all offers, such disposition to be communicated to the appropriate cooperating real estate professionals.


7.            Once an offer is accepted, develops a comprehensive timetable of activities and requirements for their clients.


8.            The buyer’s agent assures that the buyer has the estimated financial means to complete the transaction prior to showing the property.  This is accomplished through a letter from the bank, a pre-approval or other formal review of the buyer’s financial capability. 


9.            Delivers a copy of the HUD-1 disclosure and other such documents as may be required at a minimum of one day in advance of closing and preferably sooner in order to review and educate their customer on the fees and costs on the closing form, and take other actions as may be necessary so that the client and customer are well informed at the time of closing.


BEST PRACTICES: Real estate professional’s responsibilities to other real estate professionals


10.        Makes every effort to meet deadlines, provide notice if compliance is not possible and communicate if deadlines have changed. 


11.        Recognizes that their primary role is to bring a buyer and seller together, and both sides of a transaction notifies each other as to the completion of important steps in the process, including loan approval and completion of inspections.  And, ensures that all documentation is properly executed with all required signatures.


12.        Confirms receipt of all important information, documents and escrow monies with the cooperating real estate professional(s) immediately through email or other written means.


BEST PRACTICES: Broker’s responsibilities to their sales associates


13.        Reviews all transaction files prior to closing and notifies the sales associate of any missing documentation in the file.

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Checklist for a Closing

Posted by PRO Tue, 29 Aug 2006 20:15:00 GMT

For a real estate closing to go smoothly, it is a good idea to use a checklist.  The following is a sample checklist:

  Closing Duties checklist Done
1 Sale pending” on listing  
2 Notice of under contract to MLS  
3 Binder deposited in bank $  
4 Additional binder received, if required $  
5 Loan application made by buyer  
6 Contingencies cleared in writing:  
    Home inspection By:  
    Soil test From:  
    Roof inspections By:  
    Other (Describe):  
7 Appraisal By:  
8 Loan approval From:  
9 Title insurance ordered from:  
10 Pest inspection ordered (after loan approval) from:  
    Report received and delivered from buyer  
    Report received and delivered from lender  
    Treatment ordered, if required  
    Structure inspection ordered, if necessary  
    Work completed and approved  
11 Required repairs ordered  
12 Required repairs completed  
13 Survey ordered (After loan approval)  
    Survey completed.  Results:  
    Encroachment, survey problems cleared  
14 Buyer to get hazard insurance  
15 Insurance policy to title closing agent  
16 Buyer/seller contacted for closing appointment  
17 Pre-closing inspection  
18 Closing papers reviewed with buyer/seller one day prior  
19 Buyer given figure for certified check for closing  
20 Binder check prepared to take to closing  
21 Closing date  
22 Signed closing papers received by sales associate  
  Post-closing duties:  
23 Commission check to broker  
24 Sign/lockbox picked up from property  
25 Buyer/seller letter of thanks  
26 Follow-up visit to buyer/seller  
27 Notice of closed sale to MLS  

Comments on closing progress:




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Escrow Accounts - FREC FAQ

Posted by PRO Wed, 04 Oct 2006 17:45:00 GMT


Florida Real Estate Commission (FREC)

Frequently Asked Questions and Answers

Escrow Issues

As of 10/25/04



What is an escrow or trust account?

Generally, for the purposes of the real estate licensee, an escrow account or trust account is used to hold fees entrusted to the broker, pertaining to a real estate transaction.

Is a broker required to have an escrow account?

No.  A broker is not required to have an escrow account.

Where may a broker establish an escrow account?

Escrow monies may only be maintained in banks, trust companies, title companies, credit unions or saving and loan institutions located in Florida.

When must funds be deposited in an escrow account?

All monies to be escrowed should be immediately deposited upon receipt by the licensee.  “Immediately” generally means the placement of a deposit in an escrow account no later than the end of the third business day following receipt of the item to be deposited.

Is it permissible to keep extra funds in one’s escrow account?

It is permissible to keep up to $5,000 of personal or brokerage funds in the broker’s rental distribution escrow account and up to $1,000 of personal or brokerage funds in the broker’s sales escrow account.  The monthly reconciliation statement must specifically identify the overage amount, for example “this overage of $200 (or $180….) is “seed money” to maintain bank account.

What do I have to do to have an interest-bearing escrow account?

All parties should execute a written agreement to have interest accrue on the deposit and specify to whose benefit the interest is accruing.  The account must be insured and maintained in Florida.  When it comes time to disburse the principal amount being held in escrow, the funds must be transferred into a non-interesting bearing account and disbursed from the non-interest bearing account.

Is a broker required to have a release of deposit form signed by parties involved before releasing a deposit?

No.  There is no rule that requires a broker to have a release of deposit form signed by parties involved.  However, many brokers/brokerage companies request that the parties involve sign a release to be sure that no dispute exists before dispensing.

Who is responsible for notifying FREC of conflicting demands over monies held in escrow?

The broker who is holding the funds in his or her escrow account is responsible for notifying the Commission in writing.

When must a broker notify FREC that he/she has conflicting demands for escrow funds?

A broker, upon receiving conflicting demands for trust funds being maintained in his/her escrow account, must provide written notification to FREC within 15 business days of the last party’s demand, and the broker must institute one of the settlement procedures as set forth in F.S. 475.25 (1) (d) 1., within 30 business days after the last demand.

What are the settlement procedures used in order to settle a conflict over funds placed in escrow?

The are four settlement procedures a real estate broker can use to settle a conflict or a “good faith doubt” over escrow funds.  They are:

o       request that FREC issue an Escrow Disbursement Order determining who is entitled to the escrowed property;

o       with the consent of all parties, submit the mater to arbitration;

o       by interpleader or otherwise seek adjudication of the matter by a court; or

o       with the written consent of all parties, submit the matter to mediation, the mediation process must be completed within 90 days or the broker will promptly employ another escape procedure.

There certain time requirements concerning these settlement procedures.  Also, a party may elect to commence a civil lawsuit, regardless of the broker’s actions concerning these settlement procedures.  F.S. 475.25(1)(d)1.

Once a final Order is issued on an Escrow Disbursement Order (EDO), how long should it take before the broker releases the escrow funds?

While there is no rule that addresses a specific number of days in which to disburse the funds, the broker should disburse the funds promptly upon receiving the final order.  If after a reasonable amount of time the broker does not comply with the final order, the broker can be prosecuted for a violating a lawful order of the Florida Real Estate Commission.

If both a buyer and seller want the deposit, which is being held by the broker, in a transaction that did not close, what does the broker do about the escrow funds?

The broker must notify FREC in writing as stated above.

How long should a broker keep abandoned escrow funds?

The broker may maintain the funds and contact the Dept. of Financial Services (formally known as the Dept. of Banking and Finance) for information about Florida laws on abandoned property.  Call the toll free number in Florida (888)-258-2253 or (850) 410-9253.



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HUD-1 Settlement Statement

Posted by PRO Tue, 29 Aug 2006 14:04:00 GMT

The HUD-1 Settlement Statement is used in nearly every residential closing; to see a copy of the statement, click here.  It summarizes the financial transaction between the buyer and seller.  Also shown on the form are items marked (POC) which were paid outside of the closing.  They are on the form for information purposes and are “not” included in the statement totals.


It is the broker’s responsibility to make sure the information filled in on the HUD-1 form is correct.  A detailed description of the form sections and sub-sections follows:



HUD-1 Page 2


Most of the specific settlement costs related to the transaction are derived from calculations on the HUD-1 page 2 (Section L).  There are seven major sections of charges:


  1. Sales/Broker’s commissions
  2. Items payable in connection with the loan
  3. Items required by lender to be paid in advance
  4. Reserves deposited with lender
  5. Title charges
  6. Government recording and transfer charges
  7. Additional settlement charges


Each of the major sections is divided into sub-sections and they are on numbered lines.  The actual cost charged will depend on what has been negotiated with the various parties involved and the requirements of the lender.



Section L, Lines 700 – 1400 on the HUD-1 Page 2


Section L – Settlement Charges.


Section 700.  Total Sales/Broker’s Commission based on price $ – the amount of commission to be paid to the real estate brokers.


Section 800.  Items Payable In Connection With Loan – discloses loan-related charges such as origination fees and discount points.  The appraisal fee and credit report amount are usually expressed as “POC” numbers.


Section 900.  Items Required By Lender To Be Paid In Advance – any prepaid items the lender requires to be paid in advance, such as preliminary interest or the first payment of future bills.


Section 1000.  Reserves Deposited With Lender – escrow items, such as deposits for taxes and insurance, which the lender collects and holds for payment of future bills.


Section 1100.  Title Charges – title charges payable to the title and/or settlement company.  Such fees may include settlement or closing fee, abstract or search fee, title examination fee, and title insurance premiums.


Section 1200.  Government Recording and Transfer Charges – county and/or state recording fees for instruments such as the deed and mortgage.


Section 1300.  Additional Settlement Charges – any additional settlement charges, such as survey or pest inspection fees.


Line 1400.  Total Settlement Charges – the total charges for the buyer and the seller.


Line 1400 carried to buyer Line 103.  The total due from the buyer is carried over to HUD-1 Page 1, Line 103.


Line 1400 carried to seller Line 502.  The total due from the seller is carried over to HUD-1 Page 1, Line 502.


Below: Line 1400.  Certification: I have carefully reviewed the HUD-1 Settlement Statement and to the best of my knowledge and belief, it is a true and accurate statement of all receipts and disbursements made on my account or by me in this transaction.  I further certify that I have received a copy of the HUD-1 Settlement Statement.



Sections A-I, Sections J and K on the HUD-1 Page 1


Section A – the form title: Settlement Statement, U.S. Department of Housing and Urban Development.


Section B – the type of loan; the file number; the loan number; and, the mortgage insurance number.


Section C – “Note: This form is furnished to give you a statement of actual settlement costs.  Amounts paid to and by the settlement agent are shown.  Items marked ‘(p.o.c.)’ were paid outside the closing; they are shown here for informational purposes and are not included in the totals.”


Section D – the name and address of the borrower/borrowers.


Section E – the name and address of the seller/sellers.


Section F – the name and address of the lender.


Section G – the property location.


Section H – the settlement agent; and, the address where the closing takes place.


Section I – the settlement date; and, proration date.



Sections J and K – contains a summary of all funds transferred between the buyer, seller, lender and provider of settlement services.


Section J – Summary of Borrower’s Transaction.


Section 100.  Gross Amount Due From Borrower – what the borrower owes, such as the purchase price of the home.


Line 101.  Contract sales price – the total price of the property.


Line 102.  Personal property – any personal property that is included in the sale (furniture, etc.).


Line 103.  Settlement charges to borrower – itemized on HUD-1 page 2 and carried over from Line 1400.


Lines 104-105.  Any additional improvements to the property.


Adjustments for items paid by seller in advance – these are debits to the borrower.


Lines 106-118.  Real estate taxes, assessments, trash fees, maintenance fees already paid by the seller.


Line 120.  Gross Amount Due From Borrower – the total of what the borrower owes.


Section 200.  Amounts Paid By Or In Behalf Of Borrower – the credits the borrower has, such as the loan amount, the deposit made by the borrower and any money owed to the borrower by the seller at the time of closing, such as prorations for taxes and assessments.


Adjustments for items unpaid by seller – these are credits to the borrower.


Lines 210-219.  Any real estate taxes not paid by the seller.


Line 220.  Total Paid By/For Borrower – the total of lines 201-219 as credit to the borrower.


Section 300.  Cash At Settlement From/To Borrower – carries the totals to the bottom of section J.  Line 301 is the same as Line 120.  Line 302 is the same as Line 220.


Line 303.  Cash ( ) From  ( ) To Borrower – the amount of monies the borrower must bring to the closing in the form of a cashier’s check.



Section K – Summary of Seller’s Transaction.


Section 400.  Gross Amount Due To Seller – the credits due the seller at closing, such as the sales price of the home.


Line 401.  Contract sales price – total price of the property


Line 402.  Personal property – any personal property that is included in the sale (furniture, etc.).


Adjustments for items paid by seller in advance – these are credits to the seller.


Lines 406-418.  Real estate taxes, assessments, trash fees, maintenance fees already paid by the seller.


Line 420.  Gross Amount Due To Seller – the total of what is due to the seller.


Section 500.  Reductions In Amount Due To Seller – the charges or debits of the seller.  Examples include the settlement charges paid by the seller, payoffs of existing loans and prorations of items such as taxes and assessments to be credited to the buyer at closing.


Line 502.  Settlement charges to seller – itemized on HUD-1 page 2 and carried over from Line 1400.


Adjustments for items unpaid by seller – these are credits to the borrower.


Lines 510-519.  Any real estate taxes not yet paid by the seller.


Line 520.  Total Reduction Amount Due Seller – the total of lines 401-519 as a debit due from the seller.


Section 600.  Cash At Settlement To/From Seller – carries the totals to the bottom of section J.  Line 601 is the same as Line 420.  Line 602 is the same as Line 520.


Line 603.  Cash ( ) From  ( ) To Seller – the amount of monies the seller will receive.


Below: Line 303 and Line 603.  Substitute form 1099 Seller Statement – The information contained in Blocks E, G, H and I and on line 401 (or, if line 401 is asterisked, lines 403 and 404), 406,407 and 408-412 (applicable part of buyer’s real estate tax reportable to the IRS) is important tax information and is being furnished to the Internal Revenue Service.  If you are required to file a return, a negligence penalty or other sanction will be imposed on you if this item is required to be reported and the IRS determines that it has not been reported.  Seller Instruction – If this real estate was your principle residence, file form 2119, Sale or Exchange of Principal Residence, for any gain, with your income tax return; for other transactions, complete the applicable parts of form 4797, Form 6252 and/or Schedule D (Form 1040).

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