Law and Rule Required Course Hours Correspondence Continuing Education

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1 Law and Rule Required Course Hours Correspondence Continuing Education

2 Law and Rule Required Course Orientation Course Description: All real estate licensees who want to renew an active license in Oregon are required to take a three-hour continuing education course on recent changes in real estate rule and law. This course covers important real estate statutes in ORS chapter 696 and the Real Estate Agency administrative rules in OAR chapter 863 along with changes to real estate related laws. To enhance comprehension, review questions will be asked throughout the course. A final exam will be administered after the course is completed to check for mastery of the material. If you do not pass the final exam, you can review the course material and retake the exam at no additional cost. If assistance is needed with this course you can contact PDH Academy at or at pdhacademy@gmail.com. After completing the course and final exam, we ask that you take our course survey to help us continue to provide high-quality continuing education.

3 Law and Rule Required Course Introduction All real estate licensees who want to renew an active license in Oregon are required to take a three-hour continuing education course on recent changes in real estate rule and law. This course covers important real estate statutes in ORS chapter 696 and the Real Estate Agency administrative rules in OAR chapter 863 along with changes to real estate related laws. The following topics will be covered in this course: 1. Clients Trust Accounts 2. Advertising under OAR Common areas of non-compliance by licensees 4. Initial Agency Disclosure Pamphlet under OAR These required topics were selected based on input from the Oregon Real Estate Agency staff and stakeholders. These topics are areas of new law that the Agency has jurisdiction over, or areas where the Agency finds that licensees commonly make errors. The overall goal of the course is to inform licensees of new requirements and avoid non-compliance issues that can jeopardize their license.

4 Module 1 Clients Trust Accounts What is the definition of Trust Funds? According to the Oregon state statutes, the term trust funds refers to: Money belonging to others that is received or handled by a licensed real estate property manager or principal real estate broker in the course of conducting professional real estate activity and in the real estate licensee s fiduciary capacity. Let s break this down: a trust fund is created when a property manager or principal broker receives money that belongs to another (client or customer) while conducting professional activity in a fiduciary capacity. Who can open a Clients Trust Account? Trust accounts can be opened and maintained by a licensed real estate property manager, or a principal real estate broker. The account(s) must be designated client trust account(s), Principal real estate brokers who manage rental real estate or a licensed property manager will deposit all trust funds received or handled in the client s trust account. This includes funds received or handled by any licensees subject to the supervision of the principal real estate broker. Where can a Clients Trust Account be opened? Client trust accounts MUST be opened in the state of Oregon at a federally insured bank. When do I need a Clients Trust Account? When you are a principal broker or property manager who receives someone else s money. You must have a clients trust account when: You are managing rental real estate. You are holding security deposits. You are a principal broker who receives or handles funds for a sale and does NOT deposit those funds into escrow. Remember: Only principal brokers and property managers can hold a clients trust accounts.

5 What type of funds can I hold in a clients trust account? Only funds you receive on behalf of your clients. This includes rent, security deposits, and earnest money. You cannot hold any other funds in the account, especially your own. You may also hold any interest earned, but only if the account is a federally insured interestbearing account and the property management agreement complies with OAR (3). Can I keep clients trust funds in an interest-bearing bank account? For property management, trust funds can be placed in an interest-bearing account only if the following are true: The owner/client agrees. The bank account is federally insured. The property management agreement specifies: o To whom the interest earnings belong. o When the interest must be disbursed. (OAR requires that interest inuring to the property manager be disbursed within 10 calendar days from the date the bank statement on which the interest is first shown.) o Any pass-through fees. For sales transactions, trust funds can be placed in an interest-bearing account only if the following are true: All parties agree in writing. The written agreement specifies to whom the interest earnings belong. The bank account is federally insured. Is a Clients Trust Account required for a licensed property manager or principal real estate broker engaged in the management of rental real estate? Yes. A property manager must open and maintain at least one clients' trust account as defined in OAR A licensed real estate property manager, or a principal real estate broker who engages in the management of rental real estate, shall open and maintain in this state one or more separate federally insured bank accounts that are designated clients trust accounts.

6 What must I do when I open a clients trust account? 1. Name the account correctly, 2. Notify the bank, and then 3. Notify the Agency. Upon opening the clients trust account, you must have a bank representative sign a Notice of Clients Trust Account form. This form lets the bank know that the account is a clients trust account. Within 10 days of opening the account, log in to your personal elicense account and add it to your inventory of accounts. This will meet the requirement of notifying the Agency. How do I properly name a clients trust account? When setting up the account, the name of the account must include clients trust account. If the account holds security deposits, the name must include clients trust account security deposits. This must also be on all checks for the account. Do not abbreviate or shorten. When must I notify the Agency of activity with a Clients Trust Account? Within 10 business days after the date a clients trust account is opened, a licensed real estate property manager or principal real estate broker shall file with the Real Estate Agency, through elicense, the following information about the clients trust account: (a)the name of the bank; (b)the account number; (c)the name of the account; (d)the date the account was opened; and (e)a statement by the licensed real estate property manager or principal real estate broker authorizing the Real Estate Commissioner or the commissioner s representative to examine the clients trust account at such times as the commissioner may direct. How do I use elicense to notify the Agency of the opening or closing of an account? As a principal broker or property manager, you will have two separate accounts in elicense, the Agency s new online license management system. You will use one to manage your personal license. You will use the other to manage your business account, whether you have a registered business name or you are doing business under your licensed name.

7 There will be some business processes that you will manage under your personal account. Notifying the Agency of opening or closing a clients trust account is one of those processes. To notify the Agency: 1. Log in to your personal elicense account 2. Go to your inventory of accounts 3. Add it to your inventory of accounts, or make the necessary edits. This will meet the requirement of notifying the Agency. What is the Notice of Clients Trust Account form? Each licensed real estate property manager and principal real estate broker, at the time a clients trust account is opened as required under ORS (Clients trust accounts), shall provide the bank in which the account is opened with a notice, acknowledged by the real estate licensee and the bank, in substantially the following form:

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9 Who has to sign the Notice of Clients Trust Account form? A bank representative must sign a Notice of Clients Trust Account form. This form lets the bank know that the account is a clients trust account. What are the record keeping responsibilities for a clients trust account form? The real estate licensee shall retain the acknowledged copy of the Notice of Clients Trust Account for at least six years following the closing of the account. Who may be a signer on a clients trust account? A property manager must be an authorized signer on each client's trust account and each security deposits account and is solely responsible for the receipts and disbursements on each bank account. A property manager may not allow an owner to be an authorized signer on a clients' trust account or security deposit account and may not allow an owner to deposit, hold or disburse funds in a clients' trust account or security deposit account. What are the record keeping requirements for clients trust account records? To maintain your clients trust account records: For property management, you need to keep: A detailed check register or receipts and disbursement journal. Owner ledgers or tenant ledgers. Bank statement. For sales transactions, you need to keep: A detailed check register or receipts and disbursement journal. The sum of all balances of the individual trust account ledgers. Bank statement. Each month, you must use these documents to complete a three-way reconciliation. Once completed, the reconciliation must be signed by you and then filed in chronological order with copies of all supporting documents.

10 What information does a check register or receipts and disbursements journal need to have? Check registers, or receipts and disbursements journals, need to have the following information: Details on all funds received, including: o The date the funds were received, unless the date is recorded in a separate document. o The amount of the funds received. o The purpose of the funds and identity of the person who tendered the funds. o The date the funds were deposited. o The owner s identifying code. o A daily running balance. Details on all disbursements, including: o The date the funds were disbursed. o The amount of funds disbursed. o The check number and payee of the disbursement. o The purpose of the disbursement. o The owner s identifying code. o A daily running balance. What information do owner ledgers need to have? You must have at least one separate owner s ledger for each property management agreement. Owner ledgers must have the following: Details for each deposit of funds, including: o The owner s name and identifying code. o The amount of funds received. o The purpose of the funds. o Identity of the person who tendered the funds. o The check number, cash receipt number or a unique series of letters and/or numbers that established an audit trail to the receipt of funds. o The date the funds were deposited. Details for each disbursement of funds, including: o The owner s name and identifying code. o The date the funds were disbursed. o The amount of funds disbursed. o The check number or bank-generated electronic tracking number. o The payee of the disbursement. o The purpose of the disbursement. o The balance after each recorded entry. CTA Q&A

11 What information do tenant ledgers need to have? Tenant ledgers must have the following: Details for each deposit of funds, including: o The name of the tenant. o The legal description of the property, the mailing address of the property and the unit number, or a unique series of letters and/or numbers that establishes an audit trail to the tenant agreement. o The identifying code. o The amount of funds received. o The purpose of the funds and identity of the person who tendered the funds. o The check number, cash receipt number or a unique series of letters and/ or numbers that established an audit trail to the receipt of funds. o The date the funds were deposited; Details for each disbursement of funds, including: o The name of the tenant. o The legal description of the property, the mailing address of the property and the unit number, or a unique series of letters and/or numbers that establishes an audit trail to the tenant agreement. o The identifying code. o The date the funds were disbursed. o The amount of funds disbursed. o The check number or bank-generated electronic tracking number. o The payee of the disbursement. o The purpose of the disbursement. o The balance after each recorded entry. What is required in order to disburse funds from a clients trust account? A property manager must not disburse funds from a clients' trust account or security deposits account unless there are sufficient funds, as defined in OAR , in the ledger account against which the disbursement is made. Checks used to disburse funds from a clients trust account must be pre-numbered, issued from one numbering sequence, and bear the words "Clients' Trust Account" upon the face thereof. Principal brokers must account for all checks, including voided checks, as a part of the records they maintain. A property manager must disburse earned management fees from the client's trust account at least once each month unless a different schedule of disbursement is specified in the property management agreement, and may only disburse such fees if sufficient funds are available.

12 The monthly cycle for a clients' trust account or security deposits account may begin and end on a stipulated date every month, if the date is consistent from month to month. A property manager may not disburse funds from a clients' trust account or security deposits account based upon a wire or electronic funds transfer deposited into the account, until the deposit has been verified by the property manager. The property manager must arrange with the account depository and other entities for written verification of when funds are received or disbursed by wire or electronic transfer. Upon request by the commissioner or an authorized representative of the commissioner, a property manager must demonstrate that a sufficient credit balance, as defined in OAR , existed in a ledger account at the time of a disbursement is made from a clients' trust account or security deposits account by producing financial records showing that such disbursement did not involve the use of any other owner's or tenant's trust funds. Can I use a debit card for the clients trust account? No, all disbursements must be made by check or electronic transfer. What are the requirements to transfer funds from an owners ledger account to one or more different owners ledger accounts? A property manager may only transfer funds from an owners' ledger account to one or more different owners' ledger accounts if: Each of the affected owners authorizing the transfer have signed and dated an agreement authorizing such transfer that is separate from any property management agreements; At the time of the transfer, the property manager enters the transfer information on each affected owners' ledger account, including but not limited to the amount of the transfer, date of the transfer and the source or destination of the transferred funds, as appropriate; and The property manager gives each owner a separate monthly accounting on the transfer or includes the accounting of the transfer activity in the regular monthly report to the owner. A property manager may only transfer funds between two or more owner's ledger accounts maintained for the same owner if: The owner has given the property manager prior written approval in the property management agreement or in an addendum to the agreement; and At the time of the transfer, the property manager enters the transfer information in each of the owner's affected ledger accounts including, but not limited to, the amount

13 of the transfer, date of the transfer and the source or destination of the transferred funds, as appropriate. What are the components of a 3-way reconciliation and how often must a reconciliation be performed? A principal real estate broker must reconcile each clients trust account at least once each month. The reconciliation must comply with all of the following conditions: The reconciliation must have three components: o The bank statement balance, adjusted for outstanding checks and other reconciling bank items; o The balance of the receipts and disbursements journal or check book register as of the bank statement closing date; and o The sum of all the balances of the individual trust account ledgers as of the bank statement closing date. The balances of each component of the reconciliation must be equal to and reconciled with each other. If any adjustment is needed, the adjustment must be clearly identified and explained. The principal broker must verify, sign, and date the reconciliation when completed. Outstanding checks must be listed by check number, issue date, payee, and amount. The principal broker must preserve and file in logical sequence the reconciliation worksheet, bank statements, and all supporting documentation, including but not limited to, copies of the receipts and disbursements journal or check book register and a listing of each individual clients trust fund account with a balance as of the reconciliation date. If these records are computerized, they must be printed out for filing with the reconciliation. All reconciling items must be identified and cleared promptly. Can the Agency conduct random audits of clients trust account reconciliations? The Agency may conduct a mail-in audit of a property manager: As part of a regular, routine and random selection of property manager clients' trust accounts for mail-in audits; When the Agency has determine, after a compliance review, that the property manager was not in compliance and provided the property manager with an opportunity to cure the non-compliance; and After an investigation has been initiated.

14 The Agency will provide a property manager with written notice of a mail-in audit at least 30 days before required information and documentation must be provided to the Agency. After the Agency reviews the information and documents provided in a mail-in audit, the Agency will take one of the following actions: If the information and documents are in compliance with statutes and rules, the Agency will provide written notice to the property manager confirming compliance only as to the information and documents provided; If the information and documents indicate that the property manager may be subject to additional documentation and procedural requirements that were not part of the mailin audit, the Agency will provide written notice to the property manager detailing the Agency s expectations for compliance on those matters; If the information and documents demonstrate that the property manager is not in compliance with ORS to , to , to , or OAR chapter 863, the Agency will provide written notice to the property manager that includes: o The property manager must cure all noncompliance issues and provide information and documentation to the Agency that the noncompliance has been cured within 30 days of the date of the notice; and o If all noncompliance issues are not cured within 30 days, the Agency may impose sanctions on the property manager or may initiate an investigation and not allow additional time for the property manager to cure the noncompliance. If the Agency has reasonable grounds to believe that the funds of an owner or tenant may be missing, funds may have been misappropriated, or that the property manager s records are in such a condition that the property manager is placing owners and/or tenants money at risk, the Agency may immediately initiate an investigation without providing a property manager with an opportunity to cure noncompliance. If a property manager does not respond to a mail-in audit within the time period required in the notice, the Agency may initiate an investigation. Can I hire a bookkeeper to maintain my clients trust account records and conduct the monthly reconciliations? You can delegate your authority to review and approve reconciliations and to receive and disburse funds for a clients trust account or security deposits account to another as long as you develop a written policy and delegation of authority as required in OAR Despite any policies or delegation of authority, you will still be solely responsible for all funds and transactions.

15 Common Violations in Clients Trust Account Mail-In Audits The Oregon Real Estate Agency randomly selects clients trust accounts (CTAs) to audit by mail. Licensees who hold selected CTAs must submit records to the Agency. The Agency then reviews the documents for compliance with statute and rule. Several common violations were found in the CTA Mail-in Audits completed in These violations are being addressed to assist property managers and principal brokers in making sure their CTA records comply with law. 1. No monthly three-way reconciliation. (OAR ) Licensees must complete a threeway reconciliation monthly. They must maintain the reconciliation with the supporting documents for six years. The three components of a reconciliation are: 1) The check register or a receipts and disbursement journal 2) The owners ledgers or tenants ledgers 3) The bank statement 2. No documentation for check register or receipts and disbursement journal entries. (OAR ) Each check written from a CTA must be documented in the check register or the receipts and disbursements journal with the following: Date check was written Check number Payee Purpose of disbursement Owners identifying code Each deposit into a CTA must be documented in the check register or the receipts and disbursements journal with the following: Date funds were received Amount of the funds Purpose of funds Identity of the person who tendered the funds Date the funds were deposited. 3. No detail provided for owners ledgers. (OAR ) Licensees must not only report the owners ledgers month end balances, but they must also provide the details for each ledger. For each deposit of funds, the ledger must include: The amount of funds received The purpose of the funds and identity of the person who tendered the funds The check number, cash receipt number or a unique series of letters and/ or numbers that established an audit trail to the receipt of funds The date the funds were deposited

16 For each disbursement, the ledger must have: The date the funds were disbursed The amount of funds disbursed The check number or bank-generated electronic tracking number The payee of the disbursement The purpose of the disbursement The balance after each recorded entry 4. Commingling the licensee s funds in the CTA. (ORS , OAR and OAR ) Licensees mixed their personal monies with their clients funds in the CTA. This includes running their personal rental income through the CTA to allowing banking fees to be charged to the CTA. 5. Incorrectly named CTA bank account. (ORS and OAR ) A majority of the CTAs are named incorrectly, many using the word Clients without an apostrophe. All CTAs must be labeled as a Clients Trust Account, with an apostrophe after the s. 6. No Notice of Clients Trust Account form. (ORS ) Licensees must maintain a completed Notice of Clients Trust Account form, signed by a bank representative. 7. Failure to notify the Agency within 10 days of opening or closing a CTA. (ORS ) Licensees are required to keep an up-to-date list of CTAs in their elicense account. This meets the notification requirement. Administrative Actions The following section is a review of a recent administrative action imposed by the Agency upon a licensee violating the Clients Trust Account regulations. The purpose of this section is to provide insight regarding disciplinary actions that can result from failure to practice real estate in a lawful manner. Administrative actions are available to the public and can be found in the Oregon Real Estate News-Journal. In this review the names have been changed, but the substance of the violations is the same. In the Matter of the Real Estate License of Mr. Smith: On May 18, 2010, OREA received a complaint against Mr. Smith from Mrs. Jones, who was an owner of property Mr. Smith managed between April 2006 and February Mrs. Jones alleged multiple issues of Mr. Smith commingling funds while Mr. Smith was managing Mrs. Jones properties. Mrs. Jones identified four clients' trust accounts maintained by Mr. Smith which held funds for Mrs. Jones and her tenants: Creekside security deposits (Creekside security), Creekside operating, San River security deposits (San River security) and San River operating.

17 On June 14, 2010, OREA opened a second investigation due to non-response by Mr. Smith to a request for the March 2010 reconciliation documents for his multiple owner "Clients Trust Account-pooled property management account" (pooled CTA). OREA had mailed a letter on April 1, 2010, requesting the reconciliation documents be submitted by May 17, During the course of the subsequent investigation, multiple violations were found. For the pooled CTA Mr. Smith maintained, the following violations were found: 1. Mr. Smith failed to record a banking transfer from March 4, 2010, on his check register for the pooled CTA for the February 2010 management fees. 2. Mr. Smith failed to record an analysis service charge from March 12, 2010, on his pooled CTA check register. Violations: OAR (2) (2009 Edition, 1/1/09), which requires that a check register document all funds received and disbursed by a property manager, and OAR (5) (2009 Edition, 1/1/09), which requires that, upon any activity, the property manager must record each receipt, deposit or disbursement on their check register and on the corresponding owner's ledger and/or tenant's ledger. (2 counts) 3. Mr. Smith failed to disburse, at least once each month and when sufficient funds existed, earned management fees from the San River operating account in January, February, November and December of Violation: OAR (15) (2009 Edition, 1/1/09), which requires that a property manager disburse earned management fees from clients' trust accounts at least once each month if sufficient funds are available. (4 counts) 4. Mr. Smith delayed disbursement of earned management fees from the pooled CTA for March 2010 and June 2011, keeping funds in the account to cover bank charges and other charges not agreed to in the property management agreement, and offsetting those expenses against his income, yet failed to document the traceability of his entries. Violation: ORS (9) (2009 Edition and 2011 Edition) and OAR (3) and (3)(a) (2009 Edition and 4/15/11 Edition), which prohibits a principal real estate broker from knowingly keeping any funds in a clients' trust account that belongs to their clients except actual trust funds, and prohibits any funds received on behalf of a property owner to be comingled with personal funds of the property manager. (2 counts) 5. Mr. Smith failed to timely reconcile the pooled CTA for March 2010 and June 2011, and was unable to identify and explain the difference between the reconciled bank balance, check register balance, and owners' ledger balance totals, including corrective action taken. Violation: OAR (20) (2009 Edition and 4/15/11 Edition), which requires that a property manager reconcile each clients' trust account within 30 calendar days of the date of the bank statement. (2 counts)

18 6. Mr. Smith disbursed funds from the pooled CTA for an owner with two properties, which resulted in a balance of -$1, at the end of the February Violation: OAR (12) (2009 Edition, 1/1/09), which prohibits a property manager from disbursing funds from a clients' trust account unless there are sufficient funds in the account. 7. Mr. Smith failed to establish a sufficient audit trail by making an electronic withdrawal on March 1, 2010, to NW Natural for $ as recorded on the pooled CTA bank statement and instead posted check number #5788 to the check register payable to NW Natural for $ Violation: OAR (9) (2009 Edition, 1/1/09), which requires that a property manager engaging in electronic banking transactions must record those transactions sufficient to establish an audit trail. 8. Mr. Smith issued computer-generated checks from the pooled CTA that were not consecutively numbered. Violation: OAR (11)(b) (2009 Edition, 1/1/09), which requires that if a property manager uses computer generated checks, they must be numbered consecutively. 9. Mr. Smith had two deposits in the pooled CTA that were outstanding longer than 30 days on his "un-cleared" deposits and credits from his June 2011 reconciliation detail ledger. Violation: OAR (1) (2011 Edition, 4/15/11 ), which requires that all funds belonging to others and accepted by a property manager be deposited prior to the close of business on the fifth banking day following the date of receipt of the funds. (2 counts) 10. In maintaining clients' trust accounts for owner funds and security deposits for Creekside, Mr. Smith did not meet the requirement of having open accounts labeled as "Clients' Trust Account" on all bank records and checks. Violation: ORS (1) (2009 Edition) and OAR (11)(c) (2009 Edition, 1/1/09), which requires that each principal real estate broker shall maintain one or more separate bank accounts that shall be designated clients' trust account in which all trust funds received or handled by the broker shall be deposited. Clients' trust account is defined as a federally insured bank account labeled as "Clients' Trust Account" on all bank records and checks that is established and maintained by a property manager acting on behalf of an owner under a property management agreement for depositing, holding and disbursing funds received by the property manager on behalf of an owner. 11. Mr. Smith failed to disburse, at least once each month and when sufficient funds existed, earned management fees from the Creekside operating CTA for December of 2009 and January of Violation: OAR (15) (2009 Edition, 1/1/09), which requires that a property manager disburse earned management fees from the clients' trust account at least once each

19 month, unless a different schedule of disbursement is specified in the property management agreement. (2 counts) 12. In maintaining clients' trust accounts for owner funds for San River, Mr. Smith did not meet the requirement of having open accounts labeled as "Clients' Trust Account" on all bank records and checks. Violation: ORS (1) (2009 Edition) and OAR (11 )(c) (2009 Edition, 1/1/09), which requires that each principal real estate broker shall maintain one or more separate bank accounts that shall be designated clients' trust account in which all trust funds received or handled by the broker shall be deposited. Clients' trust account is defined as a federally insured bank account labeled as "Clients' Trust Account" on all bank records and checks that is established and maintained by a property manager acting on behalf of an owner under a property management agreement for depositing, holding and disbursing funds received by the property manager on behalf of an owner. 13. Despite no change in security deposits received in December 2009, Mr. Smith posted a journal entry of $ on December 30, 2009, on the check register for the San River security deposits CTA. Violation: ORS (12) (2009 Edition), which states that a licensee may be disciplined if they demonstrate incompetence in performing any act for which the licensee is required to hold a license. 14. Mr. Smith kept forfeited security deposits, detailed in the letter dated April 20, 2009 to tenant Douglas, in the San River security deposits CTA until March 15, 2010, and failed to disburse a balance of $ in the account after forwarding all security deposit funds to the new property management company, Mid-Valley. Violation: OAR (6) and (2) (2009 Edition, 1/1/09), which mandates that the only funds that may be held in a security deposits account are security deposits and interest earned on the security deposits account, and requires that all obligated funds be disbursed to the owner within 60 days of the termination of a property management agreement, unless otherwise instructed in writing by the owner to transfer the funds to another property manager. 15. Mr. Smith verbally agreed to amend the property management agreements with Mrs. Jones to authorize use of petty cash funds instead of obtaining a written amendment to the agreement. Violation: OAR (4) (2009 Edition, 1/1/09), which requires that any amendment or addendum to a property management agreement must be in writing. 16. Mr. Smith kept Mrs. Jones' funds in the petty cash account, gave Mrs. Jones a month-end balance of petty cash, but failed to maintain records of the use of petty cash in a format that readily enabled tracing and reconciliation, including whether the check register of

20 the Creekside operating CTA and San River operating CTA reflected activity in the petty cash account. Violation: OAR (3)(b) and (5) and (6) (2009 Edition, 1/1/09), which requires that posting of owner and tenant ledgers must be maintained in a format that will readily enable tracing and reconciliation; requires that upon any activity, the property manager must record each receipt, deposit or disbursement on the corresponding owner's ledger and/or tenant's ledger; and allows a property manager to aggregate individual deposits or disbursements only if they are aggregated on a daily basis and a separate report is maintained detailing each aggregated deposits and disbursements. 17. Mr. Smith maintained the San River operating CTA and Signature petty cash account, and held non-trust funds in a trust account. Violation: ORS (9)(2009 Edition), which states that a principal real estate broker may not knowingly keep any funds or money in any clients' trust account, except actual trust funds received by the broker. 18. Between at least September 13, 2011 and October 18, 2011, Mr. Smith kept records stored offsite, but did not notify OREA of the removal of the documents, including the location of the files and authorization to examine the files. Violation: ORS (2009 Edition) and OAR (1 )(a) and (b)(a) and (B) (2011 Edition, 9/1/11), which requires that a real estate broker maintain in this state complete and adequate records of all professional real estate activity, that the records must at all times be open for inspection by OREA, and that the principal real estate broker must notify OREA in writing of the address where the records will be stored and if the address where the records are stored changes. 19. Mr. Smith failed to disburse $100 from the Creekside security deposits CTA after transfer of security deposit funds to the new property management company, Mid-Valley Management (Mid-Valley). Violation: OAR (2)(a) (2009 Edition, 1/1/09), which requires that all obligated funds be disbursed to the owner within 60 days of the termination of a property management agreement, unless otherwise instructed in writing by the owner to transfer the funds to another property manager. Disciplinary Actions: Based on these violations, OREA proposes to suspend Mr. Smith's real estate license. A suspension is appropriate under ORS (2)(c)(B), which states that a license may be suspended if the material facts show that the licensee exhibited incompetence in the performance of professional real estate activity. OREA reserves the right to investigate and pursue additional complaints that may be received in the future regarding this licensee.

21 IT IS HEREBY ORDERED that Mr. Smith's license be suspended for 60 days beginning October 1, In addition, Mr. Smith must complete the 60 hour property manager pre-licensing course before his license can be activated following the suspension, and he must provide documentation to OREA when he has done so.

22 Module 1 Clients Trust Accounts Review Questions (576 words) 1. True or false? A trust fund is Money belonging to others that is received or handled by a licensed real estate property manager or principal real estate broker in the course of conducting professional real estate activity and in the real estate licensee s fiduciary capacity. a. True b. False 2. Which of the following states can clients trust accounts be opened in? a. Washington b. Oregon c. California d. All of the above 3. The money in a Clients Trust Account belongs to whom? a. The client b. The bank c. The state of Oregon d. The principal broker 4. True or false? It is necessary for a licensed property manager to have at least one Client s Trust Account opened and maintained. a. True b. False 5. Which of the following must be done upon the opening of a Clients Trust Account? a. Name the account correctly b. Notify the bank c. Notify the Oregon Real Estate Agency d. All of the above 6. Who must sign the Notice of Clients Trust Account form? a. The Property Manager b. The Client c. The Bank Representative d. The Property Owner

23 7. The Oregon Real Estate Agency must be notified within days of the opening of a Clients Trust Account. a. 8 b. 10 c. 12 d For sales transactions, trust funds can be placed in an interest-bearing account only if: a. All parties agree in writing b. The written agreement specifies to whom the interest earnings belong c. The bank account is federally insured d. All of the above 9. Trust funds can be placed in an interest-bearing account only if the property management agreement specifies: a. To whom the interest earnings belong b. When the interest must be disbursed c. Any pass-through fees d. All of the above 10. Which of the following information does NOT need to be reported about the Clients Trust Account? a. The name of the bank b. The date the account was opened c. The date the account is projected to close d. The account number 11. A copy of the Notice of Clients Trust Account must be retained for at least years following the closing of the account. a. 5 b. 6 c. 3 d True or false? An owner may be an authorized signer on a Clients Trust Account. a. True b. False

24 13. A property manager must disburse earned management fees from the client's trust account at least once unless a different schedule of disbursement is specified in the property management agreement. a. Each week b. Each month c. Each year d. Each quarter 14. Which of the following is NOT a component of a three-way reconciliation? a. The bank statement balance, adjusted for outstanding checks and other reconciling bank items b. The balance of the receipts and disbursements journal or check book register as of the bank statement closing date c. Financial records showing that disbursement did not involve the use of any other owner's or tenant's trust funds d. The sum of all the balances of the individual trust account ledgers as of the bank statement closing date 15. What administrative actions were ordered for Mr. Smith who was found in violation of OREA s regulations concerning Clients Trust Accounts? a. His license was suspended for 60 days b. His license was revoked c. He must complete 60 hours of property management pre-licensing courses d. Both A and C

25 Module 2 Advertising What are the definitions of Advertising and Advertisement? Advertising and advertisements include all forms of representation, promotion and solicitation disseminated in any manner and by any means for any purpose related to professional real estate activity, including, without limitation, advertising by mail; telephone, cellular telephone, and telephonic advertising; the Internet, , electronic bulletin board and other similar electronic systems; and business cards, signs, lawn signs, and billboards. To summarize, anytime a licensee makes information regarding a property, the licensee themselves, or the licensee s company available to the public it is considered advertising. What is required in a licensee s advertisement? Advertising by a licensee, in process and in substance, must: 1. Be identifiable as advertising of a real estate licensee; 2. Be truthful and not deceptive or misleading; 3. Not state or imply that the real estate broker or property manager associated with a principal real estate broker is the person responsible for operating the real estate brokerage or is a sole practitioner or principal broker; 4. Not state or imply that the licensee is qualified or has a level of expertise other than as currently maintained by the licensee; and 5. Be done only with the written permission of the property owner(s) or owner(s') authorized agent. Advertising that includes the licensee s name must: Use the licensee s licensed name; or Use a common derivative of the licensee s first name and the licensee s licensed last name. In general, real estate licensees should advertise in a way that does not mislead or deceive the public. Advertisements should not be "of such a character as reasonably to induce any person to act to his damage or injury." What is a common derivative and when can it be used? A common derivative is a shortened version of the licensee s first name. For example, Jonathan might be shortened to Jon, or Alexandra might be shortened to Alex or

26 Alexa. The common derivative of the licensee s first name MUST be used with the entire licensed last name. You can make sure you are using the entire licensed last name by verifying with the name listed on your license or checking on the Oregon Real Estate Agency s website: Generally nicknames will most likely not be considered as a common derivative of the licensee s first name. If using a nickname it should be used with licensee s entire licensed name. How should the licensed name or the registered business name be displayed in advertisements? The licensed name or registered business name of the principal real estate broker, sole practitioner real estate broker, or property manager must be: Prominently displayed, Immediately noticeable, and Conspicuous in all advertising. Don t forget that this includes all internet advertising and advertising done through social media. What are the review and approval requirements for advertising? A real estate broker must: Submit proposed advertising to the licensee s principal broker for review and receive the principal broker s approval before publicly releasing any advertisement; and Keep a record of the principal broker s approval and make it available to the agency upon request. What are the responsibilities of the principal broker? A principal real estate broker: Is responsible for all advertising approved by the principal broker that states the principal real estate broker's licensed name or registered business name; and Must review all advertising of a real estate broker or a property manager who is associated with the principal real estate broker.

27 A principal real estate broker may delegate direct supervisory authority and responsibility for advertising originating in a branch office to the principal broker who manages the branch office if such delegation is in writing. By delegating this authority to principal brokers who manage branch offices, the principal broker removes themselves from the responsibility of any advertising done in those branch offices. However, this delegation is not possible if there is not a principal broker at the branch office. When does advertising approval have to be obtained? Licensees must receive the principal broker s approval BEFORE publicly releasing any advertisement. The exception to this rule is if the licensee is selling his or her own property that is unlisted. Does a record need to be maintained of an advertisement s approval? Yes. A licensee must keep a record of the principal broker s approval and make it available to the Oregon Real Estate Agency upon request. What are the requirements for advertising in electronic media? Electronic media includes but is not limited to: Internet, Web pages, , discussion groups, Blogs, and Electronic bulletin boards Electronic advertising must comply with all other advertising requirements and also: 1. Must include on its first page: a. The licensee s licensed name; b. The licensed name or registered business name of the principal real estate broker, sole practitioner real estate broker, or property manager; and c. A statement that the licensee is licensed in the State of Oregon. Sponsored links, which are paid advertisements located on a search engine results page, are exempt from these requirements if the first page following the link complies with these requirements.

28 from a licensee is exempt from these requirements if the licensee s initial communication contained the information required. Can advertisements guarantee profits? No, advertising may not guarantee future profits. No advertising may guarantee future profits from any real estate activity. When can the terms team or group be used in advertising? The words Team or Group may be used in advertising if the following requirements are met: 1. The use of the term does not constitute the unlawful use of a trade name and is not deceptively similar to a name under which any other person is lawfully doing business; 2. The team or group includes at least one real estate licensee; 3. The licensee members of the team or group are associated with the same principal broker or property manager; 4. The licensee members of the team or group use each licensee s licensed name (Note: Use either the licensee s licensed name or a common derivative of the licensee s first name and the licensee s licensed last name.); 5. If any non-licensed individuals are named in the advertising, the advertising must clearly state which individuals are real estate licensees and which ones are not; and 6. The advertising complies with all other applicable provisions of ORS chapter 696 and its implementing rules, including review and approval requirements. Advertising Checklist for Brokers Below you can find a checklist that may assist in complying with the Oregon Real Estate Agency s advertising requirements.

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30 Administrative Actions The following section is a review of a recent administrative action imposed by the Agency upon a licensee violating advertising regulations. The purpose of this section is to provide insight regarding disciplinary actions that can result from failure to practice real estate in a lawful manner. Administrative actions are available to the public and can be found in the Oregon Real Estate News-Journal. In this review the names have been changed, but the substance of the violations is the same. In the Matter of the Real Estate License of Mrs. Small: On February 23, 2010, OREA received a complaint from Mr. Thomas alleging: (1) that he had been told that he had to offer $320, on a property listed for $305, because he wanted to use a Veterans Administration (VA) loan to finance the purchase; (2) that a counteroffer was backdated; (3) that he could not receive all pages of the seller's additional property disclosure until after he had signed accepting the additional disclosure; (4) that he was not made aware that 4.5 acres of the 5.1 total acres was tidelands and unusable until after he made his offer; (5) that the taxes were $4, per year not $3, as advertised and were scheduled to go up; (6) that the property was in a flood zone when he had been told it was on a bluff; (7) that Mrs. Small had looked into his finances without permission; and (8) that he was pressured to withdraw his offer so that a higher offer that had been received after his could be accepted. On November 20, 2009, Mrs. James listed property she owned at Cape Arago Highway in Coos Bay, OR with Mrs. Small. Mrs. Small completed a Regional Multiple Listing Service (RMLS) Residential Data Input Form at the time of listing. Mrs. Small entered 5.1 acres as the lot size on the input form. The text that Mrs. Small entered into the private comments field included the following language, "Most of land is in the bay..." The public comments did not mention that a portion of the property was not usable. Violation: By placing information that most of the subject property was in the bay in the private RMLS comments instead of the public comments, Mrs. Small s advertising was misleading in violation of OAR (2)(b) and is subject to sanction pursuant to ORS (3). Mrs. Small entered the tax information for the property on both RMLS and RWRE as $3, Mrs. Small missed a $66.25 special tax assessment which would bring the total 10 taxes to $4, Violation: By entering a tax amount in both RMLS and RWRE that failed to include a $66.25 special assessment, Mrs. Small recklessly published materially misleading or untruthful advertising in violation of ORS (4). IT IS HEREBY ORDERED that Mrs. Small be, and hereby is, reprimanded.

31 Module 2 Advertising Review Questions (459 words) 1. Which of the following is considered advertising? a. A mailed flyer promoting a licensee s business b. A telephone call to c. An to a potential client regarding a property they are interested in d. All of the above 2. True or false? Advertising should be identifiable as the advertising of a real estate licensee. a. True b. False 3. Which of the following is true regarding advertisements? a. A licensee can state that he or she is an expert in Green Housing Issues from having worked in residential real estate for 1 year. b. A licensee with a Seller Representative Specialist designation can state that he or she has expertise in working with sellers. c. A broker can imply that they are responsible for operating the real estate brokerage. d. Only a principal broker can guarantee customers will make a profit on a real estate investment. 4. True or false? Nicknames are always accepted as common derivatives a. True b. False 5. Which of the following is true regarding how the registered business name must be displayed in advertisements? a. Prominently b. Immediately noticeable c. Conspicuous d. All of the above 6. True or false? Advertisements on social media do NOT need to comply with the same regulations as print media. a. True b. False