An Update on Records Retention Requirements
by Demco Law Firm, P.S.
All firms and brokers should be generally familiar with the requirements to maintain transaction records to comply with license law and for sound risk management. However, what to retain, how to retain it and for how long is not always so well known. In addition, the Department of Licensing (“DOL”) changes their requirements both formally and informally from time to time. Following is the most current information.
Brokers must give their designated broker (“DB”) or managing broker all transaction documents. This includes legible copies of all agreements for brokerage services (such as listing contracts and commission agreements); and “all agreements, receipts, contracts, documents, leases, closing statements and material correspondence for each real estate or business opportunity transaction, and for each rental, lease, contract or mortgage collection account”. WAC 308-124C-105. The DB must retain for at least three years copies all such documents either in paper or in electronic form at the licensed office and in a manner that is readily retrievable upon audit.
The 2010 Legal Bulletin “Are You Ready for the New License Law?” is included with this bulletin and should be reviewed for details on records retention requirements and recommended practices. Since the 2010 Bulletin, DOL has come out with a broad definition of “transaction documents” and has adopted a regulation that makes clear that only “material” correspondence, and not all correspondence, must be retained.
The retention requirement for correspondence is limited to that which is “material”. DOL has not formally defined what is considered “material”. It is recommended that at a minimum all correspondence relating to contract formation, exercise of a contingency, termination, and other significant transaction events be maintained. Correspondence includes communications on paper or by email, text, etc. It also includes notes or transcripts of phone conversations or messages, though DOL does not consider a voice message itself as correspondence and does not require that it be saved.
DOL defines “transaction documents” broadly to include even unaccepted offers and counteroffers. When the new license law came out DOL did not initially require firms to retain unaccepted offers and counteroffers. However, the Department revised their stance and now requires firms to retain unaccepted offers and counteroffers. DOL auditors have been requesting unaccepted offers during recent firm audits.
DOL also requires that both the selling and listing firms obtain and maintain receipts for earnest money deposits. This requirement obligates both firms to request an earnest money deposit receipt from the holder of the earnest money if the holder does not automatically provide a receipt.
Compliance with licensing regulations and DOL requirements is not the only reason to save records and communications. In the event of a lawsuit or DOL complaint, the more records and communications that have been saved, the better a broker’s or firm’s chances of prevailing. Windermere counsel have seen countless situations where an old email, text message, or other record has greatly assisted in the legal defense of a broker accused of wrongdoing. From this standpoint, it may be worth the effort to save as much as possible.
The requirements referenced herein are requirements of the firm and not individual brokers. However, it is recommended that individual brokers also maintain, at a minimum, the same records that the firm is required to retain. In addition, although license law only requires retention of records for three years, from a risk management perspective it is advisable for both the firm and brokers to retain records for seven years as that is the point at which all statutes of limitations on the kinds of claims brokers typically face will have expired.
This legal bulletin is provided for informational purposes only, and to assist brokers in identifying potential legal problems. It should not be used as a substitute for obtaining the advice of an attorney when problems arise, and is not intended to constitute legal advice. A lawyer cannot give legal advice without a detailed factual background of the client's particular situation, as the same legal question may have different answers under different circumstances. Do not base any important decisions on these materials without first consulting an attorney.
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