Realtors Unknowingly Practice Law

Do you expect your real estate agent to be the real estate legal expert and provide you with the best real estate legal advice on the sale or purchase of your home? If you do, you’re not alone. Even though licensed real estate agents in Maryland are required to take continuing education on new and/or changed real estate related legislation, the fact remains that providing legal advice goes beyond the scope of practice for a licensed real estate agent.

Consumers often ask about the scope of practice for a licensed real estate agent. After all, the agent facilitates real estate contracts as well as facing legal issues every day. Does a licensed real estate agent have the ability to advise clients on real estate legal matters? When should a real estate agent draw the line and tell their client to seek the advice of an attorney?

To be clear, a license to practice real estate is NOT a license to practice law (however, there are agents who are licensed attorneys). In fact, the Code of Maryland ( ) offers guidance in supervising licensees indicating that “(C) Written procedures and policies which provide clear guidance in the following areas:(x) The unauthorized practice of law by a licensee;”

Additionally, Article 13 of the National Association of Realtors code of ethics states (, “REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.”

Given the strong positions of regulatory bodies, it should be clear that a real estate agent cannot act as a legal advisor or provide legal advice. Some lines are well defined and should not be crossed; however other lines are gray and sometimes confuse real estate agents and consumers alike as to the legal implications and consequences.

For example, some agents feel that it is necessary to alter a listing or sales contract to fit the needs of the transaction. Rather than having an attorney review the contract and make any necessary changes, some agents will eliminate or add wording to a contract on their own. This may sound harmless, however many agree that this can be the unauthorized practice of law.

Recent market trends provide this timely example: As many home owners are facing legal and financial challenges, some real estate agents are advising home owners to undergo the short sale process. Unfortunately, they do not consider the consequences as well as other available options. Again, many agree that giving such advice may be construed as the unauthorized practice of law.

Besides being resourceful and knowledgeable, real estate agents are trained to be experts in the marketing and selling of homes. Real estate agents are not attorneys nor should they pretend to act like one. In real estate transactions, sometimes the consequences to seemingly obvious solutions can turn into legal nightmares. So, don’t be offended the next time your real estate agent suggests you talk to your attorney; always consult your attorney whenever you seek guidance on your legal responsibilities to any real estate transaction.

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By Dan Krell

This article is not intended to provide nor should it be relied upon for legal and financial advice. Copyright © 2008 Dan Krell.

HUD is Kicking Back

When you bought your home recently did your Realtor or lender tell you that you had to use a specific lender or title company? Did the seller require you to use the mortgage and title companies of their choosing? If so, you may have been denied your right to choose the lender and title company to conduct the settlement for your home purchase just for a kickback.

To help home buyers become educated consumers about settlement services a law was passed in 1974 called the Real Estate Settlement Procedures Act also known as RESPA. RESPA has many caveats associated with it however there are several common provisions associated with a home buyer’s choice of settlement companies and lenders.

First, RESPA requires that home buyers receive disclosures that disclose costs related to settlement, as well as outlining lender servicing and escrow account procedures, and disclosing relationships between settlement professionals and other real estate professionals. This protects the home buyer by allowing them to know what they are to expect with regard to fees, affiliated business relationships, etc.

Second, RESPA is widely known for prohibiting giving or receiving anything of value, including money, for settlement service referrals, also known as kickbacks. RESPA also prohibits fee splitting and receiving compensation for services that were not provided. This is done because kick backs typically increase fees charged to the home buyer, sometimes excessively, so as to “take care” of the referring party.

Third, RESPA prohibits a home seller from requiring a home buyer to use a specific title company or lender.

Penalties for violating RESPA are stiff. Violations of RESPA include civil and criminal penalties. The penalties vary depending on the infraction. For example, if someone is found guilty in criminal court of giving or receiving a kickback, they may be subject to a $10,000 fine and a year in jail. The civil penalty for kickbacks is the repayment of three times the fee in question.

Although kickbacks are not as common today as they were in years past, they still exist. In response, the U. S. Department of Housing and Development (HUD) has taken a firm stance on kickbacks in the last several years. There have been many out of court settlements in the last few years, and there may be some serious criminal charges pending as investigations continue.

It is not uncommon for home buyers, especially first time home buyers, to ask their Realtor for lender and title company recommendations. After all, most people do not buy homes very often. As a practice, many Realtors provide a list of several names of lenders or title companies for the home buyer to interview. The list is usually comprised of professionals with whom the Realtor has worked with in the past and (hopefully) had a good experience. As a home buyer, you can always start with whomever you bank with. It makes sense that since you have already developed a banking relationship with your bank, why not start there?

If you find yourself in the situation where you are “forced” to use a specific lender or title company, or you think this may have occurred in the past, you can contact HUD ( or contact the state attorney general’s office of consumer protection for additional information.

By Dan Krell
Copyright © 2006