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Ethics, Fair Housing and Standards of Conduct in California

General Prohibited Conduct

The real estate industry in the United States is subject to rigorous ethical standards and Fair Housing laws designed to promote equality and prevent discrimination. In this article, we will explore general prohibited conduct as set forth in the California Code of Regulations (CCR) and other relevant references.

Panic Selling or Blockbusting

Attempting to induce the sale or rental of real property through any representation regarding the entry of persons of another race, color, sex, religion, ancestry, marital status, or national origin into an area or neighborhood is prohibited (CCR 2781).

Appraisals

Attempting to improperly influence the development, reporting, outcome, or review of a real estate appraisal requested in connection with a mortgage loan is prohibited (CCR 2785; CC 1090.5).

Discriminatory Conduct (CCR 2780)

Prohibited discriminatory conduct based on race, color, sex, religion, ancestry, physical disability, marital status, or national origin includes the following:

  • Refuse to negotiate the sale, rental or financing of a property or otherwise make it available.
  • Refuse to show, rent, sell or finance real estate.
  • Directing a person away from real estate.
  • Discriminate in the terms, conditions or privileges of a sale, rental or financing of real estate.
  • Discriminate in the provision of services or facilities in connection with the sale, rental, or financing of real estate, including processing applications, referring prospects to other licensees, and using special codes to identify minority prospects.
  • Representing that a property is not available when in fact it is.
  • Encourage discrimination in others.
  • Refuse to work with another licensee.
  • Obstruct a purchase, sale or rental.
  • Express or imply a limitation, preference or discrimination.
  • Coerce, intimidate, threaten, or interfere with another person's enjoyment of federally or state-protected rights.
  • Retain information about procedures related to the future availability of a real estate property.
  • Discourage the rental, sale or financing of real estate.
  • Agreeing or carrying out discriminatory instructions.
  • Discriminatory advertising.
  • Quote or charge different rates or deposits.
  • Apply different financial qualification standards.
  • Provide unequal management services.
  • Establish rules that limit a person's opportunities.
  • Promote any violation of federal or state fair housing law.
  • Assisting any person to discriminate in the sale, rental or financing of real estate when there are reasonable grounds to believe that the person intends to discriminate.

State and National Fair Housing Laws and Professional Ethics in Real Estate

It is essential to comply with Fair Housing laws and ethical standards to promote equality and avoid discrimination. We will explore state and national Fair Housing laws and how licensees may incur liability if they engage in discriminatory practices in the housing market.

Unruh Civil Rights Act

The Unruh Civil Rights Act prohibits discrimination based on sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, or sexual orientation (CC 51) (Lee v O'Hara (1962) 57 C2d 476).

Fair Housing Act

The Fair Housing Act (FHA), commonly known as Title VIII of the Civil Rights Act of 1968 and the Civil Rights Act of 1866, prohibits discriminatory practices in the sale or rental of housing and can serve as a basis for imposing liability for damages to brokers who participate in discriminatory practices.

California Fair Employment and Housing Act (FEHA)

The California Fair Employment and Housing Act, also known as the Rumford Act, prohibits discrimination based on “race, color, religion, sex, marital status, national origin, ancestry, familial status, disability, or sexual orientation in accommodations” including when requested by the seller (GC 12900-12996).

Real Estate Law and Commissioner's Regulations

The Real Estate Law and the Commissioner's Regulations provide for the revocation of a broker's license for discriminatory behavior (BPC 125.6; 10170.5(a) (4); 10177(l); CCR2725; 2780-2781).

Holden Law (Housing Financial Discrimination Act)

The Holden Act (Housing Financial Discrimination Act) prohibits discriminatory practices in lending activities (HSC 3580).

Licensees who engage in discriminatory practices in the housing market may incur liability under various Fair Housing laws, highlighting the importance of ethics and compliance with these laws in the real estate industry.

Regulation of Advertising in Ethics, Fair Housing and Standards of Conduct

To ensure transparency and avoid deceptive practices, it is essential that brokers and licensees comply with established advertising regulations. We will explore the key regulations related to advertising in the real estate space.

Disclosure of licensed status

Any advertising by a licensee related to licensed activities must disclose the licensee's licensing status. This includes disclosure of the licensee's name, license identification number and any unique identifiers assigned by the Nationwide Mortgage Licensing System and Registry, as well as the identity of the responsible broker.

The term “broker,” “agent,” “Realtor,” “loan correspondent,” or abbreviations such as “bro.” or “agt.” are sufficient to meet disclosure requirements (CCR 2770.1).

Solicitation materials

Solicitation materials intended as the “first point of contact” with a consumer must disclose the real estate license numbers of all licensees listed on the application, except for responsible brokers or corporate brokers who identify themselves as such. in the materials.

This applies to a wide variety of materials, including everything from business cards and websites to electronic and print media advertisements and “For Sale” signs posted on or around a property (CCR 2773).

Misleading advertising

Advertising by real estate licensees may not contain any false, misleading or deceptive statements regarding rates, terms or conditions of purchase or loan.

Any false statement relating to land offered for sale or rent is a public offense punishable by fine, imprisonment and license suspension or revocation.

It is important to note that a seller must include the name of the responsible broker in any advertisement for services that require licensing. Additionally, any advertisement by a licensee offering application assistance for the purchase or lease of government land must provide the name of the broker and the state in which it is licensed.

Finally, a licensee may not advertise the offer of a gift, bonus, or other item of value as an inducement to obtain a loan or purchase a note secured by a lien on real property or a real estate sales contract (BPC 10236.1).

Complying with these regulations is critical to ensuring that advertising in the real estate industry is transparent and not misleading, which benefits both consumers and real estate professionals.

Disclosures and Essential Notices for Brokers on Ethics, Fair Housing and Standards of Conduct

Brokers play an essential role in conducting fair and ethical real estate transactions. To ensure transparency and fairness, there are a number of key disclosures and notices that brokers must provide to all parties involved in a transaction. Below are some of the Disclosures and essential notices that brokers must take into account:

Agency relationship, interest, and compensation

As previously discussed (under “Disclosures” in Part III), a licensee involved in a transaction must make the following Disclosures:

  • The nature of the agency relationship when providing the Agency Disclosure form required by law.
  • Any special interest in the transaction, whether as principal or other interest.
  • All compensation, regardless of its form, timing or source of payment.

Arranger of financing

If a licensee acts as an agent in a transaction and is also responsible for arranging financing, they must make a written Disclosure of this fact to all parties within 24 hours of assuming dual roles. Additionally, if a licensee receives compensation for acting as an agent and arranging financing, it must disclose the form, amount and source of the compensation to all parties prior to the closing of the transaction.

Broker's duty to inspect

A real estate licensee under contract with a seller of residential property to find a buyer has a duty to conduct a reasonably competent and diligent visual inspection of the property. Additionally, you must disclose to a potential buyer all facts materially affecting the value or desirability of the property that such an inspection would reveal. The results of this inspection are reported in the “Agent Inspection Disclosure” section of the Transfer Disclosure Statement.

Earthquake guide

A broker or salesperson satisfies the obligation to provide earthquake information to a purchaser by providing a copy of the Owner's Guide to Earthquake Safety (Homeowner's Guide to Earthquake Safety).

Environmental Hazards

The Transfer Disclosure Statement identifies environmental hazards that must be disclosed if known. If the seller or the seller's agent provides a prescribed environmental hazard brochure to the purchaser, the seller or the agent is not required to provide further information on common environmental hazards.

Gas and hazardous liquid transmission pipelines

Every residential sales contract must contain a statutory notice regarding the location of hazardous pipes.

Industrial Use Zone

The seller of a residential property who has knowledge that the property is affected by or zoned to permit industrial use must give written notice of that knowledge as soon as possible before the transfer of title.

These are just some of the essential disclosures and notices that brokers must provide during real estate transactions in the United States. Complying with these obligations is essential to ensure that all parties involved in a real estate transaction are fully informed and protected.

Lead-based paint

Federal lead-based paint disclosure is required by the seller or seller's agent of a constructed residential property before 1978.

Material facts affecting property

An agent must disclose all material facts affecting the value or desirability of the property that are known to the agent or that should be known and that are not known or readily observable by the parties to the transaction.

Megan's Law

Each residential sales and rental contract must contain the required statutory notice regarding the public availability of a sex offender database.

Methamphetamine contamination

The transferor or landlord of a residential property who has received a notice of contamination by methamphetamine laboratory activity must provide a copy of any outstanding order to clean up the property to the prospective transferor or tenant.

Natural hazard

The transferor or the transferor's agent must provide a completed Natural Hazard Declaration to a buyer if the property is located in a known or designated hazard zone, including flood, fire and earthquake.

Negotiability of commission

Any printed agreement establishing a licensee's right to compensation on the sale of residential real estate containing up to four residential units, or on the sale of a mobile home, must include the following statement in at least 10-point bold type:

“Note: The amount or rate of real estate commissions is not set by law. They are established individually by each broker and can be negotiable between the seller and the broker.”

Pest control documentation

As soon as possible before the transfer, the seller or the seller's agent must deliver any completed pest control inspection reports, certifications and notices of work required by the sales contract or the lender to the transferee. If there is more than one licensee acting as the transferor's agent, the broker who obtained the offer is responsible for delivery, unless otherwise agreed.

Rebate to Principal

The payment of a commission refund to the buyer in a transaction must be disclosed by the agent to the seller who has paid the commission.

Sales Price

The broker must inform the buyer and seller in writing of the sales price and other terms of a sales transaction within one month after closing.

Subdivision

The Subdivided Lands Law requires the subdivider to provide prospective purchasers with a public report approved by the Commissioner that discloses essential information about the project. The Subdivision Map Act requires the subdivider to record a map of the project before any transfer can be made. In a common interest subdivision, the subdivider must give purchasers a copy of a prescribed “Common Interest Development General Information” statement, as well as a copy of covenants, conditions and restrictions, bylaws, articles of incorporation and information about the homeowners association.

Transfer Disclosure Statement

Residential sellers are required to provide buyers with the complete real estate transfer disclosure statement specified in Civil Code Section 1102.6. If the required disclosure is not made prior to the execution of an offer to purchase, the buyer has the right to rescind the offer within three days of delivery of the disclosure in person or five days if delivered by mail. This requirement applies to residential property transactions involving 1 to 4 housing units, including manufactured homes, and cannot be waived by the parties. Beginning January 1, 2021, the declaration for a home built before January 1, 2010 and located in an identified high fire risk area must include a specific notice to that effect.

Violations and Sanctions: Ethics, Fair Housing and Standards of Conduct:

In the real estate industry in the United States, it is essential to understand violations and potential penalties related to ethics, fair housing, and standards of conduct. Brokers and agents must operate within legal and ethical boundaries to protect all parties involved in a transaction. The violations and corresponding sanctions are detailed below:

Escrow violations (CCR 2950, 2951)

Real estate brokers who manage trust funds must adhere to strict guidelines to ensure ethical and legal conduct. The following actions are prohibited and may be considered grounds for disciplinary action:

  1. Request or accept a trust instruction that contains any blank space that must be completed later.
  2. Allow or make changes to a trust instruction that is not signed or initialized by all persons who had signed or initialed the original instruction.
  3. Failure to provide a copy of a trust instruction to all parties at the time of execution.
  4. Failure to properly maintain records and keep them accessible to the Commissioner.
  5. Do not deposit all trust money received into a bank, trust account or escrow account on the next full business day after receiving it.
  6. Withdraw or pay any money deposited in a trust or trust account without the written instruction of the parties who deposited the money in the trust.
  7. Failure to inform all parties in writing that a licensee who manages trust funds has an interest in the agency that holds the trust.
  8. Failure to provide each principal with a written statement of all receipts and disbursements along with the names of the recipients of the disbursements at the closing of a trust transaction.
  9. Delivering or recording an instrument purporting to transfer an interest in real property without the written consent of the party whose interest is to be transferred.

Unlawful compensation

It is a misdemeanor to compensate a person for engaging in a licensed activity if that person is not a licensed real estate broker at the time the compensation is earned. For a violation of this rule, the Commissioner may temporarily suspend or permanently revoke the real estate licensee's license.

Unlicensed person

It is a public offense for any person to act as a real estate agent without being properly licensed. Violations are punishable by a fine of up to twenty thousand dollars ($20,000), imprisonment of up to six months, or both.

False Advertising

It is a public offense to knowingly engage in advertising containing any false representation about land offered for sale. Violations are punishable by a fine of up to one thousand dollars ($1,000), imprisonment of up to one year, or both. Real estate licensees may have their licenses suspended or revoked.

Substantial relationship

For purposes of licensing discipline, a crime or infraction is considered to be substantially related to the qualifications, functions or duties of a licensee if it involves activities such as:

  • The fraudulent taking of property belonging to another person.
  • Forgery, alteration or use of false statements in instruments.
  • The attempt to obtain personal financial benefit through tax evasion.
  • The use of bribery, fraud, deception, falsehood or false representation.
  • The abuse of a victim of a sexual crime.
  • Intentional violation of the Real Estate License Law.
  • The intentional violation of a statutory requirement to obtain a required license or other right before engaging in a business or course of conduct.
  • The commission of an illegal act to confer a financial benefit on the perpetrator or to harm a person or property.
  • Intentional and repeated disregard for the law.
  • The receipt of two or more convictions related to alcohol or drug use, when at least one of the convictions involves driving.

General grounds for revocation or suspension

The Commissioner may, with or without a verified written complaint, investigate the actions of any real estate licensee in the state and temporarily suspend or permanently revoke a person's license for any of the following acts:

  • Making a materially false representation.
  • Making false promises that are likely to influence, persuade or induce.
  • Pursue a continued and flagrant course of false representation or false promises.
  • Acting for more than one party in a transaction without the knowledge or consent of all parties.
  • Mixing money or personal property with the money or property of others in trust.
  • Claim or receive compensation under any exclusive listing that does not contain a specified termination date.
  • Claim or take any undisclosed compensation or fail to disclose to the licensee's employer the licensee's compensation under any agreement prior to or coinciding with the signing of a contract.
  • Exercise a purchase option without disclosing in writing to the employer the full amount of the licensee's profit and obtaining the employer's written consent.
  • Commit any type of fraud or dishonest conduct.
  • Signing a prospective buyer of a business opportunity into an exclusive representation agreement without the prior written authorization of the property owner to offer the property for sale, rental, exchange, or rental.
  • Failing to distribute funds pursuant to a mortgage loan commitment accepted by the applicant when the real estate broker claims to be the lender or to be authorized by the lender to make the commitment.
  • Intentionally delaying the closing of a mortgage loan for the sole purpose of increasing the costs payable by the borrower.
  • Violation of any licensing law governing the licensee's duties as a licensee.

Real Estate transfer disclosure statement violations

Upon receipt of a verified written complaint, the Commissioner must investigate whether a licensee properly provided the required real estate transfer statement in a transaction and may conduct the investigation without such complaint. The Commissioner, upon finding that such a violation has occurred, may suspend or revoke the licensee's license.

Additional grounds for disciplinary action

The Commissioner may suspend, revoke, delay the renewal or deny the issuance of any license to an applicant who has done any of the following acts:

  • Used fraud, deception, or misrepresentation to obtain, renew, or reinstate a real estate license.
  • Pleaded guilty or nolo contendere, or been found guilty of a felony or a crime “substantially related” to the duties of a licensee.
  • Knowingly permitted the publication of a material misrepresentation about your professional designation, certification, credential, or membership.
  • Knowingly permitted the publication of a material misrepresentation about your business or about a business opportunity or real property offered for sale.
  • Willfully disregarded or violated the Real Estate Law or the rules and regulations of the Commissioner.
  • Intentionally used the term “realtor” or has represented oneself as a member of a real estate organization when the licensee is not a member or has the right to use the term.
  • Acted in a manner that would be grounds for denying a real estate license application.
  • Had a license issued by any state or by the federal government denied, revoked or suspended for acts that would be grounds for denying, suspending or revoking a California real estate license.
  • Demonstrated negligence or incompetence in the performance of a licensed act.
  • Failed, as a broker, to exercise reasonable supervision over the activities of those working under its license.
  • Violated, as a government employee, the confidentiality of records.
  • Engaged in fraud or dishonest conduct.
  • Violated the terms of a restricted license.
  • Solicited business by implying a loss of value or decrease in quality due to the presence of persons with a protected characteristic as set forth in GC 12955 (race, color, religion, sex, gender, gender identity, gender expression, sexual orientation , marital status, national origin, ancestry, family situation, source of income, disability or genetic information).
  • The Franchise Investment Law was violated.
  • Violated the Corporate Securities Act of 1968.
  • Failure to disclose to a buyer-client a direct or indirect interest in a property being transferred.
  • Violated the Business and Professions Code (commencing with BPC 2037) with respect to securities.
  • Violated the Civil Code (beginning with CC 2920) regarding mortgages (BPC 10177).

It is crucial that real estate brokers and agents follow all regulations and ethical standards to ensure fair and legal transactions in the real estate industry in the United States. Failure to comply with these rules can have serious consequences in terms of disciplinary and legal sanctions.

Legal and Tax Disclaimer

Please be advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Keller Williams, and do not represent legal or tax counsel.

As the author, I am a licensed real estate professional under Keller Williams, holding Brokerage DRE License Number: #02197031. However, it is important to note that my expertise is in the field of real estate, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be treated as general guidance rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided "as is" without warranty of any kind, and I, along with Keller Williams and its affiliates, disclaim all liability for any loss, damage, or misunderstanding arising from reliance on the information contained herein.

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