It’s time to renew your real estate license!

*
This complimentary book contains everything you need to fulfill your continuing education requirements.
Take advantage of the convenience of distance learning.

Study by correspondence with this book or study online at www.BertRodgers.com

✓ A complimentary 14-hour continuing education course book, mailed to you at no obligation.
Keep this book as a valuable resource during your 2-year license cycle.

✓ Original course materials, a wealth of knowledge from nationally known industry experts ✓ Ongoing updates on law and rule changes ✓ Instructor, technical, and administrative support... by phone and email ✓Y  our choice of online or correspondence exam grading... select online grading for instant results
and print your course completion report!

✓ Next-day electronic reporting of your education to the DBPR
*According to DBPR records. If this is your FIRST sales or broker license renewal, you must complete POST-LICENSE Education.

Your colleagues rely on Bert Rodgers Schools for quality, convenience, and value! See what they have to say..... Informative, easy to read, and a fabulous reference book. A convenient way to comply with the required hours and keep up with the latest changes. – Lillian C., Miami Lakes, FL Thoroughly enjoyed this course... found it very clear in explanation of all issues and laws. – Mary L., Sarasota, FL This booklet and its timely arrival in my mailbox could not have been more convenient. Thank you so much! Fabulous service... will tell everyone! – Lou Ann S., Naples, FL As always your course was timely and up-to-date. Thanks! – Harriette H., Maitland, FL I’ve been a broker since 1974 and I find these courses to be very helpful in keeping me current. Keep up the good work. – Mark K., Clearwater, FL Your course has helped to increase my knowledge in the real estate industry, especially the changes in the law. – Izette G., Miami, FL Took first Bert Rodgers course in 1969. – Freddy H., Orlando, FL

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14-Hour Real Estate Continuing Education Course     i

Florida’s Real Estate License

Continuing Education Requirements
What type of continuing education do I need?

For Sales Associates, Brokers, and Broker Associates
•S  tate law requires licensees to complete post-license education (45 hours for sales associates, 60 hours for brokers) prior to renewing their license the first time. The penalty for failing to complete postlicense education before the end of your license cycle is severe. If you are a sales associate, your license may become null and void. If you are a broker, your license may revert to sales associate status. •R  eal estate licensees must complete 14 hours of continuing education, including 3 hours of Core Law during each 2-year license cycle, subsequent to their first license renewal. When does my license expire? •A  ll real estate licenses expire on March 31 or September 30 of even or odd years. Check your renewal notice or current license to verify your license expiration date. When do I need to complete my continuing education? •Y  ou may complete the required education any time during the two-year license cycle. What should I do after completing my 14-hour course and final examination? •S  ubmit your test for grading and verify you receive a passing score. •Y  ou may mail or fax your Answer Sheet to our school OR for faster results take the examination online! When is my education reported to the DBPR? •B  ert Rodgers Schools electronically reports our students’ successful completion of education to the DBPR each business day. Successful completion of your continuing education course with Bert Rodgers Schools includes passing the final examination and payment of the course tuition. •Y  our education is reported with the license number and name you provide on the final examination Answer Sheet. If this information is inaccurate, incomplete, or illegible, your education may not be reflected in the DBPR’s records and you may face late fees, penalties, and possible disciplinary action against your license. How do I renew my license with the DBPR? •A  pproximately 90 days before your license expires you may renew your license online at www.MyFloridaLicense.com/dbpr, by calling the DBPR Customer Contact Center at 850-487-1395, or by returning the renewal notice you receive in the mail. To renew online or by phone, your education must be completed and reported. Renewing by any of the above methods includes the payment of a license renewal fee. Late renewals incur a late fee in addition to the renewal fee. • The DBPR will mail your new license to the address you provided. Allow about 4 weeks for processing. What happens if I do not renew my license before the expiration date? If this is not your first license renewal: • You have a 12-month grace period after your license expiration during which you can complete the 14 hours of continuing education, pay your license renewal fee and late fees to the DBPR, and reactivate their license. When a license is involuntarily inactive, no services of real estate may be performed. Licensees need to take a FREC-prescribed 28-hour course to renew an involuntarily inactive license after the 12-month grace period, but before 24 months have passed. After 24 months the license becomes Null and Void.

ii     Bert Rodgers Schools of Real Estate, Inc.

14-Hour Real Estate Continuing Education Course
2012 Edition, Third Printing
Required Continuing Education for Florida Sales Associates, Brokers, and Broker Associates

com/dbpr The DBPR Online Service www.BertRodgers.MyFloridaLicense. and Administrative Support Telephone Hours: M-F 8:30 a.m.5:15 p.com iv     Bert Rodgers Schools of Real Estate. Inc. . Florida 34240 Tel. Sarasota. Florida 32399 850-487-1395 (Initial license or license renewal questions) Telephone Hours: M-F 8:00 a. visit the DBPR website: www.MyFlorida. Technical.com REinfo@BertRodgers.Directory Bert Rodgers Schools of Real Estate 1855 Porter Lake Drive.com Florida Department of Business & Professional Regulation (DBPR) 1940 North Monroe Street Tallahassee. 941-378-2900 • Fax 941-378-3883 Toll-free 800-432-0320 Instructor. .m.com www.m. – 6:00 p. For additional information.m. Email: TechSupport@BertRodgers.

Table of Contents MODULE 1 – Randy Schwartz 1 4 .H o u r R e a l E s tat e C o n t i n u i n g E d u c at i o n C o u r s e Real Estate Core Law: License Law. and the Brokerage Relationship Disclosure Act MODULE 2 – Kenneth Harney 1 37 New Energy Incentives: Gain a Competitive Edge MODULE 3 – Kenneth Harney Credit Products and Offerings: The Role of the Federal Government MODULE 4 – Kenneth Harney 45 55 69 79 RESPA: Review the Fundamentals and the New Federal Rules MODULE 5 – Kenneth Harney FHA Programs: Advantages for Borrowers MODULE 6 – Francois Gregoire Appraising Real Estate: The Effects of the Great Recession MODULE 7 – Ellen Hirsch de Haan Community Associations: A Primer for Real Estate Professionals 97 Case Study/Progress Test Answer Key Index  Final Exam  Our Authors 120 122 129 Randy Schwartz Kenneth Harney Francois Gregoire Ellen Hirsch de Haan 14-Hour Real Estate Continuing Education Course     v . State and Federal Laws.

It is your responsibility to ensure that you have complied with your license renewal requirements in a timely manner.D. or to use it for teaching purposes without the express written consent of the copyright holder. Learn more about Frank and Ellen’s admirable backgrounds in the Author Spotlight inside the front cover of this book. It is provided with the understanding that the publisher is not engaged in rendering legal. It was an honor to have him author the Real Estate Core Law portion of our continuing education course for the past ten years. Course records are confidential. Finally. Mitchell In Memoriam Our dear friend Jim Mitchell passed away in early 2010. shall not be liable in any way for failure to receive and/or grade your answer sheet within any specific time period. IFA. We welcome Kenneth Harney and Randy Schwartz to our family of authors with this edition of the 14-hour continuing education course.A.Acknowledgements Bert Rodgers Schools of Real Estate. M. RRA. the services of a competent professional person should be sought. Inc. If legal advice or other expert assistance is required. Our ­ students will benefit tremendously from their knowledge and perspective on the changing trends in the real estate profession. and Wendy Allex of Allex Indexing for indexing services. Inc. Cover design: Cre8tive Communications ISBN: 1-891753-54-1 Printed in the United States of America vi     Bert Rodgers Schools of Real Estate. Rodgers. James R. This course is dedicated to Jim in memory of the outstanding contributions he made to the real estate profession throughout his career. former chair of the Florida Real Estate Appraisal Board and Ellen Hirsch de Haan. Immediate Past President of the Foundation for Community Association Research. Randy has over 35 years experience as an attorney in the real estate field. Bert Rodgers Schools would like to thank Julie Wild of Wild Dezign for her typesetting expertise and patience.. ED. recognizes and respects its students’ privacy. Inc. J. ©2011. Ken is a nationally known real estate expert who writes a weekly column titled the Nation’s Housing. Inc. Inc. including the right to reproduce this manual or any portion of this manual in any form. Also joining us this time are Francois Gregoire. ©2012 All rights reserved. ©2008. or other professional service. Mark Mazzuki of Cre8tive Communications for his cover design of this edition and his design of our marketing materials. accounting. ©2010. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. Lori J. ©2009. .. and the School does not sell or rent students’ names or other information to any company or organization. Bert Rodgers Schools of Real Estate. Bert Rodgers Schools of Real Estate.. President Bert Rodgers Schools of Real Estate. expresses our gratitude and appreciation to the hundreds of thousands of real estate professionals who have taken our 14-hour course to fulfill their continuing education requirements. B.

This module will discuss the recent changes in the law as well as refresh your memory on some old standards that rarely change. State and Federal Laws. 6. 11. The forms necessary to implement the requirements of the law are provided at the end of this module. The module covers the current status of the Brokerage Relationship Disclosure Act. Florida Administrative Code.. It is hoped that this core law course will not only help satisfy your continuing education requirement. energy-efficiency. but will also be a resource in your everyday practice. Define each of the terms in the glossary. 1 . HIV/AIDS. 13. 12. 4. Explain the legal requirements for operating a real estate brokerage office. 10. Identify and describe recent rule changes to Chapter 61J2. Identify and describe the regulatory structure and duties of the Florida Real Estate Commission (FREC) and the Division of Real Estate (DRE). stigmatized property.S. While there have been a few changes in the area of escrow accounts. no core law course is complete without a discussion of agency law. 9. It examines recent statutory and rule changes that affect not just the license law but real estate law in general. the module also includes a refresher on what is expected of both brokers and sales associates.MODULE 1 Real Estate Core Law: License Law. Finally. Describe the disclosure requirements regarding lead-based paint. and property condition. radon gas. the learner shall be able to: by Randy Schwartz 1. Explain the proper handling and disposition of deposit money or advance rent as mandated in the Florida Landlord and Tenant Act. In addition. the module discusses how to maintain your license and generally operate within the law on a daily basis. 7. Identify and describe the proper disposition of a tenant’s personal property as mandated in the Disposition of Personal Property Landlord Tenant Act. 8. Compare the 4 types of authorized real estate brokerage relationships. 2. from 2005 through 2010. F. INTRODUCTION Keeping pace with the changes to the laws that affect real estate and real estate licensees is very demanding in our already hectic and busy lives. 14. Explain the requirements for establishing and maintaining an escrow account. 5. and the Brokerage Relationship Disclosure Act Learning Objectives Upon completion of the module. Explain the disclosure requirements for each type of authorized brokerage relationship. Explain how a real estate broker should respond when confronted by an escrow dispute or good faith doubt about entitlement to escrow funds. Identify and describe the education and administrative requirements for renewing a real estate license. Explain how to report unlicensed activity. 3. Another part of the module is devoted to laws other than the license law including various types of required disclosure with forms to help you in your practice. Explain the major statutory changes to Chapters 455 and 475.

S. modifying Chapters 455 and 475 F. As a single agent. a seller. as a fiduciary. prohibiting requirements for centralized examinations to complete such education requirements. telephone numbers. authorizing the temporary licensure of spouses of active duty service members of the U. the sale of unimproved residential property intended for use of 4 units or fewer. HB 713 was signed by the Governor on May 26. or lessee. with an effective date of July 1. email addresses. and Organizational Structure STATUTORY CHANGES Highway Safety and Motor Vehicles to issue reproductions of driver’s licenses to the DBPR. physical street addresses. and held by a real estate broker at any one point in time. or the property may be considered haunted by ghosts or spirits. conduct. either the buyer or the seller. seller. The new provisions include authorizing the Department of .028(2). authorizing distance learning courses to satisfy certain licensing and continuing education requirements for real estate brokers and sales associates. The Florida Real Estate Commission (FREC) membership was expanded to include the possibility of a real estate school permit holder. suicide. Residential sales The sale of improved residential property of 4 units or fewer. and teach courses prescribed or approved by the Commission or the Department. Point-of-contact Any means by which the brokerage firm or individual licensee may be contacted including mailing addresses. Armed Forces under certain circumstances. as long as full disclosure is made to all interested parties. pending. Rules. a licensee may share some or all of his or her commission with a party to the contract. A transaction broker does not represent either party in a fiduciary capacity or as a single agent. and revising the application and fingerprint requirements for real estate broker and sales associate licenses by adding that the application can be signed or electronically NEW 2010 Changes Two minor changes to Chapter 475 occurred in the 2010 Legislative session. 2010. chief administrator and/or instructor to serve on the FREC commission. An additional change requires real estate license applicants to submit digital finger prints. authorizing certain members of the FREC to offer. a licensee may not represent both buyer and seller in the same transaction. Party The buyer. Transaction broker A licensee who provides limited representation to a buyer.S. Stigmatized property Property upon which some event producing more of a psychological impact than a physical impact or defect has occurred or is occurring. 2010.2    Module 1 GLOSSARY Blind advertisement An advertisement in which brokerage services or property for sale or lease is displayed without the name of the brokerage firm so that a reasonable person does not know he or she is dealing with a real estate licensee. Current mailing address The current residential address used by the licensee to receive mail through the United States Postal Service. or drug-related arrest. Fiduciary relationship A fiduciary relationship is one of trust and confidence between the licensee as agent and the seller or buyer as principal. or both. Single agency When a licensee represents. or facsimile telephone numbers when advertising on the Internet. lessor. Property may be stigmatized by events such as murder. or the sale of agricultural property of 10 acres or fewer. Trust liability The sum total of all deposits received. Part I: Real Estate License Law Statutes. Pursuant to Rule 61J2-10.

2008.org/gateway/Organization. F. A licensee whose license has been involuntarily inactive for 12 months or less must complete 14 hours of education prior to the license being reactivated. or manage a broker associate or sales associate employed by the broker.1 on pages 4 and 5 contains a list of all rule changes that became effective between January 2006 and July 2010. consult the text of the full rule (61J2. and added that an administrative complaint must be served by regular and certified mail to the licensee’s last known address of record and if possible. www.. which addresses the renewal of a license and continuing education. NEW 2009 Changes On June 16. if an applicant does not take and pass the state examination within 2 years of the successful completion of the pre-license course. F. 2006. Discipline. In response to the increased number of foreclosures and abuses taking place in the marketplace regarding mortgage foreclosure rescues and modifications. then the course will be invalid and must be retaken. Table 1. and deleted the reference to fingerprint card and replaced with digital fingerprint data. as a real estate broker. to review the brokerage’s trust accounting procedures to ensure compliance. but if proof of service cannot be obtained. A licensee may now obtain 3 hours of continuing education credit for attending one legal agenda session of the FREC. 2008 and became effective October 1. The maximum fine the FREC may impose was increased from $1. Business and Professional Regulation: General Provisions.182(1)(a). by e-mail. FREC RULE CHANGES Table 1. DBPR’s representative may appear in criminal proceedings under certain circumstances. The bill is generally referred to as the Mortgage Foreclosure Rescue Act and will be discussed in Part II. It is a violation to fail.Real Estate Core Law    3 authenticated. the Florida legislature passed the Mortgage Foreclosure Rescue Act. from the date the application is received by the DBPR if the state examination is not taken and passed within that 2 year period. then the Department shall call the last known telephone number and publish for 4 consecutive weeks in a newspaper in the county of licensee’s last known address of record. The provisions include: applications for licensure will no longer require a notarized signature. effective date October 1. . Advance fees. to direct. An application for licensure as a real estate broker or sales associate expires 2 years REGULATORY STRUCTURE This section provides an overview of the regulatory structure of the Department of Business and Professional Regulation (DBPR).S. Application process. The “Important Notice” portion of the Brokerage Relationship disclosure forms was deleted. The act was approved by the Governor on May 28.. then the licensee must complete a FREC-prescribed 28-hour course to reactivate the license. Brokerage relationships.000 for each count or separate offense.and the Division of Real Estate (DRE). and disciplinary action may be taken if a licensee fails to report any prosecution in a court of law or an impaired practitioner fails to complete a treatment program. Reactivation of involuntarily inactive license. 2006 Changes A few significant changes occurred in the 2006 legislative session. the Florida Real Estate Commission (FREC). The experience requirement is for Florida sales associates as well as out-of-state sales associates and brokers seeking to become a broker in Florida. It is a violation to fail.000 to $5. The changes are reflected in the disclosure forms at the end of the module. for further clarification. F. in 2007 was to Section 475. as a broker. asp?OrgNo=61j2  2007 Changes The only change to Chapter 475. If the license has been involuntarily inactive for more than 12 months but less than 24 months. The DBPR is required to notify a licensee’s employing broker when a formal complaint is filed against the licensee.S. 2009. They became effective on July 1. the governor approved a bill modifying Chapter 455. In addition.flrules. 2008 Changes In 2008 the experience requirement for becoming a real estate broker was increased from 12 months as an active licensee in the preceding 5 years to 24 months.S. 2009.1 is an abbreviated summary. The law presumes that a broker associate or sales associate is employed by the broker if the state license records show that the broker associate or sales associate is registered with the broker.. control. FAC). The advance fees reporting statute was deleted from Chapter 475.

010 61J2-10. added the guidelines for violations by brokers of failing to supervise or ensure compliance with the escrow rules.C. through the adoption of rules (Chapter 61J2. Added LLC & PA as registration categories.001 61J2-24.008 61J2-3. F.002 61J2-10.003 61J2-3. and the discipline of licensees who violate license laws or rules.com/dbpr/re/ Florida Real Estate Commission (FREC) The FREC was created by the Florida State legislature to implement Chapter 475.009 61J2-24.S. and welfare of the people of Florida. most notable is failure to notify of a change of address of a branch office within 10 days increased from $200 to $1. located in Orlando. must obtain written confirmation funds were received.000.000 to $5. Division of Real Estate (DRE) The DRE. address and phone number when funds placed with attorney or title company. Repealed the rule regarding the Chairperson of the FREC. At least 1 member must be 60 years of age or older. safety. Increased Citation fines of several violations.029 61J2-10. The DBPR’s role is to ensure that the professions it regulates and those regulated by the boards and commission under the DBPR provide quality services for the health. 2010.myfloridalicense.myfloridalicense. The Sales Contract must have name and address of escrow agent when funds are placed with attorney or title company. The FREC consists of 7 members appointed by the governor and confirmed by the senate. F.013 61J2-10. . Establishes a Code of Conduct for licensees attending a FREC meeting pursuant to probation.S.1: Summary of Rule Changes – January 2006 through January 2011 Rule 61J2-24. Clarifies that 3 hours of the 14-hours continuing education must be Core Law.000.A.com www. located in Tallahassee. Reactivation education requires 28-hour course with an end-of-course exam.010 61J2-24. Added phone numbers as a requirement in an advertisement. whose appointment by the governor is subject to confirmation by the senate. Florida Administrative Code [F.025 61J2-3. Minor changes to Notice of Noncompliance rules. Florida. Florida. Removed phone numbers as a requirement in an advertisement.008 61J2-24. Effective July 1. Amended the reactivation education rule.025 61J2-10.030 61J2-14. 1 member must be a licensed sales associate or broker who has maintained an active license for the 2 years preceding appointment. Increased the fines from $1.4    Module 1 Department of Business and Professional Regulation (DBPR) The DBPR. examination of applicants for licensure.042 61J2-1.. www. Repealed advance fee requirements.]) fostering the education of licensees and those seeking licensure. provides services concerning Chapter 475. The head of the DBPR is the secretary. must obtain verification the deposit received. and 2 members must be people who are not nor ever were brokers or sales associates.006 61J2-14. The DRE provides administrative support to both the FREC and the Florida Real Estate Appraisal Board (FREAB). The appointment of the director of the DRE is subject to the approval of a majority vote by the FREC. Four members must be licensed brokers who have maintained an active license for 5 years preceding appointment. a licensed real estate broker or sales associate who holds an active real estate school permit. Deleted from the rule the requirement that a prescribed disclosure be given when attempting to negotiate a lease. regulates over one million professionals and businesses. Requires escrow agent name.000 to 3 months suspension. chief administrator permit. The secretary appoints the division directors.001 Effective Date 30-Jan-06 30-Jan-06 04-Jul-06 10-Jul-06 10-Jul-06 14-Jul-06 14-Jul-06 8-Nov-06 5-Feb-07 6-Sept-07 6-Sept-07 20-Nov-07 20-Nov-07 6-Dec-07 25-Dec-07 25-Dec-07 Description Failure to produce records within 5 days of request will result in a penalty of $1. TABLE 1. The DRE is one of 10 divisions that make up the DBPR.

There have been many changes to the disciplinary guidelines…a list of revisions are available on DBPR’s website. Due to this redundancy the FREC deleted said rule. The Florida Real Estate Commission. or the Seller when the seller has no broker.flrules.011 13-Oct-10 61J2-3. Added a $500 fine for a second offense for failing to provide the Seller’s broker or to Seller if not represented by a broker.015 16-November-09 Deleted redundant language and clarified existing language for sales associate and broker-sales associate. Repealed the video tape quality standards. added administrative fines to certain violations.451(8).002 20-July-09 61J2-3. Deleted the provision that up to 25% of licensees will be randomly audited for compliance. The Florida Real Estate Commission. upon a review of their rules. and added separate categories for first violations or second and subsequent violations with different penalty ranges for both.014 61J2-24. upon a review of their rules.org/gateway/ChapterHome.001 21-July-10 61J2-3. Added that a Notice of Noncompliance without Citation would be issued for a period of 12 months after the effective date of this rule for an initial offense for failing to indicate the name.008 61J2-24. & telephone number of the title company or attorney on the contract.Real Estate Core Law    5 Rule 61J2-3.010 61J2-2.017 61J2-3. determined that certain language was found in both the statute and the rule.012 28-July-10 61J2-24. address. Defines “Economic Hardship” 61J2-23. Also added that a Notice of Noncompliance will be issued to schools teaching real estate practice for violating 475. within 10 business days of the date the Licensee’s broker made the written request for verification of the deposit with a copy of the verification or that the licensee did not receive verification of the deposit. Increased the time frame when the written request must be made for verification of each deposit held by an attorney or title company to 10 business days. and telephone number of the title company or attorney on the contract would be a $200 fine. 21-February-10 21-June-10 Deleted reference to advance fee requirements.006 (2)(c) 11-Jan-11 11-Jan-11 . upon a review of their rules. Revised the exemption for prelicensing education for any person who has a degree in real estate that the degree must be a 4 year degree from an accredited institution of higher education. 61J2-24. Changed the wording from last known address to licensee’s address of record. Deleted language that allowed a successful applicant to immediately practice if the employment information was on file.029 61J2-1.011 61J2-3. Due to this redundancy the FREC deleted said rule. determined that certain language was found in both the statute and the rule. or for failing to provide the Seller’s broker. address.001 21-July-10 61J2-3. Eliminated the fine and penalty for a license issued by mistake. Added that a second offense of failing to indicate the name. Increased Citation fines of several violations to $500.003 Effective Date 27-Apr-08 4-May-08 18-Aug-08 18-Aug-08 18-Aug-08 8-Oct-08 15-June-09 Description Repealed the video classroom viewing requirements.001 61J2-14.004 (2)(d)(e)(f) 61J2-24. within 10 business days of the date the Licensee’s broker made written request for verification of the deposit with either a copy of the written verification or that no verification was received. asp?Chapter=61J2-24 The Florida Real Estate Commission. Added exemption to written request verification when the seller or seller’s agent nominated attorney or title company in writing.020(10) 11-Jan-11 61J2-24. determined that certain language was found in both the statute and the rule. Rule was revised to delete the provision that up to 25% of licensees and instructors will be randomly audited for compliance. Due to this redundancy the FREC deleted said rule.016 61J2-1. Deleted that the Commission may conduct seminars and publish and sell a wall certificate of license course syllabus Deleted an exemption for members of the Florida Bar from the license reactivation education requirements. https://www.015(2) 13-Oct-10 61J2-3.

The basis for identifying which violation may be considered for a citation is DISCIPLINARY ACTIONS Although a violation of the license law is generally not intended. including the FREC.. The following sections will discuss each of these areas. the DRE. or welfare or create a significant threat of such harm Each board regulated by the DBPR.C. maintaining a license.A. including the FREC..com  User Services. Citations In 1991. and viewing messages the DBPR has sent to all users. F.com/dbpr/re/forms. The FREC implemented the citation program with Rule 61J2-24. or access all of the DBPR and DRE forms necessary to accomplish any task. a licensee may face severe sanctions such as a suspension of license or even revocation. Section 455.6    Module 1 school instructor permit. 24 hours a day. The FREC is aware of the abundance of regulations and realizes that most licensees are simply trying their .myflorida. There is no fine. F. the licensee has 15 days to take corrective action. A violation is considered a minor violation if it does not: • demonstrate a serious inability to practice the profession • result in economic or physical harm to a person • adversely affect the public health.html Notice of Noncompliance Pursuant to Section 455. However.com/dbpr/re/frec. Public Services. to adopt rules permitting the issuance of a citation. The services available to a licensee registered as a user include renewing a license online. was enacted requiring each regulatory board. www. or any combination of such permits issued by the DBPR may serve on the FREC.myflorida. The DRE has a separate Forms Center site where only those forms necessary to perform any task for the FREC or FREAB are maintained. safety. citation. One of the DBPR’s stated goals is to provide licensees as well as members of the public access to information. file a complaint.S. and is considered to be a step above the notice of noncompliance.A. Once the notice of noncompliance is issued. making payments. When a violation does occur. listing the violations for which a citation may be issued. only corrective action. or regular disciplinary proceedings. if the behavior is egregious enough. The notice of noncompliance may only be issued for an initial offense of a listed minor violation by the Department. apply for a license. maintaining a personal profile. 7 days a week. a few licensees each year find themselves having committed a violation due simply to oversight.html best and do not intend to violate the law. and to provide licensees the ability to manage their license. and the FREC may deal with the violation in one of several ways: notice of noncompliance. among others. The User Services site is a passwordprotected site. Members are appointed to 4-year terms and may serve no more than 2 consecutive terms. depending on the specific violation and the severity of the actions of the licensee. If the minor violation is timely corrected. The FREC implemented the statute and a list of violations for which a notice of noncompliance shall be issued in Rule 61J2-24..003. DBPR Online The DBPR has created a website where you can perform many of the regulatory functions online.225(3).myfloridalicense. www.C. is required to establish by rule those violations that are considered minor violations as defined above. The Public Services site allows anyone to search for a licensee. If the licensee chooses to accept the citation then the licensee must abide by the required disciplinary action within the next 30 days. the DBPR. Failure to do so may result in regular disciplinary proceedings being instituted. Anyone with a license issued by the DBPR can register for a Quick Access Account that creates a personal account accessible only with a user name and password. is to protect the public.224. F. The FREC’s duty. F. www.002. the matter is closed with no adverse action against the licensee. If the licensee chooses to reject the citation then the matter will proceed through the normal disciplinary and investigative proceedings that result in a hearing for the licensee. The site is currently divided into 2 types of services: user and public.S. or a lack of knowledge of the expected behavior. A citation imposes immediate disciplinary action without need for a hearing. an initial violation of the license law may be deemed to be a minor violation for which a notice of noncompliance may be issued. carelessness.

and welfare. The DBPR will not accept online renewal payments more than 90 days before the end of the license period. Licensees may complete the 14 hours through distance learning. suspension of license not to exceed 10 years. licensees must satisfactorily complete 14 hours of continuing education during each successive 2-year license period. F. correspondence. The FREC’s Disciplinary Guideline rule is found in Rule 61J2-24. his or her license becomes null and void. Licensees may also renew their licenses online or by telephone (850) 487-1395 with the DBPR.001. The distance learning rules allow the education to be taken in classroom or through distance learning.001(3)(y)]. if applicable) and send back the renewal form and fee to the DBPR before the end of the license period. Continuing Education To maintain the license after the first renewal cycle. The disciplinary guidelines are designed to provide a reasonable and meaningful notice to the licensee of the likely penalty that may be imposed for each type of violation. This letter will inform the licensee that the required continuing education was not completed prior to renewal.myfloridalicense. or a revocation of license. To properly renew a license. licensees must satisfactorily complete the 14-hour continuing education course (or post-license course. Such sales associates must reinitiate the license process by completing the 63-hour pre-license course and passing the endof-course exam as well as the state examination.com It is the broker’s responsibility to ensure that all licensees registered with the broker have a valid and current license which includes successfully completing the 14-hour continuing education course or postlicense course and timely mailing the renewal form and fee to the DBPR [Rule 61J2-24.17(3) and (4). is 2 years. A typical disciplinary action for a citable violation is an administrative fine. If a broker fails to satisfactorily complete the post- . Effective July 1. F. Licensees should not send in the course completion slip with their renewal. The law does allow the FREC to deviate from the listed penalty in the event of a specific finding of mitigating or aggravating circumstances. probation.2273. license education prior to the first renewal. Each cycle. The licensee may obtain a sales associate’s license by completing 14 hours of continuing education within 6 months of the expiration of the broker’s license. Post-License Education Prior to the first license renewal. the licensee will be sent a deficiency letter. Each course has an end-of-course examination. The penalties include a reprimand.S. F. Disciplinary Guidelines Pursuant to Section 455. or license period.A. Three hours may be obtained one time per renewal cycle by attending one legal agenda session of the FREC. MAINTAINING THE LICENSE This section discusses post-license and continuing education and the process of license renewal. administrative fine not to exceed $5. 2002. or classroom courses. The citation is required to be issued within 6 months after a complaint is filed. The 14 hours must consist of 3 hours of core law and 11 hours of specialty courses approved by the FREC. In the event a license is renewed without the required continuing education course having been successfully completed. the licensee must retake the broker prelicense course and pass the end-of-course exam as well as the state examination. once issued and accepted by the licensee. but keep the slip to show proof of compliance. www. the regulatory boards are required to adopt a rule establishing the range of penalties for each type of violation. A sales associate is required to satisfactorily complete 45 hours and a broker must satisfactorily complete 60 hours of post-license education. becomes a final order of the FREC and the action becomes a part of the disciplinary record of the licensee. License Renewal The DBPR mails a renewal notice to each licensee at his or her last known address 60–90 days before the end of the 2-year license period. safety. A citation. The DBPR has divided the licensee population into 4 renewal cycles.C. his or her license becomes null and void. brokers and sales associates are required to complete post-license education pursuant to Section 475. distance learning was added by the legislature as a method by which required education could be delivered.. To operate again as a broker. If a sales associate fails to satisfactorily complete the post-license education prior to the first renewal.000 per count.Real Estate Core Law    7 whether or not the violation poses a substantial threat to the public health.S.

the licensee must notify the DBPR and request reissuance of the license.180. To reactivate..RE-10 and forward it to the DBPR along with a copy of the document(s) wherein the licensee’s name is legally changed (Rule 61J2-9.S.038).23. The licensee must notify the FREC within 10 days of the change and request a reissue (Section 475. Involuntary inactive.html. Previous to this section being added. the DRE requires each licensee to maintain his or her current mailing address on file. Licensees who do not renew on time. Pursuant to Section 455. (Section 475. experience. and/or fail to complete the 14 hours of continuing education become involuntary inactive. Licensees who failed to complete the 14 hours of continuing education with a license status of involuntary inactive for 12 months or less may reactivate by completing the 14 hours. Georgia. the licensee must complete Form DBPR.). Address.S. F. A license that has been involuntary inactive for at least 12 months but less than 24 months may be reactivated by satisfactorily completing a FREC-prescribed 28-hour course. An individual who maintains a current license status but does not perform real estate services may request and receive a voluntary inactive status. When a broker changes his or her business address or a sales associate changes employers. F. or Employer In the event of a name change. AR 72201-4740 (501) 683-8010 Change of Name. the DRE. Forms are available online.8    Module 1 Group 1  licenses expire on September 30 of even years Group 2  licenses expire on March 31 of odd years Group 3  licenses expire on September 30 of odd years Group 4  licenses expire on March 31 of even years States Postal Service. Inactive individuals must meet the continuing education requirements. and renew the license to remain current.com/dbpr/re/forms. Arkansas. The current mailing address is defined as the current residential address used by the licensee to receive mail through the United .S. and examination requirements before operating as a licensee in Florida. a licensee may not perform any real estate services while in the inactive status. The outof-state applicant is required to take only a Florida law examination consisting of 40 questions. NONRESIDENT APPLICANTS An applicant for licensure as a real estate broker or sales associate is not required to be a resident of the state of Florida. Nebraska. the license becomes invalid. an out-of-state real estate licensee was required to fully complete the educational. Alabama Real Estate Commission 1201 Carmichael Way Montgomery. myflorida. F. Connecticut. Oklahoma. Indiana.S. A licensee is required to notify the DRE of a change in the current mailing address within 10 days of the change (Rule 61J2-10. and Tennessee. The FREC currently has mutual recognition agreements with the real estate commissions of 9 states: Alabama.183(2)(a). pay renewal fees.180. Mutual Recognition In 1994.007). but in either case. late fees must be paid as well as the renewal fee. Voluntary inactive. With the addition of Section 475. or the DBPR. At the end of the 2-year period. AL 36106-3672 (334) 242-5544 Arkansas Real Estate Commission 612 South Summit Street Little Rock. such as through marriage or divorce. Mississippi. the FREC is authorized to enter into written agreements called mutual recognition with the real estate commissions of other states that will recognize the educational and experience requirements of that state when they are comparable to or superior to that of Florida. the license will be null and void without any further action by the FREC. Inactive License Types There are 2 types of inactive status. in addition to any education requirements. A licensee may remain voluntary inactive indefinitely. titled Nonresident Licensees. For a reissue.275(1)..) An individual may remain involuntary inactive for only 2 years. A grade of 75% or higher is required to pass the examination. Contact the appropriate real estate commission for information regarding fees and examination requirements. the Florida Legislature added Section 475. F. The written agreements with the other real estate commissions also offer the same licensure opportunities for Florida licensees in those states.

Box 94667 Lincoln. Upon the filing of an application for licensure.).Real Estate Core Law    9 Connecticut Real Estate Commission 165 Capitol Ave. The license may only be issued in the legal name of the licensee with the appropriate entity designation (i.15. or limited liability partnership (LLP) (Section 475. partner. advertising. Washington Street. For a nonresident. However. A broker associate or sales associate may organize as a professional corporation. The basic requirement is that the applicant has been an active sales associate for at least 24 months in the previous 5 years. limited partnership. With this type of experience. If a licensee who is a resident of Florida becomes a resident of another state. with the following exceptions. TN 37243-1151 (615) 741-2273 The FREC requires nonresident licensees who qualify for licensure in Florida through mutual recognition to complete the same post-license and continuing education hours required for Florida resident licensees. BUSINESS AND OFFICE OPERATIONS This section discusses business and office operations. director. OK 73107 (405) 521-3387 Tennessee Real Estate Commission 500 James Robertson Parkway.. commissions. anyone can own the stock. Ne 68509-4667 (402) 471-2004 Oklahoma Real Estate Commission 2401 NW 23rd Oklahoma City. member or manager of a brokerage firm (Section 475. To qualify the corporation as a registered real estate brokerage. the licensed real estate broker must be an officer and/or a director of the corporation. a nonresident applicant can become a Florida broker without the need to first become a Florida sales associate. MS 39236 (601) 932-6770 Nebraska Real Estate Commission 1200 N Street.S.O. The corporation must be organized according to Florida law or be a foreign corporation authorized to do business in Florida. A person may not own more than 40% of the voting stock if he or she has: Nonresident Requirements An applicant for a Florida real estate broker’s license must satisfy the experience requirement to be eligible for licensure as a broker. Box 12685 Jackson. NE. Sales associates or broker associates are not permitted to be officers or directors of brokerage corporations. or LLC).O. Suite 180 Nashville. any applicant who is not a resident of the State of Florida is required to file an irrevocable consent to jurisdiction which provides that the applicant. limited liability company (LLC). corporation. Suite 1000 Atlanta. Failure to do so will result in disciplinary action against the licensee.S. To operate as a sole proprietor. F.e.. . LLC. a broker simply submits a form to the DRE and follows the office and sign rules detailed later in this section. and personal assistants. once the applicant is licensed.A. records. To operate as a business entity formed or authorized to do business in the State of Florida. and Rule Chapters 61J2-4 and 61J2-5). the following rules apply. Suite 402 P. Hartford. Brokerage Firms and Registration A real estate broker can choose to operate in one of several ways: as a sole proprietorship. P. Corporations. The basic requirement is the same—24 months as an active broker or sales associate in the previous 5 years. The law further clarifies that a broker associate and sales associate may not be an officer. or a professional LLC. CT 06106-1630 (860) 713-6050 Georgia Real Estate Commission International Tower 229 Peachtree Street. the licensee is required to notify the DBPR within 60 days of becoming a nonresident and must comply with the nonresident requirement by filing the irrevocable consent to jurisdiction form discussed above. Room W072 Indianapolis. office and sign requirements.161. Note: People are licensed and business entities are registered. consents to being sued in Florida and that service of process may be made by delivering the process or pleading to the Director of the DRE. referral fees. IN 46204 (317) 234-3009 Mississippi Real Estate Commission P. partnership. GA 30303-1605 (404) 656-3916 Indiana Real Estate Commission 402 W. F. including brokerage firms and registration. the applicant for a broker’s license can use as experience the applicant’s time as either a broker or a sales associate in another state.

In addition.). only the general partners must be licensed as active brokers or registered as brokerage corporations (Chapter 475. and Rule 61J2-5). F. and Rule 61J2-10. • If the LLC is a member-managed company.15.. the broker is required to personally meet with an investigator either in Florida or elsewhere as reasonably requested. then the manager must be a licensed real estate broker. conducting no business at all until the broker position is filled. Branch office. A brokerage partnership can be formed as either a general partnership or a limited partnership (Chapter 475. a Real Estate Corporation Package must be filed along with a copy of the certificate from the secretary of state’s office (Chapter 475.. then a fee is required (Rule 61J210. F. (Chapter 475. When a broker conducts business at some location other than the registered principal office. the vacancy must be filled within 14 calendar days.022). the office must be registered as a branch office. No new business may be accepted.S.15. A fee is required for the registration of each branch office. resigns. If a broker closes a branch office but reopens at the same location within the same license renewal period. F. a branch office. and the brokerage firm must close its doors. the DRE has developed the following registration provisions: • If the LLC is a manager-managed company. in a building of stationary construction (Chapter 475. If the name or advertising of a broker is displayed in a location other than the principal office in such a manner as to lead the public to reasonably believe that the other location is owned or operated by the broker.009). To be qualified as a brokerage. F. Although the FREC has yet to implement administrative rules governing the formation and operation of limited liability companies (LLC) and limited liability partnerships (LLP). The rules regarding the loss of the broker in a corporation also apply to partnerships (Rule 61J24. sales associates may be registered from the principal office but work at branch offices (Rule 61J2-10. It is the broker’s responsibility to learn the applicable zoning regulations (Rule 61J2-10.html Partnerships.22(1). Sales associates must be registered from and work out of an office maintained and registered in the name of the broker or employer. the license status of all other licensees becomes involuntarily inactive. and civil rights have not been restored for at least 5 years • had an injunction entered for operating as a real estate licensee without a license In the event that a brokerage corporation has only one active broker and that broker dies. the business conducted at a place other than the principal office is of such a nature that public interest requires. Until a new broker is appointed and registered with the DRE. For instance. then any one of the members can be the qualifying broker. and only ongoing business may be serviced. then the broker is in violation of the license law and is subject to the penalties of Chapter 475. The broker must agree in writing to cooperate with any investigation by the DBPR. If the DBPR or the DRE sends a notice or request by certified mail to the broker’s last known mailing address and the broker fails to comply with such notice or request. the other location must be registered as a branch office.10    Module 1 • had a license revoked or suspended and not reinstated • been convicted of a felony in any court.023). use.25. F. Limited liability companies and partnerships.com/dbpr/re/forms. the registration of the corporation is canceled.S. the permanence.24. that location must be declared a branch office (Chapter 475. the real estate license law now allows a Florida brokerage office to be located outside the State of Florida. Signs. or FREC and must promptly supply any requested documents.S. Office. the partnership must have a licensed broker as one of its partners. A brokerage office may be located in the broker’s residence if that complies with local zoning ordinances. Every broker is required to maintain a sign on Brokerage Office and Sign Requirements There are specific requirements for maintaining an office.22(2). Each active broker is required to maintain an office that consists of at least one enclosed room .15. no fee is required.S. and office signs. and Rule 61J24. or is otherwise removed from that position. F. In general. www.myflorida.S. If a broker closes a branch office and simultaneously opens a branch office at a different location. However. in the judgment of the FREC. If it is a limited partnership.S.023(2)).). DRE. As a result of federal case decisions affecting other state real estate commissions. a temporary shelter in which no transactions are closed and no sales associates are permanently assigned is not deemed to be a branch office.023(3)).022). and character of activities customarily conducted at a location determine its status as a branch office (Rule 61J210.S.). If.007).. To register a corporation with the DRE. F.

Rule 61J2-10. benches. All other FREC advertising requirements apply to Internet advertisements as well (Rule 61J2-10. which regulated sold signs. physical street address(es). deceptive. The FREC has additional guidelines for Internet advertising. telephone number(s). All advertising must include the name of the brokerage firm as it is registered with the FREC.25(1)(c). A licensee may wish to display his or her license type. Internet ads. business cards. a licensee is not permitted to use an identification or designation of a trade association or organization unless the licensee is entitled to use such identification or designation. Advertising includes yard signs.. there is no requirement . The FREC does not regulate the use of telephone numbers in advertisements. false.”. or any other medium or vehicle by which services or property are displayed. email address(es). no real estate advertisement placed or caused to be placed by a licensee shall be fraudulent. the advertisement must contain certain information and conform to a specific standard. however. Point-of-contact is defined as any means by which the brokerage firm or individual licensee may be contacted. including mailing address(es). There is no requirement for a licensee to display his or her license number or the registration number of the brokerage firm.” The word Licensed may be abbreviated to “Lic. In such a situation. A blind advertisement is defined as an advertisement in which brokerage services or property for sale or lease is displayed without the name of the brokerage firm so that a reasonable person does not know he or she is dealing with a real estate licensee.Real Estate Core Law    11 or about the entrance of the principal office as well as at all branch offices. when the licensee’s name does appear. and Rule 61J210.S. In addition. However. no other abbreviations are allowed. In addition. to send unsolicited advertising material via a fax Advertising Any time a real estate licensee advertises his or her services or a property for sale or lease. Each office entrance sign must contain the name of the broker as registered with the FREC. A licensee is not required to place his or her personal name in an advertisement. If the broker maintains a registered office in his or her residence. If a licensee is selling his or her own real property and is doing so on a personal basis and not through the licensee’s brokerage firm. In addition. below or adjacent to the point-of-contact information. due to a lack of statutory authority for the rule.025). At one time. if the licensee is a member of a private trade association.035. Therefore.025(3)). was repealed effective in October 2002. Finally. to prevent other licensees from seeking the listing.1657. the office entrance sign is not required to be posted on the front door or outside the home. then there are no disclosure requirements.027. However. that association may enforce a code of ethics that may impose standards and rules over and above the FREC requirements. the licensee may place an advertisement in the same manner that any other private citizen would. The sign may be posted on the exterior of the door to the actual office. billboards. the name of only one broker need appear. If the partnership or corporation has more than one broker. or misleading in form or content (Chapter 475. F. be aware of the association’s code of ethics or code of conduct that may still prohibit the activity as a member of the trade association. F. If you are a member of a professional trade association. The licensee may use a nickname or initials for the first name and is not required to display the first and/ or middle name as registered with the FREC (Rule 61J2-10.).025(2)). mail outs. The FREC’s rule requires that the brokerage firm’s name or trade name be placed immediately above. licensees may use either office or personal telephone numbers without qualifying them as such. or fax number(s). it is a violation of Chapter 365. Signs must be positioned to be easily seen by any person entering the office. that the licensee display the license type. as a minimum requirement.. There is no longer a minimum size requirement for the letters on the sign. Pursuant to Rule 61J2-10. that is no longer true. the sign must also include the name of the partnership or corporation or trade name of such entity.22. This is not a legal requirement.S. but that is a personal choice for the licensee. a licensee was required to obtain the consent of a seller prior to placing a sold sign on the property. It must be displayed in such a manner that a reasonable person would know that he or she is dealing with a real estate licensee. There is a common belief that the license type must be disclosed such as owner/ broker or owner/licensee on a yard sign or in a newspaper advertisement when the licensee is selling property as a private citizen. as well as the trade name. For a partnership or corporation. newspaper and magazine ads. each sign must display the words “Licensed Real Estate Broker. if any. F.S. Signs are required to be posted on either the exterior or the interior entrance area of the office (Chapter 475. the last name as registered with the FREC must appear.

the sales associate is due no commission since the sales associate’s license was not active at the time of contract for sale when the fee was earned • registers with another broker after working with a prospective buyer but before a contract for sale is procured. Commissions For a real estate licensee to earn a real estate commission or other type of valuable consideration. then the Florida broker may treat each citizen of that country as if he or she is a broker. The fine is $500 per violation of Chapter 365.. The Sales Act only applies to brokerage agreements entered into on or after October 1. the sales associate(s). the listed property is procured. A sales associate must always be registered with a broker or owner-developer to be eligible to earn a commission. seller. The critical factor is generally not when the commission is paid. and must be paid by and in the name of the broker or owner-developer (Chapter 475.S. 1999.S. or registers with an owner-developer after a contract for sale has been procured but before the real estate transaction closes. The written authorization must identify the transaction. The exception to this basic rule is found in a declaratory statement issued in January 1999 by the FREC. 2005. with a final order number of BPR-99-01088). A party is defined as the buyer. If a foreign country does not have a license law. Finally.S. each transmission counts as a separate violation. a licensee may share some or all of his or her commission with a party to the contract. as long as full disclosure is made to all interested parties.42(1) (d). The state. Commercial Real Estate Sales Commission Lien Act A real estate broker who enters into a written brokerage agreement with an owner for the sale of the owner’s commercial real estate will have the right to place a lien upon the owner’s net proceeds. F. This includes advertising for any real property. The statement declares that a real estate broker may provide written permission to a closing agent authorizing the closing agent to pay the sales associate directly.028(2). the sales associate can be paid directly by the former employing broker One should note that these interpretations are not rules.). or registers with an owner-developer after being involved in a transaction in which the brokerage commission was earned at the time the contract for sale was procured.25(1)(h). registers with another broker. the licensee is required to have a valid. the broker should pay the former sales associate directly • becomes inactive. current. registers with another broker. or lessee. The prohibition against the foreign broker acting as a broker in Florida still applies. and the specific amount to be disbursed to each sales associate. The disclosure shall be in substantially the following form: . therefore they may be subject to change. registers with another broker. and the foreign broker has not violated any Florida law (Chapter 475.12    Module 1 transmission. lessor. If a sales associate: • becomes inactive. may bring an action to impose a civil fine and for injunctive relief. the broker should pay the former sales associate directly if the broker agreed in advance to pay the sales associate a commission on the listed property • becomes inactive after working with a prospective buyer but before a contract for sale is procured. it is permissible to share a commission with an unlicensed person who is a party to the contract (sale or lease). The lien does not attach to any interest in real estate. Therefore. The basic requirements for establishing the lien are: • The broker shall disclose to the owner at or before the time he executes the brokerage agreement the broker’s lien rights. F. or services. goods. a licensee may earn a commission while properly and actively licensed and subsequently have the license suspended or revoked and still be paid the commission. through the attorney general. Pursuant to Rule 61J2-10.).1657. the broker under whom the contract for sale was procured can pay the former sales associate directly • becomes inactive. Case Number FREC D5-98-02 (and filed as DS-9904 by the DBPR on February 17. or registers with an owner developer after procuring a listing contract but before a contract for sale of Referral Fees A Florida broker may share a commission or fee with a foreign broker so long as the foreign broker is registered or licensed as a broker in his or her state or country. the relevant factor is when the commission is earned in relation to the license status. In 1994 the FREC reviewed various situations involving the payment of commissions to sales associates and then issued the following interpretation. the sales associate may be paid only through the current employing broker • registers with an owner-developer after working with a prospective buyer but before a contract for sale is procured. F. and active real estate license.

The FREC maintains a website with data on all licensed professionals. accounts. • If the owner does not dispute the “commission notice” within 5 days after the closing.42(1) (a). listing agreements. F. lease agreement. The broker’s lien rights under the act cannot be waived before the commission is earned (Section 475. 2003. The broker must preserve at least one legible copy of all books. F. In today’s real estate market.S. • To enforce the broker’s lien rights to collect the commission in the event the owner does not pay the commission. This site can be used to report unlicensed activity or to file a complaint.S. • The recorded lien will be effective for 2 years except for a renewal commission in which case the lien will be effective for 10 years.).). unless otherwise exempt from the licensing requirements. mercial real estate to a bona fide purchaser. Personal assistants may be licensed or unli- . • The broker must deliver to the owner and closing agent a “commission notice” within thirty days after a commission is earned and at least one day before the closing. You can help prevent this illegal practice and protect the integrity of your profession by reporting instances of unlicensed activity to the DBPR (Section 475. the offense was a second-degree misdemeanor. in the event no funds are entrusted to the broker. The broker’s lien rights under the act cannot be waived before the commission is earned (Section 475. The basic requirements for establishing the lien are as follows: • The broker shall disclose to the owner at or before the time the owner executes the brokerage agreement the broker’s lien rights.803(6).Real Estate Core Law    13 The Florida Commercial Real Estate Sales Commission Lien Act provides that when a broker has earned a commission by performing licensed services under a brokerage agreement with you.S.myfloridalicense. If the brokerage records become the subject of civil litigation.S. the broker must foreclose on the lien in the same manner as a mortgage foreclosure. the owner will be deemed by law to have confirmed the commission and the closing agent is required to pay the commission to the broker from the owner’s net proceeds. The Statute contains a suggested “commission notice” (Section 475.). or any other written or verbal agreement engaging the services of the broker.). the lien established under the Leasing Act is a lien on the real property. There are provisions for extending the lien. The disclosure shall be in substantially the following form: The Florida Commercial Real Estate Leasing Com­ mis­ sion Lien Act provides that when a broker has earned a commission by performing licensed services under a brokerage agreement with you.012). in the case of a renewal commission. Unlicensed Activity It is a third degree felony to operate as a licensee without being the holder of a valid and current active license. unlicensed activity is an ongoing problem. F. Prior to July 1. who is obligated to pay the commission. at least 5 years from the date of execution of a listing agreement.. and escrow account/bank records. the broker may claim a lien against your interest in the property for the broker’s commission.703(5). • Within 7 days after recording the “lien notice”. 2005. 90 days after the broker performs the additional services for the renewal commission or the date on which the owner.com • The broker must record a “lien notice” in the public records of the county or counties where the commercial real estate is located no later than the earlier of 90 days after the tenant takes possession of the leased premises or. and Rule 61J2-14.705. The Leasing Act only applies to brokerage agreements entered into on or after October 1. records in the public records a deed transferring the owner’s interest in the com- Personal Assistants Brokers and sales associates commonly use personal assistants. and records for at least 5 years from the date of receipt of any escrowed property or. and records that may enable the DBPR to determine whether the broker is in compliance with Chapter 475. the records must be maintained for at least 2 years after the conclusion of the civil litigation or appellate proceeding.S. lease agreements. Brokerage Records A broker is required to maintain and make available to the DBPR such books. F. F. Commercial Real Estate Leasing Commission Lien Act A real estate broker who enters into a written brokerage agreement with an owner for the leasing of the owner’s commercial real estate will have the right to place a lien that attaches to the owner’s interest in the commercial real estate. but in no case less than a total of the 5 years stated previously (Chapter 475. Unlike the Sales Act which is a lien that attaches to the owner’s net proceeds and not the real estate.5015. accounts. www. F.S. purchase agreement. Examples of such books and records include contracts. the broker must deliver a copy to the owner. disclosures. the broker may claim a lien against your net sales proceeds for the broker’s commission.

030). dictates what they may do and how they are paid. If you do not obtain a rental you are entitled to receive a return of 75% of the fee paid.000 (Section 475. This section reviews the current state of brokerage disclosure in Florida.2801. F. unless an option to purchase all or a portion of the property improved with 4 or fewer residential units is given • a bona fide open house or model home showing that does not involve eliciting confidential information.S. the disclosure requirements of BRDA apply only to residential sales. Compensation not connected with brokerage activities may be paid directly by the licensee to the personal assistant. or negotiations concerning price. the execution of a contractual offer or agreement for representation.000 to $50.000. Recovery Fund The maximum amount a claimant may be awarded from the Real Estate Recovery Fund increased from $25. if you make demand within 30 days of this contract date.14    Module 1 censed. Each licensee shall furnish to the DBPR a copy of the current contract or receipt agreement within 30 days of use of such agreement (Rule 61J2-10. or conditions of a potential sale • responding to general factual questions from a potential buyer or seller concerning properties that have been advertised for sale • situations in which a licensee’s communications with a potential buyer or seller are limited to providing general factual information. the law of brokerage disclosure had been in what appeared to be a constant state of flux. In addition. Rental Information Each broker or sales associate who furnishes a rental information list to a prospective tenant for a fee paid by the tenant shall provide such prospective tenant with a written contract or receipt agreement containing the following provision in type size 10 point bold or larger: NOTICE PURSUANT TO FLORIDA LAW: If the rental information provided under this contract is not current or accurate in any material aspect. A list of activities an unlicensed personal assistant may perform can be found online. Any compensation earned by the personal assistant for performing brokerage activities must be paid by the broker. The Florida brokerage disclosure law is known as the Brokerage Relationship Disclosure Act (BRDA) and is found in Chapters 475. In Chapter 475. The type size of the balance of the terms of the contract shall be in a size not smaller than 8 point type. the aggregate amount of claims against a licensee rose from $75. the execution of a contractual offer or an agreement for representation. F. residential sales are defined as the sale of: • improved residential property of 4 units or fewer • unimproved residential property intended for use of 4 units or fewer • agricultural property of 10 acres or fewer Further. you may demand within 30 days of this contract date a return of your full fee paid. a personal assistant’s license must be registered with the same broker. terms.. F. or negotiations concerning price. the disclosure requirements of BRDA do not apply to the following situations (Chapter 475.278(5)(a). F.S. myfloridalicense.S.278(5) (b)1 and 2. In order to perform brokerage activities for the licensee. It has been through myriad changes primarily .). BROKERAGE RELATIONSHIP DISCLOSURE ACT (BRDA) Disclosure Requirements Since the passage of Florida’s first agency relationship disclosure law in 1988. While the duties of the authorized brokerage relationships apply in all brokerage activities.000 to $150.com/dbpr/re/documents/ Permissibleactivitiesrev092009. or conditions of a potential sale • unanticipated casual conversations between a licensee and a seller or buyer which do not involve eliciting confidential information.S. terms. whether because of the location of the sales office or because of office signage or placards or identification badges worn by the owner’s employee or single agent • nonresidential transactions • the rental or leasing of real property.pdf  since 1994. oral or written. Each contract or receipt agreement shall be contained on one side of one page not larger than 8½ x 11 inches.484(1)(b) and (4). which. in turn.2701 through 475.): • when a licensee knows that the potential seller or buyer is represented by a single agent or a transaction broker • when an owner is selling new residential units built by the owner and the circumstances or setting should reasonably inform the potential buyer that the owner’s employee or single agent is acting on behalf of the owner.

S. The failure of a licensee to timely give appropriate disclosure forms will subject the licensee to disciplinary action by the FREC.). using skill. F.). or both parties in the same transaction.S. care. A transaction broker does not represent either party in a fiduciary capacity or as a single agent (Chapter 475. 2008 (Chapter 475. Dual agency was revoked in Florida as an authorized brokerage relationship when BRDA was first enacted in 1997. F. the parties give up their rights to the undivided loyalty of the licensee.S. Since July 1. This requirement expired on July 1. it is presumed all real estate licensees are operating as transaction brokers unless a single agency or a no brokerage relationship is established in writing (Chapter 475. unless waived in writing by a party. unless a party has previously directed the licensee otherwise in writing 6.Real Estate Core Law    15 about the qualifications. A licensee must also be mindful of the duties and responsibilities that go along with each type of relationship and must act accordingly at all times. A seller or buyer who feels that the licensee has not performed the duties and responsibilities as required by law and who has suffered damages as a result may bring a civil suit seeking payment for those damages. accounting for all funds 3. Be mindful of the overriding purpose of the timely disclosure of a brokerage relationship: to place the consumer on notice as to how the licensee is working with the consumer and the minimum duties the consumer can expect as a result of that relationship. despite the transaction broker presumption. The licensee will facilitate the transaction by assisting both parties. As a single agent. In its place. The disclosure form was required to be given. background. except for property with 4 or fewer residential units Transaction Broker A transaction broker is a licensee who provides limited representation to a buyer. Single agency is a fiduciary relationship. the motivation of any party for selling or buying property. the failure to make the disclosure or to abide by the duties of a particular type of relationship may also subject the licensee to civil liability. disclosing all known facts that materially affect the value of residential real property and that are not readily observable to the buyer 5. and services of the licensee or the licensee’s brokerage firm • auctions • appraisals • dispositions of any interest in business enterprises or business opportunities. presenting all offers and counteroffers in a timely manner.01(1)(l). that the buyer will pay a price greater than the price submitted in a written offer. or both. When representing both. dealing honestly and fairly 2. or of any other information requested by a party to remain confidential 7.278. a seller. any additional duties that are mutually agreed to with a party As mentioned previously. AUTHORIZED BROKERAGE RELATIONSHIPS There are 4 types of authorized brokerage relationships a real estate licensee may have with a buyer or seller: • transaction broker • single agent • no brokerage relationship • designated sales associate A licensee may not be a dual agent. 2003. one of trust and confidence between the . Not only would the sales associate be held responsible but so could the broker.) and the transaction broker disclosure form is no longer required or recommended. Duties of a transaction broker are: 1. the legislature created the role of transaction broker that allows a licensee to provide limited representation to both parties in the same transaction. limited confidentiality. either the buyer or the seller.278(1)(b) and (2)(b). F. Single Agent Single agency is when a licensee represents. but may not work to represent one party to the detriment of the other party. as a fiduciary. that a seller or buyer will agree to financing terms other than those offered. a licensee may not represent both buyer and seller in the same transaction. This limited confidentiality prevents disclosure that the seller will accept a price less than the asking or listed price. The following sections describe authorized brokerage relationships. A real estate licensee must give a specific type of written disclosure to the buyer or seller on a form prescribed by the legislature and at a designated time in the formation of the relationship to establish a single agent or no brokerage relationship. In addition to disciplinary action by the FREC. a transaction broker may represent the buyer or seller. and diligence in the transaction 4.

whichever occurs first. See the end of the module for the Consent to Transition to Transaction Broker Disclosure Notice. The assumption that a licensee must work as either a single agent or transaction broker is untrue. disclosing all known facts that materially affect the value of residential real property and which are not readily observable to the buyer 3.16    Module 1 licensee as agent and the seller or buyer as principal (Chapter 475. The disclosure must be made before or at the time of entering into a listing agreement or an agreement for representation or before the showing of property. Failure to obtain the proper signature or initial is a violation of the license law. and the relationship may well be viewed in a civil action as a violation of single agency duties or even as an undisclosed dual agency. the No Brokerage Relationship Notice found at the end of the module is used.278(3)(c). The same written disclosure requirements as for the single agent broker notice apply to this notice except this notice is given prior to showing property.S. the licensee may work with both parties at the same time in no brokerage relationships. To convert or transition from single agent to the role of transaction broker. Similarly. accounting for all funds entrusted to the licensee According to this statute. it is commonly thought that when the licensee is showing his or her own listing. The duties of a single agent must be fully described and disclosed in writing to a buyer or seller in the Single Agent Notice Disclosure Notice as required by Chapter 475.S.” As such. while it is strongly recommended that the other disclosures be signed. If it is part of another document. allows a licensee representing a party as a single agent and who is requested or desires to represent the other party in the same transaction to transition from single agency to transaction broker. it must be of the same size type or larger than other provisions of the document and must be conspicuous in its placement. To take it one step further. F.. The first sentence of the notice must be printed in uppercase and boldface type.278(1).S.). F. This disclosure is found at the end of the module.01(1)(f) and (k). the disclosure must be of the same size type or larger than the rest of the document and must be conspicuous in its placement. Transition to Transaction Broker Chapter 475. dealing honestly and fairly 2. No Brokerage Relationship It is commonly thought that a party in a transaction must be represented by a licensee as either a single agent or as a transaction broker. there is no specific statute that mandates signing. the licensee must do so as a transaction broker. accounting for all funds 7. a licensee may work with one party as either a single agent or a transaction broker and work with another party in a no brokerage relationship. presenting all offers and counteroffers in a timely manner.S. confidentiality *4. The transition disclosure is the one disclosure that must be signed or initialed by the party (or parties). care. the relationship between that licensee and the potential buyer is required to be transaction brokerage. disclosing all known facts that materially affect the value of residential real property and are not readily observable *Note: Duties 2 through 5 are fiduciary duties. to represent both parties in the same transaction. dealing honestly and fairly *2. tion broker. Duties of a licensee in a no brokerage relationship are: 1. loyalty *3. The disclosure. As a side note. If the disclosure is incorporated into other documents. The first sentence on the disclosure must be in uppercase and boldface type. skill. as with other disclosures. to operate with a party without being either a single agent or transaction broker. such as a listing agreement. specifically states that “this part [BRDA] does not require a customer to enter into a brokerage relationship with any real estate licensee. unless a party has previously directed the licensee otherwise in writing 9. The Consent to Transition to Transaction Broker disclosure must be provided any time before the licensee is to act as a transac- . As stated in the previous section. may be a separate document or be included as part of another document. and diligence in the transaction 8. F. the licensee must first obtain the written consent of the party represented by the licensee as a single agent. full disclosure 6. obedience *5.278(3)(c)2. The disclosure may be used as a separate document or included as part of another document. Chapter 475. Duties of single agent are: 1. A buyer or seller may work with a licensee in a no brokerage relationship. F.

Choose the best response (a. F. the broker’s name is displayed in a location in a manner to lead the public to believe the location is operated by the broker.2755. the buyer and seller may request the broker to designate different sales associates to act as single agents for each buyer and seller in the same transaction. in which the seller and buyer each have assets of $1 million or more. The designated sales associate shall have the duties of a single agent as outlined previously and is required to provide to his or her respective party the Single Agent Notice. b.. Many times the licensee doing the direct mailing will live in or near the targeted area. CASE STUDIES: PART I The case study is followed by review questions. and was thus a branch office. DESIGNATED SALES ASSOCIATE Florida law prohibits a designated sales associate from disclosing. an investigator with the DBPR. F. sends emails. a sales associate makes phone calls. or persons specified by the broker. The parties themselves are required to disclose that their assets meet the dollar threshold amount to take advantage of this section.) to each case study question below. subdivision. You are not required to answer the case study questions to complete the 14-hour course. b. confidential information of a customer for the purpose of seeking advice or assistance for the benefit of the customer in regard to a transaction. except to the broker or persons specified by the broker.. or other geographic area. did a direct mailing to a particular community in which 2 of the sales associates lived. Several sales associates.). The answers to the case study questions are found in the back of the book. who were operating as a team within a brokerage office.Real Estate Core Law    17 Designated Sales Associate In a transaction other than a residential sale as defined in Chapter 475. in an effort to help themselves be recognized in the competitive business of real estate..S. Since the sales associate’s home was not registered as a branch office. engage in various types of marketing initiatives. CASE STUDY ONE Many real estate licensees will. Florida law requires that the broker must hold this information confidential and may not use such information to the detriment of the other party (Chapter 475. DRE issued a citation in the amount of $200 to the sales associate’s broker. QUESTIONS 1. The investigator determined that the return address was the home address of a sales associate and when the investigator checked online he discovered the address was not registered as a branch office of the broker. As it happened. or d.. The DBPR. A real estate broker is required to register a location as a branch office when: a. Florida law allows a designated sales associate to disclose information allowed to be disclosed or required to be disclosed by law and also allows a designated sales associate to disclose to his or her broker. . in this case the sales associate’s home. who is responsible for registering a branch office. However. c. One such method of marketing is to do a direct mailing to residents in a certain neighborhood. The broker does not represent either party and is available to each designated sales associate for advice or assistance without disclosing confidential information to the other party. and sends and receives faxes from home. The required disclosure follows.S.278(5)(a). the mailing was used to show new listings in the community. information made confidential by request or at the instruction of the customer the designated sales associate is representing. The direct mailing may be used to announce a new listing or a listing that has sold and will generally contain additional real estate information.002 (2)(h)). the DBPR. The return address that was used on the mailing was the home address of one of the sales associates in the community. for failing to register the location as a branch office (Rule 61J2-24. DRE lived in this community and received the direct mailing. DRE took the position that the use of a return address other than the registered address of the brokerage office was holding the location out as a place where brokerage business was conducted.

A broker is responsible to ensure that a licensee who is registered with the broker: a. letter of guidance.. d. Part II applies to residential tenancies. It does not apply to the following: • residency or detention in a facility when residence or detention is incidental to medical. property condition. CASE STUDY TWO It is not unusual for investigators with the DBPR. Part III applies to self-service storage space.42(1)(a)) Because the broker is responsible. administrative fine pursuant to the disciplinary guidelines. an immediate imposition of disciplinary action without a hearing. rooming house. swimming pool safety. has posted a copy of the license in a conspicuous place.S. The Florida Residential Landlord and Tenant Act applies to the rental of dwelling units. b. is the Florida Landlord and Tenant Act. QUESTIONS 1. The broker was fined $1. (Section 475. 2. is filing income tax statements. is carrying the wallet card at all times. citation. religious. lead-based paint and radon disclosures. educational. DRE to review real estate advertisements in the classified section of a newspaper or in a publication to ensure that the advertisements placed by real estate licensees are in compliance with the license law. the sales associate’s broker was also charged with employing a sales associate who did not have an active license. or similar services • occupancy under a contract of sale of a dwelling unit • transient occupancy in a hotel. motel. At random. has timely mailed in the renewal form and fee to the DBPR. (Section 475. the matter was investigated. a. notice of noncompliance. When disciplining a licensee the DBPR or the FREC is least likely to issue a/an: a. The sales associate was fined $500 by the FREC plus the costs of investigation. and valid license. F. .42(1)(c)) Part II: State and Federal Laws Affecting Real Estate This section discusses state and federal laws such as the Florida Landlord and Tenant Act. and had taken the required education. the broker stores books and records at a particular location.18    Module 1 c. A citation is: The sales associate was able to show that he had timely completed the continuing education but failed to renew his license. the recognition by the FREC of good behavior by a broker. homeowners’ association disclosure. and formal charges were filed against the sales associate for operating without a current. the location is a temporary shelter where transactions are not closed. or similar public lodging or transient occupancy in a mobile home park • occupancy by a holder of a proprietary lease in a cooperative apartment LANDLORD–TENANT REGULATIONS Chapter 83. c. condominium. d. A complaint was docketed by the DBPR investigator. The broker implemented a procedure to ensure that all licensees were properly licensed. an investigator checked the license status of a sales associate’s name that appeared in an advertisement and discovered that the sales associate’s status was inactive. c. energy-efficiency ratings. counseling. known as the Florida Residential Landlord and Tenant Act. The act is divided into 3 parts: Part I applies to nonresidential tenancies. c. and the statute regarding disclosure of HIV/AIDS. a private reprimand. b. registered with the broker. geriatric. a notice of noncompliance.000 by the FREC plus the costs of investigation. This section focuses on Part II. active. Investigators will also check the license status of the names that appear in the advertisements. stigmatized property. d. b. d. 2.

This act provides an optional procedure for disposing of the tenant’s personal property that remains on the premises after the tenancy has terminated or expired and the premises have been vacated through eviction. With the posting of a bond.000. Florida law requires the notice to contain a statement in substantially the following form: NOTICE OF CLAIM This is a notice of my intention to impose a claim for damages in the amount of $____________ upon your security deposit. F. it must be done within the initial 15 days. abandonment. or any contractual deposit agreed in written or oral form by the landlord and tenant (Chapters 83. the funds can be commingled with other funds held by the landlord (Chapter 83. decides to make a claim on the deposit. When personal property remains on the premises. simple interest. F. the written notice shall state the name and address of the depository where the funds are being held and must include a copy of the provisions of Chapter 83.) Chapter 83. Chapters 715. or other means. F. advance rent deposits. due to _______________________.25(1)(k). You are hereby notified that you must object in writing to this deduction from your security deposit within 15 days from the time you receive this notice or I will be authorized to deduct my claim from your security deposit. If the landlord should fail to make the claim within the 30-day period. it also includes damage deposits. F.S. a claim on the security deposit. then the landlord may deduct the amount of the claim from the deposit.49(1)(a)-(c). pet deposits.. It is sent to you as required by Chapter 83. F.106. • Hold the total amount in a separate interest-bearing account in a Florida banking institution for the benefit of the tenant. F.S. The landlord must pay the tenant interest at the rate of 5% per year. and the time of the interest payments to the tenant. These funds cannot be commingled with other funds held by the landlord.43(11) and (12). if the landlord. the threshold dollar amount for the disposition of the tenant’s personal property was amended. the landlord is required to notify the tenant in writing of the manner in which the funds are being held.41 and 83.. simple interest. In addition. the period in which the landlord may make a claim was extended from 15 days to 30 days.S. If the landlord makes a timely claim and the tenant fails to object within 15 days of receipt of the landlord’s written claim.49(2). surrender. If the landlord decides to return the deposit. F.49(1). However. which address claims on the security deposit (Chapter 83. 715. If the landlord intends to make Disposition of the Tenant’s Personal Property In 2001.42.S.10–715. the landlord must make the decision whether to return the deposit or make a claim within 15 days of the tenant vacating the premises.).104. be aware that the FREC has never authorized a real estate broker to post a bond. Effective July 1. the landlord is required to return the deposit within 15 days of the date the tenant vacates the property.S.49. the landlord or the landlord’s agent shall do one of the following: • Hold the total amount in a separate noninterestbearing account in a Florida banking institution for the benefit of the tenant. if any. The funds cannot be commingled with any other funds held by the landlord.111. Disposition of Security Deposits Within 30 days of receipt of the advance rent or security deposit. F. • Post a surety bond with the clerk of the circuit court in the county in which the dwelling unit is located in the amount of the security holdings or $50. if any. 2001.S. the rate of interest. he or she forfeits the right to impose a claim on the security deposit. are known as the Disposition of Personal Property Landlord and Tenant Act.S. F.. the landlord shall give written notice to the tenant (and any other person the landlord believes to be the owner of the personal property) as follows (Chapters 715. and 83. The tenant shall receive 75% of the annualized average interest rate payable on such account or interest at the rate of 5% per year. Specifically. requires the broker to maintain rental deposit funds in escrow. whichever is less.S. In practice. Your objection must be sent to (landlord’s address). Whenever money is deposited or advanced by a tenant pursuant to a rental agreement. F.). The balance. the landlord must do so within 30 days by sending written notice via certified mail to the tenant’s last known address.S.Real Estate Core Law    19 • occupancy by an owner of a condominium unit (Chapters 83.49(3).). within the first 15 days. must be returned to the tenant within 30 days of the date of the notice of claim. Chapter 475.105 and 715.S..): . If the landlord does not intend to impose a claim on the security deposit.49(3). Deposit money is not limited to security deposits. whichever the landlord elects. controls the proper handling and disposition of deposit money or advance rent. he or she has an additional 15 days to send the written claim to the tenant.

2001.20    Module 1 • a description of the property • the cost of reasonable storage. Previously. AS PROVIDED BY CHAPTER 83. F. if the property is not claimed by a certain date • notice that the property may be sold. an adult member of his or her immediate family may terminate the rental agreement by sending written notice to the landlord. the following information must be disclosed: • EPA-approved lead hazard information pamphlet. efficiencies. or destroyed if the property is believed to be worth less than $500 The timeframe to offer the property for sale or otherwise shall not be fewer than 10 days if the notice is personally delivered or 15 days if mailed. FLORIDA STATUTES. 1996. the tenant is liable for the rent due. If a member dies during active duty.S. Congress passed the Residential LeadBased Paint Hazard Reduction Act that directed the Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD) to jointly issue regulations requiring the disclosure of known lead-based paint or lead-based paint hazards on the sale or lease of real property built before 1978. “Protect Your Family from Lead in Your Home” • presence of any known lead-based paint and/or hazards and any available records or reports • certificate and acknowledgment of disclosure Tenancies with Members of the Armed Forces When any member of the United States Armed Forces. called target housing. LEAD-BASED PAINT DISCLOSURE In 1992.. The use of lead in paint was banned in 1978. Upon termination of the rental agreement. OR RECOVERY OF POSSESSION OF THE DWELLING UNIT DUE TO THE DEATH OF THE LAST REMAINING TENANT. the member may terminate his or her rental agreement. 1996. If a tenant terminates the rental agreement 14 or more days prior to occupancy. The termination is made by providing the landlord a written notice of termination to be effective on a date stated in the notice that is at least 30 days after the landlord’s receipt of the notice. if any • notice that the property will be sold at a public sale after notice of the sale. the landlord is not required to comply with the above requirements for the storage or disposition of the tenant’s personal property if the following disclosure is given to the tenant in the rental agreement or in a written agreement separate from the rental agreement. regulations require that the seller or lessor disclose certain information. The regulations apply to the sale or lease of any housing constructed before 1978. the termination may then become effective at least 30 days after the landlord’s receipt of the . The following types of dwellings have been excluded from the disclosure requirements: • housing built in 1978 or later • housing for the elderly or persons with disabilities (unless children less than 6 years of age reside in such housing) • zero-bedroom units such as studio apartments. The provisions of this section of law may not be waived or modified under any circumstances. A copy of the official document or signed verification must accompany the notice of termination. notice. THE LANDLORD SHALL NOT BE LIABLE OR RESPONSIBLE FOR STORAGE OR DISPOSITION OF THE TENANT’S PERSONAL PROPERTY. and December 6. for owners of more than 4 dwelling units. the dollar amount was $250. The notice must contain a copy of the official military orders or a written verification signed by the member’s commanding officer. or the Florida National Guard (referred to hereafter as member) is required to move 35 miles or more from the location of the rental premises pursuant to permanent change of station orders or when the member is prematurely or involuntarily discharged or released from active duty. and dormitories • short-term leases for 100 days or less • foreclosure sales • housing that has been declared lead-free by a certified inspector or risk assessor Before the purchaser or lessee is obligated under any contract to purchase or lease target housing.67(5). The disclosure must be in substantially the following form: BY SIGNING THIS RENTAL AGREEMENT. United States Reserve Forces. kept. for owners of 4 or fewer dwelling units. EPA 747-K-99-001. However. ABANDONMENT. prorated to the effective date of the termination. However. pursuant to Chapter 83. THE TENANT AGREES THAT UPON SURRENDER. The jointly issued regulations became effective September 6. The seller or lessor is not obligated to conduct any evaluations or removal of lead-based paint. no damages or penalties of any kind are due. The $500 threshold amount for destroying or retaining the property is an amendment effective July 1.

F.056(5). Effective July 6. public or commercial buildings where children under age 6 are present on a regular basis. Lead poisoning also poses a particular risk to pregnant women. 2010.epa. Owners of properties who perform the work themselves in rental housing or child care facilities must be EPA certified. 2008. The brochure is prepared by the Department of Community Affairs (DCA). the purchaser is given 10 days (or another agreed-upon time period) to conduct a risk assessment or inspection for the presence of leadbased paint and/or lead-based paint hazards. or painting is performed. The seller of any interest in residential real property is required to provide the buyer with any information on leadbased paint hazards from risk assessments or inspections in the seller’s possession and notify the buyer of any known lead-based paint hazards. the renovation rule. Under the rule.Real Estate Core Law    21 In the case of a sale. and schools built before 1978 must be EPA-certified and must follow specific work practices to prevent lead contamination. owner occupants of homes built prior to 1978 can no longer “optout” of having their contractors follow lead-safe work practices. To receive the lead pamphlets or for further information on the lead-based paint disclosure requirements. Additional information regarding radon and radon testing may be obtained from your county health department (Chapter 404.). contractors performing renovation. the federal regulations make the real estate licensee responsible for ensuring compliance of the seller or lessor in issuing the required disclosures and notices. and Painting Program Due to risks associated with common renovation activities. and cleaning up thoroughly. a contract for sale and purchase or a rental agreement for any building. repair. the purchaser’s execution of the contract for sale and purchase (Chapter 553.996. including learning disabilities. repair. Contractors must use lead-safe work practices by containing the work area. owner-occupants were able to certify that no child 6 or younger or pregnant women were living in the home and then their contractors did not need to follow lead-safe work practices. www.S.S. Notification must be provided on at least one document. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. F. The rule does not cover homeowners working on their own home. ENERGY-EFFICIENCY RATING A prospective buyer of real property must be provided with a brochure describing the option for an energy-efficiency rating if any buildings are located on the property.gov/lead Lead Warning Statement Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. form. or agent must retain a copy of these certifications for not less than 3 years from the date of sale or commencement of the lease period. when it has accumulated in a building in sufficient quantities. Prior to this change. Federal Lead-Based Paint Renovation. as well. The rule does not apply to minor maintenance or repair activities where less than 6 square feet of leadbased paint is disturbed in a room or where less than 20 square feet of lead-based paint is disturbed on the exterior. Residential transient occupancy is exempted from notification provided it is for the duration of 45 days or less. Owner occupants and/or tenants must be provided a pamphlet entitled. a disclosure regarding radon gas. and painting projects that disturb lead-based paint in homes. The brochure must be given at the time of. beginning April 22. Internet lead-based paint information website. call (800) 424-LEAD or access information on the RADON GAS The Florida Radon Protection Act. 2010. the EPA issued a rule on April 22. or application at the time of. and Schools” before any renovation. child care facilities. Window replacement is not considered minor maintenance or repair. reduced intelligence quotient. requires.). lessor. The renovator (contractor or owner of property) must provide the pamphlet and maintain proof of delivery by a signed disclosure. The required radon gas statement is as follows: RADON GAS Radon is a naturally occurring radioactive gas that. Child-care facilities are defined as residential. aimed at preventing lead poisoning. Child Care Providers. The seller. among other things. A risk assessment or inspection for possible lead-based paint hazards is recommended prior to purchase. To obtain further infor- . or lead-based paint in general. minimizing dust. may present health risks to persons who are exposed to it over time. Finally. and impaired memory. or prior to. “Renovate Right: Important Lead Hazard Information for Families. 1989. behavioral problems. or prior to the execution of. Lead poisoning in young children may produce permanent neurological damage. Repair. effective January 1.

S. the court can determine the amount of damages due to a leaky roof or termite infestation. licensees may call the DCA at (877) 352-3222 or go online. In addition. the owner’s agent. since Johnson. Information is considered material to the extent that if the information had been disclosed.). whether said facts are readily DISCLOSURE OF MATERIAL FACTS Florida law requires that real estate licensees disclose those material facts that affect the value of residential real property that are not readily observable to . The courts also hold that a buyer has a duty to investigate via inspections and other means to determine facts that could influence the buyer to offer less money or reconsider the purchase. subsequent case law has applied the disclosure requirements to the agent of the seller. For example.2d 625 (Florida 1985) requires: …that where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer.dca.. new and used. commonly referred to as the seller’s disclosure. it does not apply to commercial property.state.27. 2003. whether an occupant of real property may be infected with human immunodeficiency virus (HIV) or has been diagnosed with acquired immune deficiency syndrome (AIDS) is not a material fact that must be disclosed in a real estate transaction. to move 35 miles or more from the location of the property • member is released from active duty and the property is more than 35 miles from the member’s home of record • member receives orders to move into government quarters.S. the previous commonlaw doctrine of caveat emptor. This form. CONTRACTS WITH MILITARY PERSONNEL Effective July 1. Latent defects affect the property’s value. or • member receives temporary duty orders to move more than 35 miles from the location of the property and the temporary duty orders exceed 90 days Upon termination of the contract. the seller is under a duty to disclose them to the buyer. The case law does not mandate the manner in which the disclosure of the defects must be made or the format or form upon which it must be made. F. in the sale of residential real property in Florida was abolished.fl. by permanent change of station orders. a member of the United States Armed Forces. compare it with the purchase price and cost to repair the damages. prior to closing.S. www. Property Condition—Johnson v. the 1985 Florida Supreme Court case of Johnson v. Specifically. HIV/AIDS According to Florida legislation. Davis While there is no statutory law in Florida that mandates the disclosure of the condition of residential property by a seller to a buyer. In addition. by providing to the seller or mortgagor on the property a written notice of termination under the following circumstances: • member is required. the member is entitled to a full refund of the deposit within 7 days. F. or buyer beware. Davis. The law may not be waived or modified by agreement of the parties under any circumstances (Chapter 689. With the Johnson decision. in turn is shared with the buyer or the buyer’s representative so as to comply with the dictates of the Supreme Court. It simply requires that a disclosure be made. 480 So. no cause of action arises against the real property owner. However.22    Module 1 mation.25(1) and (2). most real estate firms and private trade associations have developed written forms upon which it is requested that the seller remark on the condition of virtually every aspect of the property. The disclosure requirement of Johnson only applies to residential property. or the member becomes eligible to live in government quarters.us/ the buyer. the United States Reserve Forces. but are not readily observable. and then decide whether the value was materially affected. An example of a latent defects clause follows: Seller specifically acknowledges and understands that if Seller knows of facts materially affecting the value of the property.). This duty is equally applicable to all forms of real property. or the agent of the transferee for failure of the owner or agents to disclose to the transferee that the occupant was infected with HIV or diagnosed with AIDS (Chapter 689. Wise court case of 1987 expanded the responsibility for disclosure of known material facts to real estate licensees. the Raynor v. the sales contract would not have been signed. or the Florida National Guard (collectively known as member) may terminate a contract to purchase real property. a person licensed under Chapter 475 F. Physical defects can generally be measured monetarily.

• Because a CDD is an independent special district. the law was moved to Chapter 720 from Chapter 689. and levy assessments. drainage and storm water systems. regulations. Effective July 1. the failure to disclose such information may not be the basis for a civil lawsuit (Chapter 689. sidewalks. 2003. and community areas. whichever occurs first. Therefore. Infrastructure includes water and sewer collection systems. and orders. or drug-related arrest. • A CDD is organized as a special-purpose unit of local government and operates as an independent taxing district. this contract is voidable by buyer by delivering to seller or seller’s agent or representative written notice of the buyer’s intention to cancel within 3 days after receipt of the Disclosure Summary or prior to closing. Legal Overview of a CDD: • A CDD provides a mechanism to finance.Real Estate Core Law    23 observable or not. or the property may be considered haunted by ghosts or spirits.401. 2004. has not been provided to the prospective purchaser before executing this contract for sale.. Stigmatized property also includes those premises on which a famous person may have once lived. the right to sue and be sued. is amended to provide that the fact a property was the site of a homicide.25(1) F. suicide. the buyer will have the option to void the contract in writing within 3 days of receipt of the disclosure summary or prior to closing. there is a separate paragraph that must be included in the contract or the contract is voidable by the buyer up to the time of closing. adopt by-laws. such as: the right to enter into contracts. its governing body establishes its own budget and operates independently of the local governmental entity within the scope of its specific and very limited powers. The contract language must be in conspicuous type and state as follows: . parks. construct. special-purpose government authorized under the Uniform Community Development Act of 1980 by Chapter 190 of the Florida Statutes and is an alternative method for managing and financing infrastructure required to support community development. In addition. F.S. the clause alone usually does not provide an opportunity for the seller to elaborate about what he or she knows about the property.S. or death is not a material fact which must be disclosed in a real estate transaction. In addition. The disclosure must be provided by either the developer or a seller who is not a developer.). rules. the Homeowners’ Association Disclosure Law was amended to require disclosure only when the purchaser will be obligated to be a member of a homeowners’ association.25(1) and (2). the Seller is under a duty to disclose these facts to the buyer and to the real estate licensee. suicide. Any purported waiver of this voidability right has no effect. to issue bonds.. Homeowners’ Association Contract Disclosure Language If the Disclosure Summary required by Chapter 720. the right to own both real and personal property.S. Stigmatized Property Stigmatized property had an event that produces more of a psychological impact than a physical impact. and wetlands mitigation. F. • The primary function of a CDD is to issue tax- HOMEOWNERS’ ASSOCIATION DISCLOSURE Effective June 23. CDDs possess several powers as a legal entity. boardwalks. Property may be stigmatized by events such as murder. The required disclosure summary may be found at the end of this module. COMMUNITY DEVELOPMENT DISTRICT (CDD) A Community Development District (CDD) is a local. • A CDD does not have police powers and cannot regulate land use or issue development orders. In addition. to obtain funds by borrowing. and maintain community or subdivision infrastructure improvements. Although a latent defects clause requires a seller to indicate his or her knowledge of his or her duty. Chapter 689. whichever occurs first. If the required disclosure summary is not given to the buyer prior to the execution of the contract. a purchaser who is buying in a community which mandates membership in a homeowners’ association in order to live in the community is to be given the statutory required disclosure form and disclosure language prior to the execution of the contract for sale and purchase. landscaping. roads. Seller represents that Seller does not know of any material facts which affect the value of the property other than those which the buyer can readily observe or which are known by or have been disclosed to buyer. those powers reside with the local general-purpose government (city or county). Buyer’s right to void this contract shall terminate at closing.

found at Section 689.myfloridalicense. • All doors providing direct access from the home to the pool must be equipped with a self-closing. Effective January 1. a prospective purchaser of a condominium unit from a non-developer seller is to be given a Condominium Governance Form created by the DBPR Division of Florida Condominiums. The failure to equip a new residential pool with at least one of the above safety features is a seconddegree misdemeanor. F. • The end result is that a CDD pays for itself and the cost of the growth is allocated proportionately by levying special assessments on the lands which receive the benefit of the improvements..8324. self latching device with the release mechanism no lower than 54 inches above the floor.) requires certain safety features on residential pools to prevent drowning of a young child or medically frail elderly person. 2005. and the . F. To pass the final inspection and receive a certificate of completion. and mold remediators. The form will include a description of the condominium’s board of directors’ role.S. mold assessors. • All doors and windows with direct access from the home to the pool must be equipped with an approved exit alarm system with minimum sound pressure ratings.261(1). • CDDs are common in the State of Florida: there are 503 CDDs in the state (Community Affairs). • A CDD also provides a more efficient method of paying the operation and maintenance expense of infrastructure and related services. a residential swimming pool must meet one of the following safety features: • The pool must be isolated from access to a home by an enclosure that meets the pool barrier requirement. 2009. water and sewer lines. The disclosure summary. F. It must be in the contract or. the rights of owners to speak at board meetings.S. MOLD ASSESSMENTS.com/dbpr/lsc  RESIDENTIAL SWIMMING POOL SAFETY ACT The Residential Swimming Pool Safety Act (Chapter 515. HOME INSPECTIONS.S. be incorporated into the contract.83 to 468.24    Module 1 exempt bonds to construct infrastructure such as roads. The Florida Building Code goes further and now requires that suction inlets be equipped with entrapment protection devices that will prevent a young child or medically frail elderly person from becoming trapped by the force of a suction device in the pool. A CHANGE OF OWNERSHIP OR PROPERTY IMPROVEMENTS TRIGGERS REASSESSMENTS OF THE PROPERTY THAT COULD RESULT IN HIGHER PROPERTY TAXES.503(2). A licensed pool contractor entering into an agreement to build a residential swimming pool. The disclosure must be given at or before the execution of the contract for sale and purchase. and the responsibilities of the owner to pay assessments and otherwise abide by the condominium documents. CONDOMINIUM DISCLOSURE Chapter 718. 2 new laws were passed establishing licensing requirements for home inspectors.. must give the buyer a document containing the requirements of the act and a copy of a publication produced by the Department of Health. The form may be found at the Division’s website. The safety features are mandatory pursuant to the Florida Building Code. AND MOLD REMEDIATION In 2007. which could result in higher property taxes. IF YOU HAVE ANY QUESTIONS CONCERNING VALUATION. etc. recreational facilities. The statutory disclosure language is found at Chapter 718. must be in a form substantially similar to the following: PROPERTY TAX DISCLOSURE SUMMARY BUYER SHOULD NOT RELY ON THE SELLER’S CURRENT PROPERTY TAXES AS THE AMOUNT OF PROPERTY TAXES THAT THE BUYER MAY BE OBLIGATED TO PAY IN THE YEAR SUBSEQUENT TO PURCHASE.503(2)(c)1 and 2. or a licensed home builder or developer entering into an agreement to build a home that includes a residential swimming pool. requires a non-developer selling a condominium to give a written disclosure to the buyer. if given separately. PROPERTY TAX DISCLOSURE Since January 1. • There must be an approved safety pool cover. Timeshares and Mobile Homes. a prospective purchaser of residential property must be given a written disclosure that a change in ownership may trigger a reassessment of the property. The law for home inspectors is found at Sections 468. F.S. www.. CONTACT THE COUNTY PROPERTY APPRAISER’S OFFICE FOR INFORMATION.

You are not required to answer the case study questions to complete the 14-hour course. About a month after the tenant moved in. c. c. commercial b. CASE STUDY ONE The broker secured a tenant giving the tenant the Lead-Based Paint Pamphlet. The sellers disclosed only some minor items. Wise. c. industrial .) to each case study question below... d. Davis case applies to what type of property? a.” due to the fact the house was built before 1978. Chapter 475. the brochure is not required to be given because it was given at the time the tenant rented the unit. The plumber c. the house was built later than 1978. residential c. and Schools” is required to be given to the tenant because: a. QUESTIONS 1. “Protect Your Family From Lead in Your Home. The court ruled that the seller of residential property had a duty to disclose all latent defects that affect the value of the property but are not readily observable. The pamphlet “Renovate Right: Im­ port­ ant Lead Hazard Information for Families. the case of Raynor v. all types of property d. the licensee had the sellers fill out and sign a property disclosure form disclosing all the defects of the house including anything negative that may affect the value of the property. 2. During the walkthrough a rain storm struck and water began gushing in around the window frames. As is usual.Real Estate Core Law    25 CASE STUDIES: PART II The case study is followed by review questions. The broker sent out a plumber who did determine there was a leak and a portion of the wallboard measuring more than 7 square feet needed to be removed to repair the leak. the tenant notified the broker of what sounded like a leak in a pipe in the bathroom. the repair was a non-emergency. The broker d.. more than 6 square feet are to be disturbed in the house to perform the repair. b. Choose the best response (a. A few days before closing. QUESTIONS 1. the case of Johnson v. The tenant must obtain the pamphlet directly from the EPA. The duty of a real estate licensee to disclose facts materially affecting the value of the property that are not readily observable to a buyer is required by: a. Who is re­ quired to provide the tenant the pamphlet prior to the repair? a. Davis. the buyers walked through the house. No one. b. 2. b. The buyers refused to close and the sellers sued for the deposit. Child Care Providers. This had not been disclosed on the property disclosure sheet. or d. CASE STUDY TWO A real estate licensee listed a home for sale. the rules of the FREC. The answers to the case study questions are found in the back of the book. The owner b. The duty to disclose latent defects under the Johnson v. d.

26    Module 1 law for mold assessors and mold remediators is found at Sections 468. Mortgage Foreclosure Rescue Act On October 1. title company . then the broker is relieved of all the responsibilities associated with maintaining escrow accounts. became effective.009. Section 501. provide the seller’s broker with either a copy of the written verification. 2011. Sunday. address. 2008. with a title company or an attorney. the broker must make a written request to the escrow agent to provide written verification of receipt of the deposit. then the written request to verify funds is not required. a state examination. the licensee who prepared or presented the sales contract must indicate on that contract the name. RECEIPT OF ESCROW FUNDS When a sales associate or broker associate receives any deposit in connection with any real estate transaction. providing brokers additional time after the deposit (10 business days.010). If the parties agree to have a third party. avoid or delay foreclosure proceedings. written notice that he or she did not receive verification of the deposit. or. If the seller is not represented by a broker. it is important for the broker to understand the requirements for maintaining an escrow account. not 3) to request written verification. then the broker will notify the seller directly in the same manner (Rule 61J2-14. Note: The 3-business day time frame for brokers begins the day the sales associate or broker associate receives the escrow funds. within 10 business days of the date the broker made the written request for verification of the deposit. title company.008).008(3). If the broker does maintain an escrow account. and continuing education and provides for disciplinary action against the licensee for violations of the laws. 61J2-14. such as a lawyer.8423. generally referred to as the Mortgage Foreclosure Rescue Act. and 61J2-14. The broker must.84 to 468. Brokers have until the end of the third business day following receipt of escrow funds by the sales associate or broker associate to deposit the funds in an escrow account (Rules 61J214. This law is in part a response to the increased number of foreclosures and abuses in the marketplace regarding mortgage foreclosure rescues. The new laws will require specific education. Saturday. The law requires that certain disclosures be made in writing to the person to be assisted and that all agreements be in writing in a specified size and allowing for the customer to cancel the agreement. This will prevent the home inspector and inspection company from repairing or offering to repair a home that they inspected. he or she is required to deliver the deposit to their broker no later than the end of the next business day. 2010. This information is provided for your knowledge but is not a part of this course and will not be the subject of any test questions. and legal holidays are not considered business days. The law prohibits any money being paid up front for the services. The DBPR will not enforce the licensing requirements until July 1. The law for mold assessors and remediators is similar in that a mold assessor may not perform any remediation on the property for one year after the assessment was performed. Note: This rule was updated effective June 21. It was designed to inform homeowners so they can make the appropriate decisions. and related professions. Within 10 business days after each deposit is due under the sales contract. Both laws include a grandfather clause providing that the requirements for licensure do not become effective until July 1. and telephone number of the escrow agent (title company or attorney). One of the more significant parts of the home inspector law is that a home inspector or home inspection company may not perform repairs on the home from the time of the home inspection until closing. If the seller or seller’s agent nominates in writing the title company or attorney as escrow agent. 2010. credit union. if no verification is received by seller’s broker. Please refer to our website for more information on state and federal laws affecting your profession. The law applies to anyone attempting to assist a homeowner as he or she takes steps to stop. Part III: Escrow Accounts The law in Florida does not require a broker to maintain an escrow account simply because he or she has a broker’s license.1377. or another broker hold the escrow deposit. When an escrow deposit is placed or to be placed ESCROW ACCOUNT REQUIREMENTS The escrow account maintained by a broker must be in a banking institution.

The broker must be a signatory on all escrow accounts. the broker is required to perform a written reconciliation of the escrow account(s) he or she maintains. and the interest is transferred directly to the broker’s operating account (Rule 61J2-14.25(1)(k).25(1)(d)1 and (k).000 in the sales escrow account (Chapter 475. Being a signatory does not necessarily mean that the broker must sign off on checks negotiated from the escrow account. The broker must: • obtain the written permission of all parties to the transaction • designate the party who is to receive the interest • designate the time the earned interest must be disbursed • obtain insurance for the account and place funds in a depository located and doing business in Florida The broker is permitted to be the party designated to receive the interest. the broker must first transfer the principal and interest to a non-interest-bearing escrow account to stop the interest from accruing and then disburse the funds to the designated party.Real Estate Core Law    27 having trust powers. A real estate broker may be disciplined for failing to review the brokerage’s trust accounting procedure to ensure compliance. INTEREST-BEARING ACCOUNTS A broker is permitted to maintain escrow funds in an interest-bearing escrow account. sign.S. it still must be described although no corrective action is required. and date the monthly reconciliation.). A real estate broker may maintain up to $5. If the overage is caused by the allowable overage of broker funds. and held by the broker at any one point in time.S.000 of personal or brokerage funds in a property management account and up to $1. pending.S.010(1)].). the broker is to be given a reasonable time to correct the escrow errors (Section 475. The trust liability is defined as the sum total of all deposits received. the broker is required to describe or explain in the reconciliation the reason for the overage or shortage and any corrective action taken [Rule 61J2-14. then one broker may be designated as the signatory [Rule 61J2-14. the broker or brokers remain responsible for the contents of the account. If escrow errors are found during an audit and there is no shortage of funds and the errors pose no significant threat to the public. • Within 30 business days of the last demand or of having the good faith doubts. or savings associations located and doing business in Florida (Chapter 475. However. To disburse the funds from the interest-bearing account to the designated party (except the broker). If the brokerage firm has more than one broker.012(1)-(3)]. provided the broker satisfies the following requirements. If the total trust liability and the bank balances do not agree. The reconciliation consists of comparing the broker’s total trust liability with the reconciled bank balance(s). F. F. The broker may choose one of the following settlement procedures: ■■ equest from the FREC an order of disburser ment otherwise known as an escrow disbursement order (EDO) .014). F. only the principal is transferred to the non-interest-bearing escrow account. The minimum information required in the monthly reconciliation includes: • date the reconciliation was undertaken • date used to reconcile the balances • name of the bank(s) • name(s) of the account(s) • account number(s) • account balance(s) and date(s) • deposits in transit • outstanding checks identified by date and check number • itemized list of the broker’s trust liability • any other items necessary to reconcile the bank account balance(s) with the balance recorded in the broker’s checkbook(s) and other trust account books and records disclosing the date of receipt and the source of the funds ESCROW DISPUTES OR GOOD FAITH DOUBTS If a broker holding funds in his or her escrow account receives conflicting demands from the parties or if the broker has good faith doubts as to who is entitled to the escrow funds. the broker must institute a settlement procedure and so notify the ­ FREC. the broker has specific statutory and administrative rule requirements to follow: • Within 15 business days of receiving the last party’s demand or of having the good faith doubts. ESCROW ACCOUNT RECONCILIATION At least once monthly.). If the broker is the designated party. The broker is also required to review. the broker must report in writing the dispute or doubts to the FREC.25(1)(k). this function may be delegated to one or more persons.

b. pursuant to Chapter 718. F. F. When the public has entrusted their money to a broker and the broker mishandles the funds or fails to properly reconcile the account. or eek adjudication of the matter in court such as s through an interpleader action ESCROW ACCOUNTS IN GENERAL In general terms. There are 3 exceptions to the requirement for notification and settlement procedures: • landlord-tenant funds (Chapter 83. F.42 in the rental distribution account. CASE STUDIES: PART III The case study is followed by review questions.25(1) (d)1. As previously stated.) For the first item the broker decides whether the tenant or the landlord receives the funds.503. the role of an escrow agent may be one of the most important roles that a real estate broker undertakes.577. brokers are not required to maintain an escrow account.) The broker was unable to explain the shortage in the security deposit account.S (Chapter 475.28    Module 1 ■■  ubmit the matter to arbitration with the consent s of all parties ubmit the matter to mediation with the written s consent of all parties If the mediation is not concluded within 90 days. and perform the regular reconciliation of the escrow account to ensure the proper accounting of the funds being maintained. If the buyer has not made the deposit stated on the contractual offer. During the course of the investigation.S. c. The shortage in the rental distribution account was due to the broker paying for repairs regardless of the owner’s balance. the FREC does not hesitate to take the appropriate and sometimes harsh action to not only discipline the broker. but the broker is required to timely deposit the funds in an appropriate institution.S. The answers to the case study questions are found in the back of the book. a shortage in the security deposit account of $654. and a shortage of $10. F. If one of the other bulleted items occurs. But once the decision is made to hold an account. but to send the message to the licensee community that escrow violations will not be treated lightly. You are not required to answer the case study questions to complete the 14-hour course. The broker had been performing the reconciliations but had not taken corrective action regarding the overage and shortages.032).16.376. F.) • situations in which the buyer in good faith fails to satisfy the terms in the financing contingency clause in the contract (Chapter 475. The broker had deposited funds to cover the shortages in the rental accounts and both accounts balanced.49(3)(d).25(1)(d)1. the broker and all sales associates need to faithfully follow the rules for maintaining an escrow account.25(1) (d)1. Choose the best response (a.S.) to each case study question below.) • residential condominium purchase in which the buyer delivers in a timely fashion written notice to the licensee the buyer’s intent to cancel the contract. The broker and his company were charged with failing to properly perform the reconciliations as . (The overage was above the $1. Of all the violations that go before the FREC.. ■■ ■■ A broker who employs one of the escape procedures in a timely manner and abides by the determination is protected from the filing of an administrative complaint against the broker (Chapter 475. The commissions in the sales account had been removed and the account balanced. and Rule 61J2-10. The audit revealed that there was an overage in the sales escrow account of $1. The overage in the sales account was explained as commissions not yet disbursed. the licensee needs to inform the listing agent or seller. Not only is the broker entrusted with the monies of another...000 allowed to be maintained in a sales escrow account. maintain the funds until properly instructed as to how and to whom to disburse. CASE STUDY ONE A complaint was filed by a tenant against a broker alleging that the broker had failed to return a security deposit. the broker must institute an alternate settlement procedure). the handling of escrow funds is considered the most important. the broker is responsible to ensure that each sales associate properly handles and delivers the funds to the broker or to a consumer. or d.. the broker may return the deposit to the buyer without notifying the Commission or instituting a settlement procedure.S. In addition. The investigator returned a month later to reaudit the accounts. an audit was performed by the DBPR investigator of all the broker’s escrow accounts.

the buyer. the allegations by the tenant were dismissed. The broker had no record of the deposit or the contract. may place the funds in: a. the operating account. as instructed by the buyer 2. The other major area of importance is escrow accounts. Upon receipt of the original check. CASE STUDY TWO A buyer approached a sales associate about purchasing a property. $5. The settlement consisted of a 30-day suspension. that broker’s escrow account is audited. The broker investigated and discovered that the sales associate had never turned in the contract or deposit.000. c. an offer was made indicating that there was a deposit of $5. A sales associate who receives a deposit on a contract must deliver the deposit to the broker in what period of time? a.000 which was being held by the sales associate’s broker. The offer was accepted by the seller. upon acceptance of the offer c. Focus special attention on the disclosures real estate licensees must provide. especially those related to the Brokerage Relationship Disclosure Act. d. Following an investigation.Real Estate Core Law    29 he had not taken or noted the corrective action and with failing to maintain funds in escrow. Following negotiations. Careful reading of this module should contribute to this end. a Florida credit union. b. b. the deposit check was simply placed in the file. 3 business days b. Florida real estate licensees must remain abreast of these requirements and changes to the requirements to ensure compliance and avoid complaints and possible disciplinary action. The matter went before the FREC on an informal hearing. The broker had the sales associate return the check to the buyer. seller agreed to return the deposit to the buyer. $1. c. 6 months probation with the condition that the 30-hour broker management course be taken and a reprimand for the company. Ironically. at least once every 6 months d. A release of deposit was signed by the buyer and seller and sent to the sales associate’s broker.S. Whenever a complaint is filed against a broker. a safe deposit box. When must the escrow account reconciliation be performed? a. The FREC approved the settlement. QUESTIONS 1. only if requested by a DBPR investigator 2. a personal bank account. d.. was denied the loan. $10. filed a complaint with the DBPR. $7. The broker appeared and readily admitted his mistakes and the actions he had taken to ensure it will not occur again.000. The CONCLUSION There have been numerous and significant changes in many regulatory areas that govern real estate and real estate-related activities. at least quarterly b.000. at least once monthly c. the sales associate was charged with failing to immediately deliver a deposit to her broker. F. The changes in Chapters 455 and 475. recognizing that the deposit had never been placed into escrow. The matter went before the FREC on a stipulated settlement. QUESTIONS 1. one business day d.000. A broker entrusted with escrow funds. The amount allowed to be maintained in the sales escrow account is a balance up to: a. The contract was contingent upon financing. (The broker then terminated the sales associate). .500. placed her on probation for one year and required her to take the 45-hour post license course. a fine of $2. are especially important to Florida real estate licensees. The FREC ordered the sales associate to pay a fine of $1.000. The buyer timely applied for financing and after having used due diligence. during which time the broker was able to show he knew nothing of the contract or deposit.

limited liability partnership b. $5. Chapter 83. quarterly. They are intended to help prepare you for the Final Exam. 2008 b. authorized dual agency b. 2003 d. 1. A designated sales associate represents a buyer or seller in what capacity? a. $10. b. The maximum amount the FREC may fine a licensee per offense is: a. July 1.S. Who is/are the required signatories on the escrow account? a. There is no fine. 5. transaction broker d. d. all of the brokers b. When a tenant vacates the rental property.. is also known as the: a. $1. 6 months after the transaction closes. 15. 9 c. 1977. 2008 4. 30 calendar days b. d. A single agent has what type of duties? a. A disclosure for lead-based paint must be made on a home built before: a. 2006 d. The maximum fine that may be imposed with a notice of noncompliance is: a. 2. 1978. The presumption of transaction brokerage became effective in what year? a. d. the office manager c. statutory d. $1. 8 years from execution of a contract. 30 business days c. A real estate sales associate may organize and operate as what type of business entity? a.000. Property Disclosure Act. F. 25 days c. 2001 11. 8. no brokerage relationship c. 49 6. The Transaction Broker Notice is no longer required as of what date? a.500. Brokerage Relationship Disclosure Act. An escrow dispute is required to be reported to FREC in what period of time? a. Choose the best response to each question. b. common law 12. single agent 13. fiduciary c. Property Tax Disclosure Act. c. 10. The FREC has mutual recognition agreements with how many other states? a. 15 d. 2003 b. annually. c. c. July 1. July 1. 15 business days . 0 b. Florida Landlord and Tenant Act. 15 days 9. 7. 10 years after the transaction closes. a person authorized by FREC 14. d. $500. limited fiduciary b. c.30    Module 1 M odul e 1 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. within what period of time must the security deposit be returned if the landlord does not intend to make a claim? a. charitable organization 3. 21 days d. c. d. every 6 months. The answers are found in the back of the book. A broker is required to maintain records for at least: a. 2005 c. $200. professional corporation c. b.000. July 1. 15 calendar days d. c. corporation d. $2. 5 years from the execution of a listing. 1992.000. monthly. 2005 c. b. at least one of the brokers d. 30 days b. 1996. d. b. b. Escrow accounts must be rec onciled at least: a.000.

or ___ (ii)  waived the opportunity to conduct a risk assessment or inspection for the presence of leadbased paint and/or lead-based paint hazards. and impaired memory. reduced intelligence quotient. 4852d and is aware of his/her responsibility to ensure compliance. A risk assessment or inspection for possible lead-based paint hazards is recommended prior to purchase. Seller’s Disclosure (a) Presence of lead-based paint and/or lead-based paint hazards (check (i) or (ii) below): ___ (i) Known lead-based paint and/or lead-based paint hazards are present in the housing (explain): ____________________________________________________________________________________ ___ (ii) Seller has no knowledge of lead-based paint and/or lead-based paint hazards in the housing.S. Agent’s Acknowledgment (initial) ___ (f)  Agent has informed the seller of the seller’s obligations under 42 U. ___________________________ ________________ __________________________ ________________ Seller (Sign and PRINT name) Date Seller (Sign and PRINT name) Date ___________________________ ________________ __________________________ ________________ Purchaser Agent (Sign and PRINT name) Date Purchaser Agent (Sign and PRINT name) Date ___________________________ ________________ __________________________ ________________ (Sign and PRINT name) Date (Sign and PRINT name) Date . that the information they have provided is true and accurate. ___ (e) Purchaser has (check (i) or (ii) below): ___ (i) r eceived a 10-day opportunity (or mutually agreed upon period) to conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards.Real Estate Core Law    31 DISCLOSURE OF INFORMATION ON LEAD-BASED PAINT AND/OR LEAD-BASED PAINT HAZARDS Lead Warning Statement Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. ­ Purchaser’s Acknowledgment (initial) ___ (c) Purchaser has received copies of all information listed above. including learning disabilities. Certification of Accuracy The following parties have reviewed the information above and certify.C. Lead poisoning also poses a particular risk to pregnant women. The seller of any interest in residential real property is required to provide the buyer with any information on lead-based paint hazards from risk assessments or inspections in the seller’s possession and notify the buyer of any known lead-based paint hazards. behavioral problems. (b) Records and reports available to the seller (check (i) or (ii) below): ___ (i)  Seller has provided the lessee with all available records and reports pertaining to lead-based paint and/or lead-based paint hazards in the housing (list documents below): ____________________________________________________________________________________ ____________________________________________________________________________________ ___ (ii)  Seller has no reports or records pertaining to lead-based paint and/or lead-based paint hazards in the housing. Lead poisoning in young children may produce permanent neurological damage. to the best of their knowledge. ___ (d) Purchaser has received the pamphlet Protect Your Family from Lead in Your Home.

4852d and is aware of his/her responsibility to ensure compliance. Lessees must also receive a federallyapproved pamphlet on lead poisoning prevention. Lead exposure is especially harmful to young children and pregnant women. ___________________________ ________________ __________________________ ________________ Lessor Date Date Date Lessor Date Date ___________________________ ________________ __________________________ ________________ Lessee Agent Lessee Agent ___________________________ ________________ __________________________ ________________ Date .32    Module 1 DISCLOSURE OF INFORMATION ON LEAD-BASED PAINT AND/OR LEAD-BASED PAINT HAZARDS FOR TARGET HOUSING RENTALS AND LEASES Lead Warning Statement Housing built before 1978 may contain lead-based paint. lessors must disclose the presence of known leadbased paint and/or lead-based paint hazards in the dwelling. Lead from paint.C. and dust can pose health hazards if not managed properly. Before renting pre-1978 housing. to the best of their knowledge.” Agent’s Acknowledgment (initial) ___ (f)  Agent has informed the lessor of the lessee’s obligations under 42 U. (b) Records and reports available to the seller (check (i) or (ii) below): ___ (i)  Lessor has provided the lessee with all available records and reports pertaining to lead-based paint and/or lead-based paint hazards in the housing (list documents below): ____________________________________________________________________________________ ____________________________________________________________________________________ ___ (ii)  Lessor has no reports or records pertaining to lead-based paint and/or lead-based paint hazards in the housing. Certification of Accuracy The following parties have reviewed the information above and certify. ___ (d) Lessee has received the pamphlet “Protect Your Family from Lead in Your Home. ­ Lessee’s Acknowledgment (initial) ___ (c) Lessee has received copies of all information listed above. that the information they have provided is true and accurate.S. Lessor’s Disclosure (a) Presence of lead-based paint and/or lead-based paint hazards (check (i) or (ii) below): ___ (i) Known lead-based paint and/or lead-based paint hazards are present in the housing (explain): ____________________________________________________________________________________ ___ (ii) Lessor has no knowledge of lead-based paint and/or lead-based paint hazards in the housing. paint chips.

I further certify that I have left a copy of the pamphlet at the unit with the occupant. Pamphlet must be mailed at least seven days before renovation begins. (Document this action with a certificate of mailing from the post office. ____________________________________________________________ Printed name of person certifying lead pamphlet delivery __________________________ Attempted delivery date and time ____________________________________________________________ Signature of person certifying lead pamphlet delivery ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ Unit Address Note Regarding Mailing Option: As an alternative to delivery in person. I received this pamphlet before the work began. _____  Unavailable for signature—I certify that I have made a good faith effort to deliver the pamphlet “Protect Your Family from Lead in Your Home” to the rental dwelling unit listed below and that the occupant was unavailable to sign the confirmation of receipt.” which informs me of the potential risk of the lead hazard exposure from renovation activity to be performed in my dwelling unit. _____  Refusal to sign—I certify that I have made a good faith effort to deliver the pamphlet “Protect Your Family from Lead in Your Home” to the rental dwelling unit listed below at the date and time indicated and that the occupant refused to sign the confirmation of receipt.Real Estate Core Law    33 CONFIRMATION OF RECEIPT OF LEAD PAMPHLET I have received a copy of the pamphlet “Protect Your Family from Lead in Your Home. you may mail the lead pamphlet to the owner and/or tenant.) . if the lead pamphlet was delivered but a tenant signature was not obtainable. I further certify that I have left a copy of the pamphlet at the unit by sliding it under the door. ________________________________________________________________ Printed name of recipient ______________________ Date ________________________________________________________________ Signature of recipient SELF-CERTIFICATION OPTION (for tenant-occupied dwellings only) For tenant-occupied dwellings. you may check the appropriate item below.

 Your failure to pay special assessments or assessments levied by a mandatory homeowners’ association could result in a lien on your property. 7. or are not recorded and can be obtained from the developer. the current amount is $__________ per ____________. There MAY be an obligation to pay rent or land use fees for recreational or other commonly used facilities as an obligation of membership in the homeowners’ association. as a prospective purchaser. If applicable.  There have been or will be recorded restrictive covenants governing the use and occupancy of properties in this community. Such special assessments may be subject to change. 9. _________________________________________________________ ___________________________ PURCHASER DATE _________________________________________________________ ___________________________ PURCHASER DATE . or special district. 8. 2. If applicable.  The developer may have the right to amend the restrictive covenants without the approval of the association membership or. and. Assessments may be subject to periodic change. If applicable. 4. the current amount is $______ per ______. the current amount is $________ per _____. 6.34    Module 1 DISCLOSURE SUMMARY FOR ______________________________________________________________________ [NAME OF COMMUNITY] 1. 5. You will also be obligated to pay any special assessments imposed by the Association. You MAY be obligated to pay special assessments to the respective municipality. All assessments are subject to periodic change.  These documents are either matters of public record and can be obtained from the record office in the county where the property is located. You WILL be obligated to pay assessments to the association.  As a purchaser of property in this community. 3.  The statements contained in this disclosure form are only summary in nature. you WILL be obligated to be a member of a homeowners’ association. the approval of the parcel owners. county. you should refer to the covenants and the association governing documents before purchasing property.

care. 3.Real Estate Core Law    35 SINGLE AGENT NOTICE FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES OPERATING AS SINGLE AGENTS DISCLOSE TO BUYERS AND SELLERS THEIR DUTIES. 6.  Skill. Confidentiality. 4. Accounting for all funds. Obedience. unless a party has previously directed the licensee otherwise in writing. Dealing honestly and fairly. 7. _______________________________________ (insert name of Real Estate Entity and its Associates) owe to you the following duties: 1. ___________________________________________ _________________________________________ Signature Date ___________________________________________ ________________________________________ Signature Date .  Disclosing all known facts that materially affect the value of residential real property and are not readily observable. Loyalty. Full disclosure. and 9. As a single agent. and diligence in the transaction. 8. 5. 2.  Presenting all offers and counteroffers in a timely manner.

unless waived in writing by a party. As a transaction broker. THIS CHANGE IN RELATIONSHIP CANNOT OCCUR WITHOUT YOUR PRIOR WRITTEN CONSENT.  Any additional duties that are mutually agreed to with a party. care. parties are giving up their rights to the undivided loyalty of the licensee. 2. or of any other information requested by a party to remain confidential.  Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer. 4. and 3. 6. 3. ____________________________ (insert name of Real Estate Firm and its Associates) owe to you the following duties: 1. that the buyer will pay a price greater than the price submitted in a written offer. provides you a limited form of representation that includes the following duties: 1.  Dealing honestly and fairly. and diligence in the transaction. of the motivation of any party for selling or buying property. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price. 5. and 7.  Accounting for all funds entrusted to the licensee.  Limited confidentiality. _____________________ I agree that my agent may assume the role and duties of a transaction broker. Dealing honestly and fairly. but a licensee will not work to represent one party to the detriment of the other party when acting as a transaction broker to both parties. This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the buyer and seller. Limited representation means that a buyer or seller is not responsible for the acts of the licensee. Using skill.  Disclosing all known facts that materially affect the value of residential real property and which are not readily observable to the buyer. As a real estate licensee who has no brokerage relationship with you. FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES WHO HAVE NO BROKERAGE RELATIONSHIP WITH A POTENTIAL SELLER OR BUYER DISCLOSE THEIR DUTIES TO SELLERS AND BUYERS. ____________________________ (insert name of Real Estate Firm and its Associates). ___________________________________________ ___________________________________________ Signature Date NO BROKERAGE RELATIONSHIP NOTICE . Accounting for all funds. 2.  Presenting all offers and counteroffers in a timely manner.36    Module 1 CONSENT TO TRANSITION TO TRANSACTION BROKER FLORIDA LAW ALLOWS REAL ESTATE LICENSEES WHO REPRESENT A BUYER OR SELLER AS A SINGLE AGENT TO CHANGE FROM A SINGLE AGENT RELATIONSHIP TO A TRANSACTION BROKERAGE RELATIONSHIP IN ORDER FOR THE LICENSEE TO ASSIST BOTH PARTIES IN A REAL ESTATE TRANSACTION BY PROVIDING A LIMITED FORM OF REPRESENTATION TO BOTH THE BUYER AND THE SELLER. Additionally. unless a party has previously directed the licensee otherwise to the buyer. that a seller or buyer agree to financing terms other than those offered.

10. List the kinds of renewable energy improvements for which owners of investment or business properties may qualify. Discuss the role ENERGY STAR plays in receiving a federal tax credit. and local tax credits and incentives. 16. 15. List the 5 key qualifiers for a solar water heating system tax credit. Discuss the building standard used to judge all renovated commercial buildings to qualify for a federal tax incentive for energy efficient improvements. Explain the basic principle of geothermal or geo-exchange heat pump systems. Discuss what kinds of insulation qualify for tax credits. Name the IRS form used for federal energy tax credits. 18. 6. 37 . Discuss the types of renewable energy systems for which there are federal energy tax credits. Name the federal legislation which most recently extended and enhanced tax credits for homeowners and non-residential property owners. 4. Explain the Florida state rebate program for certain solar installations. 2. 19. 17. Define what the term “U-Factor” represents for windows and glass doors. 3. 12. 20. Explain the key limitation for wind turbines to qualify for a tax credit. 7. Understand what kinds of improvements can combine federal. 13. 14.MODULE 2 New Energy Incentives: Gain a Competitive Edge by Kenneth Harney Learning Objectives Upon completion of the module. 11. state. 21. the learner shall be able to: 1. Discuss the advantages of retrofitting homes with solar photovoltaic systems. Explain the Solar Heat Gain Coefficient (SHGC). Discuss the kinds of property tax exemptions available in Florida for energy efficiency improvements. List the specific kinds of solar installations that qualify for the state rebate program. Describe the U-factor and SHGC minimal standards for windows qualifying for a federal energy tax credit. Explain which tax credit programs allow the inclusion of installation costs and which do not. Discuss where property owners may be able to obtain low cost financing for energy-efficient appliances and systems within the State of Florida. 9. Explain the 3 functional areas of federal tax benefits in commercial buildings. 5. 8.

to a maximum of $500. Congress passed the American Recovery and Reinvestment Act. up to 30% of the total installed cost of solar water heating systems. www. 2016. and investment property owners today.irs. Some of the standards and ratings may sound highly technical.e. solar water heaters. however. and sometimes can generate enough electricity to power much of the home’s needs. • The entire system must be placed in service (i. small wind energy generators. as well as all manufacturers’ certifications or other documentation.. already extend through 2016 and are likely to play key roles in homeowners’ housing choices in the coming years. the IRS may ask to see documentation. Professionals who make the effort to learn about and master the eligibility requirements to qualify for these incentives will gain a competitive edge. which can be downloaded at the IRS website. the federal government greatly expanded its efforts to promote energy efficiency and conservation in dwellings and commercial real estate. not on costs associated with the entire water heating system of the house. Energy guzzling houses. in the event of an audit. greencertified houses. Solar-energy photovoltaic (solar electric) systems. Current rules allow tax credits. traditional carbon fuel-based sources. ready and available for use in the house) before December 31. state. They will also be in a position to use tax credits and other benefits personally. popularly known as the Economic Stimulus Bill. In early 2009. and local levels for property owners who seek to upgrade their existing properties or buy new. • Credits for energy efficiency improvements to existing houses of up to 10% of the product’s cost. Federal energy tax credits for homeowners fall into 2 broad categories: • Credits for renewable energy systems such as solar panels. • Homeowners may only make claims based on the solar water system equipment itself. Photovoltaic installations on existing homes are among the fastest-growing uses of federal tax credits. and fuel cells. • The system must be certified by the Solar Rating and Certification Corp (www. and to save on income taxes and energy consumption costs. Solar heaters serving pools or hot tubs are not eligible for the credit. for investments in alternative energy systems for houses. or replace. with no set maximum on the size of the allowable credit. will command lower prices and less attention from buyers than those that minimize energy expenses. plus labor and installation expenses. The IRS tax credit rules require that each product or installation for which a credit is claimed must meet minimum conservation or efficiency standards. as detailed below. Credit amounts that go unused by the homeowner in a single tax year may be carried over to offset tax liabilities in future years. That legislation. Homeowners can retrofit homes by incorporating integrated arrays of solar cell roof tiles. Homeowners should retain all invoices for materials and labor connected with their tax-credit eligible improvements. This reflects Congress’ view that over the long term.38    Module 2 INTRODUCTION Energy efficiency and renewable energy are among the most important topics for home. but most retailers and man- Credits for Renewable Energy Systems Federal credits for renewable energy installations are more generous and authorized for longer than those available for energy efficiency improvements. . green homes and buildings should be encouraged to use alternative sources of energy production to supplement. just like clunker cars. The credits cover up to 30% of the cost of the system. The most generous credits. The IRS does not require that documentation accompany claims for the credits. extended and enhanced a number of federal tax incentives for homeowners and investment and commercial property owners. geothermal heat pumps.solar-rating. Taxpayers can claim their credits using IRS Form 5695.gov FEDERAL TAX CREDITS FOR HOMEOWNERS During 2008 and 2009. Solar energy systems—solar water heaters. Some of the tax credits for energy efficiency provided in the legislation were effective through 2010. There are several key requirements that these systems must meet: • At least half of the energy generated by the hot water system must come from the sun.org). with no maximum dollar limit. Yet many real estate professionals are not familiar with government financial incentives now available at the federal. commercial. The $500 limit applies to the aggregate (total) of expenditures made for energy efficiency improvements during the tax year. and were subsequently modified and extended by Congress through December 2011. ufacturers should be able to certify for homeowners whether the product or system they are considering buying meets or exceeds federal requirements to qualify for a credit.

and skylights. Residential wind turbines typically require local approvals on noise levels. open loop. Homeowners and real estate professionals do not need to become energy experts to figure this all out. including labor and installation. They must conform to 2 key energy-efficiency standards. and skylights must have U-factors and Solar Heat Gain Coefficients (SHGCs) of 0. height. including labor and installation. residential fuel cells and microturbines are integrated systems comprised of a fuel cell stack assembly and components that convert fuel into electricity using electrochemical means. Qualified geothermal or geo-exchange heat pump systems use the ground or ground water as a thermal energy source to heat a home or as a thermal energy sink to cool a home. Department of Energy. The credit can be carried forward to future years. Wind turbines for residential power. It must be placed into service no later than Dec. (Florida programs are discussed later in this module. Geothermal heat pumps. The system must provide electricity for the home. Tax credits up to 30% of the cost are available for qualifying improvements purchased and installed after June 1. and direct expansion heat pumps. with no set dollar maximum. describes the product. To qualify for the federal tax credit..e. without a dollar limit. Note: ENERGY STAR is a joint federal program run by the Environmental Protection Agency (EPA) and the U.5 kilowatt of capacity. Some resort areas restrict turbines when the siting is judged to unduly impact migrating bird populations. 31. and a minimum efficiency of 30%. Qualifying high-efficiency doors. turbines must be placed in service by December 31. The lower the U-value number. Carryovers of unused credits are permitted. Tax credits are available for up to 30% of the cost of a geothermal system. windows. and in some dense urban areas may not be permitted or feasible under any circumstances. including sliding glass doors and skylights. as well as specific efficiency ratings for closed loop.5 kilowatts. highly efficient). doors. 2016. The equipment must be placed in service no later than December 31. Its website is a treasure trove of information on everything from individual products to federal and state tax credits and rebates. with no dollar limit on the cost of the equipment or the size of the credit. Look for the NFRC label which lists the manufacturer. The ENERGY STAR website states that the NFRC is the only federally recognized organization for determining the energy performance of windows. the greater a window’s or glass door’s resistance to heat flow to the exterior. Energy Efficiency Improvements Exterior windows and doors. The lower a window’s solar . Its ratings and certifications are the key qualifying factors for some tax credits. The key limitation is that the turbine must carry a nameplate ­capacity of no more than 100 kilowatts. and includes ratings for one or more energy performance ­characteristics. Tax credits are available for up to 30% of the total costs. To be eligible.New Energy Incentives: Gain a Competitive Edge     39 Solar photovoltaic systems are eligible for credits up to 30% of the total cost.20. after producing electricity and heat to provide energy for other needs within a home these systems recover and reuse the heat of their own combustion process. Windows installed during 2011 are limited to a $200 maximum credit. Among the most cutting-edge renewable energy technologies. or skylight blocks heat caused by sunlight. gov). • Solar Heat Gain Coefficient (SHGC) measures how well a window. systems must have a minimum capacity of 0. Residential fuel cells and microturbines. It is expressed by a number value between 0 and 1.) To qualify for federal credits.S. and meet all applicable electrical code and fire requirements. and the more effective it is in insulating. Carryovers of unused credits to future tax years are permitted. Though they take a variety of forms. Some even meter back electricity to local grid systems. U-Factor ratings generally range between 0. up to a limit of $500 per 0.energystar. glass door.20 and 1. 2016. What do these 2 ratings mean and why should homeowners care? Here is how NFRC defines the ratings: • U-Factor is the measurement for how well a window or glass door prevents heat from escaping from the interior of the house. 2016. It is designed to promote greater use of energy-efficient products and practices for the residential and business sectors. provides a source for additional information. U-factors must be at the far low end of the scale (i. and possible environmental side effects. including labor and installation. Credits may be carried forward to future tax years. To be eligible. Some states supplement federal credits with incentives of their own. and must be certified by the National Fenestration Rating Council (NFRC). Installations must be in place by December 31. Smallcapacity wind turbines can qualify for credits up to 30% of the total installed costs. 2016. 2009 and up to 10% of the cost if installed during 2011.30 or under. including labor. the system must meet ENERGY STAR criteria (www.

www. including certifications of improvements. the ASHRAE 90. 2016. the renovated property must meet the ASHRAE 90. exterior siding for a house that also provides insulation does not qualify. 2016. up to $500. the fuel cells must have an efficiency rating of at least 30% and a capacity of at least 0. Homeowners are eligible for credits of up to 10% of the cost of the materials.000 per kilowatt of electricity that can be produced.5 kilowatt. Commercial property owners also are eligible for 30% credits on wind turbines that have a nameplate capacity of no more than 100 kilowatts. insulation in the roof and exterior walls) To qualify. 2016. up to $3.1-2001 building standard.60 per square foot. and water heating systems • interior lighting equipment • building envelope improvements (e. Detailed guidance on claiming deductions. or come with a 2-year warranty from the manufacturer.80 per square foot are available to building owners who install energyefficient equipment and systems that save at least 50% of projected annual energy costs across all 3 building components. and be placed in service no later than December 31.1 standard is that group’s detailed technical requirements for energy efficiency in commercial Fuel Cells and Microturbines For fuel cells. The materials must meet the standards of the 2009 International Energy Conservation Code (IECC). To be eligible. Labor and installation expenses are not eligible. Retail sellers of insulation should be able to provide documentation on whether a specific insulation product qualifies for the credit. and be expected to have a 5-year useful life. tax credits are available for 30% of the installed cost. Products or installations that offer insulation as a side-benefit are not eligible.irs. Systems must have at minimum a 26% efficiency rating and a capacity of 2000 kilowatts or less. and that are installed and functional by December 31.gov/irb/ Tax Credits for Commercial Real Estate Renewable Energy Improvements Like homeowners. Again. the insulation material must meet efficiency standards set by the International Energy Conservation Code. whereas a vapor barrier does. commercial property tenants who pay for energy improvements may be eligible as well. the less solar heat it allows into the interior of the house. Refrigeration and Air-conditioning Engineers. cooling. the federal standard of 0. and be rated for a useful life of at least 5 years or come with a 2-year warranty from the manufacturer. The incentives are available for existing buildings that are renovated or retrofitted. Insulation. but not installation costs. 2016. . Equipment for solar tax credits include those that: • generate electricity to heat or cool the property or provide hot water • provide interior illumination for the building All equipment must be in place by December 31. ASHRAE refers to the American Society of Heating. TAX INCENTIVES FOR COMMERCIAL AND INVESTMENT REAL ESTATE Owners of commercial real estate also have access to significant federal tax incentives for making energyefficiency improvements. For microturbines. See www. Though the tax benefits are intended primarily for real estate owners. and newly constructed buildings.40    Module 2 heat gain coefficient.ashrae. lighting (20%). and heating and cooling (20%)—may be eligible for a smaller deduction of $0. investment or business property owners can obtain tax credits of up to 30% of the installed cost of eligible solar and wind energy systems. To qualify for the credit.30 or below requires a highly efficient product to qualify. The primary building components eligible for federal tax benefits in commercial buildings are: • heating. tax credits are available for up to 10% of the installed cost. Roofing—asphalt and metal. without dollar limits.org for additional information. Note: The main purpose of the insulation must be to retain or keep out heat or cold. and other buildings except low-rise residential properties. can be found in IRS Revenue Bulletin 2006-52 and IRS Notice 2008-40 available on the IRS website. For example. The maximum credit for insulation is 10% of the material costs. up to $200 per kilowatt.g. Federal tax deductions of up to $1. and be placed in service by December 31. to a maximum of $500. energy efficient doors and windows. Buildings that save a percentage of projected annual energy costs for 1 of the 3 components—building envelope (10% energy savings).

More than 20 utility companies around the state.irs. refrigerant handling systems. Low interest rate loans are available for solar photovoltaic systems and solar water heaters.] Resources The Internal Revenue Service www.). in recent years. Under the program.500 for solar hot water and $20. pipes. pumps and fans. including photovoltaic systems (up to $20.com Florida Utility Rebates and Loan Programs Florida has an unusually large number of localized rebate and loan programs for energy efficiency offered by local power companies. stores or uses solar energy. and other equipment used to interconnect such systems. see the OUC’s Solar Information packet. wind-driven generators.175. solar energy collectors.S. Note however. so check with the Florida Energy and Climate Commission to determine its current status. There is currently no statutory expiration date for the property tax exemption program.000). transmits. Among the most notable: • Gainesville Regional Utilities offers low interest energy efficiency loan program. Note: the exemption does not include any costs of replacing. that in some cases these programs are subject to appropriations and authorizations by the state legislature. wind energy. For solar installations. solar pool heating equipment. however. To qualify. F. a renewable energy source device means any of the following equipment which: collects. Information is available directly from the utilities. Maximum loan amount is $7. power conditioning and storage devices that use wind energy to generate electricity or mechanical forms of energy. • The City of Tallahassee Utilities offers lowinterest rate loans to help homeowners finance 28 different energy-conserving installations. Refrigeration and Air-Conditioning Engineers www. excluding swimming pools used as storage tanks.irs. or energy derived from geothermal deposits.myfloridaclimate. pipes and other equipment used to transmit hot geothermal water to a dwelling or structure from a geothermal deposit. 2009 (Chapter 196.gov American Society of Heating. that this has been such a popular program that it has outrun its legislative appropriations . rock beds.org 2009 International Energy Conservation Code changes www. Gulf Power.gov/irb/ ENERGY STAR at energystar. which provides 3% fixed rate financing for approved installations of high efficiency central air conditioners. or improving existing parts of the structure in the course of installing the new equipment. and Fort Pierce Utilities Authority. storage tanks and other storage systems. Often they can be used to supplement federal tax credits or tax deduction incentives. [Chapter 196. freestanding thermal containers.000) and solar water heating systems (up to $10. • Orlando Utilities Commission Residential Solar Loan Program.New Energy Incentives: Gain a Competitive Edge     41 FLORIDA & LOCAL INCENTIVES FOR ENERGY EFFICIENCY Homeowners and commercial property owners located in Florida can take advantage of a variety of state and local programs that provide financial incentives for energy efficiency in real estate. offer homeowners and commercial customers rebates for installing approved energy efficient equipment. Note. The program also depends upon a reauthorization by the legislature. Maximum rebates for solar water heaters are $500 and for solar pool heaters the rebate ceiling is $100.gov www. Tampa Electric. the Florida Department of Revenue will exempt that equipment from property taxes up to the combined original cost of the equipment plus the installation cost. heat exchange devices.S. Property Tax Exemptions If Florida home or commercial property owners install what the state government defines as a renewable energy source device. and solar water heating installations. renewable energy devices must have been installed after January 1. removing. Some of these also qualify for federal tax credits.ashrae.000 for a photovoltaic system. ducts. www. windmills.012 (14). and ENERGY STAR refrigerators. roof ponds. solar electric photovoltaic systems. Loans can be repaid over time as fixed installments on customers’ monthly utility bills. Florida Power and Light. causing new applicants to be placed on waiting lists. pdf State Rebate Program for Solar Installations Florida also has a program for home and commercial property owners providing limited rebates on solar photovoltaic systems.ckcog. F. including Florida Public Utilities. and may be oversubscribed or unavailable at any given time. thermostats and other control devices.com/Documents/IECC%20Changes.

org Florida Energy and Climate Commission www.com Gainesville Utilities: 800-818-3436 www.com City of Tallahassee Utilities: 850-891-4968 Orlando Utilities Commission: 407-423-9100 Ext. 2086 or www.ouc.gru.com .42    Module 2 National Fenestration Rating Council (NFRC).myfloridaclimate. nfrc.

1. 5. $200 per improvement. c. 2. triple insulated windows. c. d. d. 50% of the cost of the item. The renewable energy resource federal tax credit program expires in: a.New Energy Incentives: Gain a Competitive Edge      43 M odul e 2 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. 3. d. c. 2016. The answers are found in the back of the book. b. 2010. must be at least half from the sun. at least 2 windows be installed. Choose the best response to each question. c. Federal tax credits for doors and windows require: a. b. . The limit for federal tax credits for energy efficiency improvements of existing homes is: a. be used only for pools and hot tubs. 2020. 35%. Tax credits are available for up to what percentage of the cost of a qualified geothermal system including labor and installation? a. b. 4. must be 24/7. 30%. 2015. 50%. 40%. be tied into the electricity grid. no limit. d. b. an expenditure of at least $1. c. They are intended to help prepare you for the Final Exam. Federal tax credits require that the energy generated by solar water heaters: a. both low U-factors and low solar heat gain coefficients. up to 30% of the product cost with a cap of $500. b. d.500 to qualify.

44    Module 2 .

Explain the liability for violating Truth in Lending advertising rules. 12. 22. Explain the importance of the Credit Repair Organizations Act for creditors. Identify what a Credit Repair Organization must provide consumers before they contract for any services. 8. Describe types of financing that are exempt from making Truth in Lending disclosures. 21. 14. by Kenneth Harney 6. Identify the first and primary federal statute that protects consumers on credit. Explain the most important change in the Truth in Lending Act and changes to Reg Z regarding the timing on Truth in Lending disclosure forms. Discuss when the rights of rescission and waiting periods can be waived. 23. List the requirements of landlords under the Equal Credit Opportunity Act. Explain consumers’ rights if their application for credit is denied. 45 . Discuss the rescission rights under the Truth in Lending law—which transactions have them. Explain the difference between the APR and the interest rate on a note. 15. the learner shall be able to: 1. 13. 9. Explain the difference between closed end and open-ended credit. Discuss options for correcting inaccurate credit reports. Explain the rules that apply to landlords under the Fair Credit Reporting Act. Name the federal agency that oversees the Truth in Lending Act. 24. 20. Identify the 6 key items on a Truth in Lending disclosure form. 2. 7. 10. List the 8 key areas of discrimination covered by the Equal Credit Opportunity Act. 11. Explain how the timing of a real estate settlement can be affected by the new disclosure requirements— the 3 day–7 day rule. List the 6 key consumer rights in the Fair Credit Reporting Act. 18. Discuss the types of firms covered by the Fair Credit Reporting Act. 19. List some of the key items in prepaid finance charges listed on a Truth in Lending disclosure form. Discuss the triggering terms included in the Truth in Lending Act that affect the wording of advertising for closed end credit offers. 5.MODULE 3 Credit Products and Offerings: The Role of the Federal Government Learning Objectives Upon completion of the module. 17. Explain the identity theft provisions in the Fair and Accurate Credit Transactions Act. 3. 16. which do not. 4. Explain Reg Z.

limits on advertising. The act set up a statutory framework of uniform disclosures. the federal government has been tasked with overseeing credit—including making sure it is marketed fairly. The availability of credit determines whether we can buy or lease a car. and prepaid finance charges (loan discount. Truth in Lending Act (TILA) The Truth in Lending Act is Title I of the original Consumer Credit Protection Act. in every state. Total of payments. The Federal Reserve Board has overseen the Truth in Lending Act since its inception. It is the effective interest rate being charged for the transaction. The disclosure must be provided to all loan applicants by a creditor or loan officer within 3 business days of submitting an application. Commonly known as the APR. Prepaid finance charges are totaled and then subtracted from the loan amount (the face amount of the deed of trust or mortgage note. The TILA disclosure form breaks down credit transactions into key component features designed to give applicants a better grasp of what they’re signing up for. Finance charge. less the prepaid finance charges. and certain insurance premiums (if any) that the borrower will be expected to pay over the life of the loan. The APR is calculated by spreading these charges over the life of the loan.000. The Act continues to be referred to commonly in the lending industry as “Reg Z. buy a better computer or a flatscreen TV. It is the note rate plus other charges rolled in. not the government.000 and the prepaid finance charges total $10. This figure represents the sum KEY FEDERAL CREDIT STATUTES Consumer Credit Protection Act Congress enacted the first consumer-oriented law regarding credit in 1968. Some loan charges are specifically excluded from the prepaid finance charge such as appraisal and credit report fees. For example. 2011. maintained by private companies. origination fees. but the interest rate and fees we pay. the amount financed would be $190. It is best known for its mandatory. uniform disclosures of the key terms and costs associated with credit transactions. but the statutory powers given to federal agencies by Congress cover every person. Other charges that are used in calculation of the Annual Percentage Rate are: Private Mortgage Insurance (PMI).) The net figure is the amount financed. Credit files and credit scores. and tax service fees.000. one of the traditional keys to accumulation of household net worth. The APR should never be confused with the note rate.S. Knowledge of the basic federal laws regulating credit is essential. points or loan discounts. and credit cards. it is the cost of the loan in percentage terms taking into account various loan charges of which interest is only one such charge. These are certain charges made in connection with the loan which must be paid by the borrower upon the close of the loan. including all mortgages. especially for real estate and mortgage professionals whose clients look to them for advice. economy. and without harming consumers. It is the granddaddy of all subsequent Congressional legislation in the field. Credit cards are in virtually every adult’s and many teenager’s wallets. They frequently determine not only how much we can borrow. Mortgages provide the pathway to buying a home. get a job. PMI. State governments have enacted laws and regulations as well. The amount financed is the loan amount applied for. and allows them to directly compare quotes from competing lenders: • Annual Percentage Rate • Prepaid Finance Charges • Finance Charge • Amount Financed • Total of Payments • Payment Schedule The Annual Percentage Rate.” . if the borrower’s note is for $200. Over the past 20 years. but that responsibility shifts to the new Consumer Financial Protection Bureau as of July 21. then the interest rate and the APR would be identical. Mortgage Insurance Premium (MIP). and tools to facilitate comparisons of competing credit offers. finance our kids’ college educations. prepaid interest. This is the amount of interest. Examples include the loan origination fee. Prepaid finance charges. which results in a rate higher than the interest rate shown on the mortgage or deed of trust note. The amount financed is the number on which the APR is based. appropriately titled the Consumer Credit Protection Act. Can we qualify for it? At what price and on what terms? Can we use it responsibly? Can we repay it on time? Credit is the lifeblood of the U. If interest were the only finance charge in the transaction. Amount financed. as explained below. FHA MIP. expressed as an annual percentage rate. home equity credit lines. may affect our ability to rent an apartment. without deception or bias.46    Module 3 INTRODUCTION There is no other financial product that so personally affects all of us as credit. or even qualify for an insurance policy. and other credit costs). prepaid finance charges.

See Table 3. the current mortgage interest rate on the loan. The dollar figures in the payment schedule represent principal. all mortgage applicants— including those financing second homes—must receive their up-front TILA disclosure statement no later than three business days following the lender’s receipt of the application.1 Three Day Right of Rescission Required Under TILA Yes 1.e. 2010 Dodd-Frank Amendments to TILA Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. interest. Remember the 3 day−7 day rule: If at any time before the closing.125% (one eighth of a percent). Commercial. or more than 5 loans during the current calendar year. if they were in the business of selling houses with takeback financing on a regular basis. they would. Who must provide disclosures under Reg Z? Any person or organization is a lender under TILA if he. if Brad and Betty Reynolds offer their house for sale with a carryback or seller takeback note. or it has made more than 5 loans secured by residential property during the prior 12 months. plus PMI. Principal home purchase 2. the creditor must re-disclose (i. interest. See the Federal Truth In Lending Disclosure Statement on the next page. business. including the principal balance due. or the licensee. 2009. Payment schedule. and agricultural credit transactions are not subject to TILA. Such loans may be either closed end..  Refinancing of principal residence with the original lender 3. (such as mortgages or auto loans with a stated date by which all the payments are due) or open-ended credit. any prepayment penalties or late fees associated with the loan. Reg Z gives borrowers a 3-day cooling-off or rescission period within which to cancel the transaction rights. However. Table: 3. (such as credit cards or home equity lines of credit [HELOCs]). but for real estate professionals as well since the timing of closings is now dependent upon the Truth in Lending Act. and mortgage insurance in the case of a home loan application. Note: Seller financing in connection with real estate generally is exempt from Reg Z unless the seller of the property regularly engages in the business of making loans. plus telephone and email contact information for the servicer. Loan applicants may waive the 3 day and 7 day waiting periods if they have a bona fide personal emergency. The figures will not reflect taxes and insurance escrows or any temporary buydown payments contributed by the seller. So-called quickie closings are prohibited by the MDIA/TILA provisions.  Purchase and financing of a second home or vacation property . must issue an amended TILA disclosure and wait an additional 3 business days before the closing).Credit Products and Offerings: The Role of the Federal Government     47 of all payments made toward principal. Mortgage Disclosures Improvement Act (MDIA) changes to Reg Z Effective July 30. they would not be required to provide TILA disclosures.1. the APR changes by more than 0. The 2009 MDIA changes to TILA are important not only to lenders and settlement agencies. No closing of a home loan may occur within 7 days after the consumer’s receipt of the early TILA disclosure. TYPES OF CREDIT TRANSACTIONS COVERED BY TILA DISCLOSURES The Truth in Lending Act covers most types of personal loans made by organizations or persons who extend credit as a regular part of their business. she. but only after receiving an accurate TILA disclosure. any payment reset information pertinent to the loan. Failure to follow the rules can open loan transactions to future legal challenge. sellers. additional changes were made to TILA affecting home mortgages: (1) T  ILA now requires mortgage lenders and servicers to provide monthly statements to borrowers during each billing cycle.  Refinancing of principal residence with a new lender No 1. For example. Helocs (Home Equity Lines of Credit) 2. not simply the preferences of the homebuyers. Rescission Rights Under TILA For certain loan transactions involving principal residences as collateral.

48    Module 3 .

even if it is the same as the simple interest rate. plus late fees that exceed 4 percent of the payment that is past due. Consumer Financial Protection Bureau (CFPB) Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a new federal regulatory oversight agency with vast legal powers in the consumer credit. All advertising disclosures required by the Truth in Lending Act must be made clearly and conspicuously. only 10% down. No advertisement may state that a specific installment payment or a specific low down payment can be arranged unless the creditor is prepared to make such a loan on those terms. • The number of payments or the period of repayment.Credit Products and Offerings: The Role of the Federal Government     49 (2) F  or “high cost” (subprime) mortgages. including any points and mortgage insurance premiums that may make the APR higher than the loan’s base interest rate). Advertisers who fail to comply with TILA’s rules can be subject to significant civil penalties and even criminal prosecution in extreme cases. If an advertisement for closed end credit uses a triggering term. It reaches out to anyone who advertises specific credit terms as part of an offering of real estate or other property for sale. Only credit or lease terms that are actually available to the consumer may be advertised. and TransUnion) but also extends to all local . has an official start-up date of July 21. Bait and switch credit or lease promotions are prohibited. expressed either as a dollar amount or percentage. • The amount of any payment. In other words. it is important to advertise the APR accurately (i. 2011. are not triggering terms and do not require additional disclosures. The bureau. the Fair Credit Reporting Act. the key triggering terms—requiring disclosure of the APR and other key loan features—include the following: • The amount of the down payment. The APR and the amount or percentage of the required down payment must be included if an advertisement for closed end credit mentions: • specific interest rate • payment amounts • length of the loan • finance charge For closed end credit such as most mortgages. • Advertising finance rates. banking and mortgage arenas. General Requirements for Advertising Products Covered by TILA The Truth in Lending Act covers not just lenders. For example. • Liability for violations. The key goal was to make credit reporting and consumer credit files as accurate and fair as possible. If an advertisement shows the finance charge as a rate. After that date. TILA now prohibits balloon payments of two times the regular payment or more. it must also include the following: • the amount or percentage of the down payment • the terms of repayment • the APR More generalized advertising statements. Individual consumers may sue for damages and punitive awards and attorneys fees. or 30 year mortgage. they cannot be hidden away in small unreadable type and they must be reasonably understandable. regulatory oversight of the following key credit statutes shifts to the new bureau: The Equal Credit Opportunity Act. For example. The law covers not only the national credit repositories (Equifax. such as easy monthly payments or low down payment terms available. For real estate financings especially. Congress added the FCRA as Title IV of the Consumer Credit Protection Act in 1970. the Fair Debt Collection Practices Act and the Truth in Lending Act.. Other mandates related to advertising and TILA compliance include: • Clear and conspicuous disclosures. For example. 48 months to pay. that rate must also be stated as an APR. Marketers offering financing terms are always well advised to double check that their ads comply with the triggering terms of the law and fully disclose everything that TILA mandates. For example.e. a real estate broker or home builder who advertises certain specific financing terms in connection with a listing for sale may be covered.000 down. with a director appointed by the President subject to Senate confirmation. which is designed to function as an independent entity within the Federal Reserve. Experian. • Actually available credit. monthly payments of $565. THE FAIR CREDIT REPORTING ACT (FCRA) Responding to the rapid growth of credit reporting agencies and the commercial use of credit reports. prepayment penalties. either a dollar amount or percentage. or $5.

Like the Truth in Lending Act. mortgage loan officers. the FTC may bring suit against landlords. for example. and landlords who make decisions affecting consumers based on credit data are subject to FCRA regulations. FCRA Requirements for Landlords Many landlords use one or more forms of consumer credit or tenant screening reports to evaluate applications. Creditors planning to submit delinquency or other negative information may inform consumers in advance about their intent. or inaccurate information. Limit prescreened offers of credit or insurance based on credit file information. Accuracy of Credit Reports Credit reporting agencies are required to provide credit scores to consumers who request them. When a creditor submits negative account information to one of the national credit repositories. Negative information notices. Furnishing inaccurate information to credit bureaus. but also any information the creditor or furnisher knows or has reasonable cause to believe is inaccurate. 4. or inaccurate information in their files. credit bureaus are required to investigate the issues raised by the consumer within 30 days and remove or correct the information immediately if found to be inaccurate. which can remain on file for up to 10 years. • Landlords who fail to comply with these rules face potential legal action. If the repository finds accurate information. not local. the FCRA reaches out to cover many other activities as well. out of date. raising the interest rate or fees. they are required to follow special rules enforced by the Federal Trade Commission: • Provide applicants with an adverse action notification if they deny the application or charge a higher rent because of credit reporting information or a report from a tenant-screening agency.com) or in writing or when a consumer has been denied a loan or a job based on credit information. out of date. or employment. as well as employers. along with the specific factors that have negatively affected a consumer’s score.annualcreditreport. credit applicants who are offered materially disadvantageous interest rates or terms because of derogatory information in their credit files are entitled to a free credit report. See what is in their credit file by submitting a written request to any of the national credit repositories.50    Module 3 and regional credit reporting agencies (known in the industry as resellers). negative information cannot be more than 7 years old. or sent separately. If consumers dispute incomplete. If landlords use credit reports in tenant screening. except for bankruptcies. Be assured that their credit files are open to only those with a valid business purpose. After January 1. Key Provisions Under the FCRA. and specialized companies that sell information about consumers’ medical and rental histories. all consumers have the right to: 1. Direct mail or online advertising that uses credit file information. 2. 3. an insurance policy. This will allow consumers to examine their credit files for erroneous or outdated information. Get a free credit report from each repository every 12 months (www. The FCRA allows individuals to sue landlords for damages in federal courts. and to seek punitive damages from landlords in cases of deliberate violations of the law. 6. Most . • The notice must include the name and contact number of the credit reporting agency that provided the information and a statement that the credit agency did not make the decision to take the adverse action. Be notified whenever negative credit file information is used against them or raises their cost of credit materially. These notices can be included as part of a regular billing statement. If a consumer is denied a loan. prescreened offers of products or services that are based on credit reports or score. 2011. insurance companies. 5. collections and investigations agencies. it may add an explanatory statement from the consumer regarding the account information. and seek substantial civil penalties. the consumer must be informed of his or her right to a free credit report from the agency providing the negative information. The landlord must notify the consumer that he or she has the right to dispute the accuracy of the agency’s files and to receive a free credit report within 60 days. Creditors and others are prohibited not only from submitting information on consumers to repositories that they know to be inaccurate. Dispute incomplete. it must provide consumers with a one-time notice of that fact. In addition. and others must inform consumers when credit file information has materially affected the price of the credit they are offered. Creditors.

and the issuance of formal regulations by the Federal Trade Commission during the following several years. or withhold credit. or if the applicant is relying on a spouse’s income or on alimony or child support payments to qualify for the loan. 4. Refuse to consider reliable alimony. For example. • Prohibition of sale of debts caused by identity thieves to collection agencies. race. But a creditor may ask to see proof of such income. retail stores). mortgage companies. and the credit bureau has been informed of the block. including all real estate brokers who help arrange financings.. like a higher interest rate. except if the spouse is a co-applicant and will be allowed to use the account. ECOA regulates organizations and persons who regularly extend credit (e. 8. 6. Consumers must file identity theft complaints with a local law enforcement agency before the bureaus are required to block trade lines. or require a co-signer on the note or lease. For example. No one may sell a delinquent debt account where the debt is the result of identity theft once a trade line block has been placed on the account. Once one of the national credit repositories has received a request for a fraud alert to be placed on a consumer’s file. Consider any of these prohibited factors in determining whether to grant credit. pricing credit. based on any of the prohibited factors. Explanations must be specific. consumers also have significant protections in the area of identity theft: • One call fraud alert notifications. Discourage an applicant from applying because of the applicant’s color. higher fees. banks. marital status. Anyone who participates in the decision to grant or set terms for credit must comply with the law. the bureau must inform the other repositories of this fact. A creditor may use only these terms: married. or underwriting of credit on the basis of: • race • color • religion • national origin • sex • marital status • age • because the applicant receives public assistance Creditors may ask about these subjects in some situations. long enough to repay the debt. not generalized. a creditor cannot count a man’s salary at 100% and a woman’s at 75% to project future income.g. Ask an applicant for credit whether he or she is widowed or divorced. 5. Discount household income because of an applicant’s sex or marital status. • Trade line blocking. . religious affiliation. 7.S. Impose different terms or conditions. However.Credit Products and Offerings: The Role of the Federal Government     51 THE FAIR AND ACCURATE CREDIT TRANSACTIONS ACT (FACTA)—IDENTITY THEFT Following Congress’ passage of the Fair and Accurate Credit Transactions Act (FACTA) in 2003.” An unacceptable explanation would be “you didn’t meet our standards for this program. 2. 3. age. national origin. EQUAL CREDIT OPPORTUNITY ACT (ECOA) The Equal Credit Opportunity Act—also known as ECOA—is Title VII of the Consumer Credit Protection Act. Credit bureaus must block fraudulent trade lines—accounts set up by identity thieves—and not report them as part of a consumer’s credit files. or receipt of public assistance. Other consumer rights under ECOA Applicants for credit are guaranteed the right to: • Know exactly why their application was rejected. Prohibited Acts under ECOA Creditors and others may not: 1. sex.” • Learn why your credit account was closed or why the terms of the account were made less favorable. Ask about an applicant’s plans for having or raising children. an acceptable explanation would be that “your income was insufficient for this loan program. creditors may consider an applicant’s immigration status to determine whether the person has the right to stay in the U. child support. or price it differently on any of these factors. or separate maintenance payments. It prohibits discrimination in granting. The creditor must answer the consumer’s request within 60 days. unmarried. or separated. but under no circumstances can they base their decision to make available. Ask for information about your spouse. A creditor is not permitted to assume that a woman of childbearing age will stop working at some point to raise children.

and verifiable information removed from any credit report. the law does not prohibit consumer counseling agencies from assisting or educating consumers about their credit Mandatory Disclosure Statement Before contracting for services. But in fact. consumer credit files cannot legally be scrubbed of accurate. CREDIT REPAIR ORGANIZATIONS ACT (CROA) We all see advertisements from companies who claim they can clean up consumers’ credit files. It is administered by the Federal Trade Commission. The disclosure must also explain that no credit repair organization has the legal right to have accurate. The Credit Repair Organizations Act (CROA) sets strict rules for companies and individuals claiming to be able to clean up credit files.52    Module 3 except in situations where your payments have been delinquent or you have not used the account for a lengthy period. This ECOA issue has surfaced recently as many homeowners found their equity credit lines reduced or even canceled. matters or advising them on how to raise credit scores. as well as fraud by credit repair organizations (CROs). rid them of derogatory information. law firms. and credit card holders have found their limits lowered. Often these firms charge hundreds or thousands of dollars for their services. CROs that break the law are subject to significant damage and punitive claims. or others. . accurate information from credit files or raise credit scores. negative information by credit repair firms. However. Consumers may not waive their right to receive this disclosure in advance. even foreclosures and bankruptcies. CROA prohibits false and misleading statements. there is no ECOA challenge. a CRO must provide a written disclosure informing consumers of their rights to dispute all inaccurate information in their credit files by contacting the credit bureau directly. whether to a lender or to a credit reporting agency. CROs cannot misrepresent their ability to remove derogatory. current. If the creditor’s actions are not based on prohibited factors and adhere to its contract with the consumer. They may not make any statement on a consumer’s behalf which is untrue or misleading regarding the consumer’s creditworthiness or credit capacity. It also bans payments of fees to such organizations before any promised services are fully performed.

Truth in Lending disclosure statement. principal home purchases. requires TILA disclosure forms. reflects simple interest. d. allows consumers to dispute incorrect information in their credit files. requires borrowers to know their credit scores. credit card transactions. The Annual Percentage Rate: a. Choose the best response to each question. the lender must respond in three days with a/an: a. They are intended to help prepare you for the Final Exam. seller financed loans. 5. purchase of a second home or vacation property. b. allows anyone to check on a consumer’s credit score. b. includes taxes and insurance charges. c. request for an application fee. When a consumer applies for a closed end loan. mortgages and auto loans. includes mortgage insurance and prepaid finance charges. c.Credit Products and Offerings: The Role of the Federal Government      53 M odul e 3 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. . 3. c. b. The right of rescission under TILA applies to: a. c. 4. offer of credit. c. includes the down payment. b. TILA disclosures cover: a. b. request for additional information. refinancing a principal residence with the original lender. refinancing of a principal residence with a new lender. d. d. The Fair Credit Reporting Act: a. d. 2. 1. personal and business loans. The answers are found in the back of the book. d.

54    Module 3 .

17. Discuss the penalties for violating RESPA rules. 3. 19. 18. Explain what kinds of loans are regulated by RESPA. Understand the RESPA prohibitions against fee-splitting and unearned fees. Explain the 2 basic elements of every GFE. Explain how to estimate certain settlement service fees on the HUD-1. Explain 2 basic categories of problems the Real Estate Settlement Procedures Act (RESPA) was created to address. 4. Cite how long the terms listed in the GFE are available to the consumer. 25. Name the agency responsible for enforcing RESPA rules. Explain why referral fees are prohibited by RESPA. 55 . List the 4 areas for which there is no set tolerance level in the GFE. 24. 13. 12. List the 3 key standards for AfBAs. Identify which feature of a mortgage cannot be locked in by the GFE. 5. Discuss the importance of providing consumers with a choice of settlement service firms. Understand what a thing of value is in the context of RESPA rules. List the 4 tests HUD uses to determine if an affiliated business is legitimate. 22. 16. Explain what areas RESPA governs with respect to loan servicers. 8. List the 4 categories of payments allowed under RESPA’s Section 8 (c). 10. 2. 23. Explain who provides the GFE to the consumer and when. 7. List the 2 major disclosures and documents regulated by RESPA. List the 2 key tolerances that are provided for in the GFE. the learner shall be able to: by Kenneth Harney 1. Discuss when triple damages are called for under RESPA. 15. 11. 14. 9. Discuss how title insurance premium splits are identified on the revised HUD-1. Discuss where the split of commission amounts between the listing and selling offices is disclosed on the HUD-1. 6. Define a legitimate Affiliated Business Arrangement (AfBA). 21. Explain how yield-spread premiums are disclosed on the HUD-1.MODULE 4 RESPA: Review the Fundamentals and the New Federal Rules Learning Objectives Upon completion of the module. 20.

and RESPA penalties. the FHA. and other things of value that were tied to business referrals. however. The rules say that the difference between fair market rental charges and what was actually paid is the thing of value prohibited by RESPA. or any thing of value in exchange for referrals of settlement service business under an agreement or understanding. loan origination.56    Module 4 INTRODUCTION The Real Estate Settlement Procedures Act (RESPA) extends to many activities performed in connection with the purchase. Note: The GFE and HUD-1 disclosures. with all changes taking final effect January 1. from mortgage terminology to closing procedures and fees. Though RESPA regulates the payment of certain fees. and tickets to performances. credit. exceptions. mortgage servicing. including realty brokerage. were significantly revised in 2008 and 2009. fee splitting and unearned fees. gifts. RESPA does not cover commercial. Department of Housing and Urban Development (HUD). nor carryback financings where the property seller provides the mortgage money. regulatory oversight for RESPA will be shifted out of HUD and transferred to the Consumer Financial Protection Board created by the DoddFrank Wall Street Reform and Consumer Protection Act of 2010. 2010. the HUD-1 settlement statement. or business real estate purchases or financings. HUD generally does not pursue individuals or com- . lawyers. leases or rental payments that are based on the amount of business referrals. REFERRAL FEES AND KICKBACKS (SECTION 8) Section 8 of RESPA generally prohibits kickbacks and referral fees among settlement service providers. title insurance. Fannie Mae. special bank deposits. whether in writing. however. and VA. kickback. franchise royalties. The problems fell into 2 categories: • Under-the-table kickbacks among title insurance agents. HUD also has focused on office space rental arrangements whereby referral participants allegedly received or provided rooms or desks at rental rates below prevailing market rates. and closing on a residential property. and others for referrals of business which raised the costs of home purchase and mortgage transactions for consumers. and consumer information booklets designed to explain the mortgage and real estate process. and property tax services. define nationally uniform disclosures and documents. trips. RESPA covers most federally related mortgage loans on 1-to-4 unit residential properties involving first or subordinate liens from banks and other lending institutions at the state or national level. services of any type at special prices or rates. As of July 21. mortgage companies.S. RESPA is primarily a consumer-protection statute. oral. the key portions that most vitally affect real estate and mortgage professionals relate to referral fees and mandatory disclosures. • Lack of consumer understanding of many aspects of the home purchase and financing process. opportunities to participate in money-making programs or contests. Neither does it cover all-cash transactions where there is no mortgage. hazard and flood insurance. What is a thing of value under RESPA? HUD’s definition of thing of value includes not just money—it extends to discounts on goods or services. Section 8 (a): Referral Fees RESPA bans the giving or accepting of a fee. Section 8 consists of 4 subsections that all real estate professionals dealing with home sales must know. Freddie Mac. It provides detailed rules relating to referral fees and compensation arrangements among settlement service providers. Though the law consists of numerous sections. distributions of partnership profits. or otherwise. financing. and since its inception has been enforced by regulations developed by the U. it does not set fees or govern pricing of real estate or settlement services. free trips to resorts. free tickets to concerts and sports events. Earlier forms of the HUD-1 and GFE should not be used in transactions during 2010 and beyond. There were no uniform disclosures or explanations of charges around the country. It does. increased equity in a parent or subsidiary entity. 2011. HISTORY RESPA was signed into law in 1974 following Congressional hearings that documented widespread problems experienced by consumers when they purchased houses or applied for mortgages. agricultural. along with rules relating to their use. real estate brokers. escrow and settlement companies. Some of the most prominent recent RESPA legal settlements with real estate brokerages and title companies have involved arrangements in which real estate brokers allegedly received dinners. referral fees. appraisals. dividends. increases in commissions. including the Good Faith Estimate (GFE). mortgage companies. This made homebuyers and refinancers vulnerable to overcharges and abuses in connection with what was often the largest purchase of their lives.

For example. a credit report. are violations of Section 8 (b) in the eyes of RESPA ­ regulator. persons who provide larger dollar volumes of business receive more valuable gifts. are not considered kickbacks. or distribute small promotional items such as pens and calendars. In some cases. For example. consumer groups. The disclosure. For example. Absent a final resolution by the U. Compensation cannot be based on the volume or value of business referrals made to the joint venture or partnership. or percentage of any charge” in connection with a mortgage loan transaction. which must be separate from any other disclosure. typically along with the names of alternative service providers. and put up 10% of the initial capital. a real estate broker who created a joint venture with a title insurance agency. with half supporting HUD’s interpretation. HUD is very concerned that the consumer’s needs be met and has strict rules regarding AfBAs. For example. title. HUD’s key standards for AfBAs: • Compensation received by joint venture or partnership participants may only take the form of a return on an ownership interest. However. unless the charge is for “services actually performed” on behalf of the ­consumer. Payments to: • attorneys • title companies • tax service companies • lenders and others for actual services performed Affiliated Business Arrangements (AfBAs). However. the person making the referral must disclose the nature of the relationship to the client in writing at or before the actual referral is made. the best practice for real estate professionals is: Assume that mark-ups of fees. many real estate brokerages have created joint ventures with mortgage lenders and title insurance agencies. RESPA also allows joint ventures and partnerships among various professionals structured to meet the law’s affiliated business guidelines. not only do affiliates provide additional revenue sources. HUD continues to enforce Section 8 (b) nationwide according to its interpretation. unaffiliated mortgage professionals. split. Supreme Court. it does take a strict view of any thing of value that appears to be tied to referrals of business or the volume of referrals. etc. • Disclosure and timing: When referring a client to an affiliated business. a real estate broker should not tell a homebuyer Section 8 (b): Fee Splitting and Unearned Fees When Congress passed RESPA. To deal with such practices. and others have complained that too often homebuyers are steered to affiliated businesses that do not provide lower prices compared with unaffiliated competitors in the marketplace. HUD has taken the position that any unearned markup constitutes a violation of Section 8 (b). ­tickets. Federal appellate courts in 6 circuits have been divided on this issue. Frequently the fee splits involved charges imposed on consumers where no specific services were rendered to justify the charge. the rule is simple: Do not accept or give a ­ nything— no matter how small—that can be construed as a thing of value in compensation for referrals of business. or any charges where minimal or no services are rendered to the consumer. As a result. When homebuyers ask about mortgage financing or settlement. may not receive 50% of the profits from the venture or receive fees tied to the amount of title business the broker referred to the venture. Section 8 (c): Exceptions There are many forms of payments of fees for services rendered among real estate.S. Section 8 (b) of RESPA prohibits the giving or receiving of “any portion. and half disagreeing. • Required use: The client cannot ever be required to use the services offered by the affiliate. and adherence to deadlines. at least until the Supreme Court rules otherwise. To protect yourself against potential litigation or fines. and provide an estimate of the charges the venture makes for its services. one of the targets was the splitting of fees among real estate settlement and mortgage participants. The disclosure form must be signed and dated by the client. but a way to ensure basic quality levels of services. even if only one participant actually receives the full addon amount. affiliated businesses are able to offer homebuyer clients lower costs as well. The industry generally has argued that Section 8 (b) requires at least 2 participants in a markup to break the law. and mortgage professionals that are expressly allowed by RESPA and . turnaround times. From the broker’s point of view. or Fed Ex courier service fee to the consumer and split the addon with a real estate licensee who referred the client to the lender. they receive information about the real estate broker’s affiliates.RESPA: Review the Fundamentals and the New Federal Rules     57 panies who provide each other token gifts at holidays or birthdays. For example. a mortgage lender might mark up the actual cost of an appraisal. services. HUD. must explain the ownership and financial interest in the venture.

of Housing and Urban Development Room 9154. mortgage professionals. For example. and even graphics and signage. In fact. 20410 RESPA DISCLOSURES Virtually all homebuyers receive Good Faith Estimates (GFEs) and the HUD-1 uniform settlement statement mandated by the RESPA laws and HUD. No partner or joint venture member may borrow its upfront capital contribution to the business from another partner in the venture. • be adequately managed. prison sentences of up to 12 months. If the affiliated business is a mortgage professional enterprise. for example. In short. a home builder is not permitted to offer “$10. however. and mortgage lending industries. 451 7th St. whether by its own officers or by staff provided by one of the joint venture’s partners. In the latter case. title insurance. S.58    Module 4 that the firm only deals with an affiliated mortgage lender and effectively compel the buyer to use that firm. payment of 3 times the amount of the value of the specific settlement services that were overcharged). Consumers get the GFE at the beginning and the HUD-1 at the end of the process of buying a home. ordering legal documents. but splitting profits among all participants in the venture. • maintain separate office space and business identity apart from any of the joint venture participants. affiliated businesses should always make an effort to market their services beyond their partners.C. Over the years.000 of upgrades” or “free closing costs” only to customers using the builder’s mortgage and title subsidiaries if.W. HUD’s RESPA regulations have established baseline tests to determine whether an affiliated business is a legitimate enterprise. Section 8 (d): RESPA Penalties RESPA violations may result in fines up to $10. true savings. and is typically received just before the closing. and visible in the marketplace. in fact.e. the 2 forms have been coordinated to work . D. It should be clear to consumers that the venture is in business on its own. The GFE provides the consumer a detailed overview of the types of closing costs and lender-related fees that will be charged during the transaction. and financial regulatory agency personnel—to conduct investigations of alleged RESPA violations. Affiliated business test­ —real or sham. ordering verifications of deposit (VODs) and employment (VOEs). FBI. advertising. Under HUD policy. competitive. the business should be real. but those discounts must be bona fide. The HUD-1 details the actual costs at the end of the process. it should not only take loan applications but provide services that are customary in that industry. marketing logos. helping to guide the borrower through the loan application and credit process. and in recent years has also made extensive use of outside contractors—primarily former Treasury. Consumers may sue real estate and other professionals for alleged violations. 2010. such as compiling applicants’ financial information. websites. title insurance companies. that staff must be compensated for its services at fair market costs. Office of RESPA US Dept. Washington. HUD rules also prohibit affiliates from contracting out essential functions of the business to a joint venture partner—in effect relying on that partner for the main activity of the business.. or combinations of both. The law also provides for triple damages in the event of convictions (i. HUD’s RESPA office also works with state financial regulatory agencies and attorneys general to further its reach in gathering and investigating complaints. provided they file suit within a year of the violation. HUD has reached out-of-court settlement agreements and levied financial penalties against real estate brokers. who see competitors or colleagues receiving unfair advantages or compensation from kickbacks and sham AfBAs.000. Affiliated business participants may encourage clients to use a subsidiary’s services by offering discounts on pricing. and not simply a conduit that receives all or the vast proportion of its business directly from the partners. and other organizations that created shell or sham subsidiaries for no other purpose than to kick back fees to participants for their referrals. The RESPA office contact information is: Director. AfBAs should have separate and discrete phone book listings. Many of the hundreds of complaints the RESPA office receives annually originate from individuals in the real estate brokerage. and taking part in the loan closing. RESPA Enforcement HUD maintains a separate office for RESPA investigations. Under the revised RESPA rules effective January 1. the alleged savings had been incorporated into the price of the house without the consumer’s knowledge. ordering or arranging for appraisals. or whether it exists to cloak what are in reality ongoing kickbacks and referral fees that violate the law. an affiliated business must: • be sufficiently capitalized to handle the business services it purports to provide. • provide “substantial services” that are typical or characteristic of the industry in which it competes.

appraisal. 2011. and to encourage and facilitate shopping for lower fees. or can be determined quickly.hud. closed in the GFE must not change. transfer taxes.g. the 2010 revision is far more consumer-friendly. An example is a recommended title agent that provides not only insurance policies but closing services as well. Failure to provide a GFE to an applicant is a violation of Section 5 of RESPA.. The GFE describes: • loan terms and fees. Advising real estate licensees about representing clients/customers in reviewing GFEs is a slippery slope. such as interest rate. The GFE refers to estimates of charges. The interest rate quote. Good Faith Estimate (GFE) www. HUD has created 3 different categories of transaction fees that will allow little or no tolerance for change between the GFE stage and the HUD-1. (See revised GFE at end of module). mortgage insurance costs if any. the loan amount and estimated loan fees must remain available for up to 10 business days.gov/offices/adm/hudclips/forms/ files/1-gfe. or that occasionally may change slightly for a variety of reasons over the course of a transaction. although HUD rules allow some exceptions in the event of changed circumstances involving the property or the borrower. Once the Consumer Financial Protection Board assumes regulatory oversight of RESPA and the Truth in Lending Act on July 21. the initial mortgage payment amount. flood certification.” This new federal rule is controversial among mortgage professionals who feel it confuses consumers. Zero tolerance. No set tolerance level. and local transfer taxes. it is expected to develop a shorter version of the current GFE and to combine it with a revised version of the TILA disclosure that all mortgage applicants receive within three business days of the loan application.pdf  The GFE typically is completed by the mortgage lender or broker business and provided to the consumer at the time of application or within 3 business days of receipt of the application. and whether the loan includes either a prepayment penalty or lump-sum balloon payment at the end • an estimate of total settlement costs. and recordation charges After an applicant has been provided a GFE. homeowner insurance premiums. whether the note rate is fixed or variable. • Settlement services required by the lender but where the lender selects the service provider (e. Among these are: • Required services the borrower can shop for when the borrower selects a provider identified by the lender. Page 3 of the revised GFE includes a shopping chart with space to compare up to 4 sets of loan quotes and fees from competing lenders. tax service fees. 10% tolerance. All of these should be known to the lender at the time of application. Its contents cover the financial features of a homebuyer’s transaction. points or loan discount charges. such as title insurance. loan discount points. They should not change from the application stage to closing.RESPA: Review the Fundamentals and the New Federal Rules     59 more effectively together than they had in earlier versions. The days of eleventhhour surprises on fees at settlement should be over. These include origination charges. may vary with market changes unless locked by agreement between the lender and the applicant. The direct linkage of terms and cost categories facilitate direct comparisons by the consumer of the GFE (before) estimates and the final changes on the HUD-1 (after). but HUD wants lenders and others to provide as accurate as possible estimates up front. appraisal or flood certification). Key GFE Changes Several key changes to the GFE made by HUD for 2010 and beyond are especially noteworthy. origination fees. These are fees that are either more difficult to pin down exactly up front. These include: • services provided by a vendor selected by the applicant • calculations of up-front escrow deposits • homeowner insurance policy premiums • daily interest charges on the loan REVISED GFE Compared with previous versions of the GFE. however. . Generally the loan terms dis- Yield-Spread Premiums The revised GFE requires yield-spread or back-end premiums charged by mortgage professionals to be disclosed as a “credit or charge (points) for the specific interest rate chosen. In fact it was designed expressly to make complicated loan settlement practices and charges more understandable. • Local government recording charges. initial escrow deposit amount.

•  The GFE does not disclose the type of mortgage the borrower has applied for. Of special note to real estate brokers and licensees. 10% tolerance. unlike the previous version. many consumers were unaware of the often large percentage of their insurance premiums going to compensate the title agent. Note that Chapter 494.gov/offices/adm/hudclips/forms/ files/1. the revised HUD-1 statement must be used in 2010 and beyond and is intended to be more consumer friendly and understandable. courier fees may vary somewhat from transaction to transaction. F. HUD FAQS ON GFE AND HUD-1 HUD maintains an extensive set of frequently asked questions about RESPA that can be extremely helpful . and led to litigation and settlements with companies who routinely used such estimates on their HUD-1s. as they would be with the real GFE. the revised GFE has attracted criticism from lenders and others during the past year. rather than pay for the coverage. •  There is no place for the borrower’s signature indicating receipt and acceptance of the GFE. lenders or brokers can fill in an estimate based on the actual costs of multiple transactions closed during a recent period. Among the top features attracting criticism: •  The sales price of the house does not appear anywhere in the three pages of the revised GFE. omitting estimated property taxes and hazard insurance costs – both of which are important for borrowers to take into account in advance. Though the criticism has not caused HUD to revise the GFE. and no limit on changes.. However. but where a rough range of typical costs for the service is known. •  The total funds needed to close the transaction are not adequately disclosed. For a HUD-1 Settlement Statement see: www. a mortgage professional might offer an applicant a 6. upfront estimates are not guaranteed. page 3 contains a section that compares the fees on the final settlement sheet with the fees on the GFE. and even indicates the line item number on the GFE where the original estimated charge may be found.000 yield-spread premium from the lender. The broker might receive a $2.) For example. Also during the GFE’s first year of use. Averaging of fees previously was prohibited by HUD. Industry Reactions to Revised GFE As with any major change to a longstanding federal financial disclosure form.60    Module 4 Yield-spread premiums are rebates or payments to mortgage professionals from lenders. the complaints are useful for real estate professionals and others to know about so that they may guide clients appropriately. which must now be disclosed on page 2 of the GFE. In such cases. and local government recordation charges may vary based on the number of pages of documents. HUD-1 SETTLEMENT STATEMENT Like the revised GFE. based on delivery of loans carrying interest rates above the lowest par rate the loan applicant is qualified to receive. many lenders and settlement service providers have begun to bypass the official disclosure form and issue unofficial “estimates” of costs before delivering the official GFE. in the 3 categories of zero tolerance. requires the exact charge to be disclosed on the HUD-1. the revised HUD-1 does not require listing the commission rate charged for the sales transaction. they may present dangers for consumers who assume these upfront “estimates” are what they can count on at the settlement table. A par rate is an interest rate that does not cost the mortgage professional any money nor does it pay any money (YSP). In the past. ranging from 1 to 6 months. AVERAGING CHARGES FOR SETTLEMENT SERVICE FEES As part of its revisions to RESPA. They do this to avoid the “tolerance” requirements and penalties in the rules. interest and mortgage insurance.pdf  The new HUD-1 also uses terms similar to those on the GFE.S. but does require disclosure of the dollar amount of the commission split between the listing and selling offices (lines 700-704). Real estate professionals should be prepared to help their clients distinguish between the unofficial estimates and the official GFE.hud.5% rate when the par rate is 6%. For example. As an example. since lenders’ unofficial. It also discloses (on lines 1107 and 1108) how the title insurance premiums are being split between the title agent and insurance underwriter. (See revised HUD-1 at end of module. •  The total monthly payment disclosure consists solely of principal. This can cause home buyers to be uncertain about exactly how much they will need to bring to settlement. HUD is now allowing service providers to charge consumers averaged fees for items where the exact cost was not known at the time of the GFE. the Florida mortgage law.

establishes rules for disclosure of servicing practices of the lender.gov/offices/hsg/ramh/res/respa rulefaqs.hud. Section 10: Loan servicing rules These rules govern the conduct of loan servicers. . this section prohibits any seller from requiring a buyer to use a particular title company. g ov / o ff i c e s / h s g / ra m h / r e s / resindus.RESPA: Review the Fundamentals and the New Federal Rules     61 to industry professionals as well as consumers. h u d . Section 10 also regulates disclosures on transfers of servicing accounts from one company to another. and requires annual escrow account statements. w w w. prohibiting them from charging excessive amounts to be maintained by borrowers in escrow accounts. Buyers may sue for 3 times all fees charged if a violation is proved.cfm  FAQs about the revised GFE and HUD-1 rules also are available at the HUD website. www.pdf  OTHER SECTIONS OF RESPA Section 9: Seller-required title insurance Primarily aimed at home builders who have affiliated business ties with title insurance agencies.

This estimate for all other settlement charges is available through 3. If you decide you would like to proceed with this loan. Only you can shop for the best loan for you. 4. Compare this GFE with other loan offers. The first change will be in c No c Yes. Use the shopping chart on page 3 to compare all the offers you receive. it can rise to a maximum of $ c No c Yes. c No c Yes. 2502-0265 Good Faith Estimate (GFE) Name of Originator Originator Address Originator Phone Number Originator Email Borrower Property Address Date of GFE Purpose This GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan. days before settlement. your Truth-in-Lending Disclosures. days (your rate lock Shopping for your loan Important dates Summary of your loan Your initial loan amount is Your loan term is Your initial interest rate is Your initial monthly amount owed for principal. you have a balloon payment of $ due in years. can your loan balance rise? Even if you make payments on time.) B Your Charges for All Other Settlement Services (See page 2. it can rise to a maximum of Escrow account information Some lenders require an escrow account to hold funds for paying property taxes or other property-related charges in addition to your monthly amount owed of $ . interest. For more information. After this time. 1. you do not have an escrow account. The interest rate for this GFE is available through .) A + B Total Estimated Settlement Charges $ $ $ Good Faith Estimate (HUD-GFE) 1 . you must go to settlement within period) to receive the locked interest rate. You must pay these charges directly when due. Summary of your settlement charges A Your Adjusted Origination Charges (See page 2. and any mortgage insurance rise? Does your loan have a prepayment penalty? Does your loan have a balloon payment? $ years % $ per month %.62    Module 4 OMB Approval No. interest. 2. you have an escrow account. so you can find the best loan. and other consumer information at www. some of your loan Origination Charges. the first increase can be in and the monthly amount owed can rise to $ . see HUD’s Special Information Booklet on settlement charges. and any mortgage insurance is Can your interest rate rise? Even if you make payments on time. can your monthly amount owed for principal.hud. c No c Yes. and the monthly payment shown below can change until you lock your interest rate. After you lock your interest rate. You must lock the interest rate at least . The maximum it can ever rise to is $ . Do we require you to have an escrow account for your loan? c No. It may or may not cover all of these charges. contact us. Ask us. c Yes. the interest rate. your maximum prepayment penalty is $ c No c Yes.gov/respa.

5. Our origination charge This charge is for getting this loan for you. c You pay a charge of $ for this interest rate of %. We can identify providers of these services or you can shop for them yourself. 10. Homeowner’s insurance This charge is for the insurance you must buy for the property to protect from a loss. 2. Daily interest charges This charge is for the daily interest on your loan from the day of your settlement until the first day of the next month or the first day of your normal mortgage payment cycle. Initial deposit for your escrow account This charge is held in an escrow account to pay future recurring charges on your property and includes all property taxes. Service Charge 4.RESPA: Review the Fundamentals and the New Federal Rules     63 Understanding your estimated settlement charges Your Adjusted Origination Charges 1. 8. Title services and lender’s title insurance This charge includes the services of a title or settlement agent. We will choose the providers of these services. all insurance. Service Charge 7. such as fire. and other . Owner’s title insurance You may purchase an owner’s title insurance policy to protect your interest in the property.) c You receive a credit of $ for this interest rate of %. Your Adjusted Origination Charges $ Your Charges for All Other Settlement Services 3. 6. This charge (points) increases your total settlement charges. This amount is $ per day for days (if your settlement is ). The tradeoff table on page 3 shows that you can change your total settlement charges by choosing a different interest rate for this loan. Government recording charges These charges are for state and local fees to record your loan and title documents. Your credit or charge (points) for the specific interest rate chosen c The credit or charge for the interest rate of % is included in “Our origination charge. Policy Charge B Your Charges for All Other Settlement Services A + B Total Estimated Settlement Charges $ $ Good Faith Estimate (HUD-GFE) 2 . and title insurance to protect the lender.” (See item 1 above. Required services that you can shop for These charges are for other services that are required to complete your settlement. This credit reduces your settlement charges. for example. 9. A Some of these charges can change at settlement. See the top of page 3 for more information. 11. Required services that we select These charges are for services we require to complete your settlement. Transfer taxes These charges are for state and local fees on mortgages and home sales. if required. Our estimates for providing these services are below.

then you will have higher settlement charges. However: • • If you want to choose this same loan with lower settlement charges. The loan in this GFE The same loan with lower settlement charges The same loan with a lower interest rate Your initial loan amount Your initial interest rate 1 Your initial monthly amount owed Change in the monthly amount owed from this GFE Change in the amount you will pay at settlement with this interest rate How much your total estimated settlement charges will be 1 $ % $ No change No change $ $ % $ You will pay $ more every month Your settlement charges will be reduced by $ $ $ % $ You will pay $ less every month Your settlement charges will increase by $ $ For an adjustable rate loan. Good Faith Estimate (HUD-GFE) 3 . Charges can change if you select your own provider and do not use the companies we identify. a form that lists your actual costs. then you will have a higher interest rate. At your settlement. Please ask for additional information if the table is not completed. (See below for details. you must ask us for a new GFE.64    Module 4 Instructions Understanding which charges can change at settlement This GFE estimates your settlement charges. we offered you this loan with a particular interest rate and estimated settlement charges. If you would like to choose an available option. you can shop for the best loan. Using the shopping chart Use this chart to compare GFEs from different loan originators. If you want to choose this same loan with a lower interest rate. Loan originators have the option to complete this table. you will receive a HUD-1.) These charges cannot increase at settlement: The total of these charges can increase up to 10% at settlement: These charges can change at settlement: Our origination charge Your credit or charge (points) for the specific interest rate chosen (after you lock in your interest rate) Your adjusted origination charges (after you lock in your interest rate) Transfer taxes Required services that we select Title services and lender’s title insurance (if we select them or you use companies we identify) Owner’s title insurance (if you use companies we identify) Required services that you can shop for (if you use companies we identify) Government recording charges Required services that you can shop for (if you do not use companies we identify) Title services and lender’s title insurance (if you do not use companies we identify) Owner’s title insurance (if you do not use companies we identify) Initial deposit for your escrow account Daily interest charges Homeowner’s insurance Using the tradeoff table In this GFE. the comparisons above are for the initial interest rate before adjustments are made. This loan Loan 2 Loan 3 Loan 4 Loan originator name Initial loan amount Loan term Initial interest rate Initial monthly amount owed Rate lock period Can interest rate rise? Can loan balance rise? Can monthly amount owed rise? Prepayment penalty? Balloon payment? Total Estimated Settlement Charges If your loan is sold in the future Some lenders may sell your loan after settlement. Any fees lenders receive in the future cannot change the loan you receive or the charges you paid at settlement. Compare the charges on the HUD-1 with the charges on this GFE. By comparing loan offers. Fill in the information by using a different column for each GFE you receive.

Gross Amount Due to Seller 401. Total Paid by/for Borrower 300. Deposit or earnest money 202. Payoff of first mortgage loan 505. 208. City/town taxes to 511. Name & Address of Seller: F. 410. 206. Items marked “(p. 7. This agency may not collect this information. 207. 509. Gross Amount Due from Borrower 101. This is designed to provide the parties to a RESPA covered transaction with information during the settlement process. Settlement Date: J. reviewing. this disclosure is mandatory. Contract sales price 402. 205. Settlement charges to seller (line 1400) 503. Principal amount of new loan(s) 203. 514. Ins. Existing loan(s) taken subject to 204. Gross Amount Due to Seller 500. 404. Assessments 409. Cash To From Seller ( ) to to to to The Public Reporting Burden for this collection of information is estimated at 35 minutes per response for collecting. 214. Amounts paid to and by the settlement agent are shown. 2502-0265 A. Name & Address of Lender: G. 515. 507. County taxes 212. Adjustments for items paid by seller in advance 406. Assessments 109. Cash at Settlement to/from Seller 601. Settlement Agent: Place of Settlement: I. Summary of Seller’s Transaction 400. 217. 520. Adjustments for items unpaid by seller 510. 216. 412. Less amounts paid by/for borrower (line 220) 303. 3. 516. City/town taxes to 107. 215. 405. 4. Mortgage Insurance Case Number: C. 519. No confidentiality is assured. Reductions In Amount Due to Seller 501. Excess deposit (see instructions) 502. Settlement Statement (HUD-1) B. 518. Note: This form is furnished to give you a statement of actual settlement costs. Personal property 403. 220. Payoff of second mortgage loan 506. Type of Loan 6. unless it displays a currently valid OMB control number. RHS Conv. 120. County taxes 512. 411. Unins. Existing loan(s) taken subject to 504. 110. and you are not required to complete this form. FHA VA 2. Contract sales price 102. File Number: 1. Gross amount due to seller (line 420) 602. City/town taxes to 407. Settlement charges to borrower (line 1400) 104. Loan Number: 8. Assessments 513. Property Location: H. D.)“ were paid outside the closing. City/town taxes to 211. 517. 209. County taxes 108. County taxes 408. they are shown here for informational purposes and are not included in the totals. 112. Total Reduction Amount Due Seller 600. 111.c. Name & Address of Borrower: E. Personal property 103. . Adjustments for items unpaid by seller 210. Assessments 213. Conv.o. Less reductions in amount due seller (line 520) 603. 105. 219. 420. 5. Summary of Borrower’s Transaction 100. Adjustment for items paid by seller in advance 106. 218. and reporting the data. Cash From To Borrower ( ) to to to to K. Gross Amount Due from Borrower 200.RESPA: Review the Fundamentals and the New Federal Rules     65 OMB Approval No. Cash at Settlement from/to Borrower 301. Amounts Paid by or in Behalf of Borrower 201. 508. Gross amount due from borrower (line 120) 302.

Lender’s title policy limit $ 1106. Owner’s title insurance 1104. Underwriter’s portion of the total title insurance premium 1200. 1000. Our origination charge 803. Homeowner’s insurance 904. $ 703. 1006. Daily interest charges from 902. Lender’s title insurance 1105. Your credit or charge (points) for the specific interest rate chosen $ 901. Required services that you can shop for 1302. Settlement Charges 700. Your adjusted origination charges 804. Total Real Estate Broker Fees Division of commission (line 700) as follows: 701. Flood certification 808. Deed $ 1203. Property taxes 1005. 1300. Agent’s portion of the total title insurance premium 1108. Tax service to 807. Appraisal fee to 805. Government recording charges 1202. Transfer taxes 1204. 1303. 900. Government Recording and Transfer Charges $ (from GFE #4) (from GFE #5) $ $ $ 1201. Items Payable in Connection with Loan to to Paid From Borrower’s Funds at Settlement Paid From Seller’s Funds at Settlement 801. 1400. State tax/stamps 1206. Total Settlement Charges (enter on lines 103. Owner’s title policy limit $ 1107. Mortgage insurance premium 903. Additional Settlement Charges (from GFE #7) Mortgage $ Deed $ Deed $ Releases $ (from GFE #8) Mortgage $ Mortgage $ 1301. $ 702. Initial deposit for your escrow account 1002. Title Charges (from GFE #9) months @ $ months @ $ months @ $ months @ $ months @ $ per month per month per month per month per month $ $ $ $ $ –$ 1101. Items Required by Lender to Be Paid in Advance $ (from GFE #1) (from GFE #2) (from GFE A) (from GFE #3) (from GFE #3) (from GFE #3) (from GFE #3) 802. Settlement or closing fee 1103. 1007. Homeowner’s insurance 1003. Section J and 502. 1305. 800. Reserves Deposited with Lender to for for @$ years to /day (from GFE #10) (from GFE #3) (from GFE #11) months to 1001. Title services and lender’s title insurance 1102. Aggregate Adjustment 1100. Credit report to 806. 1304. Section K) (from GFE #6) $ $ . Mortgage insurance 1004. City/County tax/stamps 1205. Commission paid at settlement 704.66    Module 4 L.

such as property taxes and homeowner’s insurance. Previous editions are obsolete Page 3 of 3 HUD-1 . you have a balloon payment of $[AMOUNT] due in XXX years on [DATEDATE]. Even if you make payments on time. any mortgage insurance and any items checked below: Property taxes Flood insurance Homeowner’s insurance Note: If you have any questions about the Settlement Charges and Loan Terms listed on this form. Total monthly amount owed including escrow account payments You do not have a monthly escrow payment for items. it can rise to a maximum of XXX%. Yes. interest. Does your loan have a prepayment penalty? Does your loan have a balloon payment? No. and and any mortgage insurance is $ Principal Interest Mortgage Insurance Can your interest rate rise? No. Yes.RESPA: Review the Fundamentals and the New Federal Rules     67 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges Charges That Cannot Increase Our origination charge Your credit or charge (points) for the specific interest rate chosen Your adjusted origination charges Transfer taxes HUD-1 Line Number # 801 # 802 # 803 #1203 Good Faith Estimate HUD-1 Charges That in Total Cannot Increase More Than 10% Government recording charges # 1201 #1201 #1201 #1201 #1201 #1201 #1201 #____ Total Increase between GFE and HUD-1 Charges Good Faith Estimate HUD-1 $123456 or % Charges That Can Change Initial deposit for your escrow account Daily interest charges Homeowner’s insurance #1001 # 901 # 903 #1201 #1201 #1201 $ 2 /day Good Faith Estimate HUD-1 Loan Terms Your initial loan amount is Your loan term is Your initial interest rate is Your initial monthly amount owed for principal. The first change will be $ years % includes on [DATEDATE] and can change again every [DATEDATE] after [DATEDATE] . it can rise to a maximum of $[AMOUNT]. interest. the first increase can be on and the monthly amount owed can rise to $[DATEDATE]. your interest rate can increase or decrease by XXX%. Over the life of the loan. No. The maximum it can ever rise to is $[DATEDATE]. No. This includes principal. Yes. can your loan balance rise? Even if you make payments on time. can your monthly amount owed for principal. Yes. You have an additional monthly escrow payment of $[AMOUNT] that results in a total initial monthly amount owed of $[AMOUNT]. Yes. please contact your lender. You must pay these items directly yourself. and mortgage insurance rise? No. interest. Every change date. your interest rate is guaranteed to never be lower than XXX% or higher than XXX%. your maximum prepayment penalty is $[AMOUNT .

must provide substantial and legitimate services on a competitive basis. 5. zero tolerance level b. c. no set tolerance level . d. d. The answers are found in the back of the book. What is a thing of value in the context of the RESPA rules? a. RESPA protects consumers from: a. 5% tolerance level c. c. an affiliated business c. c. can offer incentives for referrals of business. 10% tolerance level d. b. a yield spread premium 3. a Good Faith Estimate b. illegal kickbacks by real estate professionals. 1. Origination charges by lenders or brokers fall under which tolerance category level created by HUD? a. d. gives you rent-free office space. The Good Faith Estimate (GFE): a. is the same as a HUD-1 statement. They are intended to help prepare you for the Final Exam. lenders charging high interest rates.68    Module 4 M odul e 4 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. Choose the best response to each question. describes loan terms and fees and estimates settlement costs. covers seller-required title insurance. allows you to legally take kickbacks. An Affiliated Business Arrangement: a. competing settlement services. overcharging in all-cash transactions. 4. must be delivered at settlement. 2. b. compensation in the form of gifts or cash for a referral of a real estate buyer to a settlement service d. b.

List FHA’s manufactured home and lot insurance program requirements. Identify the different types of FHA lenders and how to locate them. List the 2 types of insurance premiums charged for FHA loans. List the 4 acceptable sources of down payment cash for an FHA single family loan. List the FHA rules governing down payment gifts for borrowers. 3. 6. 22. Explain the FHA maximum mortgage limits and how to determine what they are for different market areas. 19. 69 . and when and for what purposes. 20. 29. 15. 23. Identify who created the Federal Housing Administration (FHA).MODULE 5 FHA Programs: Advantages for Borrowers by Kenneth Harney Learning Objectives Upon completion of the module. List the advantages for a borrower using FHA versus conventional financing. 4. Explain the rules governing cancellation of FHA insurance premiums during the loan term. 26. 11. 16. Explain how FHA handles refinancings. 18. Explain how FHA’s appraisal rules function. 8. Explain FHA restrictions on flipping of properties. 14. List borrower eligibility criteria for Section 203(b) insurance. List the maximum annual premium to be paid on a loan if the upfront mortgage premium is rolled into the mortgage. 24. Identify the key criteria used by FHA in manual underwriting of applications. 13. 7. 25. 28. Name and list the purposes of FHA’s main mortgage program. Explain how FHA’s TOTAL system for evaluating applications functions. Identify the 3 different categories of borrowers permitted by FHA. Identify the FHA down payment minimum. Explain how FHA loans are funded. and how they differ in amount. List which Federal cabinet department now has jurisdiction over the FHA. 27. 12. 21. List the eligibility rules for the HECM reverse mortgage program for seniors. Explain how FHA’s 203(k) rehabilitation loan program works and who it is designed to serve. List the types of improvements allowed under the streamlined version of the 203(k) program. Discuss the key criteria and restrictions for FHA financing of condo units. 10. List maximum loan to value ratios for FHA’s major programs. Explain how to finance energy-conservation improvements using FHA insurance. Explain the FHA limits on seller contributions to borrower loan costs and settlement fees. Explain how FHA insures lenders participating in its HECM program. 9. 17. 2. 5. the learner shall be able to: 1.

submit to regular monitoring. Real estate and mortgage professionals who are not familiar with FHA’s programs and rules today are at a severe competitive disadvantage when it comes to serving their clients. and are seeking financing for the repairs plus the cost of the property itself. 2011. www. The FHA credit guidelines are more lenient than conventional guidelines. Department of Housing and Urban Development (HUD). and has greatly speeded up its loan processing turnaround times. real estate professionals viewed the Federal Housing Administration’s (FHA) mortgage insurance programs as bureaucratic. ranging from banks and credit unions to mortgage companies. FHA guidelines allow for leniency when evaluating consumers’ credit backgrounds. must be performed by the sponsoring mortgagee. lenders submit insurance claims and are reimbursed by FHA for 100% of the unpaid balance plus additional costs incurred during the delinquency and foreclosure process. but is designed to be self-sustaining through its premium income and reserves. • correspondents who can take applications on behalf of sponsoring mortgagees. FHA’s market share fell from the 12% to 13% range in the mid-1990s to less than 2% in 2005. Effective May 20. to provide liquidity for the residential mortgage market and facilitate home purchases. If borrowers subsequently default and go to foreclosure.S. WHAT IS THE FHA? The Federal Housing Administration was created by Congress in 1934 in the depths of the Great Depression. but also pay for the agency’s administrative operations. The agency has overhauled its controversial appraisal rules that once required home sellers to correct minor property defects prior to closing. Typically. Its purpose was. unlike most conventional lending programs. 2010. and out-of-date technologically compared with conventional. • Buyers with higher-than-typical debt-to-income ratios. private mortgage industry competitors. it insures home loans made by private lenders that comply with the agency’s underwriting standards. FHA commands a large and growing market share – an estimated 30 percent of all loans in 2010 and a 75 percent share of first-time buyers in some local markets. Today. Mortgage brokers typically take applications for FHA loans on behalf of an FHA-approved mortgagee or correspondent. Instead. FHA does not require borrowers to have cash reserves. formerly approved loan correspondents will no longer have access to nonpublic FHA systems. the situation is starkly different. and allows seller contributions toward buyers’ closing expenses and loan fees up to 3% of the loan amount. and other periodic debt obligations. These borrowers typically include: . FHA-APPROVED LENDERS FHA delivers its services to the public through a nationwide network of approved lenders. overly-strict. however. FHA does not receive money from the federal budget. utilities. Underwriting. go to the HUD website. Today most conventional loans conform to Fannie Mae and Freddie Mac guidelines because most conventional loans are sold in the secondary mortgage market to these institutions. and accept full responsibility for the quality of their underwriting. and credit scores that are considered marginal or unacceptable by conventional mortgage market standards. To locate FHA lenders anywhere in the U. Borrowers pay insurance premiums to FHA in 2 ways: • an upfront premium at the time of closing • monthly premiums during the term of the loan These premiums not only are used to fund FHA’s insurance activities. Lenders originating loans for FHA insurance generally are either: • approved mortgagees who do full underwriting of loans themselves and must meet substantial financial capitalization tests.S. • Buyers who need to make repairs to properties after acquiring them.70    Module 5 INTRODUCTION From the 1990s through about 2005. It does not lend money. and is. FHA is part of the U.gov FHA’S ADVANTAGES FOR BORROWERS FHA’s decades-old core function has been to provide financing resources for consumers who may not otherwise have access to conventional mortgage financing at favorable rates and terms. cable. FHA no longer accepts new applications for loan correspondence approval and effective January 1. FHA also accepts nontraditional credit history data based on applicants’ payments for rent. • First-time homebuyers with modest incomes and only small amounts of cash for down payments and settlement expenses.hud. FHA generates net income for the government.

As of October.85 percent) of the loan amount.55%. the maximum mortgage amounts for the Orlando-Kissimmee area were: $353.050 to $729.750 in the highest cost areas.90 percent. and is usually included as part of the borrower’s monthly payment.750 for 1-family houses.400 for 3-family. As of the same date. the agency generally provides a credit for a portion of the upfront MIP on the replacement loan. the premium is 90 basis points (0. The name 203(b) refers to the section of the National Housing Act which authorizes the program. if a borrower refinances an FHA-insured loan into a new FHA loan within 3 years of origination. the agency also offers mortgage insurance for: • multifamily apartments • specialized senior housing • nursing home/health care facilities • condominium housing • rehabilitation of single family and small-scale multifamily housing • reverse or home equity conversion mortgages • manufactured housing Detailed information on all of these can be found at FHA’s website. minimum down payment is 10%.cfm  Each market area has separate limits based on the number of units in the property. the maximum mortgage insurance premium FHA may charge borrowers is set at 3% of the loan amount. along with housing prices. single family home purchases and refinancings under the Section 203(b) program. FHA banned seller-financed down payment assistance schemes when it found that their borrowers defaulted and caused insurance claims disproportionately higher than other borrowers. and $680. This upfront premium typically is rolled into the mortgage amount and is financed over time. during 2009. $547. For loans with downpayments of less than 5 percent. Also note that FHA no longer makes refunds of portions of the upfront MIP to borrowers with excellent payment records who sell or refinance their homes. www.300 for 4-family properties. FHA PROGRAMS FHA’s most popular and best known program is for owner-occupied. real estate professionals working with cash-deficient clients may look to several alternatives. and FHA may change them. within statutory limitations. These limits are based on formulas keyed to the overall cost of living in each area. 2010. FHA considers the following to be acceptable sources of downpayment cash: • savings of the borrower • gift money from a relative. Maximums for single-family home loans are adjusted periodically but currently range from $271. For example.850 for 2-family. instead permitting private lenders to offer market rates on a competitive basis.gov/idapp/html/hicost look. employer or union. evidenced by a gift letter spelling out the amount and source of the gift and that no payment is required • grants or secondary financing from a state or local program assisting homebuyers • gift money from a non-profit organization that is not an interested party in the transaction The fourth source listed above strictly excludes socalled down payment assistance programs that receive contributions from home sellers which are then converted into gifts from the nonprofit group. 203(b) Maximum Mortgage Limits FHA has set ceilings on the principal amounts of loans that it will insure in hundreds of local areas around the country. Premium charges are discretionary. The limits by county area are available online.25% of the loan amount.) Note that payment of annual premiums may be canceled when borrowers who have paid on time for at least 5 years have loan to value ratios (LTVs) on the property of 78% or less. however.FHA Programs: Advantages for Borrowers    71 FHA INTEREST RATES There is no FHA interest rate. 203(b) Down Payments The minimum down payment required from a borrower is 3.gov Mortgage Insurance Premiums (MIPs) Under current statutory rules.fha. The most it can charge upfront at closing is 2. except in cases where the applicant’s FICO credit score is below 580. https://entp. $452.5%. The agency does not set rates. The maximum annual premium is 0. 203(b) will receive the bulk of our attention in this module’s material. the FHA upfront premium has been set at 100 basis points (1 percent) of the loan amount for 203(b) purchase mortgages and streamline refinancings. the annual premium on loans with downpayments of 5 percent or more is 85 basis points (0. However. in which case the .hud. However. as market conditions dictate.

They function more like guarantors.75% LTV. They must have a Social Security number. Sales by lenders disposing of REO/Foreclosed property. but fall within FHA’s more generous parameters of acceptability.S. mortgage terms. allowing FHA to screen for combinations of characteristics that may be borderline for Fannie and Freddie. must be obligated to pay fully on the note. On the other hand.72    Module 5 Maximum LTVs Although all new home purchase mortgages insured by FHA are subject to the statutory 3. take legal title at closing. They agree to make payments on the note if the owners fail to do so. and to help reduce unsold inventories of houses around the country. If the seller has owned the property anywhere from 91 days to 180 days and the new price . allowing consideration of an application even if the homebuyer completed a bankruptcy filing just 2 years before. government • delinquent on any FHA mortgage or had a claim paid on an FHA loan within the past 3 years TOTAL: How FHA Evaluates Borrowers FHA has developed a system that allows it to evaluate applications based on a scorecard tailored to its own historical experience of a variety of borrower characteristics. Generally speaking. These are people who agree to pay on the note. It is more of an overlay to those 2 systems. Known as TOTAL.5% maximum. Generally the agency restricts borrowers to one FHA loan at a time. but that the TOTAL (Technology Open To Approved Lenders) system does not consider.S. FHA generally has required sellers to have held legal title to their properties for at least 91 days prior to their contract with a buyer seeking FHA mortgage insurance. and sales by the property disposition firms they hire. If the bankruptcy can be documented as “beyond the borrower’s control. is two times or more than the previous price. Similarly. in the case of a Chapter 13 bankruptcy. Borrowers are not eligible for FHA financing if they are: • currently delinquent on any federal debt or have a lien against any property for debt owed to the U. In January 2010. citizens. Applicants whom FHA judges to be acceptable in terms of risk are rated accept. unless their credit files contain minimal information and they lack a credit score. the tolerance period can drop to just one year. FHA has the industry’s most lenient tolerance levels for bankruptcies. When applicants can show that they have information that is relevant to their credit risk. with limited case-by-case exceptions such as family relocations. ­ and must sign all security instruments connected with the mortgage. Eligible FHA borrowers must be legal U. but do not have an actual ownership stake in the real estate. the agency does allow rate and term refinancings (where no new money is being borrowed) and streamline refinancings to go to 97.S. That is a frequently misunderstood but important point. uninsured medical problem or a sudden closing of an employer. A TIN (taxpayer identification number) alone is not sufficient. FHA Commissioner David Stevens temporarily waived the 90-day rule on transactions through February 2011 in order to facilitate sales and fix-ups. such as assets that are not liquid but could be converted to cash and used for reserves or monthly payments in a pinch.” such as a serious. LTV. A typical example here is parents who co-purchase with an adult child but live in another house of their own. and other factors. or statistical problem solving tool. that weighs an applicant’s credit history. and co-own the house. where one property has not been sold but a new one is being acquired. monthly housing expenses. • Co-signers. FHA requires a second appraisal. residents but they are not required to be U. the system is not an automated underwriting system such as Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector. All FHA applicants now get an initial screening at underwriting using the TOTAL system. are exempt from this rule. but who need not actually reside in the property. when all pay- Anti-Flipping Rule To avoid the practice of short-term flipping of properties. manual underwriting is performed. Key Manual Underwriting Factors Since large percentages of FHA loans now receive manual underwriting—anywhere from 25% to 40% in some locations—it is important to understand the key factors involved. Others are scored as refer. The TOTAL score is an algorithm. refinancings where additional money is being taken out­­—so called cash out refis—are limited to 85% maximum LTVs. • Non-occupant co-borrowers. They must use the property as their principal residence. however. Borrower Eligibility Criteria for 203(b) Insurance FHA has several broad categories of borrowers: • Occupant borrowers. which directs the underwriter to follow FHA’s hands-on manual procedures.

Overtime or bonus income are acceptable as part of an application. the new mortgage (post-refi) cannot exceed 97. a maximum LTV of 97. vir- . • Employment/income. and must both be documented and verified. but do not stall the real estate transaction. If the structure was built before 1978. Other examples where FHA’s more sympathetic approach in manual underwriting differs sharply from private lenders are: • Collection items on credit files. An appraisal is not required. When an appraisal is performed for a streamline refi. and escrows.e. FHA never adopted the Home Valuation Code of Conduct (HVCC) promulgated by Fannie Mae and Freddie Mac.. FHA requires that the income claimed by the borrower must be “reasonably expected” to continue for another 4 years.FHA Programs: Advantages for Borrowers    73 ments called for under the plan have been completed successfully. and other surfaces. These are only available when the loan to be refinanced already is insured by FHA. each with slightly different rules: • Rate and term refis.75). Among the noteworthy appraisal standards points of difference between FHA and other market participants: • All FHA appraisers must be certified for residential or general valuations. enables consumers to compare what they are being charged for the appraisal with what any third-party appraisal management company may be receiving. but incorporated the core policy of the code—prevention of interference in the valuation process by loan officers or brokers—into its own rules. FHA requires appraisers to cite property conditions that normally require repairs in advance of loan closing including: • Any condition affecting the health and safety of the occupants. affected paint surfaces must be treated.75% of the appraised property value (i. To qualify. the borrower must have legal title to the real estate. • FHA requires lenders to provide a standard HUD form to consumers encouraging them to get a home inspection prior to closing their purchase.. • Lead-based paint removal or treatment. Also. Only 1.to 2-unit properties are eligible. fences. That. These involve no or minimal (under $500) additional cash out of the proceeds at closing. but does require a suitable explanation from the borrower. retirement plan payments. FHA. and alimony. will consider applications one year later. worn carpets or floor finishes) now are merely noted in the appraisal report. holes in screens. but it must be documented with a rental revenue history from the building(s). • FHA maintains a national roster of appraisers approved to do valuations. Appraisals FHA has made significant changes in its once cumbersome appraisal process in recent years. but must be documented for 2 years and be likely to continue. in turn. and the maximum LTV post-refi is 85%. and there is no additional cash taken out. FHA also allows appraisers to disclose what they are paid for their work on the valuation report. FHA now uses Fannie Mae’s appraisal forms and its property repair standards. the maximum LTV is 97. The basic goal has been to make FHA appraisal practices comparable with those of Fannie Mae and Freddie Mac in the conventional marketplace. small cracks in windows. plus accrued interest. with no vacancy gaps in excess of 3 months. Conventional lenders typically reject such borrowers. FHA does not require that they be paid off. but the maximum mortgage amount is limited to the lesser of the existing principal balance. Unlike Fannie Mae and Freddie Mac. • Physical conditions affecting structural integrity. with the permission of the bankruptcy court. fees. • Cash out refis. Self-employment income must show a minimum of 2 years worth of documented and verified income. OTHER FHA PROGRAMS Condominium Units Though for decades FHA insured condominium mortgages under the Section 234(c) program.75%.g. including Social Security payments. Other verified income may also be acceptable for qualification purposes. Conditions that once required correction or repair in advance of closing (e. • FHA to FHA Streamline Refis. not merely licensed by their state. Two appraisals are required by FHA to establish value for mortgage insurance purposes. REFINANCINGS UNDER 203(b) FHA’s refinancings fall into several broad categories. Income from ownership of rental real estate may be considered. Off the books income not reported to the IRS is never acceptable. and the property must get a full appraisal. FHA requires that the existing loan must be current. including outbuildings.

203(k) allows consumers to avoid the high costs of short-term bridge financings. Approximately 75% of all 203(k) loans applications are for the streamlined. reviews by a 203(k) inspector. • No more than 25% of the total floor space in the project may be used for nonresidential. commercial purposes. because of the added complexities that come with repairs and escrow drawdowns. The maximum 203(k) mortgage amount is the lesser of: • the as is property value plus the estimated cost of the renovation • the existing debt on a house to be refinanced. the entire project must now have updated information on file with FHA regarding condo association budgets and reserves. and additional appraisal costs. for individual units to be eligible FHA now requires: • At least 50% of the units in the entire project must be owner-occupied or sold. and it has been extremely well received by real estate professionals and consumers because it is much simpler than the regular 203(k) program. A portion of the loan proceeds is designated for buying the house itself. It is also available to finance rehabs of existing homes already owned by the applicant. or in some cases even third-party inspections. By combining both acquisition and renovation in one loan. Under rules revised in 2009. elevators and the like. Some of these restrictions are likely to inhibit real estate professionals from using FHA financing for clients in projects that do not meet all the guidelines. It is also frequently used in conjunction with purchase of FHA-owned (REO) properties that need to be repaired after purchase. Note that the 203(k) program is unusual in that it does not require an upfront MIP. check with FHA-approved mortgagees to determine whether a spot loan is feasible for a particular unit under current rules. approximately 25.000 condo projects failed to submit required certification applications and thus technically became ineligible for individual unit mortgages insured by FHA.000. FHA rules effective in 2010 and 2011 make other significant changes in condo financings: First. and flood insurance where applicable. The minimum repair cost to be eligible for 203(k) is $5. lenders. • No more than 10% of the units may be owned by a single investor or party. there generally are higher fees levied by lenders to cover expenses such as preparation of architectural and engineering documents. HVAC system. limited repair option. “spot loans” on individual units in condominium projects that have not been approved or recertified by FHA no longer can be made by lenders.cfm. insurance coverage and other key data that relates to the association’s financial stability.gov/idapp/ html/condlook. the balance of the loan is placed into an escrow account. Also. through a single mortgage. • An analysis must be performed on the condo association’s reserve funds to ensure that they are adequate to handle upcoming capital expenditures and maintenance. FHA does not want to insure a mortgage on a unit in a building where the underlying finances are shaky – such as inadequate funds set aside for replacing essential components such as roofs. Real estate professionals. and its substantial renovation.hud. FHA allows permanent.5% of the smallest number of the alternatives above. FHA Rehabilitation Loan Financing—the 203(k) Program The 203(k) insurance program is designed to assist buyers who want to finance both the purchase of the property itself. • Newly-certified projects must reapply to FHA every 2 years. from which funds are drawn periodically as phases of the renovation are completed.74    Module 5 tually all condo unit mortgages in 2011 and beyond are being insured under the rules of the basic 203(b) program. Streamline 203(k) for Limited Repairs This is a relatively new program from FHA. That is. • No more than 15% of the individual units may be in arrears on their condo association dues payments. 30-year loan amounts to be based on the projected value of the house after completion of the repairs and upgrades. unit owners and buyers should check the following “look up” list online to see the current FHA certification status of condo projects of interest: https://entp. It is an excellent program for a buyer who simply needs to quickly upgrade several features of the house without a lot of red tape and inspections. • Projects must be covered by hazard and liability insurance. and does not require rehab consultants. In December 2010. . There is no set maximum. However. plus the estimated repair costs • 110% of the estimated after renovation value The minimum down payment is 3.

25 percent monthly premium.226. FHA introduced a new choice for HECM borrowers: They can now opt for the “standard” program.cfm Energy Efficient Mortgage (EEM) Financing This is an add-on feature used in conjunction with the 203(b) and 203(k) programs that provides special financing for energy improvements with home purchases and refinancings. It allows the financing of up to 100% of the cost of qualified energy improvements up to the greater of: • 5% of the property value ($8. Although 203(k) Streamline-insured loan funds must be spent on residential purposes only. heating and air conditioning system • energy efficiency upgrades The maximum rehab amount is $35. including purchase of appliances • painting and weatherization • finishing basements and waterproofing • septic system or well upgrades or replacement • roof repairs. Up to $200 of the cost of the HERS inspection may be included in the loan amount. including mobile homes. A reverse mortgage allows senior homeowners—62 and older—to convert . For 2-story structures. the commercial limit is 25% of interior space. Owners can never be forced to sell the house. Under the Saver program. Maximum initial payments available to seniors are determined by a formula using the appraised home value.gov/offices/hsg/sfh/hecm/ hecmhome. borrowers will be able to receive approximately 10 to 18 percent less than they would under the HECM Standard. FHA does allow the program to be used in connection with mixed-use properties. Neither are improvement projects taking more than 6 months to complete. Alternatively. a portion of their equity into spendable cash. Payments can continue for as long as the seniors occupy the home. FHA provides mortgage insurance on manufactured houses. no third-party inspections or consultants are required by FHA. Both programs require free counseling upfront by HUDapproved counselors. and for 3-story projects. they can choose the new “HECM Saver” program. In designated high-cost areas. No additions or structural repairs are permitted. and a 1.FHA Programs: Advantages for Borrowers    75 Among the typical improvements made with Streamline 203(k) financing are: • kitchen remodeling. www. The “Saver” program has an upfront premium of just 0.000. the limit is 49%.000. including interest and fees. the lender makes payments to the senior homeowners. while loans for a lot alone are capped at $23. When repairs are estimated to cost less than $15. which requires lower upfront premiums but also restricts principal limits – that is. in the event the balance owed approaches what FHA defines as the maximum claim amount— the tipping point where the debt owed exceeds the property’s resale value—the agency will take over the account and pay the lender the full balance of what it is owed. the total amount of money available to a borrower over the course of the loan. along with the lots on which they are sited.904. To determine the costs and savings. FHA’s role is to guarantee participating private lenders that. or • $4. exceeds the market value of the property. 33%. In October 2010. Rather than paying the lender money as in a standard forward mortgage. remain current on taxes and insurance. Manufactured Home and Lot Insurance (Title I) Under this program. and interest rate on the loan.hud. For 1-story buildings. Loan terms for a single unit manufactured home on a Home Equity Conversion Mortgages (HECMs) FHA dominates the reverse mortgage field by virtue of its HECM insurance program. the property must be inspected using a Home Energy Ratings Systems (HERS) or an energy consultant. These funds may be disbursed in a lump sum. More detail about the HECM program. including loan limits.000 The add-on financing is permitted only when the value of the energy to be saved by the improvement is more than the cost of the improvements during their useful life. which comes with an upfront mortgage insurance premium of 2 percent of the property value and a monthly 1. or periodic installments. credit line. Loans on manufactured home structures plus a lot can go to a maximum of $92. these limits can be increased by as much as 85%. age of the borrowers. can be found online. even if the balance they owe the lender. There are limitations on the percentage of total space in the mortgaged structure that may be commercialuse.5 percent premium of the outstanding balance. however.000 maximum).01 percent of the property value. and maintain it in good condition.

76    Module 5 lot can extend for as long as 20 years. Where multiple manufactured units constitute the home.gov/ . terms can be up to 25 years. The FHA is continually reviewing and evaluating its mortgage insurance underwriting standards. The maximum term on loans for lots without a structure is 15 years.hud. it is recommended to check frequently with the FHA for policy changes and updates. http://portal. Consequentially the information in this module is correct at the time of printing.

d. illegal aliens. people experienced in home­ ownership. gift from the seller. 300% . An FHA loan requires a minimum down payment of: ­ a. developers of tract housing. Choose the best response to each question. d. The answers are found in the back of the book. kick-back from the builder. 20%. 100% b. c. in a real estate office. in the yellow pages. 1.FHA Programs: Advantages for Borrowers     77 M odul e 5 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. 200% d. b. c. 4. d. They are intended to help prepare you for the Final Exam. 5. FHA appraisers can be found: a. c. FHA housing programs are designed primarily for: a. FHA rehab loans allow for post-renovation to what ­ percent of the after ­renovation value? a. FHA down payments can include a/an: a. d. b. 3. first-time purchasers with modest incomes and limited cash for a down payment.5%. in-kind contribution of labor in building the house. b. b. 10%. 3. 5%. c. on an FHA roster of approved appraisers. 2. gift or grant from a state or local homeowner assistance program. 110% c. at any state-certified appraisal firm.

78    Module 5 .

Explain the difference between price and value. 7. the learner shall be able to: 1. The practice of developing an opinion of the value of real property is called real estate appraisal. property valuation. Due 79 . Discuss the purpose of the HUD Mortgagee Letters. Discuss the 4 sections of the Ethics Rule. 15. List the 3 categories of registration and certification for appraisers in Florida. rules. functional obsolescence. difficult to understand. 11. 16. Define the term appraisal. 5. 3. 8. and guidelines affecting appraisers and appraisals. Explain the differences between the 3 methods of determining value: sales comparison. Explain accepted communication methods between real estate licensees and appraisers. the more effective your ability to deal with the myriad of changes and challenges ahead. Rather than instruction on how to appraise. INTRODUCTION Real estate licensees have had to cope with a number of changes to their businesses since the great recession of 2008−2009. and income approach. 13. the objective is to provide information to assist real estate professionals in separating reality from myth. not the least of which is their location. 12. Appraisals are needed because of the heterogeneous or diverse nature of real property. Define the term market value. by Francois Gregoire 6. 10. 4. Explain the difference between replacement cost and reproduction cost. It is clear that no 2 properties are identical and all parcels differ from one another in some respect. The purpose of this module is to provide an understanding of the appraisal process and the legislation. one of the most important determinants of their value. or had more of an impact on licensees’ transactions than the changes resulting from modifications to long-standing appraisal practices. Compare and contrast USPAP Standards 1 and 2. Name the sources of appraisal standards and guidelines. The more you know about the person with the clipboard. or land valuation. 14. Discuss the reasoning of the Fannie Mae Market Conditions form.MODULE 6 Appraising Real Estate: The Effects of the Great Recession Learning Objectives Upon completion of the module. 9. It is likely that none have been as drastic. Discuss some common appraisal myths and explain the facts relating to each. List the basic steps of the appraisal process. Define the terms physical deterioration. 2. and external obsolescence. cost depreciation. Understand the history and implications of the Home Valuation Code of Conduct and Appraiser Independence Guidelines.

80    Module 6 to the inherent heterogeneity of real property. territories. loans insured by the Federal Housing Administration (FHA) and loans guaranteed by the Veterans Administration (VA) also Appraisal Subcommittee One of the most important provisions of Title XI of FIRREA was the establishment of the Appraisal Subcommittee (ASC). As a direct result. the Federal Home Loan Mortgage Corporation (Freddie Mac). and provide funds to replenish deposit insurance funds. The absence of a market-based pricing mechanism determines the need for an expert appraisal of real estate and/or property. Title XI explicitly requires appraisals for financial transactions with the Federal National Mortgage Association (Fannie Mae). In addition to establishing the Resolution Trust Corporation (RTC) to close the insolvent savings and loan associations. required real property appraisers to hold a real estate license. investment in or exchange of real property. lease. At that time many states. or regulates • requires the services of an appraiser Real Estate Related Financial Transaction According to the act. Federally Related Transaction Title XI of FIRREA describes a federally related transaction as any real estate-related financial transaction in which: • a federal financial institution’s regulatory agency or the Resolution Trust Corporation engages in. Real estate licensees are likely to encounter appraisers and appraisals in a number of circumstances—most often related to a mortgage loan to finance the purchase of real estate. and the Resolution Trust Corporation (RTC) be prepared by licensed or certified appraisers. Additionally. including interests in property. Although not specifically addressed in Title XI. as there is for trade in corporate stock and some classes of personal property. and the District of Columbia. Since a written appraisal prepared by a state licensed or certified appraiser is a requirement for many mortgage loans. including mortgage-backed securities The long and short of it is. over 700 savings and loan associations failed at a cost of over $120 billion to U. there is no centralized market for the trading of property rights. most mortgage loans used to finance the sale.S. require an appraisal completed by a state-licensed or state-certified appraiser. including Florida. a real estate related financial transaction is any transaction involving: • the sale. but it is by no means the first national real estate economic calamity. Their responsibilities include monitoring the requirements for certification and licensing of appraisers established by the states. Membership in the ASC consists of designees from: • federal financial institutions’ regulatory agencies • Federal Reserve Board. purchase. Federal Deposit Insurance Corporation • Office of the Comptroller of Currency • Office of Thrift Supervision • National Credit Union Administration • Department of Housing and Urban Development (HUD) The ASC provides oversight of the real estate appraisal process as it relates to federally related transactions. or the financing thereof • the refinancing of real property or interests in real property • the use of real property or interests in property as security for a loan or investment. an understanding of federal. contracts for. and private appraisal requirements will help you enhance your credibility and productivity and avoid misunderstandings and appraisal related catastrophes. state. During the savings and loan crisis. The ASC also monitors the requirements established by the state agencies regard- . In the late 1980s the savings and loan industry. or refinance residential and nonresidential property. dispose of their assets. at that time one of the primary sources of capital for the funding of single family residential mortgage loans. but Congress insisted the real estate appraiser licensing and regulatory agency be separate and distinct from the agency charged with the responsibility of licensing and regulating real estate brokers and sales associates. FEDERAL FINANCIAL INSTITUTIONS REFORM RECOVERY AND ENFORCEMENT ACT of 1989 (FIRREA) For many real estate licensees the recent financial crisis affecting the residential real estate market is a new phenomenon. Congress enacted the Federal Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA). require the use of state certified appraisers to complete appraisals for mortgage loans. Title XI of FIRREA requires the use of a state licensed or state certified appraiser for federally related transactions. all but collapsed. Title XI of FIRREA required the states to create systems and agencies to license and regulate real property appraisers. taxpayers.

Members are appointed by the governor. or a certified real estate appraiser.11(4) (a). for 4-year terms. F. or mortgage insurance. F. supervisory appraisers. Two consumer members are representatives of the general public and not connected in any way with the practice of real estate appraisal. specifies violations of the law and provides for a range of penalties for persons found guilty of violations of the law. the FREAB now issues only 3: • registered trainee real estate appraiser • certified residential real estate appraiser • certified general real estate appraiser Registered trainee real estate appraisers. and reviews their practices.000 for each offense • suspension for up to 10 years • revocation An appraiser is a person who is a registered trainee real estate appraiser.Appraising Real Estate: The Effects of the Great Recession     81 ing appraisal standards for federally related transactions and their disciplinary procedures for appraisers. F. Title XI of FIRREA requires that the FREAB establish qualifications for certification that meet or exceed those defined by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation. Part II. Credentials are issued to individual persons only. Chapter 475. Part II. and groups are ineligible for licensing or certification as an appraiser. Similar to the Florida Real Estate Commission (FREC). and organizational structure. including the category. licensed appraiser. real estate brokerage. The AQB minimum education. The law requires 2 licensed or certified residential real estate appraisers and 2 certified general real estate appraisers at the time of their appointment. experience. created the Florida Real Estate Appraisal Board (FREAB) within the Division of Real Estate (DRE) of the Department of Business and Professional Regulation (DBPR). F.S.. The possible sanctions include: • reprimand • fine of up to $5. and examination requirements have been incorporated into Chapter 475. F. certifications. The FREAB is required.. and regulate. the FREAB meets every other month. Part II.. financial transactions.S. partnerships. registrations. The appraisal standards established by the FREAB must meet or exceed the standards adopted by the Appraisal Standards Board (ASB) of the Appraisal Foundation. When FIRREA became law in August of the same year. registrations. the FREAB consists of 7 members: 4 appraisal practitioners. by law. procedures. The FREAB has the authority to regulate the issuance of licenses. Part II. adopted and signed into law in 2003. Title XI of FIRREA also requires the ASC to make an annual report to Congress. As does Chapter 475 Part I.. Due to subsequent amendments to Chapter 475 Part II. 4 categories of licensees were established. Chapter 475. Registered trainee real estate appraisers are registered with the DBPR as qualified to perform appraisal services only under the direct supervision of a licensed or certified appraiser. One user member represents organizations that use appraisals for the purpose of eminent domain proceedings. Part II.S.S.S. Categories Originally. the Florida statute was determined to be out of compliance with the new federal requirements. Corporations. A National Registry of state licensed and state certified appraisers is also maintained by the ASC. F. and to discipline appraisers who fail to comply with the law and rules of the board. F. The law provides that the FREAB establish standards for real estate appraisals and establish standards for. 2 consumers.S.S. The FREAB also establishes qualifications for licenses. licensed real estate appraiser. activities. the licensed appraiser credential is no longer issued by the DBPR. Florida Real Estate Appraisal Board (FREAB) The 1990 law. In practice. As a result of an amendment to Chapter 475. They render a professional service and are considered a professional within the meaning of Section 95. The ASC also makes grants to the Appraisal Foundation for the development of appraisal standards and establishment of appraiser qualifications. and rules of the FREAB. F. The Florida legislature responded with a new licensing and certification law for real estate appraisers in 1990.. firms. In response to the crisis with savings and loan associations and in anticipation of the pending federal requirements. and 1 user. or mortgage lending.. in 1989 the Florida legislature adopted a law to regulate Florida real estate appraisers. APPRAISER LICENSE AND CERTIFICATION REQUIREMENTS Chapter 475.S. and permits. subject to confirmation by the senate. certifications. and permits (instructors). The minimum education . The 1990 Florida statute complied fully with Title XI of FIRREA. to meet at least once a quarter. Individuals holding any one of the above described credentials are permitted under Florida law to provide appraisal services in any location in Florida.

hold the certified residential real estate appraiser credential. Price is a fact. registered trainee real estate appraisers are required to be located in the same county as their primary supervisory appraiser. or asset. F. or as authorized by federal regulation. asked. In a manner similar to that of licensed real estate sales associates’ affiliation with a real estate broker. The primary supervisory appraiser may also designate additional licensed or certified appraisers as secondary supervisory appraisers. value is an opinion of the worth of a property at a given time in accordance with a specific definition of value. or 30 semester hours of AQBprescribed college level courses • a minimum of 300 classroom hours of approved appraisal education. Among other things. . the amount of the loan often depends upon the lesser of the sales price or estimate of market value of the subject property. services. Individuals certified by the DBPR as qualified to issue appraisal reports for residential real property of 1. designated as the primary supervisory appraiser. it is important for real estate licensees to be aware of. Certified residential real estate appraisers. are allowed to appraise throughout the state under supervision. the definition of market value applicable to most residential real estate appraisal assignments. the amount of money paid. A certified general real estate appraiser is an individual certified by the DBPR as qualified to issue appraisal reports for any type of real property in Florida. Bias or advocacy on the part of an appraiser is prohibited. without regard to transaction value or complexity. Value Value. the lender or loan originator is interested in the appraiser’s opinion of the market value of the subject property. and objective manner. As such. No state examination is required by Chapter 475. The AQB determined minimum qualifications for state certified general appraisers are: • bachelors degree or higher from an accredited educational institution. or offered for a good or service where a sale is contemplated. Part II. value is referred to as the monetary worth of some good. on the other hand. is a matter of opinion.to 4-residential units.000 hours of experience obtained during no fewer than thirty months • passing grade on an AQB-approved examination VALUATION Appraisers provide valuation services in an independent. including the 15 hour National USPAP Course • 2. No certified appraiser may supervise more than 3 trainees at one time. including the 15-hour national USPAP Course • 3. A real estate licensee will most often encounter and interact with an appraiser after the appraiser has an assignment to appraise a property as a result of a contract for sale. Market Value For appraisal purposes.500 hours of experience obtained during no fewer than 24 months • Passing grade on an AQB approved examination Certified general real estate appraisers. either a certified residential or certified general appraiser. it is the amount of money for which something is exchangeable. however. In most instances. is responsible for the direct supervision and training of the registered trainee. impartial. Price Price is the quantity of one thing which is exchanged for another. service. or 21 semester hours of AQB prescribed college level courses • a minimum of 200 classroom hours of approved appraisal education. Value is also defined as a fair return or equivalent in goods. At times. The lender is interested in the value of the property as opposed to the price of the property. The supervisory appraiser. The lender is usually required to have an appraisal completed to have an estimate of the value of the property being offered as security for a mortgage loan. A secondary supervisory appraiser must be affiliated with the same firm or business as the primary supervisory appraiser and the primary or secondary supervisory appraiser must have the same business address as the registered trainee real estate appraiser. or in a county adjacent. The quantity of one thing which can be obtained in exchange for another is an expression of value. and understand.82    Module 6 requirement consists of 100 hours of board prescribed courses and an approved end-of-course examination.S. The AQB has determined the minimum qualifications for state certified residential appraisers are: • associate (2 year) degree or higher from an accredited educational institution. By rule. or money for something exchanged. Registered trainee real estate appraisers. Valuation services are those pertaining to aspects of property value. Price is the amount of money the buyer and seller have agreed to in the purchase and sale agreement. registered trainee real estate appraisers must affiliate with a supervisory appraiser.

the cost depreciation approach will tend to set the upper limit of value. The most common approaches utilized in the valuation of single family residential property are: • sales comparison approach • cost depreciation approach • income approach Cost Depreciation Approach The cost depreciation approach is sometimes referred to simply as the cost approach or summation. an individual is not likely to pay any more for a property than the price necessary to acquire a reasonably similar substitute property. each acting prudently. size. the easiest to understand. and capitalization of rent loss or gain—are used to derive individual adjustments for differences. THE APPRAISAL PROCESS Because real estate markets are not centralized. Again. In the application of the sales comparison approach. dollars or in terms of financial arrangements comparable thereto. knowledgeably. Not only is the definition of market value applicable to the opinion developed by the appraiser. construction. an individual is not likely to pay more for a property than it costs to acquire a suitable site and construct an equally desirable building on it. the value of a property tends to be set by the price that would be paid to acquire a substitute property of similar utility and desirability within a reasonable amount of time. familiar to real estate licensees. what has evolved for the valuation of real property is the appraisal process. To be effective. condition. • A reasonable time is allowed for exposure in the open market. physical characteristics. the value of the subject property is inferred from the selling prices of the comparable properties. utility. is not derived from a list. In other words. and single family markets in particular are incredibly local. the transaction details of each of the comparable sales must meet each of the 5 conditions to be considered arm’s length. the buyer and seller. This approach has as its basis the principle of substitution. and often the most applicable to the valuation of 1. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated. 2005). The inference is made by comparing the comparable sales to the subject property and making adjustments to the comparable sale for the differences. A less reliable indication of value is developed by the sales comparison approach in markets with few transactions and property conveyances. Sales Comparison Approach The sales comparison approach is the method most . If the comparable property has a characteristic or feature superior to that of the subject. and amenities. Among the shortcomings inherent in the sales comparison approach is the difficulty in making adjustments for subjectively valued characteristics such as design. the adjustment is positive if the attribute or element of the comparable sale is inferior to that of the subject. In a post recession real estate market.Appraising Real Estate: The Effects of the Great Recession     83 Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale. cost analysis.to 4-family residential properties. In most situations. On the other hand. and view. The amount of adjustment. Within the appraisal process are several means or approaches to developing an opinion of value. The value difference must be measurable and significant enough to affect market behavior. it is based upon the principle of substitution. the adjustment to the comparable sale is negative. Several methods—paired sales. contrary to widely held belief. age. a direct comparison is made between the property being appraised (subject property) and comparable properties that have recently sold. there must be an abundance of market activity and relatively recent sales of properties similar to the subject in location. and each is acting in what he or she considers his or her own best interest. it is also used as a test of transactions that are examined for possible use as comparable sales. appeal. • Payment is made in terms of cash in U. In an attempt to measure the market reactions of typical buyers and sellers. In most circumstances. The adjustment may be expressed as a percentage of the sales price or a specific dollar amount. an appraiser’s job is complicated by the volume of transactions negotiated and closed under conditions that cause them to fail the tests enumerated in the definition of market value.S. and assuming the price is not affected by undue stimulus. In this case. • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale. *Adjustments to the comparables must be made for special or creative financing or sales concessions (Source: Fannie Mae Form 1004 – March. • Both parties are well informed or well advised.

The gross rent multiplier (GRM) is the ratio between the monthly or annual rent of a property and its sales price. A GRM is developed and applied to the estimated market rent for the subject property to provide an indication of value. new. Reproduction cost is the cost of materials and labor required to replicate the subject improvements in every detail. and the value of the site improvements is added to the depreciated cost of the improvements to give the appraiser an indication of value by the cost depreciation approach. odors. The cost approach can produce a credible and reliable indication of value for proposed. Circumstances beyond the boundaries of the subject property can influence the value negatively. If the subject property is located in proximity to an incompatible use. a variation of the approach is applicable to 1-to 4-family residential property. the appraiser will utilize a cost service or manual such as the Marshall & Swift Residential Cost Handbook. or by a real .S. This process is not an average of the various indications of value. In the absence of comparable vacant land sales. functional obsolescence. a source of noise. When the improvements are subject to significant depreciation. Although this approach is most applicable to properties bought and sold primarily for their ability to produce income. accrued deprecation is deducted from the replacement or reproduction cost. Usually this is accomplished by the application of the sales comparison approach. over-improved kitchens. The current replacement or reproduction cost of the existing improvements is estimated next. In the event the appraiser is required to consider the income potential of a 1-to 4-family residential property. or inadequate closet space. Reconciliation is the process of re-examining each of the applied approaches to value for reliability and volume of data. an accurate estimate of accrued depreciation is increasingly difficult to obtain. there must be a sufficient pool of sales of property rented at the time of sale and a reliable estimate of the market rent for the subject property. plumbing. and the execution of the approaches to values is done appropriately. and the indication of value is less credible. the appraiser may employ alternative methods such as extraction or allocation. Provided the data is current and reliable. This calculation is done for several properties comparable to the subject property. Excessively high ceilings. Shortcomings may be due to poor workmanship. After the replacement or reproduction cost is estimated. USPAP Regardless of the intended use of the appraisal. floor coverings. or certified under Chapter 475 Part II. If the improvements are not new or nearly new. or hazards. Poor economic conditions. and accrued depreciation is deducted. This represents an indication of the present value of the existing improvements. but a process of judging which approach produced the most reliable and credible indication of value. a reproduction of the subject improvements. and nearly new residential properties. limited sources of financing. if prepared by either an appraiser registered. Replacement cost is the cost to construct a building similar to the subject utilizing current materials and methods. the value may be affected by external obsolescence. The estimated value of the site. and heating and air conditioning systems lose value over time due to use and exposure to the elements.84    Module 6 The application of the cost depreciation approach requires the appraiser to estimate the value of the subject site as though vacant. and external obsolescence. as though vacant. the difference is the depreciated cost of the improvements. the appropriateness to the valuation of the subject property based upon the property type and characteristics. To produce a reliable indication of value. or super-adequate size or construction are examples of functional obsolescence due to overcapacity. The basic structure of the improvement and components such as the roof. A loss in value due to shortcomings or overcapacity is functional obsolescence. F. licensed. they are reconciled into a final opinion of value. the appraiser will most often develop an indication of value by use of a gross rent multiplier. each should produce an indication of value within a relatively tight range. and an indication of value is derived from each. unconventional architecture. Accrued depreciation is the loss in value due to any and all causes—physical deterioration. Physical deterioration is a loss in value due to physical wear and tear. Reconciliation After the applicable approaches are completed. Income Approach The income approach is based on the premise that the value of the property is equal to the value of the income stream the property is capable of generating. Generally. an inefficient floor plan. or exorbitant property taxes could also be considered external obsolescence. and the soundness of each indication of value. It is calculated by dividing the sales price by the actual rent..

and sellers. Appraisers are also prohibited from knowingly permitting an employee or other person from communicating a misleading or fraudulent report. the appraiser is required to perform assignments with impartiality. When Congress passed FIRREA in 1989. Those most likely to be cited and of most interest to real estate licensees are: • Ethics Rule ■■ Conduct Section ■■ Management Section ■■ Confidentiality Section • Competency Rule • Scope of Work Rule • Standard 1 – Real Property Appraisal Development • Standard 2 – Real Property Appraisal Reporting ethically and competently and prohibits criminal conduct. and certified appraisers except Standard 4 through Standard 10. USPAP is promulgated by the Appraisal Standards Board (ASB) of the Appraisal Foundation. this section of the Ethics Rule prohibits the appraiser from contingent fee arrangements. objectivity. at a minimum. 4 Rules. Confidentiality Section. prior to the enactment of Title XI of FIRREA. compliance with appraisal standards promulgated by the ASB of the Appraisal Foundation. 10 Standards. the law requires written appraisals for federally related transactions.. above. along with communicating assignment results in a misleading or fraudulent manner. Management. Depending on the intended use and intended users. or comparable sales. the market. All are applicable to registered. and independence. Three of the sections are described below. Management Section. or the lender. and Record Keeping. Real estate licensees should be aware that the appraiser is not an advocate for the buyer. The Confidentiality Section of the Ethics Rule is often cited by appraisers in their discussions with real estate licensees. This section requires the appraiser to be aware of and comply with all confidentiality laws and Ethics Rule The Ethics Rule has 4 separate sections: Conduct.Appraising Real Estate: The Effects of the Great Recession     85 estate sales associate or real estate broker licensed under Chapter 475 Part I. Remember. Variations in the appraisal fee that depend on assignment results. It is unethical and illegal for an appraiser to accept an appraisal assignment and assure the client or other parties that the opinion of value will be at. Real estate licensees often have specific rules and standards cited to them by appraisers when explaining their work or details about an appraisal. and that the standards require. F. In addition. The 2010–2011 edition of USPAP consists of Definitions. buyers. The original USPAP was developed in 1987. agent. Advocacy is prohibited in this section. This section of the Ethics Rule prohibits the appraiser from misleading the reader of the appraisal report by omitting information about the subject property. This section also imposes to perform assignments with impartiality. or below a specific number. or occurrence of subsequent events are prohibited. seller. a Preamble. and independence. additional standards and guidelines may be applicable. and 5 Statements on Appraisal Standards. Appraisers are prohibited from paying undisclosed fees or commissions in connection with the procurement of an appraisal assignment by the Management Section of the Ethics Rule. It was copyrighted by the Appraisal Foundation in 1987 and adopted by the major appraisal organizations in North America. Conduct Section.S. specific value opinions. The same applies to agreements for the appraiser to be paid only if the sale closes or the loan is approved. the Appraisal Foundation was recognized as the source of appraiser qualifications and appraisal standards. the appraisal must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). Confidentiality. licensed. This section also prohibits the appraiser from accepting an assignment. The Ethics Rule requires the appraiser’s observation of the highest standards of professional ethics and compliance with USPAP. It is unethical and illegal for an appraiser to agree to an arrangement to be paid for the appraisal only if the value is a certain amount. objectivity. The Conduct Section of the Ethics Rule requires the appraiser to perform assignments . Title XI of FIRREA specifically requires that federally regulated financial institutions adopt standards for the performance of real estate appraisals in connection with federally related transactions. or having an arrangement for compensation that depends on: • the reporting of a predetermined result (such as an opinion of value) • a direction in assignment results that favors the cause of the client • the amount of the value opinion • the attainment of a stipulated result (approval of a loan or closing of a sale) • the occurrence of a subsequent event directly related to the appraiser’s opinion and specific to the purpose of the assignment (payment of a commission or fee) In simple terms.

of course. prior to accepting an assignment.86    Module 6 regulations applicable in the appraisal assignment.. disclose the lack of knowledge and/or experience to the client before accepting the assignment 2. If such a factor is necessary for an appraiser to develop credible assignment results. specific laws and regulations. rather than the effective date. For assignments with retrospective opinions and conclusions. take all steps necessary or appropriate to complete the assignment competently. Although the appraiser is often willing to inform the buyer. . F. probably no section of USPAP has been discussed more by non-appraisers than the Competency Rule. the knowledge and experience to complete the assignment competently. and 3. personal study by the appraiser. association with an appraiser reasonably believed to have the necessary knowledge and/or experience. the disclosure cannot be made. and 3.S. the ability to properly identify the problem to be addressed 2. laws and regulations that apply to the appraiser or to the assignment Comment: Competency may apply to factors such as. In an assignment where geographic competency is necessary. In the absence of competency. seller. but not limited to. Acquiring Competency If an appraiser determines he or she is not competent prior to accepting an assignment. Competency requires: 1. describe. an intended use. See below for more details about competency. that he or she can perform the assignment competently. a geographic area. including. the lack of knowledge and/or experience and the steps taken to complete the assignment competently Comment: Competency can be acquired in various ways. take all steps necessary or appropriate to complete the assignment competently. the appraiser must disclose the lack of knowledge and/or experience to the client before accepting the assignment. if none of them is the client. or to persons specifically authorized by the client. the appraiser must: 1. or retention of others who possess the necessary knowledge and/or experience. It instructs the appraiser not to disclose confidential information or assignment results (value opinions) to anyone other than the client. the appraiser must meet the requirements of this COMPETENCY RULE at the time of the assignment. and necessary to ensure public trust in the appraisal profession. Because of the importance of the Competency Rule when discussing appraisals in a post great recession world. or real estate licensee of the value opinion. an appraiser who is not familiar with the relevant market characteristics must acquire an understanding necessary to produce credible assignment results for the specific property type and market involved. the appraiser is responsible for having the competency to address that factor or for following the steps outlined below to satisfy this COMPETENCY RULE. or an analytical method. Scope of Work Rule The Scope of Work Rule is rather lengthy. The client. a market. an appraiser’s familiarity with a specific type of property or asset. it is appropriate to cite sections of the rule and comments from the 2010–2011 Edition of USPAP. may authorize the appraiser to disclose the results and discuss the appraisal with other parties. Compliance with the rule is required by Chapter 475. recognition of. and describe the lack of knowledge and/ or experience and the steps taken to complete the assignment competently in the report. The client is the party that engages the appraiser for the assignment and most often is the lender. The rule requires the appraiser to have the knowledge and experience to complete the assignment competently. in the report. and compliance with. but aspects are worth discussing to illustrate the appraiser’s obligations and the way each appraisal assignment is COMPETENCY Determining Competency The appraiser must determine. Part II. but not limited to. Competency Rule In the past year.

USPAP defines broad minimum standards for real property appraisals. and completing the research and analysis necessary to produce a credible appraisal. Because Fannie Mae and Freddie Mac purchase mortgage loans originated by others. however if the appraisal is to be used in connection with a Federally Related Transaction (FRT). underwriter. Banks and thrifts have altered their procedures for evaluating borrowers. The appraisal report submitted to the lender was often filled with canned statements and boilerplate text leftover from appraisals prepared when the real estate market was much rosier. This is the section of USPAP that requires the appraiser to adhere to Fannie Mae and Freddie Mac appraisal guidelines. Appraisals are permitted to be reported in several ways. Standard 2 specifies the specific. among other requirements. and government agency guidelines. In observation of this standard. as well as various client groups and types of users to adopt more specific and stringent standards. Most real estate licensees are familiar with the standard form reports used for residential mortgage loan appraisals. and the various indications of value are reconciled to arrive at an opinion of value. Standard 2 includes a requirement for a signed certification in every written appraisal report. . This standard ensures the appraisal report contains sufficient information. disclose the relationship between supply and demand. See GUIDES FOR ADDITIONAL REQUIREMENTS on page 84. many appraisers fell into the bad habit of neglecting to complete the research and analysis to report these factors accurately. also known as the Uniform Residential Appraisal Report (URAR). self contained. must include the research. it was Standard 2: Real Property Appraisal Reporting Compliance with this standard requires the appraiser to communicate the analysis. and conclusions in a manner that is not misleading. extending credit. options. Although appraisers were required to report the condition of the market. Fannie Mae 1004 MC – Market Conditions Addendum Fannie Mae and Freddie Mac were caught off guard when the value of real estate started to decline after the boom years of 2000−2006. and report the trend of prices and values in the neighborhood section of the URAR. the appraisal must be in writing and signed. and restricted use. and makes certain all assumptions and limiting conditions are disclosed. Standard 2 permits appraisals to be reported under 1 of 3 options. and if any of the approaches may be excluded without compromising the credibility of the opinion of value. and real estate appraisal businesses. This form report is a good example of an appraisal reported under the summary report option. minimum content. Several market areas of the United States were identified as declining in price and value. determining the scope of work necessary to solve the problem. The scope of work.Appraising Real Estate: The Effects of the Great Recession     87 approached. a wide variety of possible intended users and intended uses of appraisals. The scope of work is acceptable when it meets or exceeds the expectations of parties who are regular intended users of the particular type of appraisal assignment and is similar to the scope of work decision by the appraiser’s peers when performing the same or a similar appraisal assignment. The most common form is the Fannie Mae 1004/Freddie Mac 70. brokerage businesses. report the predominant marketing time. opinion. appraisers must be aware of the additional requirements imposed by each client group or agency. at a minimum. The scope of work is developed and determined by the appraiser in consultation with the client. and reporting necessary to comply with lender. There are. analysis. however. there have been significant changes in real estate markets. USPAP provides for and allows federal and state agencies. the appraiser makes an analysis of all agreements of sale. CHANGES SUBSEQUENT TO THE GREAT RECESSION As a result of the recent recession and declines in property value. To comply with the rules and standards above. By design. Part of the scope of work decision is determining which of the 3 approaches to value is applicable to the appraisal assignment and necessary to develop credible assignment results. Standard 1: Real Property Appraisal Development The appraiser complies with this standard by identifying the problem. and listings of the subject property current as of the effective date of the appraisal. It also imposes on the appraiser an obligation to perform the appraisal and report the findings as specified by HUD or the VA if the appraisal is completed for an FHA-insured or VA-guaranteed loan. and assigning appraisals. Written and oral reports are allowed. The necessary approaches to value are completed. summary. It involves the identification of the problem to be solved and making decisions as to the extent of research and analysis necessary to solve the problem and fulfill the client’s needs.

The VA publishes the online manual.efanniemae. and delivering of the appraisal. or to clarify existing policy ­ and requirements. HUD regulations require the appraiser. The most recognized VA program provides for a guarantee of part of a mortgage loan made to a qualified veteran.freddiemac. to hold a state certified residential appraiser credential. Procedures. and complete the appraisal in compliance with USPAP and applicable rules and regulations. HUD 4150. as a minimum. These entities also create and sell securities backed by pools of mortgages held in their name. The Selling Guide is maintained online to facilitate updates and modifications to procedures and policies. . since they are 2 of the top entities to purchase and securitize loans. In other words. as well as a subscription service for updates by email.jsp Freddie Mac Seller/Servicer Guide As another active participant in the secondary mortgage market. ­ www. Freddie Mac has adopted their own set of appraisal requirements and guidelines known as the Freddie Mac Seller/Servicer Guide. and Methods. www. It is logical for these 2 companies to have minimum and specific standards for appraisals used to estimate the value of the collateral for loans. loan originators. Freddie Mac provides an online library of Guide Bulletins at the link above. VA Construction and Valuation Training Guide Another federal government agency familiar to most residential real estate practitioners is the United States Department of Veterans Affairs (VA). Fannie Mae and Freddie Mac are involved in the secondary market for mortgage loans. and the Construction and Valuation Training Guide” to define their specific property and appraisal requirements. M26-2 “Construction and Valuation Policies. The most popular of these is a program to provide mortgage loan insurance for 1-to 4-family homes under Section 203(b). The specific property and appraisal guidelines are available in the Handbook.com/sell/guide/ Interested parties are informed of periodic updates to Freddie Mac policies and procedures via Guide Bulletins. servicers. Fannie and Freddie buy and sell mortgage loans that have already been originated. https://www.efanniemae. reporting.88    Module 6 GUIDES FOR ADDITIONAL REQUIREMENTS Fannie Mae Selling Guide Among the best known and most often cited more specific and stringent standards are those required by Fannie Mae. The VA has adopted minimum requirements for real estate appraisers involved in the preparation of appraisals for VA loans.2 –Valuation Analysis for Single Family One. HUD Handbook Although the Department of Housing and Urban Development (HUD) does not buy and sell mortgage loans.com/sf/guides/ssg/sgpdf. The Freddie Mac guidelines are also published online to accommodate updates to procedures and policies. and appraisers of new policies and standards. Fannie Mae issues periodic announcements to inform sellers. The specific appraisal requirements and guidelines are published in the Fannie Mae Selling Guide.com/sf/guides/ssg/2011annlenltr. their most recognized and accepted programs involve insuring lenders against loss for mortgage loans made under their specific programs and guidelines.to Four-Unit Dwellings. and a specific set of procedures and guidelines for the development.jsp In addition to the Selling Guide.

inventory. the Federal Housing Finance Agency (FHFA). It was amended to include the agency created to replace OFHEO. the New York Attorney General’s office conducted an investigation into mortgage fraud which included subpoenas to Fannie Mae and Freddie Mac seeking information on the mortgage loans the companies purchased from banks. Part of the information necessary to make these decisions is accurate data and analysis concerning market conditions. For example. The Fannie Mae 1004MC was developed to provide the lender with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. The appraiser is expected to carefully analyze seller concessions and third party payments because excessive concessions often lead to inflated property values. detailed a scheme showing First American and eAppraiseIT surrendered to pressure from Washington Mutual to use appraisers who provided inflated property value estimates in appraisals on homes. 2009. or other third party. Use of the form was initially required by Fannie Mae and Freddie Mac on April 1. When appraising condominium or cooperative pro­ jects. Appraisers are also expected to research and report on the presence and extent of foreclosure and real estate owned (REO) sales when analyzing market data and provide comment on the form. but to also provide their analysis and conclusions for the reasons a market is experiencing declining market values. As a real estate broker or sales associate. which became effective and was implemented May 1. including Washington Mutual. or marketing times longer than six months. To ensure the appraiser considered and analyzed the data necessary to draw these conclusions. an over-supply of properties. Home Valuation Code of Conduct and Appraiser Independence Since the savings and loan crisis of the 1980s. Fannie Mae and Freddie Mac expected the appraiser to not only provide the correct information in the appraisal report. Fannie Mae and Freddie Mac developed and introduced the Fannie Mae 1004MC form. announced November 1. the type of concessions to be reported include mortgage payments as well as points and fees paid by the seller. 2009. The subpoenas came on the heels of a lawsuit filed by the Attorney General against First American and its subsidiary Appraisal Management Company (AMC). eAppraiseIT. the Office of Federal Housing Enterprise Oversight (OFHEO). The HVCC is the product of an agreement between the Attorney General of New York (Andrew Cuomo). Additionally. Shortly afterwards. but intentionally broke the law to secure future business with Washington Mutual. their opinions of value tend to reflect the actual condition of the current market rather than the optimism of the boom market. 2007. and seller paid concessions. and to provide a basis for making date of sale and time adjustments to comparable sales. The form gives the appraiser a familiar. Fannie Mae. Fannie Mae and Freddie Mac included a section in the form for comments on the prevalence of seller concessions and the trend in seller concessions for the past 12 months. changes in median listed and sales prices. They require the appraiser to consider and report on seller-paid (or third-party paid) costs. Rather than submit to further investigation and possible prosecution. as does the analysis. such as analysis of pending sales. The form also allows for the appraiser to summarize the data and provide other data. Gathering the data necessary to prepare the form takes time. the prevalence of items such as homeowners’ association fees and guaranteed rental programs must be disclosed. builder. The lawsuit. the probability is high that your experience of the effects of the agreement on your transactions and relationships during 2009–2010 were noteworthy and unpleasant. Freddie Mac. which over time can show a market trend. often referred to as the Market Conditions form. HUD and the VA made completion of the form compulsory. FHFA. and their regulator.Appraising Real Estate: The Effects of the Great Recession     89 important to their financial health for lenders and loan underwriters to make decisions based on accurate and up-to-date information. at that time the nation’s largest savings association. Emails obtained as part of the Attorney General’s investigation showed that executives at First American and eAppraiseIT knew their behavior was illegal. because appraisers are paying closer attention to market conditions. analysis. The agreement was . The major component of that agreement is the HVCC. Many borrow- ers learned of the consequences by paying higher appraisal fees. absorption rates. Freddie Mac. Fannie Mae. For more than a year. capitulated and entered into a settlement agreement with the New York Attorney General’s office. nothing generated more interest in real estate appraisals and real property appraisers than the Home Valuation Code of Conduct (HVCC). and their federal regulator. or additional information. Conclusions drawn by the appraiser are reported in the Neighborhood Section of the appraisal report. structured format to report the data and to more easily identify current market trends and conditions.

the appraiser’s opinion of value must reflect the value of the subject property without concessions. Freddie Mac issued a Guide Bulletin (Number: 2009-18) on July 10. and must have access to the data sources needed to develop a credible appraisal. the means employed by most lenders and loan originators is the use of Appraisal Management Companies. (See definition of market value near the beginning of this module). not regulated by the State of Florida (see update below). Due to problems with appraiser selection and geographic competency.com/sell/guide/ Freddie Mac Appraiser Independence Requirements http://www. An appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market and the supply and demand factors relating to the specific property type and the location involved. Additionally. some AMCs tend to assign a relatively high percentage of assignments to appraisers from outside their area of geographic expertise. The document is addressed to Freddie Mac sellers and servicers and includes specific guidance on the selection of appraisers. More information about Freddie Mac and the HVCC is provided in their online FAQ page. For many. must be competent to appraise the subject property type.freddiemac. The purpose of the HVCC is to prevent pressure on appraisers from those that stand to gain from closing mortgage loans. both Fannie Mae and Freddie Mac adopted new Appraiser Independence Requirements in October. Be aware that just because an appraiser is from out of the area does not mean the appraiser lacks geographic competency. the Government Sponsored Enterprise (GSE) requires the appraiser to be certified or licensed in the state in which the property is located. The low fee paid to the appraiser. 2009.html#12 . Competency encompasses an appraiser’s familiarity with a specific market or geographic area. Additionally. and must be eligible to perform appraisals in that state. and follow the appraiser independence standards initially imposed by the Home Valuation Code of Conduct. According to a recent survey of membership by the National Association of REALTORS® (NAR). http://www. there must be a clear separation of those individuals involved in loan origination from the selection of appraisers. and USPAP mandate the appraiser’s compliance with the competency rule. often results in an appraisal with only a cursory examination of market data and comparable sales. The guide bulletin also states that appraisers must be familiar with the local market in which the property is located. Although there are several options available to lenders to maintain the required separation. The appraiser must have the knowledge and experience to complete the appraisal assignment competently. combined with the quick completion time demanded. This same purpose served as a guide to Congress in the drafting of the Appraisal Independence Requirements amendments to the TILA in the Dodd-Frank Act. Appraisal Management Companies (AMCs) are brokers of appraisal and other valuation services. Florida statute. These companies. 2010. Fannie Mae Appraiser Independence Requirements http://www. at this time. As a result of the low fee split offered to appraisers and the AMC demand for quick completion of the appraisal report. many owned by the largest banks in the nation and.90    Module 6 expected to have a two year term. Specifically. 70% of NAR members reported an increased use of out-of-area appraisers and 55% reported a perceived decrease in appraisal quality. The appraiser must take concessions into account for both the subject property and the comparable sales. but was sunset by the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.com/full/39467807? access_key=key-1uip5f2scu7fyvnf7lhk The two documents are nearly identical. passed by Congress and signed into law by President Obama in July. Additionally. it is not uncommon to find appraisal assignments are being awarded to appraisers at the low end of the range of experience. subsequent to Dodd-Frank becoming law.scribd. assign appraisals to a panel of independent contractor appraisers.com/singlefamily/ appraiser_independence_faq. The AMC retained share of the fee can be as much as 60%. Market-based adjustments must be made to the comparable sales to determine the price the purchaser would have paid for the subject property without the concessions. and assure the appraiser’s independence in arriving at their estimate of value. To assure appraisal independence. Components of the HVCC agreement were incorporated in federal law by Dodd-Frank amendments to the Truth in Lending Act (TILA). 2010 to comply with the standards imposed by the Dodd-Frank Act.freddiemac. the criterion used for appraiser selection by the AMC is the appraiser’s fee and turnaround time. federal law. As noted in the discussion above. The AMC retains a portion of the appraisal fee paid by the borrower for managing the process.

A couple more pieces of the puzzle must fall into place before Floridians start to see the protections offered by HB 303 take effect. Fannie Mae makes clear their requirement that the lender only use an appraiser who has the appropriate knowledge and experience to provide complete and accurate appraisal reports. including those values developed pursuant to a policy of a government sponsored enterprise or by an automated valuation model. In order to help appraisers avoid conflicts or the appearance of conflicts. a broker price opinion. FHA-approved lenders are prohibited from accepting appraisals prepared by FHA roster appraisers who are selected. Fannie Mae issued an announcement and updated their Selling Guide in December. retained. on a preliminary value estimate requested from an appraiser. FHA prohibits substantive communications with an appraiser relating to or having an impact on valuation. that require the registration and regulation of Appraisal Management Companies in Florida. the necessary and appropriate public and private data sources. • I am aware of. public land records.com/sf/guides/ssg/related sellinginfo/appcode/pdf/appraisalguidance.” The borrower must be given written notice of this right. 2010. or compensated in any manner by a mortgage professional or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan. an effort to allow sufficient time for the FREAB to adopt the rules necessary to implement the law. or other methodology or mechanism. or bonus on the opinion. or desired valuation in an appraisal report prior to the completion of the appraisal report. or valuation to be reached. the legislature specified the effective date as July 1. including: • ordering or managing an appraisal assignment by members of a lender’s loan production staff • any person who is compensated on a commission basis upon the successful completion of a loan • who reports to any officer of the lender not independent of the loan production staff and process In addition to the new appraiser independence requirements.S. such as multiple listing services. or demoting or terminating or threatening to demote or terminate an appraiser. • conditioning the ordering of an appraisal report or the payment of an appraisal fee salary. HUD Mortgagee Letters and Appraiser Independence Effective January 1. In . 2011. This benefit has been broadened by a DoddFrank amendment to the Equal Credit Opportunity Act. Mortgagees and third parties working on behalf of mortgagees are prohibited from: • withholding or threatening to withhold timely payment or partial payment for an appraisal report. or requesting that an appraiser provide esti- Florida Law Update–2010 During the 2010 session of the Florida Legislature. Part II. • withholding or threatening to withhold future business for an appraiser. predetermined. HB 303 passed both the House and Senate and was signed into law by Governor Crist.efanniemae. rule making by the FREAB has not advanced. • requesting that an appraiser provide an estimated. FHA Roster appraisers are required to avoid conflicts of interest and the appearance of conflicts of interest. or increased compensation for an appraiser. and may be required to pay a reasonable cost for a copy of some of the reports. Due to other legislative and executive actions. F. The bill included significant amendments to Chapter 475. and have access to. tax assessment records.pdf The HVCC included one specific benefit for the borrower: It specified the borrower is entitled to a copy of the appraisal report three days prior to the closing of the loan. 2010. • expressly or impliedly promising future business. the Mortgagee Letter reaffirms policies announced nearly a decade ago.Appraising Real Estate: The Effects of the Great Recession     91 In response to questions and concerns about appraiser selection and geographic competency. promotions. conclusion. but in no case later than 3 days prior to the closing of the loan. The Dodd-Frank amendment defines appraisals and valuations as “any estimate of the value of a dwelling developed in connection with a creditor’s decision to provide credit. In an announcement Fannie Mae also points out two statements the appraiser certifies as true when signing the Uniform Residential Appraisal Report: • I have knowledge and experience in appraising this type of property in this market area. The appraiser must report neighborhood and property conditions in factual and specific terms and must be impartial and specific in describing favorable or unfavorable factors. The applicant (borrower) is to be furnished a copy of any and all written appraisals and valuations developed in connection with the application for a loan secured by a first lien on a dwelling upon completion. and other such data sources for the area in which the property is located. Additional guidance related to Fannie Mae Appraisal Policy is available online at: www.

2009) and adapt to the new methods. encouraged. obtaining. using. or (ii) unless such appraisal or automated valuation model is done pursuant to written. or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan file. Selection of the Appraiser­­—Assuring Geographic and Professional Competency The HVCC does not prohibit the real estate broker or sales associate from talking with the appraiser. • providing to the appraiser an anticipated. Buyers and sellers are permitted to talk with the appraiser as well. appraisal company. September 18. • allowing the removal of an appraiser from a list of qualified appraisers or the addition of an appraiser to an exclusionary list of qualified appraisers. or any entity or person related to the appraiser. what is the number? • Are you a trainee appraiser? • When did you first obtain your license? • Where are you from? • When was the last time you appraised a property in my neighborhood? • Do you know any of the local long-term real estate professionals in this area? • Do you have access to the local Multiple Listing Service? • After visiting the property how long will it be until the report is delivered to the lender? • Please give me a general physical description to enable me to recognize you at the appointment. estimated. or seller gauge the appraiser’s competency to accept and complete the appraisal assignment. if you have documentation about the poor condition of a residence the appraiser is likely to pick up as a recent sale. The appraiser may have significant experience in the area. and so long as the lender adheres to a policy of selecting the most reliable appraisal. and USPAP. an indication of noncompliance with the Competency Rule. • ordering. buyer. objectivity. and access to data to develop a credible appraisal. or subsequent to the assignment. or other substantive reason for removal. provide a high level of service to customers and clients. Brokers and sales associates can help the buyer or seller assure the appraiser responsible for the assignment has the necessary competence by suggesting they ask a few questions: • What license do you hold. (Source: HUD Mortgagee Letter 2009-28. or • any other act or practice that impairs or attempts to impair an appraiser’s independence. make it available when you meet the appraiser at the property. in itself. Keep in mind the mere fact the appraiser is from outside of the immediate area or travels a significant distance to complete the assignment is not. pre-established bona fide pre. their businesses are significantly affected by changes made by financial institutions. except that a copy of the sales contract for purchase must be provided. the necessary contacts. If you are aware of market data that may be useful to the appraiser. make the appraiser aware of the problems DEALING WITH THE CHANGES AND MYTHS Not only must real estate licensees deal with the results of the recent financial crisis and the effect on the real estate market. improper or unprofessional behavior. appraisal company. during. To survive. The answers will help the licensee. rather than the appraisal that states the highest value. but not limited to: the Truth in Lending Act (TILA). which notice shall include written evidence of the appraiser’s illegal conduct. • providing to the appraiser.or post-funding appraisal review or quality control process or underwriting guidelines. or management company with stock or other financial or nonfinancial benefits. For instance. Brokers and sales associates may provide market data and sales information to the appraiser.92    Module 6 mated values or comparable sales at any time prior to the appraiser’s completion of an appraisal report. Regulation Z. or state licensing standards. and be successful. including. or impartiality or violates law or regulation. used by any entity. without prompt written notice to such appraiser. Communication with the Appraiser The Dodd-Frank Act and the Fannie Mae and Freddie Mac Appraiser Independence Requirements do not prohibit the real estate broker or sales associate from communication with the appraiser prior to. appraisal management company. brokers and sales associates must be aware of all the modifications . or desired value for a subject property or a proposed or target amount to be loaned to the borrower. a violation of the Uniform Standards of Professional Appraisal Practice (USPAP). government agencies and other regulators in reaction.

e. The appraiser’s responsibility is to the client. the higher the amount of the adjustments or the number of adjustments the more likely the comparable sales might not be representative of the subject property. Appraisal Myths and Realities The chasm between real estate brokers. Although these transfers should be considered as relevant market data in the development of the appraisal. A foreclosure or short sale may have condition deficiencies that are not readily apparent. there have often been misunderstandings and myths. Not true. However. the underwriter must consider whether any adjustments are supported and are reasonable. unless the client directs otherwise. and appraisers has existed for quite a long time. Typically. Others appear to have been spawned by the HVCC and condition of the market in this post recession world. The amount and number of any adjustments must also be considered. they should ordinarily be excluded as comparable sales unless it is determined these transactions are the best available. The most useful information is that concerning recent arm’s length transactions of properties similar to the property being appraised.. Not true. Due to the complexities of the real estate brokerage and real estate appraisal professions. The appraiser is engaged by the client. if representational of the market. in making the decision to use a distressed sale. we do not require appraisers to use Real Estate Owned (REO). and certify that the comparable sales chosen are those most similar to the subject property. 2009) FHA Roster appraisers must perform a neighborhood analysis to determine and identify the geographic area that is subject to the same influences as the property being appraised. With respect to comparable sales. foreclosures. However. Because the borrower paid for the appraisal. resale. appraisers must consider their use. and REO properties is provided. and contrast the differences of market impact between the sales in order to provide support for the report’s conclusions (Source: Frequently Asked Questions–Valuation Protocol. The appraiser is required to use short sales and foreclosures as comparable sales. it is imperative that the appraiser perform the necessary due diligence to fully understand the circumstances surrounding such sales and the impact upon the subject’s value and marketability. This myth is best addressed by quoting directly from a Freddie Mac Guide Bulletin and from a recent FAQ addition to the HUD Valuation Protocol: The appraiser’s selection of comparable sales is crucial to providing an accurate opinion of value based on market data. the appraiser must consider the impact these sales have on market conditions. most similar to the subject. i. As a means of pre-emption. etc. foreclosure or short sales. state certified appraiser to provide an appraisal at the time of the listing. The appraiser may discuss the appraisal with parties other than the client. November 2. Although the HVCC requires the borrower be provided with a copy of the appraisal prior to the closing of the loan. Not true. and representative of the properties available to typical purchasers for the market in which the property is located. The credibility of the appraisal will also be improved if documentation concerning short sales. Before relying upon foreclosure or short sales as comparable sales. which include the types of sales found within the market. The appraiser is prohibited by the Confidentiality Section of the Ethics Rule from disclosing assignment results.. Freddie Mac does not have requirements about what comparable sales the appraiser is to use. pre-foreclosures. (Source: Freddie Mac Guide Bulletin 2009-18. It is time to deal with a few of the oldies and some of the newer claims. short sales. The appraiser should attempt to balance the analysis by using more than one sale type. Imposition of the HVCC has been stressful for both real estate licensees and appraisers and has only heightened confusion and contributed to the anxiety experienced by everyone involved in the real estate profession. The appraiser is responsible for selecting comparable sales and. REO and /or estate sales. In underwriting the appraisal. absorption rates. foreclosures. and may assist in pricing the listing effectively. it may be wise to engage a well-qualified. For example. FHA Roster appraisers must fully explain and support the sales used in the appraisal report with a thorough analysis of market conditions. the appraiser may not discuss assignment results (opinion of value) and other confidential information with anyone other than the client or persons specifically authorized by the client. July 10. if foreclosure or short sales are prevalent in the subject’s market.Appraising Real Estate: The Effects of the Great Recession     93 and deficiencies. the appraiser must choose appropriate comparable sales. Appraisers are prohibited from discussing the appraisal with the licensee. including marketing times. Mere payment for the appraisal does not create the appraiser/client relationship. new construction. it is the lender that provides the appraisal. objective third party may help the seller avoid a costly surprise. The opinion of value by a disinterested. 2010) . if the appraiser determines that these are representative of the properties available to typical purchasers for the market in which the property is located. Some have endured for years. most often the lender. the borrower owns it. sales associates. or during the term of the listing. list to sale ratios.

and VA prefer that appraisers utilize the most recent and comparable sales. there are many more myths making the rounds and more will be created as real estate licensees and real estate appraisers struggle with the changes imposed on our professions and businesses. Federal agencies are hard at work drafting rules and regulations to implement the appraisal related sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Some lenders do have a specific requirement for comparable sales to be within one mile of the subject property. A comparable sale within one mile of the subject property is often considered to be similar to the subject in location by mortgage loan underwriters. This characteristic. The Michigan Association of REALTORS has purchased an AMC! What new wonders await us? As always. FHA. the background and reference sources included in this module will assist in sorting the myths from reality. Partially true. Lenders. GSEs. Some lenders do have a specific requirement to only use comparable sales that have sold within the past 4 to 6 months. including location. When the market is appreciating or declining. CONCLUSION Every participant in the real estate market has endured changes as a result of the financial crisis. Hopefully. GSEs. it is an interesting time to be in real estate. Mortgage loan underwriters will require the appraiser to provide a detailed explanation why an older sale is included in the appraisal report. is a guideline rather than a hard rule for most lenders. the more recent the sale. Comparable sales must have sold within the past 6 months. the better indication it is likely to be representative of current market conditions. it is often necessary for the appraiser to include sales with a transfer date more than 6 months prior to the effective date of the appraisal. Partially true. Lenders. more change is in the works. Of course. FHA. Another section of the Dodd-Frank Act will require the Appraisal Subcommittee to monitor each State’s regulation of Appraisal Management Companies.94    Module 6 Comparable sales must be within one mile of the subject property. and appraisals will be subject to some of them. This characteristic is a guideline for most lenders. . In order to provide the most similar and proximate comparable sales. For certain. however. and VA prefer that appraisers use comparable sales that are most similar to the subject property.

Appraising Real Estate: The Effects of the Great Recession     95 .

scientific. b. The license categories for appraisers do not include: a. They are intended to help prepare you for the Final Exam. certified trainee appraisers. Chapter 360 Part II. d. and conclusions in a manner that is: a. Management d. 3. opinion. non-specific. c. d. specialized trainee appraisers. registered trainee appraisers. certified general real estate appraiser. 4. d. d. certified residential real estate appraiser. The answers are found in the back of the book. Choose the best response to each question. 2. . Chapter 470 Part II. certified trainee appraiser. b. The 1990 law that created the Florida Real Estate Appraisal Board is: a. 1. not misleading. registered trainee real estate appraiser. Scope of Work b. vague. Which is not a section under the Ethics rule? a.96    Module 6 M odul e 6 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. Chapter 475 Part II. c. b. c. c. Conduct c. Appraisers who are registered with the DBPR as qualified to perform appraisal services only under the direct supervision of a licensed or certified appraiser are: a. Compliance with Standard 2 requires the appraiser to communicate the analysis. b. Confidentiality 5. Chapter 380 Part II. licensed trainee appraisers.

pest control. state. both for sales and for rentals. Florida Statutes. the Condominium Act. Explain how to differentiate between condominiums. and the like are not subject to the Condominium Act. by Ellen Hirsch de Haan 2. and so on. smoking. 6. 3. Discuss the purpose of the Articles of Incorporation. and rulings of the appeals courts and the Supreme Court of Florida. they are also governed by Chapter 718. 11. And.MODULE 7 Community Associations: A Primer for Real Estate Professionals Learning Objectives Upon completion of the module. it is very important to have at least a rudimentary understanding of the workings of community associations. This module should help you take the extra step and learn more than the basics. and subdivisions. Cooperatives are governed by Chapter 719. Discuss several possible conflicts of interest for real estate licensees who are also members of an ­association. 7. List 3 examples of common elements in a condominium association. employees. Timeshares are governed by Chapter 723. and for situations in which you are managing multiple units or even a condominium or a subdivision. 5. List the requirements for election of board members. local. satellite dishes. and local laws that cover pools. the learner shall be able to: 1.S. there are federal. F. Explain the rights renters may or may not have in an association. Condominiums and cooperatives are also governed by the Florida Administrative 97 . Describe the process for an owner to become a member of the community association. 8. 10. passing on that information to help create a more educated consumer is good for the real estate industry and good for business. the Cooperative Act and homeowner associations are governed by Chapter 720. such as office parks. Describe the screening and approval process of prospective owners and renters. As a real estate professional. and if they are condominium timeshares. docks. Explain the term appurtenance. In addition. elevators. and federal laws. to avoid incurring liability for your customer and yourself. construction. INTRODUCTION The regulation and operations of community associations and common-interest communities are governed by a complex web of governing documents.S. 12. Discuss the purpose of the bylaws of a condominium association. fire safety. 9. security services. Please note that Chapter 718 only applies to residential condominiums. state. Name the Florida statute that governs condominiums. Commercial condominiums. OVERVIEW Condominiums are governed by Chapter 718. Discuss the purpose of the Declaration of Condominium. F. cooperatives.. parking lots. 4.

Since the owner is a tenant in common with all the other owners of units in the condominium. the members of the association own their respective homes. And. Individuals who purchase in a co-op buy a share of stock and sign a lease with the corporation which gives them the exclusive right to use a particular apartment or lot (e. or a subdivision by looking at the housing stock. slip. or each building may be its own condominium. manufactured housing. For example. or storage unit are appurtenances to the unit. for the use and benefit of the members. • There are governing documents that are recorded in the public records of the county in which the home is located. A unit and its boundaries are delineated in the declara- . As stated above. office park condominiums. or storage unit. as well as on guests. Timeshares may also be condominiums. The membership is appurtenant to the unit or the home. is owned by the corporation. and the association owns all of the common area. and recreation associations. There is no such thing as title to a parking space or a boat slip or a storage unit. OWNERSHIP AND THE ASSOCIATION Condominiums Condominiums are known as creatures of the law. with very limited exceptions. villas. He has an exclusive use right to the space. hotel condominiums. This is known as mandatory membership. if the authority to do so is contained in the declaration of condominium. if the unit is in a condominium. the legislature had to find a way to define ownership of a unit on the third floor. however. a cooperative. In a cooperative (co-op). and platted subdivisions. Also. which transfer to the new buyer with title to the unit. which contains a series of rules that define and clarify the laws. the purchaser receives a deed to his unit. the space. the clubhouse and pool may be deeded to the association. the association could hold title to individual units if it forecloses for failure of the owner to pay assessments. They are covenants that run with the land and are binding on every owner and resident of the home. slip. The condominium association does not own the common elements. condominiums and cooperatives are subject to the decisions of the Division of Arbitration of the Florida DBPR. repairing.. The undivided interest in the common elements is called an appurtenance to the unit. • Under the documents. which are mandatory and must be paid by each owner. cooperatives. or storage unit.g. the association has the right to levy assessments. • All owners share a property interest in the community. all of the property. and any combination of these. whether as a tenant in common or in property held by the association on their behalf. And. including the apartments. and so on. it is possible for the association to own property. and an undivided interest in the common elements of the condominium shared with all other owners of units in that condominium. The only way to tell is by looking at the governing documents. and when the home is sold the membership automatically terminates. no individual owner can sell off any portion of the common elements. and replacing common property and operating the association. each owner buys a unit and the undivided interest in the common elements of the condominium. dockominiums. contractors. master associations. The space or slip or storage unit number may be shown on the deed. mid-rise or high-rise apartment building units. You cannot tell whether the community is a condominium. town homes. Associations are also governed by Florida and federal appellate court decisions. a mobile home park that is a co-op). no interest in a common element or limited common element can be transferred separately from the title to the unit. and it is part of the bundle of ownership rights that comes with the fee simple ownership of the unit. with unit week owners instead of unit owners. The Condominium Act provides that parking spaces may be transferred among unit owners. All common-interest communities have four characteristics: • Every owner becomes a member of the community association when they purchase a dwelling. Associations govern a wide variety of entities including mobile home parks. invitees. garden homes. Community associations were created to govern property for condominiums.98    Module 7 Code. Common expenses are defined in the governing documents and in the applicable statutes. The dwellings may be single family homes. slip. There may be multiple buildings comprising one condominium. In a homeowners’ association. A single family home and the lot on which it is placed can be a condominium unit. That is. family. to cover the costs of maintaining. which consists of 4 exterior walls encompassing space which is not on the ground. parking space condominiums. In a condominium. if the unit owners buy out a recreation or amenities lease from the developer. but a unit owner has no ownership interest in the space.

mirrors. be familiar with rental restrictions. pool. and so on. lobby. There may be more than one layer of association that governs a dwelling. In a mobile home co-op park. and so on. The association is not a democracy. repair. initial officers and directors. the shareholders generally own their homes. Under the law. As stated above. the lease is assigned to the new shareholder. and ceiling coverings of any kind. an owner in a co-op owns a share of stock in the corporation. This means the plaster. name and purpose of the association. wallpaper. and the 4 perimeter walls of the individual unit. and the shareholders are responsible for the interiors of their apartments or for the manufactured or mobile housing on a co-op lot. as required by Florida law. GOVERNING DOCUMENTS It is critical that real estate licensees make sure every buyer has a complete set of the governing documents for their home. The homeowners’ association owns the common property. condominium office. or the homeowners’ association. the CDD or STD will be supported by county taxes. or a community development or special taxing district. for the use and benefit of the homeowner. minium association. the building or buildings. the associations are required to maintain sets of documents that can be purchased by a buyer. are within the unit. repair. The condominium is the physical plant. including any and all amenities and facilities. The common elements will consist of all of the condominium property outside of the boundaries of the unit itself. There is one share per lot. and a new share is issued to the buyer. repair. the amenities and facilities. an individual owns their own home and the land on which it is built. regardless of the type of community in which the home is purchased. and replacement of the common property. and instead of levying assessments. The association or corporation is responsible for maintenance. paint. and the stock is returned to the corporation. Or. the elevator. Generally. paint. indemnification of the board. use restrictions. the board operates the association and makes decisions about the maintenance. a master association may also have the right to approve alterations or improvements to homes within the subdivision. through the board of directors. while the co-op holds title to the land on which the home is located. the real estate professional should be familiar with the provisions of the documents that govern review and approvals of purchasers. hallways. seawall. The common property is called common area. and enforces the governing documents. and replace the condominium property and preserve the property values. the roof. shuffleboard courts. wall. including the unit in which he lives. Subdivision or Planned Unit Development In a subdivision. and the land on which they are located. It should be a simple document. a clubhouse. when a homeowners’ association has architectural control authority. the shareholder or stockholder is given the exclusive right to use a particular unit. When a co-op is sold. to maintain. For example. Community development districts (CDDs) or special taxing districts (STDs) are created by the county government. and insurance obligations of units. a master association. He does not own any of the property. tennis courts. and replacement of the co-op property. the unit boundaries are the unfinished surfaces of the floor and ceiling. If the transaction is a sale. This may include the roads. and an amendment provision. The association is the corporation that operates the condominium and is responsible. and there may be some overlap of authority. If handling rentals. and language related to maintenance. The homeowner will be obligated to pay assessments to the other associations or districts as well. the cooperative corporation. The boards of a CDD and STD will be elected as part of the general elections within that county. Each of the associations will have its particular obligations. there may be a recreation association. Each association operates through its board of directors. manager’s apartment. stating the date of incorporation. wood. The occupancy arrangement is formalized with a lease agreement. Cooperatives A cooperative is a corporation that owns all of the property. . parking provisions. including tile.Community Associations: A Primer for Real Estate Professionals     99 tion. the documents are available through the county public records. and popcorning. it is a representative republic in which the members elect the board. With the share of stock. carpet. floor. entry gate or monument. maintenance sheds. repair. In addition to the condo- Articles of Incorporation This document creates the association with the Florida Division of Corporations. Like the federal and state governments.

storage units. A conversion is likely to be an older building. and to regulate use of the property. For condominiums and co-ops. maintenance. notice requirements. Both the Condominium and the Cooperative Acts Cooperatives • Proprietary or Master Lease. and the like. electrical. And. Conditions and Restrictions which has the same function as the declaration of condominium. • Articles of Incorporation • Bylaws • Rules and Regulations If the property is a condominium. unless they own more than one unit. Rules and Regulations Rules and regulations are promulgated by the board of directors. For a homeowners’ association. and the buyers may have inherited structural. It contains the rights and responsibilities language­ —who maintains what. and its own amendment provision. and replacement obligations. it is also important to know whether it is new construction or has been converted from a previously existing apartment building. or unless there are not enough eligible candidates to fill the vacancies on the board of directors. in conjunction with the association’s annual meeting. board of directors authority regarding processing of sales and rentals.or herself. termination provisions. boat slips. powers and duties of directors. which are not immediately obvious. Qualifications of directors are found in the association bylaws. and information on amenities. • Articles of Incorporation • Bylaws • Rules and Regulations . Because the Condominium Act contains a great deal of procedural regulation of condominium operations. but can vote for other matters through the proxy. procedural requirements for and limitations on alterations and improvements. there are usually conflicts between the original bylaws and the current law. and so on. Most associations require a director to be a record title holder of some interest in the unit or home. This is the document that creates or declares the property as a condominium. A person who holds a power-of-attorney has limited rights. attend and speak at unit owner meetings. on an annual basis. he/she is automatically off the board. It is not necessary to amend the bylaws every time the law changes. A person holding a power-of-attorney cannot vote in the election. Homeowners’ Association • Declaration of Covenants. if a director is 90 days or more delinquent in any monies owed to the association. and is deemed to be automatically incorporated into the bylaws. the elections are governed by the provisions of the governing documents. If the power is specifically set forth in the power-of-attorney. It may also contain use restrictions. or plumbing problems. and with a proxy to him. co-owners cannot serve on the board at the same time. and possibly in the articles of incorporation. elections are governed by the law. quorum requirements for meetings. In a condominium. who owns what. including the number of directors. This document fills the function of the condominium declaration for a co-op. detailed information on assessments. duties of the officers. to clarify and define provisions of the governing documents. parking spaces. Condominiums • Declaration of Condominium. A person to whom a power-of-attorney is given cannot run for the board. the law will supersede the bylaws’ language. repair. the person may attend and speak at board meetings. In those cases. who insures what—as well as the legal description of the property governed by the association. It will include definitions of terms. and because it can be changed by the legislature on an annual basis. as the changes will apply regardless. A conversion has very different developer warranties and financial reporting requirements than those for a new building. easement rights. • Articles of Incorporation • Bylaws • Rules and Regulations Election Process The board is elected by the members. but can lead to costly repairs in the future. ASSOCIATION OPERATIONS The governing documents and the statutes all provide that the business of the association is to be conducted by the board of directors.100    Module 7 Bylaws This is the procedural manual that governs the association’s operations.

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provide that the first notice of election and annual meeting goes out at least 60 days prior to the date of the annual meeting. The owners have 20 days in which to return their Notice of Intent to be a candidate to the association office. For a condominium, the owner must also sign and return a Candidate Certification as provided in the law. Between the 40th and the 35th day prior to the date of the annual meeting, the association may accept resumes and information sheets about candidates, no longer than one side of an 8-1/2 x 11” sheet of paper. Then, the association prepares the ballot containing the candidates’ names, in alphabetical order, with the last name first, and sends out the second notice of election and annual meeting package (which includes the notice, a form of proxy, the ballot for election of directors, and an inner and outer envelope for returning the election ballots), at least 14 days prior to the date of the meeting. All ballots for the election of directors are returned to the association sealed in an inner envelope, which is then sealed in an outer envelope. The outer envelope must be signed by the unit owner or shareholder. The election occurs prior to the beginning of the annual meeting by motion from the membership. Tallying of votes can continue while the business of the meeting is conducted. Any owner who wishes to watch the opening of envelopes and the tallying of the votes is permitted to do so, under the law. There is no quorum requirement for the election. However, in order to have a valid election, at least 20% of the ballots must be returned. Once the ballot has been received by the association, it cannot be rescinded. There are no proxies used for the election of directors. Proxies are used to establish a quorum at the annual meeting, and for any voting that is not related to the election of directors. Proxies are revocable up to the time of the meeting. It is possible that a ballot for the election of the directors will be invalid, which means it cannot be counted. Ballots (and the inner and outer envelopes in which they arrived) that are invalid must be set aside, and marked invalid or disregarded. The reason for invalidation must be written on the outside of the envelope. All envelopes and ballots, including those that have been disqualified, must be kept as part of the official records of the association for a period of one year from the date of the annual meeting and election. According to the DBPR Division of Florida Condominiums, Timeshares, and Mobile Homes rules and the Condominium Act, any of the following events will result in an invalid ballot:

• if the owner voted for more candidates than there are seats to be filled Please note: An owner may vote for one candidate for each vacant seat. An owner may also vote for less than the number of candidates to fill all seats. For example: casting only one vote on a ballot (known as bullet voting) is legal and valid. The one vote on the ballot is counted. • if the outer envelope is not signed or does not show the address of the unit • if the outer envelope is missing • if there is more than one ballot in the same inner envelope Please note: • The association cannot require a person to sign his ballot. But, if a person does sign it, it will not invalidate the ballot. An owner can voluntarily waive his/ her right to a secret ballot. The ballot is eligible to be counted. • Also, the association cannot require a person to sign his inner envelope, but a voluntary signature by an owner will not invalidate the ballot. • Even though the law does not permit individuals to be elected as write-in candidates, a ballot is not invalid if there is a write-in candidate on it. Disregard the write-in candidate (do not count it), but count the votes for any other candidates indicated, if the ballot is otherwise in compliance with the law. In the event of a tie for the last seat, there will be a run-off election, which requires a special meeting of the members, 14 days advance notice, a ballot showing only the two candidates who are tied for the position, and use of the two envelope system to cast the votes. If a vacancy occurs between elections, the board appoints to fill it. The board is not obligated to appoint someone who previously ran for the board, or the next highest vote getter.

Open Meetings
Under the law for all types of community associations, all actions taken and decisions made by the board must be made at a duly-called meeting of the board at which a quorum of directors is present, and is open for the attendance of the members who wish to do so. The exception to this rule is that the board may meet with the association’s legal counsel to discuss possible or pending litigation, in a closed executive session.

102    Module 7

Competitive Bids
When the association is considering a contract for goods or services, it is required to obtain competitive bids under certain circumstances. In condominiums and co-ops, if the cost of the work is in excess of 5% of the total budget including reserves, then competitive bids are required. For homeowners’ associations, if the work exceeds 10% of the annual budget including reserves, then competitive bids are required. A competitive bid means more than one. There is no law that requires an association to obtain 3 bids In case of emergency, or if there is only one reasonable vendor within the geographic area, the association can dispense with the bid process.

regular basis for leaks, mold, and so on. Alterations and improvements are another concern for units and homes governed by community associations. The governing documents generally address procedures for obtaining the approval necessary for alterations or improvements to the units/homes and the common elements or common areas. There is often a percentage of membership approval required for changes to the common property, and sometimes for changes to the exterior of the unit as well. A homeowners’ association is likely to have architectural control over all exterior changes, with notice requirements and other language requiring copies of plans, as well as specifications regarding particular types of changes (color of the home, setback requirements, prohibition against storage sheds, and so on). For condominiums, if the governing documents have no language addressing material alterations and improvements, the approval of 75% of the members will be required. In co-op’s, if the documents are silent, 2/3 of the shareholders must approve alterations and improvements. As mentioned previously, documents for homeowners’ associations have detailed provisions that address the issue.

MAINTENANCE, REPAIR, AND REPLACEMENT
The boundaries of the unit or the home will be defined in the governing documents. So will the scope of each owner’s responsibility to maintain, repair, and replace the unit. Generally, condominium unit owners and shareholders in a co-op are responsible for everything from the surface of the 4 perimeter walls inward, and from the unfinished ceiling down and the unfinished surface of the floor up. Generally, the condominium unit owner is responsible to maintain, repair, and replace all unit doors, windows, glass, and screens; appliances; floors and floor surfaces; all interior surfaces; floor, wall, and ceiling coverings; and plumbing and electric within the unit; as well as all furnishings, fixtures, and personal belongings. They will also be responsible to repair and replace their air conditioning equipment, wherever it is located. Owners of homes within a homeowners’ association are responsible for their entire homes and the lots on which the home is built. However, the documents will provide information on whether the association takes care of the lawn and landscaping, and any portion of the exterior of the home, such as painting or roof repair. If an owner fails to maintain his home, as required by the documents, the association has the ability to bring legal action to enforce the requirement. In some cases, the association has the ability to do the work, and charge it back to the homeowner or unit owner. If managing a unit or a home for an absentee owner, the real estate licensee will need to know the scope of the owner’s maintenance requirements, and be able to differentiate those obligations from any that belong to the association. And, if a home is unoccupied for any period of time, it will need to be inspected on a

INSURANCE AND WHO PAYS FOR UNIT DAMAGE
One of the biggest hazards of living in a multi-family residential community involves water damage from another unit or from plumbing, or windows from wind-driven rain or from rising waters. For condominiums, co-ops, and homeowners’ associations, the governing documents may provide for mandatory insurance coverage of the apartments and homes by the owners. If there is a mortgage lender involved, the bank will require the owner to maintain such insurance. Under the condominium law, the association insures windows, regardless of who is responsible to maintain and repair them under the governing documents. So, if the owner wants to replace unit windows, it will be that owner’s obligation to pay for the replacement. Also, the new windows will have to match the other windows in the condominium, or meet association specifications. However, in the event of replacement of the windows due to catastrophic loss, such as a hurricane or a fire, the replacement is the association’s obligation, and the association’s insurance will cover it. Any deductible for such a project is a common expense payable by all owners in their pro rata shares. Who is responsible to repair a condominium unit when it is damaged by water intrusion?

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• In 2004, the Arbitration Division decided the case of Los Prados Condominium Association, Inc. v. Jeffrey S. Lemley, Arbitration Case Number 03-6092. The issue was whether the association was liable for damages to a unit when water penetrates from the common elements. The holding was that, absent negligence on the part of the association in maintaining or repairing the common elements, and the finding that the negligence was the proximate cause of the damage, the association has no liability for unit damage. • In 2006, the Arbitration Division rendered an opinion In Re Petition for Declaratory Statement Plaza East Association, Inc. The Declaratory Statement differentiates between the obligation to maintain, repair, and replace and the obligation to insure. In this case, the owners were required to maintain, repair, and replace their unit windows, but general maintenance was not an insurable hazard. The declaration in Plaza East provided that damage to the condominium property which occurred because of a catastrophic event that is covered by insurance is the obligation of the association to repair, as a common expense. The deductible is also a common expense. This was true regardless of who was obligated to maintain, repair, and replace the windows under ordinary circumstances. • In 2006, the Arbitration Division rendered an opinion In Re Petition for Declaratory Statement Allstate Floridian Insurance Company. In this case, there was water damage to the interior drywall within the unit caused by the unit’s hot water heater. Section 718.111(11)(b), F.S. provides that the association is required to insure property within the units as initially installed, which was held to include interior partition wall drywall. This Declaratory Statement went on to provide that it is still necessary to determine what duty the individual owner had regarding the damage, the cause of the damage, the location of the damage in relation to the cause of the damage, the liability for the cost or repair, and who must make the repair. Ultimately, the order provides that the association was obligated to insure the interior drywall in the units, but not the wall coverings. And, the issues of negligence, liability, damages, insurance coverage, and repair were determined to be matters for a court to decide. Where does this leave the association and the unit owner at this point? Two of the cases apportion responsibility depending upon whether there was negligence on the part of the association or the individual unit owner. The third case determined that maintenance and insurance are separate issues, and did not address negligence or liability at all. These 3 decisions contain conflicting advice and leave the issue open to interpretation.

At this point, the drywall is considered to be ­ initially installed and therefore, covered under Section 718.111(11)(b), F.S., and so it is the insurance obligation of the association. Any deductible is common expense. If a particular unit owner is negligent and damage ensues to his own unit, we look to the findings in Los Prados for guidance. The provisions of Section 718.111(11) which provide that the association is not responsible for wall, floor, and ceiling coverings, etc., applies. Absentee owners are often reluctant to spend the money on insurance for a second or seasonal home or unit. They are self-insuring their units. However, as of this writing, the Condominium Act does require every condominium unit owner to have insurance on their unit, and gives the condominium association the ability to purchase that insurance and charge the cost back to the unit owner. Failure to pay the charge gives the condominium association the power to lien and foreclose to collect. Given the aging of the infrastructure and the originally-installed appliances in many of the condominium and co-op buildings, the chances of water damage to the unit interior from another unit gets higher every year.

ASSESSMENTS
Assessments are levied pursuant to the annual association budget, and are required to be sufficient to cover all known or anticipated expenses for the coming year. They may be due monthly, quarterly, or annually. Annually, prior to the end of the fiscal year, the board of directors or the budget committee put together the budget, which is then formally adopted by the board at a duly-called meeting. It is necessary for the association to send out notice to the owners at least 14 days prior to the date of the board meeting at which the budget will be adopted, advising that the budget will be considered and adopted (date, time, place). This is true even though the budget is adopted by the board, without a vote of the membership. The notice also includes a copy of the proposed budget for the members to see. The members can then attend the meeting and ask questions or otherwise give input, prior to the budget’s final adoption. The remedy for failure to pay the assessments is foreclosure, and every type of association has the power to take title to the home if the owner does not pay what is due and owing. In addition to the budgetary assessments, boards have the power to levy special assessments to cover unanticipated or nonrecurring expenses. The board has the same remedies available to collect special assessments.

In addition. rather than use restrictions. rules that regulate guest occupancy of a unit can be adopted. Examples include policies that regulate: • member participation in board and membership meetings • the right of a member to have access to the official records of the association . 309 So. the association would send a letter directly to the tenant. Inc. definition of terms used in the documents. 2010. a membership vote. Norman. it is necessary to determine the scope of the board’s rule-making authority. In addition. as provided in the declaration of condominium. Rule-Making First. What can be handled with a rule. and all unpaid assessments.2d 1143 (Fla. as opposed to the common property. • Use restrictions in the declaration have a presumption of validity because the law requires disclosure of the declaration’s restrictions to all buyers of units and homes. Poor. use restrictions contained in the declaration are not subject to a reasonableness standard. and any changes to the declaration require advance notice. There are still a few documents around that require membership vote on rules. Under the laws. It can apply to cable television services. and the like can be addressed through the rule-making process. Policies and Procedures Boards also have the authority to adopt policies and procedures regarding the operation of the association. or by-laws and those set forth in a set of rules and regulations. it can only be changed through the amendment process. USE RESTRICTIONS When handling rentals for the home or unit owner. The suspension does not apply to access to the unit or home. 448 So. and copy the owner. all community association laws provide that the board of directors can require a renter to pay his/her rent directly to the association. the association board has the authority to suspend his/her use rights for common elements/areas and recreational amenities. late fees.104    Module 7 Effective July 1. In a homeowners association. There may be other restrictions contained in the documents. you will want to arrange for the assessments to be paid out of the proceeds of the rent and be sure the owner of the unit or home understands the legal responsibility imposed on the tenant under this law. with a copy to the tenant. regular and special. this is contained in the governing documents. you cannot adopt a provision that provides that ground floor units can have 2 cars. if the owner becomes delinquent during the term of the lease. although they cannot be against public policy or in violation of any law. For example. Basically. or to utilities. lease. restrictions on leasing require an amendment approved by the membership. There are some differences between the restrictions contained in the declaration. and then fourteen days’ notice must be sent out to the owner via regular mail or hand delivery. requiring that the rent be paid to the association until the account is brought current. as well as those of any tenant. and recordation of any change in the county public records (Beachwood v. • Also. But. attorneys’ fees. 4th DCA 1984). For example. prior to the suspension. 4th DCA 1975). use of parking spaces. and second floor units are limited to one car (Hidden Harbour Estates.2d 180 (Fla. As a real estate professional. with a vote and approval of the requisite percentage of association members. The question is whether the board of directors has the authority to adopt and amend rules and regulations for both units and the remainder of the property outside of the units. Clarification of documentary language. approval by a certain percentage of the members. court costs. • Restrictions in the declaration or lease cannot be arbitrary in their application. The law contains requirements for notice to members if the rule relates to use of the home. as well. if an owner is delinquent for 90 days or more. the owner has a right to a hearing. giving the new owner notice of the limitations of his or her use of the property. Generally. and what requires an amendment to the governing documents? If the use restriction is contained in the declaration or the bylaws. substantive rights and express language of the documents must be addressed through the amendment process. v. regulation of behavior. even though the association does not own the unit. This would cover interest. If the tenant does not comply. There is no hearing required for condominiums or cooperatives. policies address procedural rights. the association has the direct authority to evict that tenant. there may be board-made rules and regulations and policies and procedures which govern use and occupancy of the units and homes. Use restrictions may be contained in the declaration (or master lease) and/or in the association bylaws. to avoid problems when managing a rental. The action is taken by the board at a board of directors meeting. you need to understand the use restrictions contained in the governing documents. without an amendment to the declaration being necessary.

it will create loopholes. at least 14 days in advance of the board meeting at which the rule will be discussed and adopted. • If a rule is too broad or too vague. However. and sometimes rules and restrictions have outlived their usefulness. and involve them in the process. • Under the Condominium Act. at a duly-called meeting of the membership. verify the violation. regardless of the number or frequency of previous guest visits to a particular unit. or is the problem related to only one particular owner. provide definitions of terms. It must be related to a legitimate objective or power that is reserved to the association.. even though the membership is not voting on the rule. (This is the concept of grandfathering. At that time. sometimes an amendment to the documents will be called for. it is a new circumstance. The only way to change a right is to adopt an amendment to the governing documents. tenant. rules made for special interest groups or rules that only apply to new owners are invalid and unenforceable. just the 48-hour posted notice as for any other board meeting. or do not reflect lifestyle changes over the years. happiness. expand and amplify documentary provisions. • If a rule is too narrow. For example.) • Rules must be duly adopted at a meeting of the board of directors at which a quorum is present. How in the world would they be able to determine who had flushed the toilet? This rule is not enforceable. rather than using rule-making to control the behavior.) • Rules must be reasonably related to a need or a problem within the community. any and all changes to those rules must also be recorded.g. and cannot take away a right that is either specifically granted or not prohibited by the documents. and that is a reasonable rule. Norman) • Rules must apply to all owners/members. it should relate to the health. the remedies provided in the documents or the law should be investigated. and the guest occupancy will be subject to new regulations. nor can a rule contradict a right which is reasonably inferable from any of those documents. • Rules can clarify rights. • Rules cannot create 2 or more classes of owners. And.M. . until they are replaced. if the board is making a rule regarding the use of a unit (e. people are more likely to comply with rules if they have had a chance to express their opinions and feelings about them. by approval of the number of members necessary to amend. rules cannot be drafted that will change in any way a right that is expressly set forth in the declaration of condominium. (Rules regarding common elements do not require the 14-day notice. It is always a good idea to have a workshop for the members to attend. the articles of incorporation. There will always be something you neither thought of nor imagined. and enjoyment of life of the members. Also. when a guest arrives after the new rules are adopted. (Hidden Harbour Estates. anyone who has window shades that are a different color when the rule went in to effect is allowed to keep the shades. the board could adopt a specific rule that allows window shades that show from the outside of the building to be white but no other color. As another example. rules do not have to be recorded. Inc. • In addition. It is too easy to punish the good guys as rules often have unintended consequences. Those types of rules may be found unenforceable if they are challenged. According to psychological studies. the board has to be able to monitor behavior. a copy of the actual rule language must be sent to every owner. or the bylaws. Accordingly. or attempts to be too comprehensive. v. the white shades could be required. in the case of a violation of a guest restriction. any condition that exists in violation of the rule at the time the rule is adopted is considered to be grandfathered and must be allowed to continue to exist. it is best to avoid lists of do’s and don’ts.Community Associations: A Primer for Real Estate Professionals     105 Rule-making Guidelines • Under Florida case law. and 7 A. Once the rules are recorded. or guest in one unit? If the answer is that the problem is not general or wide-spread. to get their input. no one will read a 35-page rule book. and can be promulgated in follow-up to express language in certain provisions of the documents that provide for the board to make rules regarding a particular use or procedure. The rules must apply to every owner and resident at the condominium. enforcement of the new rules is only possible for violations that occur after the time the rule has been adopted. and consistently enforced against all residents within the community. and must be uniformly. In other words. For example. and enforce the rule for it to be valid. but the parking lot is full of SUV’s and pick-up trucks. And. unless the original set of rules was recorded. timely.M. Accordingly. and once the rule has been approved. before enforcement of the rule can begin. For example. an owner or a resident cannot determine what exactly is expected. does it need to be modified? • As mentioned above. Documents and rules should be reviewed periodically and up-dated or purged as appropriate. even if they do not actually like the rule once it has been adopted. • Is a rule the best way to deal with the problem. as it is impossible for the board to think of every possible contingency. a high rise community of seniors passed a rule that prohibited the flushing of toilets between the hours of 10 P. once adopted. That is. • Rules cannot conflict with any laws. • Is there already a rule or a document provision that addresses the issue? If so. a rule regarding guest occupancy of a unit) then the board must send out notice to all of the owners. Also. a rule cannot change the actual language of any of the governing documents. there may be a no trucks restriction in the declaration.

e. The task is further complicated by the fact that there are some statutory requirements. a screening committee and board that accept an application and a screening fee. Discrimination is not always a clear-cut matter. occupants. Therefore. All of these restrictions affect who can be put in the unit. guests. which will affect the scope of any board-made policies and procedures. Why have a background check and the screening interview? As a board member. and single-family occupancy requirements. rather than in the minute book. financial and character Types of Restrictions Restrictions in the governing documents and the rules and regulations may include restrictions on types or number of pets permitted. The application should include family composition (who will be residing in the home). minimum or maximum length of rentals. to protect the welfare and well being of the residents in the association community. renters. without specific guidelines. In light of developments in the law governing occupancy of housing.. may have breached their fiduciary responsibilities. preferential treatment). and to enable copies to be made for new buyers and/or renters. There may be guest restrictions. If a renter or a guest fails to comply with the documentary restrictions. or even prohibitions against having pets. and terminate the lease for a rental. Although the authority to screen and approve is granted to an association board in the association’s governing documents. no motorcycles or trucks). For a homeowners’ association..106    Module 7 There are also laws that regulate some aspects of member participation and access to official records. What are appropriate procedures and what limitations are there on board actions? The board of directors should establish basic guidelines for its screening committee to follow when reviewing resale and rental applications. The board and/or the committee should uniformly review all applicants using the same procedures. and some court cases that could have an impact on the ability to disapprove. Rental restrictions may include the number of rentals per year. they must be aware that many counties have local ordinances that also prohibit discrimination because of someone’s political affiliation or type of employment. and treatment to avoid claims of discrimination. for ready and easy reference. renters. the screening interview is a perfect opportunity to acquaint a prospective resident with the documents and any occupant responsibilities or restrictions on rights and use of the property. In addition. The applicant screening procedure is an important aspect of community living. prior residence history. Basically. Copies of adopted policies should also be distributed to the members. prior to occupancy. from time to time. considerations. including owners. the association can take legal action to have the renter or guest removed from the unit. limits on the number of people who can reside in the unit/home. before the screening process can be initiated. Every occupant of a dwelling is bound by the restrictions. or other transfers. Every association should have a comprehensive application form available. the community’s governing documents may include or be amended to include a review and approval procedure. Also. No director may act in any manner that endangers the health and welfare of the residents. Review and Approval of Sales and Rentals The screening and approval of prospective owners and renters is a complex and involved process. The Florida Condominium and Cooperative Acts provide that the association documents must contain the authority to approve or disapprove transfers and conveyances and the right to charge a fee in connection with this process. there are potential dangers inherent in the exercise of these rights by the association and ample opportunity to run afoul of the federal housing and discrimination laws. Both rules and policies should be maintained in a separate binder or book. it comes down to allowing some to have benefits that others are not afforded (i. and contractors who are doing work in the dwelling. types of vehicles that can be parked (e. There may also be parking restrictions. each director has a fiduciary responsibility. the language can be fairly vague and general. review and approval of all rentals by the board of directors.g. The screening committee must be fully aware of the federal and state laws and any amendments thereof that prohibit discrimination in housing. but do not diligently act to check out new residents. Many condominium and co-op community associations have provisions in their documents giving the association board the right to screen and approve or disapprove prospective purchasers. as well as to protect the property values. a legal position of trust. and whenever there are changes or additions to the last set. . These provisions may also include the right to charge a screening or transfer fee to cover the costs of a background investigation. as required. including a limit on the number of cars that can be parked on the premises.

The owner of the home should authorize a separate background check for any prospective tenant. under the same terms and conditions as those set forth in the original deal. Is the applicant really employed there? Is it a legitimate business? I know of one case in which the applicant wrote that he was the vice president of a company. reference materials. • Character references.2d 1033 (Fla. and resources to obtain the information necessary to effectively screen applicants. if the buyer is getting a mortgage through a financial institution. Most banks will not give private individuals financial information. training. as a receipt that they have received the rules and as evidence they have completed the application. they may cooperate with licensed investigative agencies. the association is usually hard pressed to reject an applicant on the basis of a credit report. then the association has to reconsider the application. and the sale or rental should not be processed. In the State of Florida. If you are conducting a background check on behalf of a unit or homeowner. A set of the current rules and regulations should be attached.116(4). for how long. techniques. in order to be able to turn down an applicant. and applicants should sign this application form. As an agent for the owner of the home/unit. Under the federal fair debt and credit reporting laws. since there is no credit/creditor relationship between the applicant and the association. therefore.. The association documents usually include the time frame by which approval or disapproval of a transaction must be completed. If the documents are silent on the number of days.Community Associations: A Primer for Real Estate Professionals     107 references. anyone can operate such a business without any experience or knowledge. therefore. which include holidays and weekends. 4th DCA 1979)] . experience. the documents must provide that the association has a right of first refusal. more than 30 calendar days may be deemed unreasonable. Has the applicant lived anywhere other than places he listed on the application? If he did.e. since they will have the time. he is already going through a thorough financial review. and that the applicant agrees to it. without having to provide an alternate applicant): • If the owner of the apartment is delinquent in any monies owed to the association. pets. 374 So. if the owner pays all sums outstanding. there are certain situations under which the association can disapprove of a prospective applicant. training and experience are required to obtain a private investigator’s license. Waters. it is returned immediately to the applicant. There must also be affirmative language disclosing that there will be a background check. However.. under the statutes and the Florida case law. If the application is incomplete or the screening fee is not included. with some very narrow exceptions. In a purchase transaction. the person to whom you are speaking is the landlord or someone covering for the applicant? The current landlord may even lie to you to get rid of the applicant. Keep in mind that the association’s background check is not disclosed to the owner of the home/unit. This means that the association has to find an alternate buyer or renter. These days are calendar days. That is. Do you know if. or qualify for the sale. and a summary of the major use restrictions in the association documents. when he was actually a janitor. There are a few. you will want to assist in obtaining sufficient financial information directly from the applicant to ascertain that they can pay the rent. you may not be able to trace real residential behavior. In Florida. etc. The owner remains responsible for all outstanding financial obligations due to the association. Section 718. It is a good idea to use a professional investigative company to perform the background check. such companies must either be licensed private investigative agencies or operate under the sanctions of the Federal Fair Credit Reporting Act. why are they moving. etc. without having to exercise a right of first refusal (i. v. • Banks.? Are they related to the applicant in some way? Be careful not to ask any questions prohibited by the federal or state laws. look for a company that has both. children. provide a legal buffer between you and the applicant similar to a relationship between a bank or retailer and a credit bureau. in order for a board of directors to have the ability to review and approve sales and rentals of units within a community. when seeking the services of an investigative agency. An association is not permitted to require a credit report for a rental situation. How do they know the applicants. however.) [Florida Statutes. Pine Island Ridge Condominium F. (Of course. They can also. The application must be fully completed. look carefully at the information you are receiving and watch out for the following pitfalls: • Landlords. • Employers. • Credit report. The application may include a brief listing of the requirements for applying to purchase or rent. or to you as the real estate professional for the transaction. the rental or sale of the unit or home can be disapproved. in fact. very specific grounds for association disapproval of prospective buyers and/or tenants. in effect. expertise. The fair debt and credit laws mandate a contract with specific statements regarding legitimate requests for information and confidentiality of report information.

And. or replacement of the common property. repair. familial status. Department of Housing and Urban Development (HUD). so that there must be at least one person 55 years of age or older in each dwelling. Some association documents or rules prohibit the use of lock boxes. and the community is senior housing. and no children under the age of 18 may be permanent occupants. the association does have the authority to disapprove the rental of an apartment to a person who is a registered sex offender. you have to look at the severity of the crime. Rejection on the basis of criminal history and prior residential history is reasonable.. A misdemeanor is generally not sufficient grounds for disapproval. a tenant cannot refuse access to the unit if the board needs to investigate a leak. provided the history is relevant. . if the basis for the disapproval is reasonable and nondiscriminatory. the association can bring legal action against the owner to force the removal of the unapproved occupant.2d 112 (Fla 2nd DCA 1977) Basically. Other than that. If the owner does not get approval for the rental. Mantz. or if there are no pets allowed. should consult with legal counsel if there is a situation regarding past criminal activity. if none of the prospective residents is 55 or older. as the real estate professional. 342 So. • If the proposed tenant or buyer is or has been in violation of the condominium documents. it was necessary to have a minimum of 80% of the units/homes occupied by at least one person who is 55 or older. or otherwise fails to comply with the documentary and policy requirements for processing a sale of an apartment. the board is bound by the limitations set forth above in grounds for disapproval. national origin. What goods and furnishings a person chooses to move in to an apartment is not the business of the association and is not grounds for disapproval. Senior Housing Occupancy and Fair Housing Laws Communities may be designated as housing for older persons. the debt to society has been paid. and the language does not have to be an amendment to the documents. It is illegal to discriminate based upon race. then it may not be a problem for the community. the association is not obligated to purchase or find an alternate purchaser or renter for the apartment.S. Again. the criminal event happened 10 years ago. If. and so on. and the applicant has 2 large dogs. sex. or handicap. religion. v. etc. as well as the board of the association. (Coquina Club. then the board has the ability to disapprove the tenancy. but the owner moves the person in anyway.108    Module 7 • If the prospective tenant or buyer provides information on the application form that is a material misrepresentation. Access must be during reasonable times. an association may disapprove a lease or prospective tenant. For condominiums and cooperatives. and you. and should be arranged in advance (except in case of emergency). color. The evaluation occurs at the time the application is filed. it is unreasonable for an association to reject a lease application based upon the tenant’s credit history. Each situation however. • The Federal Fair Housing Amendments Act of 1988 and the Housing for Older Persons Act of 1995 were initially adopted and then supplemented by the rules adopted by the U. for assistance in making the determination of whether it is grounds for disapproval. creed. the association can bring legal action to set aside the sale. to show it to a prospective buyer or renter. the owner may have to give advance notice to those who monitor entry to allow the unit or the home to be shown. serves their time and is released. It is important to determine whether there are restrictions on how you gain access to a unit. if any of these limitations are the basis for the disapproval. the association has a right of access to the units in case of emergency. To qualify as housing for older persons. The board of directors has the ability to incorporate the grounds for disapproval into the board-made rules. or secured access buildings. for example.e. If you are looking at a criminal background check. For example. or a source of noise or nuisance smells. including those who might already own a unit in the condominium. the concept is once a person is convicted. and there has been no problem since. if the board cannot verify prior or current employment or most recent address) then the board has the right to disapprove the tenant or the buyer. and the person can get on with life. Generally. and impacts on the occupancy. Inc. or designate an area on the common property where all lock boxes must be stored. or for matters related to maintenance. This right applies to all tenants and purchasers. since the credit history of a prospective tenant is not relevant. or the renter is disapproved by the board. For example. Again. (i. and whether it materially impacts on living in a multifamily residential community. before taking occupancy of the unit. If an owner does not get approval for the prospective sale. In gated communities. should be looked at on a case-by-case basis as the information is received. when and how long ago it was committed.

If a unit is rented. day care centers.Community Associations: A Primer for Real Estate Professionals     109 In addition.) • Any person over the age of 18 can purchase and/or own a unit. by reason of such disability. The laws affect occupancy. services. HUD Rules. including educational institutions. according to the Code of Federal Regulations. privileges. In essence. and obtain a copy of proof of age from at least one person 55 or older in each unit/home. courts. ACCOMMODATION FOR HANDICAP AND THE FEDERAL LAWS. 1 (4-1-92 Edition). no children under the age of 18 are permitted to permanently occupy any unit. as long as the unit is not the permanent residence of the individual who is under 55. and to strictly enforce the provisions of the governing documents regarding occupancy in compliance with the senior housing laws. or activities of a public entity. children under 18 cannot be permanent residents. the Department does not believe that the proposed rule can fairly be characterized as establishing a 20% “set-aside” for persons under 55 years of age. Today. Relevant language includes: Section 12132. 24 CFR Chapter 1. If a board allows new occupancy without at least one person 55 or older in residence. Inc. then there must be at least one tenant permanently occupying the unit who is 55 years of age or older. among other decisions. which has jurisdiction over condominium and cooperative associations in Florida. or be subjected to discrimination by any such entity. Discrimination Subject to the provisions of this subchapter. be excluded from participation in or be denied the benefits or the services. and heirs who are already in residence at the time of the death or removal of the over 55 individual. a person under the age of 55 years can buy or inherit a unit. the federal and state courts and enforcing agencies have continued to interpret the senior housing requirements. offices. it is necessary that 100% of all new occupancy include at least one person who is 55 or older. The Arbitration Division of the Department of Business and Professional Regulation (DBPR). the restriction does not apply to temporary visits or occasional occupancy. on Page 903 (Subchapter A. Section 12182. the board must conduct a census. In other words. No individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods. and hotels/public accommodations. • When there is no one permanently living in the unit. Prohibition of discrimination by public accommodations. the text reads “Further. The ADA is found in Title 42 of the United States Code. the association is not holding itself out to the general public as housing for older persons. • Following the adoption of the initial federal and state laws in 1988 and in 1994. Once a community has met the initial requirements of senior housing laws (having at least 80% of the units occupied by at least one person 55 or older). Section 100. Chapter 126. facilities. .304(c)(2). hold itself out as housing for persons aged 55 or older.. not ownership. no qualified individual with a disability shall. ALTERATIONS TO COMMON PROPERTY There are two different laws which govern the accommodation and modification of common property within associations for handicap accessibility: the Americans With Disabilities Act (ADA) and The Fair Housing Amendments Act of 1988 (FHAA). adopted this interpretation of the use of the 20% margin in the case of Cummings v. programs. Appendix I). in order to maintain senior housing status.. (USC). or has another person who is 55 or older living with him.” The text provides: For example. it continues to be necessary to keep and update proof of age for each unit. advantages. • To document that the community is housing for older persons. but cannot become a permanent occupant until he is 55. That is. the exceptions are very narrowly defined and limited. Seagate Towers Condominium Association. The policies and procedures for the housing facility as a whole must demonstrate an intent to provide housing for persons 55 years of age or older. this requirement would preclude an owner or manager from marketing 80% of the units for persons 55 years of age or older and marketing the remaining 20% in a radically different way (e. it was and still is necessary to hold the community out to the general public as housing for older persons.. (Even if one person who occupies the unit is over 55. The 20% margin is not intended to be used for arms length sales for occupancy by any person of any age. • Under the current law. As long as the community qualifies as senior housing. this means that the housing in question must in its marketing to the public and in its internal operations. stores.g. young adults). In 24 CFR Ch. Americans With Disabilities Act (ADA) The ADA was created to address handicap accessibility to public and government buildings. there are only two exceptions to the 100% of new occupancies by at least one person 55 or older: surviving spouses who are under 55.

has a record of such an impairment. convenience stores. or a hotel. and not the expense of the person requesting the handicap accessibility. epilepsy. To accomplish this. heart disease. The ADA also applies to country clubs. Department of Housing and Urban Development and the Department of Justice. and to beauty shops. cerebral palsy. If a community’s common elements or areas include these kinds of facilities. a university. Prescription pet. or operates a place of public accommodation. (The fact that someone may invite an outside guest to join her at the clubhouse does not qualify it as a public facility. and so on. and require all modifications under the act. the ADA does not apply to either the community or its property. There are thousands of cases cited in the Annotations of Title 42. to justify the accommodation for a handicap. cancer. then certain portions of the property are subject to the ADA requirements for accommodations for handicapped persons. they are not a public facility. emotional illness. and their guests. but is not limited to. a store.. some associations use a form titled Handicapped Accommodation Request Verification. speech. multiple sclerosis. but used solely as a residential community of dwelling units.C. there are no uses or facilities related to the community that are public accommodations or public entities as defined by the ADA. which is given to the resident for completion and signature of her physician. And. and hearing impairments. U. Such prescription pets are subject to a similar analysis as described above. and medical and professional offices. Chapter 126. drug addiction. or is regarded as having such an impairment. such diseases and conditions as orthopedic. All modifications required to be made under the ADA are made at the expense of the property owner.S. or advertises bingo or card games could fall under the ADA. the association has the ability to request some limited additional information to document the existence of a handicap which meets the conditions of the state and federal law. Based upon the Joint Statement issued by the U. Regarding accomodations for the handicapped. which is completed and signed by the physician of the owner or resident. Most of the communities are multi-family residential property. parking exclusively reserved for handicapped drivers. attesting to a handicap that falls under the FHAA. and if the facilities are intended and operated specifically for use by consumers and the general public. This definition doesn’t include any individual who is a drug addict and is currently using illegal drugs. These include handicap-accessible bathrooms. all of which involve a governmental entity or agency. or a similar form. and alcoholism.A. mental retardation. Keep in mind that a clubhouse that is open to the public for private parties and functions. diabetes. The community is not for the general public. Accordingly. The term “physical or mental impairment” includes. They are not a commercial apartment or rental complex. under which the association must allow an owner or resident to make reasonable modifications to the common elements to accommodate handicap (mental or physical). should be obtained from the association’s attorney.110    Module 7 or accommodations of any place of public accommodation by any person who owns. visual. for use of the association members. FHAA defines the term disabled: Under federal law an individual is disabled if he/she has a physical or mental impairment that substantially limits one or more major life activities. ramps for entry into the building. golf courses. and other public services and locations. muscular dystrophy. The association’s attorney can provide a form Handicapped Accommodation Request Verification Form. and that the pet in question materially assists the individual in having full enjoyment and use of the unit and the grounds. This is often referred to as a prescription pet. and tennis clubs that have public memberships. residents. the . at the expense of the individual requesting the modification.S. The FHAA also applies when a resident in a no pet building asks for permission to have a dog or cat as an accommodation for a handicap. Based upon the joint statement issued by the U. and so on. leases (or leases to). Human Immunodeficiency Virus infection.) Under those circumstances. an association that has received a request from an owner to have a pet in a no pet building has the ability to request some limited additional information to document the existence of a handicap which meets the conditions of the state and federal law. or an alcoholic who poses a direct threat to property or safety because of alcohol use. restaurants. with common area/elements. Once the form is completed and returned. beyond the resident population and its guests within the community. Fair Housing Amendments Act of 1988 (FHAA) Community associations are governed by the FHAA.S. the attorney should be consulted regarding the evaluation of the claim and determination of whether it meets the requirements of the FHAA. This form. pool. Department of Housing and Urban Development (HUD) and the Department of Justice. autism.

the modification is not considered to be a material alteration. and is owned in undivided interest by all of the owners of units in the condominium. the right ends at the balcony railing or at the imaginary plane created by the outermost boundaries. etc. ciation has to permit an individual to install a satellite dish less than one meter in diameter on his or her condominium or co-op balcony. Under the current law and the FCC rules. since these areas. under the law.) • cannot unreasonably impair the reception of the REGULATION OF SATELLITE DISHES. as that area is part of the common elements. to prohibit the installation of satellite dishes anywhere on the common elements. that does not create selective enforcement. the grass.) • cannot unreasonably increase the cost of the installation. the board cannot adopt a rule that gives it 90 days to review an application for installation of a satellite dish. cannot extend outside the plane of the balcony railings). or exceed the ceiling height. because the owner has the right of exclusive use or control over that area. the board does not have to provide an alternate site for placement of the dish. Under the law. an owner cannot place a dish on the roof of the condominium building. Under the FCC rules. The Telecommunications Act of 1996 was adopted by the United States Congress. The FCC rules give an association board a certain amount of control over the installations that are permitted. As of 1996. and under the Florida arbitration decisions. If a prescription pet is required to be permitted on the property. placement. the exterior building walls. (For example... and color of the dish. nor is it property of that the unit owner is the sole owner. The provisions of the act and the FCC rules have been tested and interpreted thousands of times. (i. or on a balcony that is attached to a unit. The modification has to be stable and sturdy. Subject to the limitations set forth below. but the dish could not be outside of the balcony dimensions. or penetrate the building walls in any way. and the Arbitration Division of the DBPR. Under the current law and the rules. which are outside of the unit. those blanket restrictions are no longer enforceable. parking areas. a homeowners’ association board has rights to limit where a satellite dish is installed. It is not property over which the owner or the occupants of a unit have exclusive use or control. the roof. the law does not permit the association to require approval of satellite dishes. the board cannot require that an individual enclose his balcony in order to place a satellite dish there. and provides that an owner may install a satellite dish less than one meter (39 inches) in diameter. Basically. etc. are all off limits. nor does it prevent the board from otherwise enforcing the no pet restrictions in the governing documents for the other residents in the future. The ownership in question refers to private ownership. The owner does not automatically have the right to drill through the common element walls to run wiring. Likewise.e. If unit balcony exposure prevents signal reception. has to have the necessary permits for construction. This is true even though some owners cannot receive the signals if their units do not face the southwest quadrant where the satellite is located. the common grounds. the board can adopt formal regulations regarding the installation. the board has the full authority. as mentioned above.Community Associations: A Primer for Real Estate Professionals     111 If a modification to the common property is necessary to accommodate a handicapped person. in the federal and state courts. OVERTHE-AIR RECEPTION DEVICES Some of the older communities in Florida have documents that prohibit television antennae or satellite dishes. is not entitled to mount a dish on common exterior building walls or roofs. an asso- . parking spaces and all other areas of the common elements are off limits to owners for installation of satellite dishes. and does not require membership or board approval. and it cannot create a dangerous condition for others using the property. and under the case law. But. as well as agency action by the FCC. if the regulation (s): • do not unreasonably delay the installation of the dish. and the weight of the law behind it. It is not necessary to republish the documents or otherwise take action to re-establish the board’s right to enforce restrictions. (For example. and does not apply to common elements or condominium property. under the FHAA. This includes the right to place a small dish within a unit. However. Likewise. the installation of a satellite dish is only permitted on property that is owned by or under the exclusive use or control of that individual. The railing and the space beyond the railing or above the ceiling are outside of the owner’s use rights. subject to rules and regulations promulgated by the Federal Communications Commission (FCC). are either owned in undivided interest by all of the shareholders in the condominium or are outside of the exclusive use or control of an individual owner. the FCC administrative rulings and federal court cases. in order to be proper and legal.

F. Arbitration and Access to Court If voluntary compliance cannot be achieved. the applicable constitutional clause prohibits the taking of private property without just compensation. (Note: The department being referred to is the Department of Business and Professional Regulation).. and can require that an owner repair any damage that is done to the common elements or limited common elements during the installation process. and the court cases and FCC rulings have clearly held that associations definitely have the right to regulate satellite dishes along the lines set forth above.. and these proceedings are privileged and confidential to the same extent as court-order mediation.311(2)(a). From time to time. It provides that recall disputes and disputes related to elections in homeowners’ associations must be submitted to the DBPR for mandatory binding arbitration.) The board can require that any installation fully comply with all requirements of the current building codes concerning hurricanes and storms. the association takes further action. For condominiums and co-ops. in the situation in which an individual may not be able to get reception because his balcony faces in the wrong direction. over-zealous salespersons have advised buyers that it is not possible for the association to stop the installation. • There should be a board-made rule requiring notice of a violation to be in writing. and showing the owner’s unit number or street address. Ultimately. This information is not correct.. Arbitration is also required for any issue related to the failure of the association to: • properly conduct elections • give adequate notice of meetings or other action • properly conduct association and board meetings • allow access to and inspection of official records of the association Condominiums and co-ops have direct access to the courts for all other types of disputes. and access to the official records of the association shall be filed with the department for mandatory mediation before the dispute is filed in court.311. disputes regarding amendments to the association documents. warranty issues. 719 and 720 of the Florida Statutes all address the enforcement of the association’s governing documents. homeowners’ associations can enforce their documents in court with a couple of exceptions. The notice should also include a phone number for someone to contact about the violation. Generally. Owners who want to install antennas on common elements are actually trespassing on property owned by other persons. Mediation proceedings must be conducted in accordance with the applicable Florida Rules of Civil Procedure. the board may require that a satellite dish be removed from a balcony when a hurricane warning is issued. the statutes provide for mandatory nonbinding arbitration of any disputes related to the board’s authority to require a unit owner to take action or not take action involving the owner’s unit or appurtenances there. ENFORCEMENT OF AND REMEDIES FOR VIOLATIONS Chapters 718. signed by the complainant. In fact. there are provisions for enforcement in those governing documents. title to the unit or common elements. advising that further failure to comply will result in legal action. This information can be kept confidential. Section 720. Section 720. provides: Disputes between the association and a parcel owner regarding use of or changes to the parcel or the common areas and other covenant enforcement disputes. and setting a time limit by which compliance is expected. membership meetings not including election meetings. a letter should be sent to the owner of the unit or home. In addition. the board is not required to make accommodations to allow the owner to install it anywhere else on the property. F. Pre-Litigation Procedures Boards should adopt policies related to enforcement procedures. including those related to tenants. . and foreclosure. however. disputes regarding meetings of the board and committees appointed by the board. collection of assessments. • Once the violation has been verified.. • Some associations send a second notice. In addition. • Ultimately.S. applies to all homeowners’ associations in Florida. (However. Then.S. The federal courts and the FCC have ruled that there is no first amendment right involved in having a satellite dish. asking for compliance. anyone with direct information about a violation could be called upon to testify if enforcement through legal action becomes necessary.112    Module 7 satellite signal. addressing the violation. The attorney should start with a demand letter. the matter is referred to the association’s legal counsel..

However. • The letter must include the names of 5 certified mediators from which the responding party may choose. • The responding party must respond to the demand within 20 days from the date of the letter. • The next step is to verify the violation actually occurred. Without that enabling language in either document. or stop doing something. All of the statutes that regulate community associations provide the right of the prevailing party to collect the attorneys’ fees and costs. under the Florida case law.. the board must verify there is something in the documents that is being violated. a homeowners’ association is required to participate in pre-suit mediation. it has limited use. For example.S. if the committee recommends no fine. Listed below are the steps to initiate and proceed with mediation: • Under Section 720. State law highly regulates the fining process for all types of associations. Generally. recommendation to the board. And. there are a number of steps which must be followed: • Upon receipt of notice of an alleged violation.S. The owner then has 14 days in which to request the hearing. an association cannot lien to collect the fine. • The association must give the unit owner or renter notice of the violation... and before an association board can levy a fine. Although a financial penalty is sometimes a good incentive to encourage an owner to control the use of his or her unit or the common elements. First. • If the owner does not request a hearing. Fining Another enforcement remedy available to associations is the use of monetary fines for violations of the documents.000.311. the board can determine that it does not wish to levy a fine. the board must go to small claims court and try to recover the fine. Once the authority to fine exists. In the case of a conflict between the law and the documents. he/she/it may not recover attorneys’ fees or costs in the subsequent litigation. Because of the statutory requirements. opportunity to have a hearing. under the law. which includes notice. The board cannot levy the fine until the entire due process procedure has been completed. or if the hearing is held and the committee determines the owner is in violation. and levying of fine by the board. As a means of enforcement of the documents. because it is so difficult to collect and because it does not achieve the association’s goal of getting compliance. contains additional instructions and limitations on the dispute resolution process. fining has some limitations. If a fine is recommended by the committee. if the association has not enforced the documents . the maximum fine an association can levy is $100 per violation. Fines are not a particularly effective deterrent for individuals who make a habit of or condone violations involving their units. the Florida Statutes take precedence over any provision of the governing documents. before getting to the court. Under the law. which is set forth in the law. the board must find a group of owners who are willing to sit on the enforcement committee. and the opportunity to cure. because fines do not require the owner to fix the problem. the committee recommends to the board that it levy the fine. F. The fine becomes effective only at that point. The law provides that each day the violation continues (after the fine has been levied) is a new violation. the board does not have the authority to override that recommendation. • If the responding party fails or refuses to participate in the mediation process. time-consuming and administratively daunting. Loss of Right to Enforce. In addition. However. or the aggrieved party may move ahead with the lawsuit in court. you will find that boards of directors have not fully enforced all provisions of the governing documents. up to a maximum of $1. an association will not be able to levy any fines. F. chance to cure. but is not required to remove the dog. not board members).e. the right to fine must be contained in either the declaration or the by-laws of the association. by certified mail and regular mail with a demand for pre-suit mediation. Failure to Enforce. It is necessary for an amendment to be adopted before any fining could occur. the fining process is cumbersome. The notice must include the fact that the owner is entitled to request a hearing before an independent fining committee (i. • The mediation must take place within 90 days of the offer to mediate. the party who wishes to bring the law suit must first send a form letter. a person in violation of the no pet provisions could pay the fine. First. Republication From time to time. restore the alteration.Community Associations: A Primer for Real Estate Professionals     113 That section of 720.

however. 2. and the attempt to enforce. and that specific enforcement action is not lost. the association has the authority and ability to enforce the documents and regulate the use of the common property. and can be enforced for new violations from then on. As a result. the board is then protected against attempts to enforce from that point forward for new violations. When prior boards have not uniformly enforced the governing documents. The board can take the opportunity to highlight particular provisions in that notice. which can be done without a vote of the membership. a motion is made. failure to enforce a particular provision does not prevent the board from enforcing another provision if the second provision has been enforced over time. the owner or occupant is now entitled to rely upon the fact that the board did not enforce against him/her in the past. v. Re-Establishing Right to Enforce There is a way to re-establish the enforceability and . In fact. if the directors wished to do so.) 2. This translates as failure of past directors to enforce a particular provision uniformly against all owners and occupants. This translates as a prior board being aware of a violation. if the board has uniformly enforced a particular provision of the documents. Brickell Place Condominium Association. Under the law. and permitted to continue. the board sets a date on which the enforcement begins. including ______________________ . highlight any other particular provisions it wants to focus on as part of the motion. That is. At a duly called meeting of the board. and that we fully enforce all future violations from this point onward. the board loses its right to enforce against those types of violations in the future. v. Under the governing documents and the law. then the board can continue to do so. Inc. the board waived its right to enforce and is now prevented from doing so. the board must republish the governing documents. seconded and adopted along the lines of the following: MOTION: I move that the Board of Directors readopt and republish all provisions of our governing documents. This considerably weakens the association’s ability to pursue a case. board action must be consistently taken. Selective enforcement. Republication requires that the board send a letter to all owners stating the board’s intention to republish the governing documents. the board states that it will fully enforce against all new violations occurring subsequent to the republication. To accomplish this purpose. The documentary rights and obligations of the board and the owners are reinstated. The procedure to republish the documents is: 1. The previously occurring violations are to be grandfathered.2d 29 (Fla. there are several defenses individuals may raise: 1. and in some instances prevents the board from enforcing at all. (Chattel Shipping and Investments. there cannot be challenges to enforcement based upon any prior course of action by the board. 3d DCA 1986)) On the other hand. and a notice is sent to every owner advising of the republication and intent to enforce. Once the motion is adopted. In order to allow for delivery of the notice. rather than mentioning them in the text of the motion. Under Florida Case Law. in a timely manner. the board sets the enforcement date for two or three days after the date of the board meeting at which the republication occurs. Provisions of the governing documents must be enforced for everyone promptly when a violation comes to the board’s attention. Inc. (Chattel Shipping and Investments. that we grandfather in any current violations which have not been enforced in the past. After republication. and documents must be uniformly enforced for everyone to maintain that authority and ability. Laches. as soon as they come to the attention of the board of directors. application of the documents.114    Module 7 in the past. 3. 3. the current board is not able to start enforcement action against owners who have violated the documents if there has not been enforcement in the past. but failing to take action at the time. there are defenses available to any owner or other resident against whom the current board attempts to enforce restrictions. 481 So. This translates as an unreasonable amount of time has gone by between the time the board became aware of a violation. Brickell Place Condominium Association) Republication does not require the board to actually copy the entire document book. Under the Florida case law. of course. Furthermore. (The board can. which occurred before the republication. at which a quorum of the directors is present. Waiver and estoppel. including the rules and regulations.

and to approve material alterations of the common property by the association. If a number of owners are not paying assessments. If a renter violates the governing documents. the renter stands in the shoes of the owner and has all of the rights to use the home and the common property. When an owner has a renter in their unit or home. Renters should not contact the association manager or the board of directors.Community Associations: A Primer for Real Estate Professionals     115 4. new violations can be promptly enforced. he is required to contact the owner or the owner’s representative (the real estate licensee). including the rules and regulations. vote to amend documents. The association attorney should be involved in drafting the notice to be sure it complies with legal requirements. If you own a unit in a condominium. be aware of the potential for conflict of interest. describing the return to documentary restrictions in as much detail as the board chooses. including the clubhouse. and so on. The notice also provides that residents who are grandfathered are not able to replace nonconforming items without board approval as required in the documents or the rules. As a director. The weakened economy has dramatically affected common-interest communities. pool. and advising that the provisions will be fully enforced from that point on. The owners have the obligation to maintain their homes. as owners are scrambling to pay their assessments on second or seasonal homes. A similar potential for conflict of interest arises if you serve on a screening committee. serve on the board. to vote to approve amendments to the governing documents. if any. the owner has the responsibility to pay the assessments to protect the renter’s rights of quiet enjoyment. so it is in their best interest and in the best interest of their customers to keep renters on the straight and narrow. If a renter has a problem. RENTERS’ RIGHTS AND RESPONSIBILITIES Most of the time. you may see notices from owners who intend to put their units on the market or seek a renter. real estate MANAGING HOMES AND UNITS IN TODAY’S ECONOMY Today’s real estate market is still recovering from the recent economic downturn. as those are private corporate meetings open only to members or shareholders. Owners have the ability to elect the board of directors. If you choose to run for the board of directors. and to attend meetings of the board and of the membership. and so on. You. and many real estate professionals took advantage of the market to personally purchase units to use as rental property. you are obligated to put aside your personal needs and consider what is best for the community as a whole. your obligation is to the entire membership of the association. Even if you are not on the committee. Some owners may think you are taking personal advantage of insider information. Renters also have no right to vote in association matters. parking spaces. POSSIBLE CONFLICT OF INTEREST FOR LICENSEES The previous real estate boom offered a unique opportunity. For any currently existing violations. it has resulted in a rise in the number of rental units available. you are a member of that association. You also have the obligation to pay assessments and follow the requirements of the governing documents. OWNERS’ RIGHTS AND RESPONSIBILITIES Even though the board is in charge of the community. Send the notice to all owners regarding the republication. and have the right to vote. As the representative for the owner. For example. assume the board wants to propose some amendments that places limits on rental of units in the condominium. to comply with the requirements of the governing documents. Renters do not have the right to attend either board or membership meetings. Owners have the right to inspect all official records of the association. she is subject to enforcement. may have a different goal than the board. for example. including the financial records and information on owners who have not paid their assessments. the board creates a detailed record for future reference and documents the grandfathered units. As a director. Renters must abide by the governing documents. as an investor/owner. Sooner or later. licensees might also be named in an enforcement action. Then. the decision of the board most likely will impact your personal financial condition. They also have the right to use the common property for the purposes for which the property is intended. Homeowners’ associations are permitted to suspend rights to use the common area and to turn off cable television services (if there is a bulk service agreement in place) when an owner’s assessments fees are delinquent. owners have a number of rights and responsibilities that are set forth in the governing documents and the law. and to pay their assessments. In many cases. There is a possibility for the appearance of impropriety. and so is the owner of the unit. . including the screening and approval process.

loss of services and deterioration of the buildings and grounds may result. and knowing that the house was in foreclosure. Then he put both a first and second mortgage on the unit and went back to Brazil with all of the cash. he assumed his neighbors were moving out. fixtures. popcorning. in the middle of the day. In a 35-unit condominium. In addition. They are starting to break down. In fact. resulting in spectacular floods of the units below. the association is responsible for replacement of any drywall. some communities are experiencing the first foreclosure in their history. depressing the property values further. Does the association have any obligation to remove the water and try to mitigate the damage when the flood occurs? No. These items are then sold and the owner pockets the cash. would you go out to a shopping TRUE LIFE TALES In a high-end subdivision of single-family homes. A unit in a luxury high-rise condominium in Miami was offered for rent. the unit is now in foreclosure. and damaged all of the furniture. which has soaked the carpet. This involves removing their personal belongings. plumbing. other than to notify the owner as soon as the flood is reported. When you inspect one of the units you manage while the owner is out of town. They get a percentage of the take. It wasn’t until the following day that the police advised him the house had been cleaned out by some rather brazen thieves.116    Module 7 it directly impacts on every other owner of a unit or home or share of stock in the community. changed the locks. and all fur- . As a business person. CASE STUDIES Case Study 1 The water heaters in the condominium units are 30 years old. including the furniture. and anything else they can dig out or otherwise remove. Owners are also arranging to strip their units or homes. They contact the owners of the home or the unit which is going into foreclosure and offer to remove all of the contents and liquidate them. Under Florida law. the association actually has no right to take any action regarding the interior of a unit. a board or an association manager who inspects unit interiors on a regular basis in the absence of an owner is opening him or herself up to significant liability. abandoning the unit. but the plaster. rented it out and took the rather substantial monthly rent money. He just broke in. In fact. a moving van pulled up to a home. and the owner of the home gets the rest of the cash. A man showed the unit and made the rental arrangements. he stopped paying the association fees and the mortgage lenders. nor was he an agent for the owner. When funds are insufficient to cover association expenses. Only it turned out he didn’t actually own the unit. carpet. lighting. cabinetry. the remaining owners are responsible to make up the deficit when one or more of the owners fail to pay. warped the wood floors. older condominium building. stripping renders the unit uninhabitable and results in a very sizeable outlay of cash necessary to make the repairs. I heard about a gentleman who lived in a 35-unit. one unit in foreclosure has a tremendous impact. counter tops. toilets. paint. Who is responsible to pay for the damage? The owner should have insurance that will cover the damage. Under the Florida Law. wiring. He bought his unit for cash when times were good. appliances. Does the board or the association manager have any obligation to inspect the unit when an owner is away? Definitely not. even in communities that have been stable for more than 30 years. The president of the association lived next door to that home. In fact. you find 4 inches of water in the living room. the plaster in the living room ceiling is soaked and is falling down. Robin Hood companies have sprung up. Of course. Of course. sinks. The number of foreclosures continues to rise.

but didn’t replace it.Community Associations: A Primer for Real Estate Professionals     117 nishings and personal belongings is the financial obligation of the unit owner.. he knew his water heater was leaking. but you will want . is at least one of the tenants 55 years of age or older? Reminding the tenant to abide by the rules and the use restrictions. and how well are they funded. you may want to create a summary sheet of those to add to the set of rules. talk about what community association living entails. Tenants should contact the owner of the unit or you. and whom to contact in case of a problem. Case Study 4 You drive into a community made up of 68 single-family homes. Determine whether the tenant has ever lived in a community association before. guest limits. also alert the tenant to the fact that he/she cannot attend association meetings. and if not. • The current budget and last year’s year-end financial report. to have a set of the rules handy for the renter. and not the association. if there is a problem with the unit. and then it exploded). on half-acre lots. The owner may have a claim against his neighbor if there has been any negligence by that neighbor (e. loud music and voices. Can a buyer have pets? Are there any parking issues? Is the community designated as senior housing? Are there any guest restrictions? What are the amenities available for use by the residents? Are rentals permitted? Are there limits on the length of a rental. parking limits. It is possible to have a condominium in which the lots are the units? How do you find out what kind of association it is? Look at the governing documents. What other documents should a prospective buyer ask for? • The frequently asked questions and answers sheet or disclosure statement that associations are required to maintain and update. with information on whether there are Reserves. If there are use restrictions in the documents that will affect the tenant. remind him/her about noise. including the unit owners’ rights and responsibilities.g. The community is governed by an association. Make sure the tenant(s) know(s) where to pay or send the rent. What items are on your checklist that relate directly to rentals? You don’t need to provide a renter with a set of governing documents. Can the owner of the unit recover costs from the owner of the upstairs unit? The owner cannot make a claim against any insurance carrier but his own. obtained from the association or from the public records. Case Study 3 You pick up a listing for the rental of a condominium unit. What items should definitely be on your checklist? Set of governing documents. What type of association will it have? Don’t be fooled by the fact that it is made up of single family homes. or the number of times a unit can be rented in a year? Is there more than one association with jurisdiction over the home for which membership is required? Has the potential buyer ever lived in a community association before? If not. Does the renter need to be interview and approved by the association? For senior housing communities. Review the documents and be familiar with the use restrictions. The current procedure is that each insurance carrier pays only for the unit which is covered by that policy. etc. through the title company. as agent for the owner. Case Study 2 You pick up a listing for the sale of a home that is governed by a community association.

If you are not knowledgeable about your product. you could have liability to buyers. and go into an equal equity partnership with them in a business? No? Well. to know exactly what he or she is getting into. Also. tree trimming services. when the associations are not flourishing. general contractors. including the list of accounts receivable and the names of the neighbor who is not paying assessments on time or at all. The economy has proven to be a boon to those who are always alert to new entrepreneurial opportunities. Encourage buyers to ask for copies of the current budget for the association. and comply with the governing documents. You should also be familiar with the types and configurations of housing stock that are subject to those communities. it has been conventional wisdom that community associations are recession. For more than 25 years. and to inquire whether there are reserve funds for future maintenance and repair. participate in the governance process. CONCLUSION As a real estate professional you have a duty to be familiar with the workings of community associations. it is better for you if the buyer loves the new home and the community in which it is located. Suggest that the buyer talk to other people who live in the community to get a feeling for what it is like to live there.118    Module 7 mall. Every member of a community association has a duty to every other member. round up a hundred or so complete strangers. and renters if information you give them is relied upon and turns out to be wrong. that is exactly what every member of a community association has done. pool and lawn service companies.and inflation-proof. As it turns out. Welcome to my world! . architects and engineers. They have gone into full equity partnership with a lot of strangers. and the partnership involves their homes. Clearly. That is no longer true. and has reviewed the rules before buying. and when the roof was last replaced or the roads resurfaced. and local retailers. every member has the ability to see all of the financial records of the association. And. some of those folks are stranger than ­ others. Buyers should also ask about special assessments. so they know if they are likely to have to come up with assessment monies in the near future. maintain the property. it has a trickle down effect on roofers. sellers. to pay the bills.

Chapter 715. Owners do not have the right to: a.Community Associations: A Primer for Real Estate Professionals      119 M odul e 7 — P r o g r e s s T e s t You are not required to answer the progress test questions to complete the 14-hour course. According to the division rules and the Condominium Act. b. refuse to allow inspection of official records of the association. F. F. Chapter 719. c. attend board meetings. c. b. 4. vote in an election. which event will result in an invalid ballot? a. 1. c. F. block access to official records of the association. b. They are intended to help prepare you for the Final Exam.S.S. . the outer envelope is not signed b. The answers are found in the back of the book. c. Cooperatives are governed by: a. b. inspect all official records of the association. A person with a power-ofattorney does not have the right to: a. F. Arbitration is required for any issue related to the ­ failure of the association to: a. there is only one ballot in the same inner envelope 3. 5. d. Chapter 712. Choose the best response to each question. d.S. the outer envelope is present d. vote for certain matters through proxy. d. Chapter 710. hold private meetings. prevent other owners from use of the common areas. the inner envelope is signed c. speak at board meetings.S. elect the board of directors. 2. d. properly conduct elections. attend board meetings.

CASE STUDY/PROGRESS TEST ANSWER KEYS
Note: T  hese are the answers to the Case Studies questions, and progress test questions. They are not the Final Exam answers. Do not transfer these responses to your Answer Sheet.

MODULE 1 Real Estate Core Law: License Law, State and Federal Laws, and the Brokerage Relationship Disclosure Act
CASE STUDIES: PART I Case Study 1
1. a 2. c

CASE STUDIES: PART III Case Study 1
1. b 2. a 1. c 2. d

Case Study 2
1. b 2. d

Case Study 2

8. d 9. b 10. a 11. b 12. d 13. c 14. a 15. d

CASE STUDIES: PART II Case Study 1
1. a 2. b 1. d 2. b

Progress Test Questions
1. c 2. b 3. a 4. d 5. b 6. b 7. c

Case Study 2

MODULE 2 New Energy Incentives: Gain a Competitive Edge
Progress Test Questions
1. 2. 3. 4. 5. c c b d a

MODULE 3 Credit Products and Offerings: The Role of the Federal governmenT
Progress Test Questions
1. 2. 3. 4. 5. b b d a c

Case Study/Progress Test Answer Keys    121

MODULE 4 RESPA: Review the Fundamentals and the New Federal Rules
Progress Test Questions
1. 2. 3. 4. 5. b c b c a

MODULE 5 FHA Programs: Advantages for Borrowers
Progress Test Questions
1. 2. 3. 4. 5. c b a c b

MODULE 6 Appraising Real Estate: The Effects of the Great Recession
Progress Test Questions
1. 2. 3. 4. 5. a d a a b

MODULE 7 Community Associations: A Primer for Real Estate Professionals
Progress Test Questions
1. 2. 3. 4. 5. d a b d a

INDEX –A–
ADA (Americans with Disabilities Act), 109–10 address, 2, 8 advance fees, 3 advance rent, 18 advertising, 2, 10–11, 49 affiliated business arrangements (AfBAs), 57 AMCs (Appraisal Management Companies), 89, 90, 91, 94 American Recovery and Reinvestment Act, 38 American Society of Heating, Refrigeration and Airconditioning Engineers (ASHRAE), 40 Americans with Disabilities Act (ADA), 109–10 amount financed, under TILA, 46 Annual Percentage Rate (APR), 46, 49 anti-flipping rule, 72 applicant screening procedure (community associations), 106–8 application for licensure, 3, 9 appraisal, 73–94 appraiser license and certification requirements, 81–82 changes subsequent to great recession, 87, 89–92 cost depreciation approach, 83–84 FHA process, practice, 73 Financial Institutions Reform Recovery and Enforcement Act, 80–81, 85 Home Valuation Code of Conduct, 73, 89–91, 92, 93 income approach, 84 myths and realities, 93–94 process, 83–84 reconciliation, 84 resources, 41, 88 sales comparison approach, 83, 84 Uniform Standards of Professional Appraisal Practice, 82, 84–87, 90, 92 valuation, 82–83 Appraisal Foundation, 81, 82, 85 Appraisal Management Companies (AMCs), 89, 90, 91, 94 Appraisal Qualifications Board (AQB), 81, 82 Appraisal Standards Board (ASB), 85 Appraisal Subcommittee (ASC), 80–81, 94 appraisers, 81–82, 85, 90, 92–93 appurtenances, 98 APR (Annual Percentage Rate), 46, 49 AQB (Appraisal Qualifications Board), 81, 82 arbitration, 27, 98, 102, 103, 109, 111-113 articles of incorporation, 99 ASB (Appraisal Standards Board), 81, 85 ASC (Appraisal Subcommittee), 80–81, 94 ASHRAE (American Society of Heating, Refrigeration and Air-conditioning Engineers), 40 assessments, 98-100, 103–4 Attorney General of New York, 89 attorneys, 49, 57, 104, 113 automated valuation model (AVM), 91, 92 banks, background checks with, 107 bids, competitive, 101–2 blind advertisements, 2, 11 board of directors (community associations) assessments, 103–4 election process, 100–101 enforcement, 113–15 licensees on, 115 policies and procedures, 104, 106 review and approval of sales and rentals, 106–8 rule-making, 104, 105 boat slips, 98 bonds, surety, 18 borrowers, 70, 72–73, 93 branch offices, 10 Brokerage Relationship Disclosure Act (BRDA), 14 brokerage relationships, 3, 14–16 brokerages escrow accounts, 26 office requirements, 10 records, 13 registration, 9–10 sign requirements, 10 broker associates, 9–10, 26 See also licensees brokers application for licensure, 3 appraisers and, 92–93 branch offices, 10 business forms, 9–10 commissions, 11–12, 60 discipline, 3 escrow accounts, 26–28 experience requirement, 3 foreign, 12 license renewal, 7 liens, 12–13 nonresident requirements, 9 personal assistants, 13 post-license education, 6–7 records, 13 rental information, 13–14 signs, 10 transaction, 2, 14, 15, 16, 36 See also licensees budgetary assessments, 103 builders, home, 61 business days, defined, 26 bylaws, 100

–C–
carryback financing, 47, 56 cash out refis, 72, 73 CDDs (community development districts), 23, 99 certified general real estate appraisers, 82 certified residential real estate appraisers, 82 character references, 107 charges for settlement services, averaging, 60 citations, 6 City of Tallahassee Utilities, 41, 42 claim, notice of, 19

–B–
back-end premiums, 59–60 background checks, 107 balloon payments, 49 ballots, invalid, 101 bankruptcies, 50, 72–73

50. 97. 100–101 escrow disputes or good faith doubts. 115 enforcement and remedies for violations. 93–94 compensation. 50. 101–2 Condominium Act about. 98 disclosure. 97 See also community associations corporations. 13 Division of Arbitration. cooperatives. quickie. 12–13 Commercial Real Estate Sales Commission Lien Act. 81 license renewal. 23. 47. See Department of Business and Professional Regulation (DBPR) DCA (Department of Community Affairs). 57 Competency Rule (USPAP). 100 insurance and payment for unit damage. 108–9 statutes governing. 12 commission notices. repair. 104. 100–101. homeowners’ associations community development districts (CDDs). 112–15 governing documents. in affiliated business arrangements. 102 ownership. 26. and replacement. 85–86. 98. 100–102 ownership. 100 described. 8. 49 closings. 104–8 See also condominiums. 45–52 See also mortgages credit repair organizations (CROs). 109. 103 parking spaces. 99 review and approval of sales and rentals. 102–3 maintenance. 108 credit repositories. 118 operations. 112 assessment delinquencies. 24 election process. 8 –D– DBPR. 90. 92 competitive bids. 110 . 7-10 name changes. 102–3. 46. See Housing and Urban Development (HUD) Department of Justice. 103–4 characteristics.Index    123 closed end credit. 3–4 rental information. 47 collection agencies. 11–12. 86. 108 arbitration and access to court. 102–3 maintenance. 52 Credit Repair Organizations Act (CROA). 4. 97 See also community associations Conduct Section of Ethics Rule (USPAP). 52 credit reports. 98–99 review and approval of sales and rentals. 27 FHA and. 99. 106 rule-making. 46. 100 insurance. 105 condominiums access to units. 111 Division of Florida Condominiums. 51 criminal history. 109–11 insurance and payment for unit damage. 98. and replacement. 106 statutes governing. 98. 98–104 owners’ rights and responsibilities. 21 Department of Housing and Urban Development (HUD). 8 nonresident requirements. 13 website. 70 co-signers. 112 assessment delinquencies. 13 unlicensed activity. 100–101 insurance and payment for unit damage. 98 conflict of interest for licensees. repair. 99–100 handicap accessibility. 102 maintenance. 49. 102. 10 regulatory structure. 99 comparable sales. 52 current mailing address. Timeshares and Mobile Homes. 97–98 use restrictions. 36 Consumer Credit Protection Act. 100 Department of Business and Professional Regulation (DBPR) appraisers. 12 commissions. 115 renters’ rights and responsibilities. 104 conversions to. 5 See also Florida Real Estate Appraisal Board (FREAB) Department of Community Affairs (DCA). 97. 81–82 arbitration. 9 office requirements. 111 community associations. 100 Cooperative Act. repair. 111–12 senior housing occupancy. 2. 56. 111 statutes governing. 97 bylaws versus. 51 Consumer Financial Protection Bureau. 60 common areas. 98 review and approval of sales and rentals. 97–118 access to units. 112 brokerage records. 51 Commercial Real Estate Leasing Commission Lien Act. 115 Consent to Transition to Transaction Broker. 115 satellite dishes. 27 conversions to condominiums. 106 satellite dishes. 85 continuing education. 59 contingent fee arrangements. 7 contracts. 73–74 governing documents. 109–10. 21 declaration of condominium. 108 CROA (Credit Repair Organizations Act). 100–101 governing documents. 52 CROs (credit repair organizations). 73. possible. 93 conflict of interest. 102 managing homes/units in today’s economy. and replacement. 115–16. 72 cost depreciation approach to appraisal. 21–22. 49. 104 described. 108 assessments. 106 cooperatives access to units. 100 election process. 49. 9 correspondents. 108 arbitration and access to court. 83–84 credit products and offerings. 98 election process. 107. 24 Division of Real Estate. 85 Confidentiality Section of Ethics Rule (USPAP). 9–10. 102 ownership.

24 See also Department of Business and Professional Regulation (DBPR) Division of Real Estate (DRE). approved. 20. 73–74 Section 203(k) program. 107 . 80. 102–3. 91. 89 Fannie Mae Selling Guide. 94 deposits escrow. 92 Home Valuation Code of Conduct. 51. 22 no brokerage relationship. 94 borrowers. 81. See Fannie Mae Federal Reserve Board. 111. 71. 91 Appraiser Independence Requirements. 74–75 RESPA and. 22–23. 106–108 Disposition of Personal Property Landlord and Tenant Act. 72 guidelines. 51–52. 58–67 seller’s. 48. 8. 112 FCRA (Fair Credit Reporting Act). disposition of tenant’s. 46–47. 70 condominium mortgage insurance. See Freddie Mac Federal Housing Administration (FHA) about. 18–19 depreciation. 27 escrow disbursement order (EDO). 71. 85. 26–29 escrow agents. 49 discrimination in housing. 71. 75–76 market share. 87 Fannie Mae 1004MC form. 92 Desktop Underwriter. 72–73 Federal Housing Finance Agency (FHFA). 91 mortgages. 92 external obsolescence. 91. 56 doors. 89. 56. 16. 91. 81 See also Department of Business and Professional Regulation (DBPR) Dodd-Frank Wall Street Reform and Consumer Protection Act appraisals. 75 election process (community associations). 73–74 credit guidelines. 75 Home Equity Conversion Mortgages. FHA. 107 Fair Housing Amendments Act (FHAA). 74 DRE. 4. 73. 21 Real Estate Settlement Procedures Act. 108. 90. 16 disciplinary actions. 36 Truth in Lending Act. 80. 24 radon gas. 51 Fair Credit Reporting Act (FCRA). 112 Federal Home Loan Mortgage Corporation. 80. 75 energy incentives. 70 Energy Efficient Mortgage. 90. 22 property tax. 14–15 condominium. 36 personal property. 93 Section 203(b) program. 109. 91 loan to value ratios. 38 EDO (escrow disbursement order). 14 change of. 21. 47. exterior. 39. 51–52. 72 underwriting. 49. 70 mortgage insurance premiums. 72. 49. 72 appraisals. 9–10. 26 security. 70 anti-flipping rule. 41 Environmental Protection Agency (EPA). 8 employment requirements. 49. 16 energy-efficiency rating. 11 FCC (Federal Communications Commission). 89 federally related transactions (FRTs). 49 regulatory oversight. 52 –E– eAppraiseIT. 100–101 employer background checks with. 84 –F– Fair and Accurate Credit Transactions Act (FACTA). 22 single agency. 49–50. 111 See also Department of Business and Professional Regulation (DBPR) Division of Florida Condominiums. 27 EEM (Energy Efficient Mortgage). 57 brokerage relationship. 19 distance learning. 89 RESPA and. 21 homeowners’ association. 80. 50. 31–33 material facts. 15. 73. 37–42 ENERGY STAR program. 16. 15. 107 Federal Communications Commission (FCC). 56 Roster appraisers. 89 ECOA (Equal Credit Opportunity Act). 82. 87 Federal National Mortgage Association. 20. 46. 72. 39 Equal Credit Opportunity Act (ECOA). 49. manual. 75 interest rates. 26. 74–75 Section 234(c) program. advantages for. 39–42. See Division of Real Estate (DRE) dual agency. 98. 73 TOTAL system. 111. 73 energy efficiency. 3. Timeshares and Mobile Homes.124    Index Department of Revenue. 91 escrow accounts. 91 Economic Stimulus Bill. 84–88. 93. 6 Division of Arbitration. 70 Home Valuation Code of Conduct. 83–84 designated sales associates. 75 Energy Efficient Mortgage (EEM). 72. 34 lead-based paint. 88. 71 lenders. 94 communication with appraisers. 41 Department of Veterans Affairs (VA). 6 disclosure affiliated business arrangements. 35 stigmatized property. 22 transaction brokers. 91 fax advertising. 88. 88. 27 escrow disputes or good faith doubts. 56 Fannie Mae 1004/Freddie Mac 70 form. 89–90. 52 designated sales associate. 49–50. 73 rehabilitation loan financing. 39–40 down payments. 38. 21. 80 Federal Trade Commission (FTC). 24 credit repair organizations. 87. 87. 110–11 Fannie Mae appraisals. 19 property condition. 71 refinancings. 73 manufactured home and lot insurance. 70. 27 Ethics Rule (USPAP).

Index    125 fees advance. 10. 89–91. 40 functional obsolescence. 75 home equity lines of credit (HELOCs). 92. 32 Disclosure of Information on Lead-Based Paint and/ or Lead-Based Paint Hazards for Target Housing Sales. 91 Florida Real Estate Commission (FREC) address changes. 97–98 Florida Building Code. 93. 33 Consent to Transition to Transaction Broker. 100 insurance. 18–19 Florida Real Estate Appraisal Board (FREAB). 112–13 assessment delinquencies. 41. 52 HERS (Home Energy Rating Systems). 42 geothermal heat pumps. 11–12 disciplinary guidelines. 92 Guide Bulletin (2009-18). 46. 93 Housing and Urban Development (HUD) affiliated business arrangements. 88. right of. 116 foreign brokers. 91 FREC See Florida Real Estate Commission Freddie Mac appraisals. 39. 10 brokerage relationships. 81–82. 18 unlicensed activity. 102 review and approval of sales and rentals. 24. 6 employer. 60. 89. 93 enforcement of RESPA. 93 Appraiser Independence Requirements. 80. 85 loan. 13 Florida Residential Landlord and Tenant Act. 58–60. 79. 3. 56. 104 described. 75 Home Equity Conversion Mortgages (HECMs). 4. 72 Florida Appraisal Management Companies. 62–64 gift letters. and replacement. 27 fining. 75 HELOCs (home equity lines of credit). geothermal. 10 regulatory structure. 18–19 foreclosures. 56. 26-28 mutual recognition. 31 Disclosure Summary. 80–81. 3 contingent arrangements. 88. 107 flipping. 80. 81–82. 90-94 appraiser license and certification requirements. 99–100. 91. 38. 58–60. 93 guidelines. 15. 102 maintenance. 105 gross rent multiplier (GRM). 100 governing documents. 65–67 No Brokerage Relationship Notice. 75 “high cost” (subprime) mortgages. 87. 62–64 HUD-1 settlement statement. 110–11 FHFA (Federal Housing Finance Agency). 4–5 (table) surety bonds. 51. change of. 2–3. 12 forms Confirmation of Receipt of Lead Pamphlet. 8 advertising. 90. 106 satellite dishes. 49 Financial Institutions Reform Recovery and Enforcement Act (FIRREA). authorized. 109–11 Handicapped Accommodation Request Verification. 97 See also community associations Home Valuation Code of Conduct (HVCC). 80–81. 57 FHA See Federal Housing Administration FHAA (Fair Housing Amendments Act). 36 Single Agent Notice. 84 –G– Gainesville Regional Utilities. 48 Good Faith Estimate. 49 HIV/AIDS. 14 citations. 91 Freddie Mac Seller/Servicer Guide. 47. 8 notice of noncompliance. 81. 57–58 appraisals. 89 first refusal. 8 escrow accounts. 57 unearned. 62–64 governing documents. 88 FRTs (federally related transactions). 90. 81–82 energy incentives. 94 –H– handicap accessibility. laws and topics Florida Administrative Code. 42 Florida Landlord and Tenant Act. 111–12 statutes governing. 84 GSEs (Government Sponsored Enterprises). 110 heat pumps. 56–58 splitting. 38. 12. 109. 22-24. 52 fuel cells. 22–23. 11 branch offices. 89–90. 113 FIRREA (Financial Institutions Reform Recovery and Enforcement Act). 73. 89 Loan Prospector. 72 RESPA and. 85 financing contingency clause. 21 Home Energy Rating Systems (HERS). repair. 50. 89 fiduciary relationship. 2. 24 home offices. 94 grandfathering. 87 FTC (Federal Trade Commission). 52 home inspectors. 36 Disclosure of Information on Lead-Based Paint and/ or Lead-Based Paint Hazards for Target Housing Rentals and Leases. 52. 98 disclosure. 40–41 See also specific agencies. 39 GFE (Good Faith Estimate). 59 referral. 23. 10 homeowners’ associations arbitration and access to court. 58-59. 41. 6 office requirements. 98. 90. 73. 114–15 Government Sponsored Enterprises (GSEs). 70 Home Valuation Code of Conduct. 57 . 56. 34 election process. 39 HECMs (Home Equity Conversion Mortgages). 85. 35 FREAB (Florida Real Estate Appraisal Board). 56. 47. 24 Florida Energy and Climate Commission. 85 First American. 106 finance charge. 34 Federal Truth-in-Lending Disclosure Statement. 71 Good Faith Estimate (GFE). 3 rule changes. rule against. 58 fee splitting and unearned fees. 6 commissions. 87. 56 Freddie Mac 70 form. 90.

114 landlords. 27 interest rates. 59. 19–20. 85. 103 manufactured home and lot. 113 meetings. 7 maintaining. 61 loan servicing rules. 13 liens. 85 manufactured home and lot insurance. open. 47 condominium. 70. 60–61 senior housing occupancy. 115 insulation. 13–14 See also broker associates. 70. 73 Los Prados Condominium Association. 73 –I– identity theft. 20–21. 39. address. 60. 90 National Fenestration Rating Council (NFRC). 98. 93 conflict of interest. 103 insider information. 94 FHA-approved. 31–33. 3. 24 involuntary inactive. 100. 89–91. 51 IEEC (International Energy Conservation Code). Davis. 7 disciplinary actions. 41 National Housing Act. 101. 46. 75–76 mortgage insurance premium (MIP). 98. 102–3 LTV (loan to value) ratios. 9–10 limited liability partnerships (LLPs). 73. 71 title. 46. 115 continuing education. 100 Leasing Act. 40 MDIA (Mortgage Disclosures Improvement Act). 60. 70 mortgages appraisals. 26. 12–13 limited liability companies (LLCs). 6–8 mold assessors/remediators. 75 mutual recognition.126    Index Good Faith Estimate. 61 loan terms and fees. 8 commissions. 38. 75. 56 lead-based paint. 6 personal assistants. 59 See also mortgages loan to value (LTV) ratios. 27. 112. 7 lien notices. 41 Internet advertising. 93 See also Federal Housing Administration (FHA) HUD-1 settlement statement. 72. 57 –K– kickbacks. 110 Mortgagee Letter 2009-28. 40 insurance condominium mortgage insurance. 22 joint ventures. 8 –J– Johnson v. 3 home inspectors. 60–61. Inc. 9–10 loan servicers. 56–57 –L– laches. 71 mortgage professionals. 58. 14–16 change of name. 40. 7 voluntary inactive. 71. 93 brokerage relationships. 91–92. averaging charges for. 40. brokers. 10–11 appraisals. 41 –M– Management Section of Ethics Rule (USPAP). 60 licensees advertising. 56–57 RESPA FAQs. 46. 3. sales associates licenses application process. possible. 71 Internal Revenue Service (IRS). 70. 8–9 reactivating. 11 involuntary inactive licenses. 75–76 market value. 73–74 Energy Efficient Mortgage. 82. 21–22 MIP (mortgage insurance premium). 75 Good Faith Estimate. 24 nonresident applicants. 7 IRS (Internal Revenue Service). 102. 72. 57. 60 Valuation Protocol. 59 “high cost” (subprime). 71 See also Section 203(b) program . 47 mortgagees. 41 income approach to appraisal. 79. 91 Good Faith Estimate. 57 master lease. 3. Inc. 93. FHA. 103 In Re Petition for Declaratory Statement Plaza East Association. 80 closed end credit. 39. 58–59. 104 material facts. 8 nameplate capacity. 84 income requirements. 40. v. 24 Mortgage Disclosures Improvement Act (MDIA). 24 mortgage insurance premium (MIP).. 38. 73–74 homeowners’. 91–92 referral fees. See lenders Mortgage Foreclosure Rescue Act. 11–12. 92. 18–20. 22 lawyers. 49 Home Equity Conversion Mortgage. Lemley. 108–9 settlement services. 57 appraisals. Jeffrey S. 115 –N– name changes. 22 mediation. 61 interest-bearing accounts. or employer. 82. 73 lease agreements. 50. 71. 12–13 lenders affiliated business arrangements. 13 rental information. 73 In Re Petition for Declaratory Statement Allstate Floridian Insurance Company. 102. 56. 82–83 mark-ups. 27. 101. 3 renewing. 40. 41 International Energy Conservation Code (IEEC). 47 military personnel. 59 handicap accessibility. authorized. 107 latent defects. 99. 102. 101 microturbines. 71 mold assessors/remediators. 60 community associations and. 65–67 HVCC (Home Valuation Code of Conduct). 39. 40 National Association of REALTORS® (NAR).

10. 7 “Renovate Right” (pamphlet).Index    127 New York Attorney General. 26. 41 no brokerage relationship. 20. 81–82 registration. 47. 60 partnerships. 41 physical deterioration. 47 open meetings. 92 rehabilitation loan financing. 72 Office of Federal Housing Enterprise Oversight (OFHEO). 19 pets. 60–61. 2. 83 Private Mortgage Insurance (PMI). 5. 100. 93 Sales Act. defined. 84 reproduction cost. 39. 13 personal property. 14 Residential Swimming Pool Safety Act. 74–75 renewable energy. 20 residential sales. 58–67 enforcement. 98 par rate. 61 Real Property Appraisal Development (USPAP). 108–9 open-ended credit. license. 56 HUD-1 settlement statement. 20–21. 6. 72. 56–58 title insurance. 106 parking spaces. 40. 101 –S– sales comparable. 80 rules and regulations (community associations). 46–49. 84 planned unit development. 105 –O– obsolescence. 13 post-license education. 13 recovery fund. 40 RTC (Resolution Trust Corporation). 115 replacement cost. See Real Estate Settlement Procedures Act (RESPA) right of first refusal. 21 rate and term refis. 89 offices. 56–58 refinancings. 38–39. 46. 103–4. 13 . 12 sales associates application for licensure. 99 See also community associations PMI (Private Mortgage Insurance). 18–20. 23–24 Resolution Trust Corporation (RTC). 106–8 short. 9–10 Reg Z. 36 noncompliance. 33 proxies. 31–33. 93–94 residential. 47 –R– radon gas. 27. 6–7 power-of-attorney. brokerage firm. 9. 56. 47 Residential Lead-based Paint Hazard Reduction Act. housing for. 58. 27 –P– paint. 55–67 disclosures. 72 nonresident applicants. 41 renewal. 73 reactivation of involuntarily inactive license. 15. 38–39. 82 primary supervisory appraisers. 22. 111 price. 111 photovoltaic systems. 116 roofing. advance. defined. 2. 58 Good Faith Estimate. 17 non-occupant co-borrowers. 100 “Protect Your Family from Lead in Your Home” (pamphlet). 13 review and approval of. 72. 12 payment schedule. 42 overages. 84 republication of governing documents. brokerage. 106–8 renters. 13 referral fees. 25. 49 personal assistants. 2. 91 property tax. 82 principle of substitution. 101 Orlando Utilities Commission. 100 prepaid finance charges. 47 point-of-contact. 11 policies and procedures (community associations). 109 post-license education. 6–7 –Q– quickie closings. 73. under TILA. 47 property condition. 61 referral fees and kickbacks. notice of. 12. 87 Real Property Appraisal Reporting (USPAP). 41. 16. 9–10 personal assistants. 84 occupant borrowers. 90. 58–60. 107 Robin Hood companies. 56 OFHEO (Office of Federal Housing Enterprise Oversight). 114–15 rescission rights. 3 appraisers and. 92–93 branch offices. 62–64 history. 9-10. 20 rent. 2. disposition of the tenant’s. escrow account. 73 parking restrictions. 106. 104. 57. 9. 87 reconciliation appraisal. seller-required. 110. 11-12. 10 office space rental arrangements. 65–67 loan servicing rules. 31. prescription. 104. 80 registered trainee real estate appraisers. 16 escrow funds. 89 older persons. 41 proprietary leases. 26. 46 prescription pets. 3 Real Estate Recovery Fund. 26–27 records. 84 escrow accounts. 80 RESPA. 24. 89 NFRC (National Fenestration Rating Council). 27–28 forms. 28 designated. 110. 14. 8–9 real estate related financial transactions. 18–19 rentals information about. 80 Real Estate Settlement Procedures Act (RESPA). lead-based. 107. 58–59. 81 party. 73. 10 commissions. 56. 14 review and approval of. 46.

59 –Z– zero tolerance. 111 tenants. under RESPA. 94 voluntary inactive licenses. 116 subdivisions. 83. 40 –Y – yield-spread premiums. 56-61 tolerance levels. 86–87 secondary supervisory appraisers. 39. 18-20. 92 203(b) program. 99. 26. 82. 107. 89. 103 special taxing districts (STDs). 16. 2. 114 Washington Mutual. 16. 51 transaction brokers. 51. 39 underwriting. 36 triggering terms. 49 trust liability. 85. 71. 18. 2. 56–57 3 day-7 day rule. 60–61. 39–40 short sales. 91 Uniform Standards of Professional Appraisal Practice (USPAP). 23–24. 18 swimming pools. 74 Standard 1: Real Property Appraisal Development (USPAP). 84 sales contracts. 89. 72. 2–3. 73 security deposits. 93 unearned fees. 13 URAP (Uniform Residential Appraisal Report). 99 stigmatized property. 107. 73–74. 47 TILA (Truth in Lending Act). 46–49. 94 valuation. 38–39. 18. 72 trade line blocking. 59. 49 substitution. federal energy. 87 statutory changes. 2. 98. 72. 112. 73–74 Section 203(k) program. 56. 21–22. 39–40. 98. 2. 7 –W– waiver and estoppel. 27. 56 seller’s disclosure. 81. 99 See also community associations subprime mortgages. 71. 117 USPAP (Uniform Standards of Professional Appraisal Practice). 87 Standard 2: Real Property Appraisal Reporting (USPAP). 104. 56. 88. 13–14 sales comparison approach to appraisal. 71 seller financing. 98. 50. 108. 56–58. 26. 92 unlicensed activity. 27 service providers. 59 HUD-1settlement statement. 46–47 TOTAL (Technology Open To Approved Lenders) system. 73 stripping units/homes. 56. 59–60 –T – target housing. 83–84 supervisory appraisers. 57 Uniform Residential Appraisal Report (URAP). 80. 74–75 Section 234(c) program. 59 . 72. 100 Streamline 203(k) financing. 15. 83 utility rebates and loan programs. 103-4. 56. 90. 82 Veterans Administration. 22 storage units. 47.128    Index rental information. 80 Veterans Affairs (VA). 99 spot loans. 74–75 234(c) program. 87. 88 203(k) program. 72 Telecommunications Act. 31–33 tax credits. 38–40 Technology Open To Approved Lenders (TOTAL) system. manual. 84–87. 4–5 (table) STDs (special taxing districts). 90. 10 single agency. 40. 89 windows. principle of. 93 signs. 97. 33. 90. 85. 82. 15. 27 satellite dishes. 104 wind turbines. 89 seller-financed down payment assistance. 90. 73 –U– U-factor. 41 solar water heaters. 35 skylights. 91 use restrictions (community associations). 82 Section 203(b) program. 87. 41 sold signs. 85. 80. 83 summation. 59. 22 senior housing occupancy. 82 surety bonds. 46–49. 26. 64. 11 sole proprietors. 20. exterior. 18–19 seller concessions. 58–59. defined. 72-73. under RESPA. 117 10% tolerance. 28. 27 Truth in Lending Act (TILA). 111–12 Scope of Work Rule (USPAP). 14. under TILA. 41 –V – VA (Veterans Affairs). 57. 9 special assessments. 60 SHGC (Solar Heat Gain Coefficient). 115. 82–83 See also appraisal value. 41 test of transactions. 39–40 solar energy systems. 88. 65–67 procedures. 84–87. 56. 60 total of payments. 83 thing of value. 40. 100 See also community associations title companies. 74–75 streamline refis. 41 Solar Heat Gain Coefficient (SHGC). 61 title insurance. 39–40 solar pool heaters. 92 utility. 108–9 settlement costs. 92 timeshares. 38. 102. 100. 75. 92. 70.

BERT R O D GERS SC H O O L S O F REA L ESTATE

Final Exam 30
FINAL EXAM INSTRUCTIONS
•  The Final Exam consists of 30 multiple-choice questions. A passing score is 80 percent or higher (a minimum of 24 correct answers). •  You may reference the book while taking the Final Exam. It is an open-book exam and there is no time limit. •  Choose the best answer for each question. If you mark more than one answer or do not mark any answer, you will not receive credit for that question. •  Mark your answers on the Answer Sheet provided. Please use a pen (blue or black ink) to fill in your answers and other information on the Answer Sheet. •  FREC Rule 61J2-3.009 states that exam questions cannot follow the order of the course material and must include knowledge-level, comprehension-level, and application-level questions. You will not find a word-for-word answer for each question.

Consider taking the Final Exam online at www.BertRodgers.com
You may return the Final Exam Answer Sheet in this book to Bert Rodgers Schools for grading or you may go online to www.BertRodgers.com and complete the online version of the same Final Exam. •  To take the same Final Exam online, visit our web site and purchase the 14-Hour Real Estate Continuing Education course. Upon opening the course, select the Final Exam number that matches the Final Exam number from this book. •  The online Final Exam consists of 30 multiple-choice questions. A passing score is 80 percent or higher (a minimum of 24 correct answers). •  Each online exam question includes a Review Text button. The Review Text is provided to assist you in locating the section of text pertaining to each question’s learning objective. •  Online Final Exams are graded immediately, no waiting for results! •  As soon as the Final Exam is submitted, you receive your score. Then you may immediately print your Course Completion Report. Note: T  his course material is approved by the Florida Real Estate Commission through September 30, 2012. Answer sheets postmarked after that date cannot be graded. Answer sheets delivered online, in person, or by fax after that date cannot be graded.

129 Final Exam

130    Final Exam Thirty

Final Exam Thirty    131 1. Sales Associate Bill is handling a real estate transaction involving a commercial building. He should know that the Radon Gas disclosure is required to be given to a buyer in the: a. sale or lease of any building. b. sale and lease of residential property. c. sale of residential property. d. sale of any building. 2. Real estate broker Matt operates a property management company. What is the maximum amount of personal funds he is permitted to maintain in the property management account? a. $5,000 b. $1,000 c. $200 d. $0 3. The DBPR received Carol’s application for licensure in April of 2010. When will her application expire? a. March 2011 b. April 2011 c. March 2012 d. April 2012 4. Both the buyer and seller in a commercial real estate transaction have assets in excess of 1 million dollars. They would like the brokerage firm handling the transaction to appoint different sales associates to represent each of them as a single agent. Which form of representation would enable the firm to comply with this request? a. disclosed dual agency b. transaction broker c. designated sales associate d. none; single agency is illegal 5. Sales Associate Danielle is representing a buyer as a single agent. The buyer is interested in seeing a home that is listed by Danielle’s brokerage firm. In order to show the buyer the listed home, which disclosure form must Danielle have the buyer sign? a. Transaction Broker b. Consent to Act as a Dual Agent c. No Brokerage Relationship d. Transition to Transaction Broker 6. Broker Barbara is preparing to write a contract for a buyer who wants to purchase a home built in 2005. Which disclosure is Broker Barbara required to give to the buyer at or before the execution of the sale and purchase contract? a. Stigmatized Property Disclosure b. Lead-Based Paint Disclosure c. Mold Disclosure d. Property Tax Disclosure

name. as a transaction broker. Sales Associate Gillian received an earnest money deposit on Friday. dual representation d. notify the FREC in writing of the shortage within 3 business days b. 8. note the shortage and corrective action on the reconciliation c. request a DBPR investigator perform an audit 12. Broker Karen is not required to include the escrow agent’s: a. Broker Brad is acting in the capacity of a transaction broker. d. When must she deliver the deposit to her broker? a.. Tuesday d. c. While performing her monthly escrow account reconciliation. The developer did not provide Veronica with the required homeowners’ association disclosure. Sales Associate Jordan is representing a buyer and seller in the same transaction. The contract indicates that an attorney will be the escrow agent. she can do so as long as she is providing limited representation: a. b. Veronica may: a. Broker Karen is filling out a contract for sale and purchase. Veronica is buying a home in a community that requires membership in its homeowners’ association. as a designated sales associate. In accordance with Chapter 475. fiduciary representation b. Wednesday 11. phone number. b. What form of representation may he provide when he performs the services of real estate? a. limited fiduciary representation c. web address. void the contract prior to closing. Saturday b. delay closing until she has had a chance to review the disclosure. c. address. proceed with the sale and be exempt from membership in the homeowners’ association. 9. c. d. F. b. d.S. limited representation .132    Final Exam Thirty 7. immediately replace the missing funds d. What action must she take? a. in a no brokerage relationship. Broker Alexis determines the account is short. Monday c. 10. as a disclosed dual agent. void the contract 7 days prior to closing.

Small-capacity wind turbines qualify for federal tax credits up to 50% of the total installed cost. Residential wind turbines often require local approvals for compliance with noise.Final Exam Thirty    133 13. a personal reference check. 18. b. Brown have applied for an FHA mortgage loan. c. A person holding a power-of-attorney from a unit owner can run for the board of directors. a credit report. appurtenance to the unit. down payment assistance from sellers 16. Which statement about community associations is true? a. her savings b. Jorge recently made energy efficiency improvements to the home he has owned for 10 years. b. Which source of funds for the down payment is not acceptable? a. d. $250 per improvement b. Every purchaser of a condominium unit is automatically a member of the association. separation from the unit. the TOTAL scorecard. Mr. Single-family home communities are never condominiums. a grant from a state program that assists homebuyers d. What is the maximum federal tax credit he can receive? a. $10. gift money from her employer c. annually. The turbine must carry a “nameplate capacity” of no more than 50 kilowatts. d. Anna is considering the use of wind turbines to power her home. adherence to the unit. and Mrs. The undivided interest in the common elements of community association property is called a/an: a. The FHA lender will evaluate them using: a. What regulatory details and guidelines should she be aware of before finalizing her decision? a. c. 14. Borrowers pay upfront FHA premiums: a. semi-annually. The declaration is the procedural manual for the association’s operations. b. b. height. There is no limit 19.000 d. d. b. d. Fannie Mae and Freddie Mac guidelines. c. Valerie has applied for an FHA mortgage and will need some down payment assistance. at closing. 15. d. and environmental protection rules. c. 17. The federal tax credit cannot be carried forward to future years. . c. section of the unit. in a balloon payment at the end of the loan term. $500 c.

the principle of substitution.134    Final Exam Thirty 20. has violated RESPA. land value estimate. has violated Reg Z. She has provided the AfBA disclosure separate from all other disclosures which the client has signed and dated. This is an example of: a. 24. In the definition of market value. Installations on existing homes are among the fastest-growing uses of federal tax credits. c. appraisal reports must include: a. The residents of a recently developed subdivision often complain of offensive odors from a countymaintained sewage treatment plant one-quarter mile north of the development. is typically received just before the closing. d. functional obsolescence. b. 22. Broker Elaine is referring a client to an affiliated title company. 25. They are eligible for federal tax credits up to 30% of the total installed cost. 26. According to Standard 2 of USPAP. b. d. is typically completed by the title company. d. The Good Faith Estimate (GFE): a.000 in any single tax year. inclusion of a competent real estate broker 23. b. the income approach. b. Carryovers of unused federal tax credits to future tax years are permitted. The Uniform Standards of Professional Appraisal Practice (USPAP) are promulgated by the: a. Appraisal Standards Board (ASB). average time allowed for market exposure c. Which statement is false regarding solar-energy photovoltaic systems? a. c. b. no financing involved d. external obsolescence. has made the disclosure correctly. . The maximum federal tax credit may not exceed $25. a signed certification. details the actual costs at the end of the loan process. Broker Elaine: a. c. c. should have combined the AfBA disclosure with the others. replacement cost of the improvements. d. which condition is assumed? a. d. is provided to homebuyers at the beginning of the loan process. overcapacity. 21. Appraisal Subcommittee (ASC). typically motivated buyer and seller b. Appraisal Foundation (TAP). Appraiser Qualifications Board (AQB). c. c. d. b.

c. mandates what interest rate banks can legally charge. homeowners who offer a seller takeback note on one house only. 29. b. tells newspapers how to advertise real estate. 30. defines key disclosures affecting offers of credit. b. unregulated. d. d. . The Consumer Credit Protection Act: a. c. the regulation of equal employment. blanket mortgage. He probably has a/an: a. This activity is: a. c. open-ended loan. closed end loan. they don’t actually perform a service. d.Final Exam Thirty    135 27. a violation of Reg Z. a violation of RESPA. financing by home builders. the rules that dictate how lenders disclose the cost of credit and loans. The brokers simply make referrals. b. d. Reg Z applies to: a. renewable residential loan. Brad obtained a home equity line of credit to cover the costs of adding a new room onto his home. XYZ Mortgage Company offers a free cruise to the real estate broker who refers the most settlement service customers each year. legal. b. 28. c. protects consumers against racial discrimination.

. . . . . your education may not be reported and you may face a penalty or disciplinary action. . . MasterCard. . . . . Re-Exam Payment Method Bert Rodgers Schools accepts checks. Fax your Answer Sheet to us any business day by 5 PM (EST). Next-Day Priority Grading ($7) by return Email or Fax. TUITION/Grading Services Standard Grading . . . 14-Hour Continuing Education Course Instructions STUDENT INFORMATION The license number you provide to our school is the number we use to report your education to the DBPR. . We will email or fax your Course Completion Report by 11 AM (EST) the next business day. . make prioritygrading@BertRodgers. We will email or fax your Course Completion Report to you the same day. Provide your fax number or legible email address on the Answer Sheet. . . .136     Bert Rodgers Schools of Real Estate. . . . • Fax your Answer Sheet to 941-378-3883. . your Answer Sheet is processed and your official Course Completion Report will be sent to you by First-Class Mail®. Certificate of Achievement To obtain your personalized Certificate of Achievement. . . Grading Policy Questions Missed Grade % 0 . . . . 100 1 . . Visa. You may verify your license number at MyFlorida. . 83 6 . • To prevent your emailed Course Completion Report from going into your SPAM. 87 5 . . . . . . . .com) to view and/or print the Course Completion Report. . and Visa or MasterCard debit cards. . American Express. Discover. Your certificate is then mailed to you. . . Tuition for courses completed online or submitted via fax must be paid by credit card or debit card. There are additional charges for Priority Grading. . . . . money orders. . suitable for framing. • For email priority grading. Note to brokers: Please enter all of your broker license numbers on your answer sheet. . You must have the free program Adobe Acrobat® Reader® (www. . . . . . Upon receipt. . . . Note: Your exam will not be processed until complete payment is received. .Correspondence Fax or mail your Answer Sheet and appropriate payment. . . . • We will attempt to fax your Course Completion Report a maximum of 3 times.acrobat. Priority Grading Same-Day Priority Grading ($10) by return Email or Fax. check the Certificate of Achievement box in the Tuition/Grading section of the Answer Sheet. . Add a payment of $5 to your tuition.com/dbpr. Inc. . . 80 7+ . . . 90 4 . . . . 93 3 . . your Course Completion Report will be emailed as a PDF attachment. Fax your Answer Sheet to us any business day by 3 PM (EST). . . . Priority Grading Notes • You must have a fax number or email address to receive results. A hard copy Course Completion Report will be mailed to you the next business day.com a trusted source. A hard copy Course Completion Report will be mailed to you the next business day. . . If the license number is incorrect. . . . 97 2 . . .

12. 6./Ste. 15. back the same business day l Standard Grading Included ____________ +$10.EmailBack or FaxBack In by 3 PM EST. M-F. 7. I want to receive Law and Rule Updates from Bert Rodgers Schools via email.BertRodgers. Box 4708. 2012 Course Approval #0012897 2012 14-Hour Course EXAM 30 STUDENT INFORMATION (please print clearly.00 ____________ TOTAL ____________ 17. 8. 2.O. 1. 11.Answer Sheet Sales Associate Course Expires September 30.7 digits or less (not the AC#) Name:_______________________________________________________________________________ Address: _________________________________________________________ Apt. 3. l Check # ______________ l Money Order Credit Card Number Expiration Date of Card l VISA (16 digits) l Discover (16 digits) l American Express (15 digits) l MasterCard (16 digits) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (Month) (Year) Signature of Cardholder (required) 27. 5. 22. 23. 25. Sarasota.00 ____________ 14.7 digits or less (not the AC#) BK Write in your license # . Thank you for choosing Bert Rodgers Schools! Payment method (make check or money order payable to Bert Rodgers Schools) Mail your check. 10. 26. 20.com 29. 18. 16. M-F. FL 34230-4708 941-378-2900 • Fax: 941-378-3883 800-432-0320 • www.EmailBack or FaxBack In by 5 PM EST. back by 11 AM the next business day +$7.50 ____________ Email to: __________________________________________________________ or Fax Course Completion Report to: ________ – ________ – _____________ l Next-Day Priority Grading .00 ____________ l 14-Hour Continuing Education Tuition $22. EXAM 30 . money order. 13. #_________ City: _________________________________________________ State: _________ Zip:____________ Phone – Day: ________ – ________ – _____________ Fax: ________ – ________ – _____________ Email Address:________________________________________________________________________ l Yes. Email to: __________________________________________________________ or Fax Course Completion Report to: ________ – ________ – _____________ l Certificate of Achievement (optional) +$5. 30. If using a credit card you may fax this Answer Sheet to: 941-378-3883. 9. P. A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A Tuition / Grading services You must provide a legible fax number or email address to receive Priority Grading Services. 21. 4. l Same-Day Priority Grading . 24. 28. or credit card information and Answer Sheet. 19. use blue or black ink) Your Real Estate License Number (write in only one license #): broker or broker Associate or FINAL EXAM ANSWERS Example: A B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D SL Write in your license # .

Are you ready to renew your license? You need to… ✔Achieve a passing score on the final examination ❑ ✔Pay your license renewal fee to the DBPR ❑ ✔Verify that the DBPR has an accurate record of your education and license renewal fee ❑ T ell us What You Think! Please help us serve you better by taking a few moments to share your thoughts about your Bert Rodgers Schools experience. Bert R odgers S chools fax # 941-378-3883 . Mail or fax your comments or email us at REinfo@BertRodgers. Thank you! __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ Which topic(s) did you enjoy the most?_________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ What topics would you suggest for future continuing education? ________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ NEW! Law and Rule Updates Be sure you fill out the Student Information section of the Answer Sheet including your email address to receive updates of laws and rules affecting the real estate industry.com.

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