The very nature of the real estate transaction leaves real estate brokers and agents exposed to a plethora of litigation. Small errors or poor advice given to a client can lead to reputational damage and costly lawsuits. Check out our useful guidance below that will help real estate professionals mitigate common risks and operate with peace of mind.
Artificial intelligence
Generative artificial Intelligence (AI) has become a game-changer for the real estate industry in the past year, offering a wide range of capabilities to improve efficiency and productivity. AI platforms can create listing descriptions, property searches, social media posts, marketing content, and more. However, understanding the risks of using AI is critical to avoid ethical issues and potential legal liability. AI platforms are not 100% accurate and its output may not comply with fair housing laws.
Risk reduction tips:
- Always review AI-generated content for accuracy.
- Protect personal information from being shared with an AI platform. Information provided to a generative AI platform is used to train the AI for future interactions, so personal information you input may not remain private.
- Do not use AI to create content you wish to copyright, as AI-generated works are not protectable under U.S. Copyright law.
- Avoid using AI to draft contracts, modify standard forms, or provide legal advice to clients. Instead, seek appropriate advice from actual professionals.
Copyright infringement
Copyright law affects multiple aspects of the real estate business, and it is easier than ever for copyright owners to discover unauthorized uses of their works. Therefore, it is important for real estate professionals to understand the basics of copyright and how to avoid infringing another person’s work. To avoid costly copyright infringement demands, real estate professionals should be sure to obtain permission to use any third-party work, the terms of the license to avoid copyright infringement and keep records to easily confirm rights as needed. Many of the most common activities performed by real estate professionals can create some risk of copyright infringement, including:
- Floorplans: A federal court recently found brokerages’ use of independently created floorplans in their listings to be a fair use of copyrighted architectural drawings of a home. The Designworks decision provides a clear roadmap for brokers facing allegations that their creation or use of floorplans infringes copyrights in underlying home designs and will hopefully deter other home designers from pursuing similar claims.
- Photos: Be sure to confirm that any rights received align with the current and planned use of photographs or other third-party work before using it, including on a website, in the MLS, and marketing materials.
- Music: Ensure proper rights to any music used at live events, such as an open house, and before incorporating into recordings. Keep in mind that specific types of licenses must be obtained before incorporating music into a video recording.
- Websites: Comply with the Digital Millennium Copyright Act safe harbor to reduce the risk when third parties post on their websites, including photos and music that appear through an IDX displays.
Risk reduction tips:
- Obtain ownership or a broad exclusive license for photographs.
- Secure a performing rights license to play music at a live event and a synchronization and master recording license before incorporating music into a video, such as a listing video. Be sure to understand the rights granted in license agreements and consider any future use of copyrighted material when securing the license.
- Comply with the Digital Millennium Copyright Act safe harbor.
- Keep records of license agreements to easily confirm rights, if challenged.
Fair housing
Fair housing laws prohibit a refusal to rent or sell real property based on a protected characteristic. The federal Fair Housing Act (FHA) includes characteristics of race, color, religion, sex, familial status, and national origin. The introduction of new state laws regulating foreign ownership of real property raise concerns about potential FHA liability, because they may cause sellers and landlords—and the real estate professionals who work with them—to discriminate on the basis of national origin or race or adopt practices that have a disparate impact based on national origin or race.
Risk reduction tips:
- Continue following best practices when faced with discriminatory clients:
- Remind clients of their obligations under the Fair Housing Act, and of your policy not to discriminate.
- Report the situation to your broker.
- Document the situation in writing, including what actions you took in response to your client’s violations.
- If you are unsure whether a client’s actions violate fair housing laws, consult with an attorney.
- Be consistent and objective if you implement additional documentation requirements or screening questions in response to these laws; ensure that all prospective buyers are required to respond.
- If you choose to provide clients with notice of these laws, the notice should be clear that it is merely providing notice of requirements recently imposed by state law. The notice should also directly quote, rather than paraphrase, the relevant provisions of the law.
- Incorporate regular implicit bias and fair housing compliance into your ongoing training plans.
Vacant land scams
Vacant land scams have proliferated in recent months. Scammers posing as property owners target lien-free vacant land and unoccupied properties, tricking a real estate professional into listing the property for sale. In a “too good to be true” scenario, the seller asks to list below market value and wants a quick sale, preferably for cash. Communication is by text or email and the seller wants a remote closing, as they’re out of state or the country. These scams defraud innocent buyers and can result in liability for unwary agents. State regulators may take action against a licensee for negligence in failing to exercise due diligence to verify the seller’s identity and ownership interest.
Risk reduction tips:
- Look out for red flags when approached to list a vacant parcel or unoccupied property, such as insisting on a quick sale and all-cash buyers, accepting less than market value, and refusing to meeting in person or by videoconference.
- Exercise due diligence to verify the purported seller is the actual property owner, which may include sending a certified letter to the owner’s address of record on file with the county recorder.
- Conduct independent research to confirm the property owner, such as looking online for a recent photo or speaking to a neighbor.
- Make sure you or the title company select the remote notary at closing.
- Report a suspected vacant land scam to local law enforcement and file a complaint at IC3.gov.
- Remove the listing from the MLS and take down any advertisements quickly.
TCPA and DNC: Texting and calling
The Telephone Consumer Protection Act (TCPA) states that calls generated individually do not require prior consent at all, even if the device has the ability to store and dial call lists. While this ruling provides real estate professionals with peace of mind, the TCPA's rulings do require prior express written consent before using an automatic telephone dialing system (ATDS) to place telemarketing calls or texts to wireless numbers.
The United States Supreme Court and the Ninth Circuit Court of Appeals has narrowly defined the TCPA’s ATDS definition to require that the call technology not only store or dial numbers, but actually use a random or sequential number generator to place the calls. Therefore, calls using random or sequential number generators still require prior express written consent, which involves a signed agreement clearly and conspicuously disclosing the recipient’s permission to receive call and text messages from the sender.
Additionally, keep in mind that Do Not Call (DNC) laws should always be followed, which prohibits individuals from contacting phone numbers contained in the DNC registry.
Risk reduction tips:
TCPA
- Consent is the gold standard to avoid TCPA liability and must be obtained before using technology that employs a random or sequential number generator.
- Include language on consent forms stating that recipients who submit wireless numbers agree to receive calls and text messages from or on behalf of the sender.
- Allow recipients to easily cancel or opt-out (e.g., by responding “STOP” or “UNSUBSCRIBE”). Promptly remove individuals from messaging lists who have opted out. Maintain an opt-out record, including the date the person opted-out and the date the person was removed.
- Talk to your vendors about TCPA and DNC compliance and indemnification.
- Consult counsel regarding the applicability and requirements of any “mini-TCPA” laws that several states have enacted in response to the U.S. Supreme Court’s decision.
DNC
- Create an office policy for compliance with DNC rules and implement a method to monitor ongoing compliance.
- Obtain an updated DNC list monthly and cross reference with your company customer relationship management platform.
Cybercrime and wire fraud
Cybercrime continues to be a top concern in the real estate industry. In 2022, the FBI Internet Crime Complaint Center (IC3) reported a significant increase in total victim losses of $10.3 billion, a 49% increase from 2021. The top scams facing consumers and businesses in the real estate industry are:
- Phishing/Vishing/Smishing/Pharming whereby fraudsters use unsolicited emails, text messages and phone calls from a purportedly legitimate company to obtain personal, financial and login credentials;
- Wire fraud is carried out by fraudsters compromising email accounts to effectuate fraudulent fund transfers; and
- Ransomware where cybercriminals install malicious software that locks users out of their systems or encrypts data making it inaccessible unless a ransom payment is paid.
FinCEN’s Financial Trend Analysis report on business email compromise in real estate underscores that real estate continues to be an attractive target for cybercriminals to exploit the high monetary values generally associated with real estate transactions. According to the report, FinCEN found that 37 percent of fraudulent wire instruction emails impersonate the title/closing entity, and 23 percent of such emails impersonate a real estate professional in the transaction.
Risk reduction tips:
- Never email wire transfer instructions. Always independently confirm wire transfer instructions in person or via phone call to a verified telephone number.
- Train staff educate to be suspicious before clicking on unknown links or attachments.
- Routinely patch and update business software and equipment.
- Distribute consumer information and remind consumers throughout the transaction about the threat of wire fraud and to always verify any wire or payment instructions with a known contact before sending any money.
- Use multifactor authentication and require passwords to be updated regularly.
- Backup data and files regularly, following the 3-2-1 backup strategy; 3 copies of the data in 2 different formats with 1 copy stored off-site.
- Require vendors to adhere to good cybersecurity practices, and obtain assurances in contracts.
- Immediately report any suspected cyber crime incident by filing a report at www.ic3.gov, to the local FBI office, and local law enforcement.
