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Broker's Course

Chapter 01 C/E Class # 118045

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The Oklahoma Real Estate Licensing Code
License Required - Exceptions
Application for License
Nonresident Licensing Agreements
License Terms - Fees
Inactive Status
Place of Business
Trade Names Must be Registered
Branch Office Location
Trust Accounts Must be Registered
Advertising and Associate's Advertising
Death or Disability of Broker
Cessation of Real Estate Activities
Reasons for Disciplinary Action
Certain Persons Prohibited
Imposition of Fines
Psychologically Impacted Property
Education and Recovery Fund
Licensing Procedures
Broker's Operational Procedures
Associate's Licensing Procedures
Trust Accounts Procedures
Causes for Investigation
Residential Property Condition Disclosure
Real Estate Settlement Procedures Act
Federal Consumer Protection Act
Fair Housing Laws
Oklahoma Fair Housing Law
Residential Lead-Based Paint Hazard Reduction Act


The overall objective of this seminar is to introduce participants to the OREC Code and Rules affecting the establishment and operation of a real estate office.

The seminar should enable participants to :

  • A. State in his/her own words points made about the use of the Code and Rules in operating a real estate firm.
    B. Feel:
    • 1. Able to use the Code and Rules as a field guide.
      2. Willing to apply the seminar's concepts in his/her own real estate activities.
  • C. Apply seminar taught ideas, concepts and applications about OREC Code and Rules in office operation.


You will want to take this test twice, once at the beginning of class and once at the end. You might miss a lot of questions on the pretest. Don't let it bother you. You should do much better the second time you take it. The whole idea of the PRETEST/POSTTEST is to make it possible for you to see how much you have learned from the class. The answers will be on the next page.

Answer T for True, F for False or D for Don't know.

Click to following link to print out an answer page. After you print the answer page, close the window to return to this page to take the pre-test. This link will open in a new browser window. Click to print an answer page.

Posttest Pretest

1. No broker or sales associate may begin real estate transactions without first having actually been issued his/her license.
2. A principal broker shall maintain a specific place of business which shall be available to the public during reasonable business hours.
3. A principal broker may have only one branch office.
4. A principal broker may not legally maintain an office in his/her residence.
5. Trade names may be advertised and used in real estate activities prior to being registered with the Real Estate Commission.
6. When closing a real estate firm, the first step is to notify the Real Estate Commission.
7. When a sole proprietor broker dies, trust funds should be retained under the control of the executor, administrator or co-signer on the account until all the parties to each transaction agree in writing to disposition or until the court issues an order as to disposition.
8.A representative of the OREC will visit the former office of a suspended or revoked broker prior to the effective date of the suspension/revocation to insure compliance with the suspension/revocation.
9. The fee for activation or re-issuance of a license is $25.00.
10. Real estate adds may show only a post office box number or telephone number.
11. Sales associates may advertise property only under the principal broker's name or trade name and under his/her supervision.
12. A branch office license must be renewed each calendar year.
13. The fee for a sales associate to change association of broker is $25.00.
14. A broker may request OREC to change the renewal date of his/her license.
15. A license terminates if a renewal application has not been filed with the OREC by midnight of the date on which the license is due to expire.
16. If a license has been lapsed for two years or more, the licensee may re-apply as an original applicant.
17. If OREC receives a check which is dishonored, the licensee has 10 days to re-issue a good check or the transaction is null and void.
18. Under extreme circumstances, OREC will establish commission rates.
19. Any person may file a complaint against a licensee.
20. Oklahoma does not allow nonresident licensing.

Click here for the answers.

Chapter One

The following is straight out of the brokers manual as distributed by the The Oklahoma Real Estate Commission (OREC). This chapter basically deals with the laws and rules prescribed by the OREC. As you know, laws are constantly changing to keep up with the times. Click the following links for the newest set of Laws and Rules from the OREC.
The Oklahoma Real Estate License Code and Rules. Updated 7/11/2008 (opens in Acrobat Reader)
These links will open in a new Browser Window. Bookmark these pages for future reference. When ever any of the following rules differ from the New Rules and Laws, the New Rules and Laws will take precedence. Also, whenever any of the following chapters makes reference to any Laws or Rules, use the New Rules and Laws.

The Oklahoma Real Estate Licensing Code

The Oklahoma Real Estate Commission came into existence on April 25, 1949 when Governor Roy Turner signed House Bill 14 into law. The Commission is an agency in the Executive Branch of State Government and derives its authority from the Legislature through Title 59 of Oklahoma Statutes Section 858-101 through 858-605.

Known as "The Oklahoma Real Estate License Code," these statutes describe the function, purpose duties and authority of the Oklahoma Real Estate Commission. The jurisdiction of the Commission is specifically defined by the "Code."

Through the "Code" the Legislature has given the Commission the authority to adopt rules and regulations, administer examinations, issue licenses, discipline for violations of the Code or Rules, and to regulate real estate schools and real estate instructors.

The Code gives the authority to appoint members of the Commission to the Governor with the advise and consent of the Senate.  Members of the Commission shall serve until their terms expire. The terms of the Commission members shall be for four (4) years and until their successors are appointed and qualified. The Commissioners are the policy setting and directing body for the agency.

§858-203. Compensation of Commissioners. Each member of the Oklahoma Real Estate Commission shall be entitled to receive travel expenses essential to performing the duties of his office, as provided in the State Travel Reimbursement Act.

In organizing itself, the Commission elects a Chairperson and a Vice Chairperson and employs a full time Secretary-Treasurer, also known as the Executive Director. The Director is given administrative responsibility over the operation of the agency. Through the State's Merit System, the Director may hire clerks and assistants as necessary to do the work of the Commission.

The Commission is funded entirely through the fees paid by licensees and applicants. No tax dollars are received by the Commission. All receipts are deposited in the OREC Revolving Fund and expended by the State Treasurer through appropriate warrants drawn by authorized personnel. The State Auditor and Inspector formally audits the financial records at least once every year.

At the end of each fiscal year, the Commission presents a financial report to the Governor and State Auditor and pays into the General Revenue Fund 10% of certain fees that it collects.

In the exercise of its power and in the performance of its duties, the Commission complies with the procedures provided in the Administrative Procedures Act.

License Required - Exceptions. (Code 858-301)

Any person who engages in activities as defines under "real estate broker" in Title 59, O.S. Section 858-102 is required to obtain a real estate license. The law does not apply to :

1) A person buying, selling or leasing real estate as an owner of the property, or their salaried employees (as defined by IRS),
2) An attorney-in-fact for the owner authorized to finalize a contract;
3) An attorney-at-law performing normal legal duties or a receiver, trustee in bankruptcy, administrator, executor or his or her attorney, or any person acting under a court order, or any person acting as a trustee under the term of any trust will agreement or deed or trust;
4) A person acting as a resident manager for the owner or an employee acting as the resident manager for a licensed broker managing an apartment building, duplex, apartment complex or court, when such resident manager resides on the premises and is engaged in the leasing of property in connection with the employment of the resident manager;
5) A person who engages in activity on behalf of a corporation or governmental body, to acquire easements, rights-of-way, leases, permits and licenses, including any and all amendments thereto ,and other similar interests in real estate, for the purpose of, or facilities related to, transportation, communication services, cable lines, utilities, pipelines, or oil, gas, and petroleum products; or
6) A person who engages in activity in connection with the acquisition of real estate on behalf of an entity, public or private, which has the right to acquire the real estate by eminent domain.
7) Apply to any person who is a resident of an apartment building, duplex, or apartment complex or court, when the person receives a resident referral fee. As used in this paragraph, a "resident referral fee" means a nominal fee not to exceed Fifty Dollars ($50.00), offered to a resident for the act of recommending the property for lease to a family member, friend, or coworker.

Application for License - Requirements.

The Commission has been given the specific authority to issue license for any person who qualifies and submits all required documentation and fees. The Commission has made available textbooks for all three approved real estate courses mandated by law. Real estate schools may develop their own course materials or adopt books published elsewhere.

To qualify for a license, a person must be of good moral character, be at least eighteen years of age and have successfully completed the mandated education and/or experience requirements.

Provisional Sales Associate - Any person of good moral character, eighteen (18) years of age or older, and who shall submit to the Commission evidence of successful completion of ninety (90) clock hours or its equivalent as determined by the Commission of basic real estate instruction in a course of study approved by the Commission, may apply to the Commission to take an examination for the purpose of securing a license as a provisional sales associate. After filing appropriate forms with the Commission, the applicant may appear for examination. Upon successful completion of the examination, obtaining approval of the application and submission of all required documents and fees, the applicant may be issued a real estate provisional sales associate license.

During the first year license term, the provisional sales associate must successfully complete a second forth-five (45) clock hour course. If the course is not completed within that term, the provisional sales associate license cannot be renewed and the person must reapply as an original applicant by complying with current education and examination requirements. The second course is referred to as a post-license course and may be a salesmanship course specific to real estate or some specialty in real estate such as property management, appraising, home inspections, etc. as approved by the Commission. Upon completing the course during any portion of the 3-year term, the provisional sales associate may apply to the Commission to have the license upgraded to a sales associate license.

Broker - Any person of good moral character who holds a renewable sales associate license and who shall have had two (2) years’ experience, within the previous five (5) years, as a licensed real estate sales associate or provisional sales associate, or its equivalent, and who shall submit to the Commission evidence of successful completion of ninety (90) clock hours or its equivalent as determined by the Commission of advanced real estate instruction in a course of study approved by the Commission, which instruction shall be in addition to any instruction required for securing a license as a real estate sales associate may apply to the Commission, to take an examination for the purpose of securing a license as a real estate broker or broker associate.

Upon being qualified to act as a broker, there are two major types of license for a broker.

Broker Associate - is a licensed broker who operates under the supervision and in the name of a sponsoring broker; or
Broker - is a licensed broker who is authorized to conduct business in the broker's name and supervise and sponsor provisional sales associate, sales associate and brokers associates.

A broker is afforded the following licensing options:

Sole Proprietor - A broker would select this option if the broker does not plan to incorporate, or form a partnership or association. This option is for a licensed broker who is the sole owner of the real estate business. Note: A sole proprietorship cannot be sold (contracts, listings, etc.) and the business life terminates upon the death or cessation of the sole proprietor. However, the goodwill of the business and name of the business may be sold.

Corporation - A broker would select this option if the broker plans to do business in the name of a corporation and not in the name of the broker. A separate license will be issued in the name of the corporation. A corporation may be sold and the business life can continue upon the death or cessation of the managing broker.

Limited Liability Company (Association) - A broker would select this option if the broker plans to do business in the name of an association and not in the name of the broker. A separate license will be issued in the name of the association. An association may be sold and the business life can continue upon the death or cessation of the managing broker.

Partnership - This option requires the involvement of at least two parties who each possess a broker license. A separate license will be issued in the name of the partnership. A partnership may be sold provided it complies with the terms of the partnership agreement and the rules and regulations of the Commission.

Nonresident licensing agreements (Code 858-306 and Rule 605:10-7-9)

The Oklahoma Real Estate Commission has negotiated nonresident licensing agreements with several states, however, a licensee in another state may obtain a nonresident license in Oklahoma regardless of whether there is an official agreement.

To qualify as a nonresident licensee, in addition to the standard requirements for a resident, a nonresident must appoint the Secretary-Treasurer of the Commission as the licensee's service agent to receive any summons which might be served assuring that Oklahoma courts will have jurisdiction over the licensee's actions within the state. If a person is interested in nonresident licensing, the person should read the contents of the rule and/or contact the Education Department at the Commission.


License terms - Fee schedule Check the Code and Rules as these figures are in constant change.
Licenses are issued for a three year period. The nonrefundable fee is structure is (as of July 1, 1998):
Broker license, $210.00
Provisional Sales Associate $75.00
 / Sales Associate license, $150.00
Education and Recovery Fund, $15.00
Late Penalty, $10.00
Duplicate license (if lost or stolen), $5.00
Examination fee for broker license, $75.00
Examination fee Provisional Sales Associate, $60.00
Misc. Status Changes, $25.00
Certification of License History, $15.00

If a sales associate qualifies for a broker license, the unused time fee, if any, remaining on the sales associate's license term will be prorated and applied to the broker's license fee.

Inactive status (Code 858-309 and Rule 605:10-7-3)

A licensee may place a license on inactive status by requesting it in writing and providing sufficient reason. A licensee who has a license on inactive status is not required to complete the continuing education requirement. However, upon activation of the license, the licensee will be required to show proof of the required hours. The only licensee exempt from continuing education is a provisional sales associate (psa) licensee because a provisional sales associate is required to complete a post-license course consisting of at least forty-five (45) clock hours whether the license is on active or inactive status. If it is not completed within the first license term, the provisional sales associate cannot renew the license and must start all over as an original applicant.

Place of business (Code 858-310 and Rules 605:10-9-1 and 605:10-9-2)

A broker must maintain a specific place of business which is available to the public during reasonable hours. This office may be in the broker's place of residence but must not be in violation of any local zoning ordinances. There must be a sign indicating this as the location of a real estate office on or near the entrance. The letters on the sign must be at least one inch in height.

Associates of the broker are not permitted to have an office, but must be registered from and work out of an office maintained and registered by the broker.

Trade names must be registered (Rule 605:10-9-3)

A broker is required to register in writing to the Commission all trade names used in connection with real estate activities prior to the trade name being advertised or displayed in any way. Further, the broker is to notify the Commission in writing all deleted and unused trade names.

Trade names are not licensed by the Commission. However, the name under which a broker does business is important for the Commission and the Public to know. If there is a complaint and the person complaining knows only the trade name (D.B.A.) and the trade name is not known to the Commission, it becomes difficult to contact the involved parties. Therefore, the Commission requires that a broker register all names under which the broker does business.

Branch office location (Code 858-310 and Rule 605:10-7-7)

If a broker elects to have more than one office, the broker may do so by securing a branch office license for each location. The broker must appoint a branch office broker who will be responsible for supervising the activities of the branch office in conjunction with the broker. For more specifics, see Rule.

Trust accounts must be registered (Rule 605: 10-13-1)

A broker is required to register in writing to the Commission all trust accounts used in connection with the broker's real estate activities. Further, the broker is to notify the Commission in writing all deleted and unused trust accounts. The broker must be a signor on the account. Read rule for complete trust account requirements.

Advertising and Associates Advertising (Rule 605:10-9-4)

A broker must identify to the public that the broker is not a private party and therefore, when advertising, must use the broker's business trade name or the name under which the broker is license to include, but not limited to, "company," "realty," or "real estate."

A broker is responsible for all advertising done by his associates. A broker should real this rule in its entirety because the rule list specific items that must be included in all associates advertising. Further, there are certain items that are left to the discretion of the broker as to whether the broker will allow such advertising by associates. Read rule for complete advertising requirements.

Death or disability of broker (Rule 605:10-9-6, 605:10-7-8, 605:10-7-8.1, 605:10-7-8.2)

In the event a sole proprietor broker dies or becomes disable all brokerage activity must cease and a family attorney or representative must follow the provisions of rule 605:10-9-6. If such death or disability involves a corporation, association or partnership, a family attorney or representative must follow the provisions of the appropriate rule that applies to such entity.

Restating again for clarity, a sole proprietorship ceases to exist when the sole proprietor ceases. The only entities that can continue to operate upon the death or disability of a broker is that of a corporation, association or partnership. This is due to business being conducted in the name of the licensed entity rather than in the name of the sole proprietor.

Cessation of real estate activities (Rule 605:10-9-7 and 605:10-13-1)

Upon a firm ceasing a portion of real estate activities or ceasing all real estate activities, the broker shall notify the Commission in writing of the effective date of the closing and advise as to the location of all records. The broker is required to comply with the rule guidelines and maintain sufficient documentation in the files to substantiate compliance.

As was discussed previously, a broker has various licensing options afforded to the broker and it becomes very important at the time of closing or selling the business.

In the event a sole proprietor, corporation, association or partnership ceases business activities, the person or entity is required to comply with firm closing instructions. Read rule for complete requirements.

Sale of sole proprietorship - The owner of a business has the right to sell it. A sole proprietorship in real estate may be sold as the owner sees fit. However, due to the nature of the real estate business, there are some serious restrictions in such a sale. The sole proprietor may sell the business, the "blue sky" the fixtures and other assets, but listings and agreements may not be sold. A listing is an employment contract entered into by the broker and the client. It is the personal property of both the broker and the seller. When a sole proprietorship is sold, the clients are notified of the sale and may re-negotiate a new listing agreement with the new owner of the company or not as they choose. In effect, the sale of a sole proprietorship terminates all agreements.

Sale of a corporation, association, or partnership - A corporation, partnership or association may be sold without affecting the listings and agreements. These entities remain in tact when sold because of the way in which ownership is held. The law considers a corporation, for example, to be a person. Therefore, a listing agreement between a seller and a corporation is not affected by a sale of the corporation.

Reasons for disciplinary action (Code 858-312 and Rule 605:10-17-4)

If, after investigation, a licensee is found guilty of any of the acts as outlined in Title 59, O.S., Section 858-312 (Reason for disciplinary action) or Rule 605:10-17-4 (Prohibited Dealings), the license can be suspended, revoked, required to take additional education, placed on probation, or be fined by the Commission. For specific reasons see these respective sections in the License Code and Rule booklet.

Certain persons prohibited from participation in real estate business (Code 858-312.1)

No person whose license is suspended or revoked shall operate directly or indirectly, or have a participating interest, or act as a member, partner or officer in any real estate business, corporation, association or partnership that is required to be licensed by the Code.

Imposition of fines for disciplinary sanction (Code 858-402)

The Commission may impose administrative fines upon any licensee as a result of a violation of the Code or the Rules of the Commission. An administrative fine may not be less than one hundred dollars ($100.00) or exceed two thousand dollars ($2,000.00) for each violation, or exceed five thousand dollars ($5,000.00) for all violations resulting from a single incident.

All administrative fines shall be paid within thirty (30) days of notification of the licensee by the Commission of the order of the Commission imposing the administrative fine. The license may be suspended until any fine imposed upon the licensee by the Commission is paid. If fines are not paid in full by the licensee within thirty (30) days of the notification by the Commission of the order, the fines shall double and the licensee shall have an additional thirty-day period. If the doubled fine is not paid within the additional thirty-day period, the license shall automatically be revoked

Administrative fines imposed by the Commission may be in addition to any other criminal penalties or civil actions provided for by law.

All monies received from fines paid shall be deposited in the Oklahoma Real Estate Education and Recovery Fund.

Psychologically impacted property (Code 858-513 & Rule 605:10-15-3)

Psychologically impacted real property may include houses wherein an occupant was suspected with AIDS or any other communicable disease. Property may also be considered psychologically impacted if a suicide or homicide or other felony occurred there. These are not, in the view of the law, material facts that must be disclosed in a real estate transaction. If a licensee or owner fails to disclose that property was psychologically impacted, no cause of action will arise because of this Code. However, if a purchaser or lessee who is in the process of making a bona fide offer tells the owner's licensee in writing that knowledge of such a factor is important to purchaser's or lessee's decision to purchase or lease, the licensee shall make inquiry of the owner and report any findings to the purchaser or lessee if the owner consents. If the owner refuses to disclose such information, the licensee shall so advise the purchaser or lessee.

Title 63, of Oklahoma Statutes provide that information concerning a person's health is private information and a real estate licensee does not have authorization to disclose such information. OREC Rule 605:10-15-3 provides specific procedures for handling questions regarding psychological impact.

Education and recovery fund (Code 858-601 - 605)

The Oklahoma Real Estate Education and Recovery Fund has been established by the Commission to reimburse any person found by an appropriate court to have suffered monetary damages caused by a licensee as a result of fraud, misrepresentation, deceit, false, pretense, artifice, trickery or any other act in violation of the Code.

The source of the monies in the fund is a nonrefundable $15.00 fee for both new and renewing licensee for thirty-six (36) months period. Excess funds in the account are transferred to the revolving fund at the end of each fiscal year.

For specific qualification factors see Title 59, O.S., Section 858-601 through 605 in the License Code and Rule booklet.

The maximum a claimant can collect from the Education and Recovery Fund is $15,000.00 or the actual damage, whichever is less. Should there be a later recovery from the defendant, the Fund is to be reimbursed.

The maximum amount of claim paid for any single transaction is $50,000.00 no matter how many claimants are involved. Also, the maximum payment for claims against any one licensee is $50,000.00. A special levy of no more than $5.00 per licensee can be assessed by the Commission in case the Fund is not sufficient to pay all outstanding claims.

If the Commission pays out a claim on any licensee, the licensee's license will automatically be revoked. Reinstatement will be considered only after the Fund has been repaid in full plus interest.


The regulation of the real estate industry is conducted under the authority of state government. Historically, legislatures have passed laws and relied on the executive branch of government to see that the law is carried out. The court has served as a referee when a person questioned the constitutionality of a law, how it was being interpreted, or the way in which it was being enforced.

This model failed to take into account the fact that legislators lack the time, the expertise, and often the inclination to deal with complex situations. As problems of an industrialized society grew more complicated, the existing machinery of government proved inadequate to meet the problems that arose.

Administrative agencies, such as the Oklahoma Real Estate Commission, have therefore evolved to meet the need. The Oklahoma Legislature formulates general policies and standards in real estate and then turns over the administrative responsibility for working out details to the Commission.

The Commission is therefore an extension of the legislature with power to fill in details of the laws and make rules that are law. Thus we have a specialized type of law, known as administrative law, which sets forth the rules by which the Commission must function to insure orderly procedures and equal treatment for all.

The Commission is restricted to promulgating rules necessary to fulfill the stated legislative purpose based on standards provided by the legislature and to providing procedural due process for its licensees. When the Commission proposes rules or changes to existing rules, the rules must be presented to the legislature and governor for approval.

A broker is encourage to keep a current copy of the Commission's Code and Rules booklet on hand. The Rules section provide the answers to many questions concerning the operation of a real estate company. It is a good guide for legal real estate brokerage operation. These booklets are available from the Commission at no charge.

The Rules are Codified under Title 605 of Oklahoma Administrative Code. The sections which are of greatest interest to brokers are the following:

Subchapter 7, Licensing Procedures and Options - Brokers may refer to this section for information about license terms, renewals, reinstatements, late penalties, active and inactive status, license history, branch offices, licensing of corporations, associations and partnership, and nonresident licensing.

Subchapter 9. Broker's Operational Procedures - This subchapter will provide brokers with details concerning place of business, office identification, trade names, advertising, change of address, what to do if a broker becomes disabled or dies, and other requirements for cessation of business.

Subchapter 11. Associate's Licensing Procedures - Brokers who have associate's licenses under their supervision will be especially interested in this subchapter. It contains essential information concerning the activities of associates, their licenses and any corporations or associations associates may own.

Subchapter 13. Trust Account Procedures - Trust accounting is covered in greater detail in chapter three of this textbook, but this subchapter of the Rules outlines the requirements for trust accounts. The Commission is intensely interested in trust accounts and recommends that every broker who has such an account be intimately familiar with these Rules.

Subchapter 15. Disclosures - The familiar old saying about real estate's three most important things being location, location, location may be about to be bumped down one notch by disclose, disclose, disclose. As consumers become more active and aware, disclosures become more important in the conduct of the real estate business. This subchapter contains the requirements to disclose beneficial interests of a broker or associate which may effect a transaction, the disclosure rule, guidelines for furnishing psychological factors and the residential property condition disclosure rule.

Subchapter 17. Causes for investigation; hearing process; prohibited acts; discipline - This subchapter contains essential information in the event there is a complaint filed against a licensee. Knowledge of these Rules is essential for every real estate firm. This subchapter's Rules are about commissions, complaints, hearings, prohibited dealings, substantial misrepresentation, and guidelines for suspended or revoked licensees.

Residential Property Condition Disclosure Act

The Residential Property Condition Disclosure Act with into effect on July 1, 1995. It requires that sellers of one or two residential dwelling units disclose various aspects of their property's condition to purchasers if the seller is represented by a real estate licensee or if the seller is not represented by a real estate licensee but the prospective purchaser requests the information.

The Residential Property Condition Disclosure Act is found in Title 60, Oklahoma Statutes, Section 831 and following. Copies of the Act can be obtained from the Commission. It is important that a licensee read all portions of the Act to help eliminate oversights and costly legal fees and compensation to harmed parties. The Oklahoma Real Estate Commission does not have jurisdiction over the seller disclosure law. However, it has jurisdiction over licensees who are not in compliance with the law.

Title 60 requires a licensee representing a seller to obtain from the seller and make available to a potential purchaser, or a licensee representing or assisting a purchaser has the duty to obtain and make available to a purchaser, the required forms prior to the seller accepting an offer to purchase. It is important for a licensee involved to take all necessary and appropriate steps to assure that the disclosure form is completed by the seller and that it is properly delivered and acknowledged by the purchaser prior to the seller accepting an offer to purchase.

If the form is not acknowledge by the purchaser prior to the seller accepting an offer to purchase, it could result in legal actions on the seller and the licensee. In such an event the Commission may take action against the licensee also. The law also requires the licensee to disclose any defects in the property actually known to him which are not included in the seller disclosure statement.

A licensee is not to assume responsibility for completing the disclosure form for the seller or answering questions which may be legal in nature. A licensee is not to assume responsibility for completing the disclaimer form for the seller.


Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act was first passed in 1974 for the purpose of ensuring that purchasers are fully informed as to the amount and type of charges which purchasers will be expected to pay at closing. The law has been revised several times since its original enactment and is currently the subject of intense scrutiny. The "Mortgage Reform Working Group" is made up of representatives from the National Association of Realtors, the Mortgage Bankers Association, the Community Bankers Association, the Real Estate Service Providers Council and several other consumer groups. These groups have been working for the past several years to come up with a revised RESPA which will be satisfactory to everyone involved.

Until it is revised, its effect remains as it was enacted and revised. RESPA requires a uniform settlement statement to be used by closing agents. This affects all loan closings which are not exempt from the law. The HUD - 1 Form is the mandated form for all covered closings.

RESPA also requires that lenders provide all prospective borrowers with a copy of a special information booklet. It defines many terms and through the use of illustrations, aids borrowers in making decisions regarding the transaction. The booklet also explains the roles and functions of the parties in a real estate transaction and the fees a borrower may be charged.

Lenders are required to provide borrowers with good faith estimates of probable closing costs related to those items for which information is available. These typical costs include recording fees, attorney's fees, title fees, insurance fees, loan closing service fees, etc. Any closing charges or fees known to the lender are to be included in this estimate. Exceptions to this good faith estimate may include brokerage commissions, escrow items such as insurance and taxes and advance hazard insurance.

If a lender insists that a certain person or firm be used, such as an attorney or title company, the lender is required to give borrower an estimate of the closing agent's charges. The lender must give the borrower a statement indicating any business relationship between the lender and the closing agent. However, if the borrower is not required to pay any part of the closing costs these requirements do not apply.

RESPA provides that no one may give or accept any fee, kickback or any other consideration for business related to a real estate loan transaction. Brokers and associates must be certain that any fees collected, other than commissions, are for specific services rendered. Violation of this provision of RESPA is subject to both civil and criminal penalties. Civil penalties include triple damages.

RESPA also requires that no seller of real property can require that the purchaser purchase title insurance from a particular firm as a condition for sale. This prevents "special" arrangements that may be made by developers for low insurance rates on undeveloped land in exchange for a requirement that the new lot or home purchaser obtain title insurance from the same companies. Again, in this case triple damages may be awarded for violation.

Transactions which are except from RESPA include:
* Loans to finance the purchase of 25 or more acres.
* Loans for home improvement, or to refinance, or any other purpose if not to purchase or transfer title.
* Loans to finance the purchase of a vacant lot, if none of the loan proceeds will be used to place a residential structure or mobile home on the lot.
* Sale or transfer or property involving only assumption of an existing loan or sale subject to an existing loan.
* A construction loan unless it is intended to be converted into a permanent loan.
* Permanent loans to finance construction of one-to-four family structure when the lot is owned by the borrower.
* Loan to finance the purchase of property when the primary purpose is resale of the property.

Federal Consumer Credit Protection Act

Known as the Truth-in-Lending Act and implemented by the Federal Reserve Board, requires that a borrower be clearly shown how much the borrower is paying for credit in both dollar terms and percentage terms before committing himself to a loan. The borrower is also given the right to cancel (rescind) the transaction in certain instances. The key provision of the act is to devise a standard yardstick by which a prospective borrower could measure and compare the various credit terms available to him.

The law requires that the following must comply with the law:
* Persons who extend credit in the ordinary course of their business.
* Persons who arrange for credit on behalf of another.
* Advertisers of products or items being sold on credit.

Financing subject in the Act includes:
* All consumer credit to natural persons.
* Assumptions of notes accompanying mortgages and deeds of trust and contracts for creditors.

Exempted from the Act Are:
* Business and commercial loans.
* Personal property loans in excess of $25,000.00.
* Loans repayable with four or less installments that do not carry a finance charge.
* Financing extended to corporations, partnerships, associations, and agencies.

The Truth-in-Lending Act requires that the terms and conditions of the loan be disclosed in writing to the borrower before a permanent contractual relationship is made between the borrower and the lender. To give the borrower a clear picture of the annual rate cost of credit, the Act requires that lenders use a uniform measure called the annual percentage rate or APR. This combines the interest rate, loan fees, discount points and other costs of obtaining the loan into a single figure that also shows the borrower:
* The date the finance charge will begin.
* The number of monthly payments.
* The due dates of payments.
* Any default or delinquency charges.
* Any payoff penalties.
* Any balloon payments.
* The total amount of credit that will be made available to the borrower.
* The method of computing credit for early payment.
* The composition of finance charges.
* The total finance charge.
* The total of all payments include principal.
* A description of any property used as collateral for the loan.

If the loan is connected with a sale, then the cash price, down payment, and unpaid balance must also be stated in writing. The advertising of credit terms is permitted under the Truth-in-Lending Act and the Federal Reserve's Regulation Z. They provide certain rules must be followed. A real estate licensee who writes an advertisement for property which has been listed may advertise the cash price if it is identified as such. If any other credit terms are added, then full disclosure must be made in the advertisement. This means that the ad must state the cash price, APR, down payment, monthly payment, loan fees, term of the loan, number of payments (except for first liens), finance charge, and total charges.

Generally, if there is an institutional lender making a loan as part of the sale, the lender will handle the Truth-in-Lending details. In that event, the real estate licensee's primary responsibility to the Truth-in-Lending Act is to make certain any advertisements that the licensee writes conform to the law.

Contact the Federal Trade Commission for detailed information.

Fair Housing Laws

Following the Civil War a number of states and local governments adopted restrictive laws and regulations which made it difficult for Blacks to purchase or rent real estate. As a result, Congress passed the Civil Rights Act of 1866 as a method whereby the rights guaranteed by the Fifth, Thirteenth, and Fourteenth Amendments to the Constitution could be enforced.

The Civil Rights Act of 1866 states that Blacks have the same rights as Whites to inherit, purchase, lease, sell hold and convey real estate and personal property.

The Act remained a largely ineffectual law until 1968 when the United States Supreme Court, in a case styled Jones v Meyer, 392 US 409, ruled that all acts of racial discrimination, both public and private were covered by the 1866 Civil Rights Act.

The statement of the Court in that famous decision is as follows:

"At the very least, the freedom that Congress is empowered to secure under the Thirteenth Amendment includes the freedom to buy whatever a white man can buy, the right to live wherever a white man can live. If Congress cannot say that being a free man means at least this much, then the Thirteenth Amendment made a promise the nation cannot keep . . . And when racial discrimination herds men into ghettos and makes their ability to buy property turn on the color of their skin, then it, too, is a relic of slavery".

The Civil Rights Act of 1968, Title VIII
The Civil Rights Act of 1968 was signed into law on April 11, 1968.
The 1968 law, while including some exclusions, provided a broad range of prohibited discriminator acts:

1. Refusing to sell or rent to, or deal or negotiate with any person or otherwise make unavailable or deny a dwelling.
2. Discriminating in their terms, conditions or privileges of buying or renting housing.
3. Discriminating by advertising that housing is available only to persons of a particular race, color, religion, sex or national origin.
4. Denying that housing is available for inspection, sale or rent when it really is available.
5. Blockbusting for profit, by persuading owners to sell or rent housing, or by attempting to induce prospective tenants to rent by telling them that members of minority groups are moving into a particular area.
6. Denying or making different terms or conditions with respect to loans by commercial lenders, such as banks, savings and loan associations and insurance companies involving housing related transactions.
7. Denying access to, or participation in, any organization, such as a multiple listing service, multifamily organization, or professional association related to the sale or rental of housing.

Amendments of 1988

The Fair Housing Amendments Act of 1988 was signed into law on September 13, 1988 and became effective on March 12, 1989.

The following are the major changes the Fair Housing Amendments Act of 1988 make:

1. Bar discrimination in the sale or rental of housing on the basis of handicap, and requires the design and construction of new covered multifamily dwellings to meet certain adaptability and accessibility requirements.
2. Bar discrimination in the sale or rental of housing because there are children in a family, but exempts housing for older persons.
3. Modifies the definition of a discriminatory housing practice to include acts of interfering, coercing, threatening or intimidating a person in the exercise of enjoyment of his/her rights as protected by Section 804, 805 and 806 of the Act.
4. Provides HUD with the ability to initiate complaints.
5. Gives an aggrieved person one year after an alleged discriminatory housing practice in which to file a complaint in court.
6. Requires HUD to complete a Title VIII investigation and conciliation effort within 100 days after the filing of the complaint, unless it is impracticable to do so. HUD can also seek preliminary or temporary relief including temporary restraining orders where such actions are necessary to carry out the purpose of the law.
7. Expands the U.S. Department of Justice's litigation authority to include individual acts of discrimination.
8. Provides that any state or local fair housing agency may become certified if HUD determines (1) the substantive rights protected by the agency, (2) the procedures followed, (3) the remedies available and (4) the availability of judicial review are substantially equivalent to that of Title VIII.
9. Clarifies that Federal agencies with regulatory or supervisory authority for financial institutions, e.g. FDIC, are also required to cooperate with HUD by administering their programs in a manner to affirmatively further fair housing.
10. Requires HUD to prepare an annual report to the Congress on progress eliminating housing discrimination.
11. Requires HUD to make data available to the public on the race, color, religion, sex, national origin, age, handicap, and family characteristics of persons and households eligible for or assisted by HUD programs.
12. Requires HUD to issue regulations implementing this Act within 180 days of enactment.

Oklahoma Fair Housing Law

The State of Oklahoma has its own Fair Housing Law. It is found in Title 25, Oklahoma Statutes, 1981, Section 1101, et. seq.

The Oklahoma Human Rights Commission was created by legislation in 1963 to "work toward removing friction, eliminating discrimination, and promoting unity and understanding among all the people of Oklahoma."

The agency is empowered to conduct hearings on complaints of the citizens alleging discrimination.

The Oklahoma Human Rights Commission is charged with the responsibility of enforcing the Oklahoma Fair Housing laws. The following are considered violations of the state law:

1. Refusing to sell or rent, to refuse to negotiate to sell of rent, or to deny or make unavailable any housing.
2. Discrimination in the terms, conditions or privileges of housing.
3. Refuse to consider as a valid source of income public assistance, alimony or child support.
4. Deny access to or participation in any real estate service, such as brokers' organizations, multiple listing services or other facilities related to the selling or renting of housing.
5. Include or honor restrictive covenants which are discriminatory.
6. Induce owners, for profit, to sell or rent housing by informing them that members of different racial/ethnic groups are moving into the neighborhood.
7. Advertise any discriminatory preference or limitation in housing.
8. Represent falsely that housing is unavailable for inspection, sale or rent.
9. Make unequal terms, conditions or privileges in the obtaining or use of financial assistance for the acquisition, construction rehabilitation or maintenance of housing.
10. Refuse to consider the income of both applicants when both seek to buy or lease housing.
11. Refuse to rent housing on the basis of the person's use or possession of a guide, signal, or service dog.
12. Demand payment of an additional, non-refundable fee or an unreasonable deposit for such dog.
13. It is unlawful for housing providers to retaliate against (an employee or licensee) through demotion, discharge, or unequal compensation, because of their compliance with the provisions of the Fair Housing Law.

It is also reason for disciplinary action against a licensee in the event a licensee has been convicted of violating the fair housing laws.

Residential Lead-Based Paint Hazard Reduction Act of 1992

The lead-based paint disclosure law was passed to address the need to control exposure to lead-based paint hazards on "target housing" offered for sale or lease. "Target housing" is defined as any housing constructed prior to 1978, except housing for the elderly or persons with disabilities (unless any child who is less than six years of age resides or is expected to reside in the housing) or any 0-bedroom dwelling.

Disclosure and lead-based pamphlet

The following activities shall be completed before the purchaser or lessee is obligated under any contract to purchase or lease "target housing" that is not otherwise an exempt transaction. Nothing implies a positive obligation on the seller or lessor to conduct an inspection, risk assessment or abatement activity. It is incumbent upon the purchaser or lessee to have the property tested if they so desire. However, the seller or lessor is required to comply with the following disclosure requirements:

1. Sellers and lessors shall provide purchasers and lessees with an EPA approved lead hazard information pamphlet entitled "Protect Your Family from Lead in Your Home."
2. Sellers and lessors shall disclose to purchasers, lessees and real estate licensees the presence of known lead-based paint and/or lead-based paint hazards in target housing being sold or leased. Sellers or lessors shall also disclosure any additional information available concerning known lead-based paint and/or hazards, such as the basis for the determination that lead-based paint and/or hazards, and the condition of the painted surfaces.
3. Sellers and lessors shall provide purchasers of lessees with any records or reports available to the seller or lessor pertaining to lead-based paint hazards in the target housing being sold or leased. This requirement includes records and reports regarding common areas. This requirement also includes records and reports regarding other residential dwellings in multi-family target housing, provided that such information is part of an evaluation or reduction of lead-based paint hazards in the target housing as a whole.
4. Sellers shall allow the purchaser a ten day period (unless the parties mutually agree to something different) to conduct a risk assessment or inspection for the presence of lead-based paint hazards before the purchaser is obligated under any purchase contract. However, a purchaser may waive the opportunity to conduct the risk assessment or inspection by so indicating in writing.
5. Sales contracts must include an attachment which contains certain disclosure and acknowledgement language. Leasing contracts must include certain disclosure and acknowledgement language or an attachment which contains such information and acknowledgement.
6. A real estate licensee must ensure compliance with these requirements. A real estate licensee fulfills this requirement by informing sellers or lessors of their obligations and by making sure that these activities are completed either by the seller or lessor or by the licensee personally. Sellers have a duty to disclosure to the licensee any known lead-based paint and/or lead-based paint hazards on the property. Provided that the licensee has actually informed the seller lessor of his/her obligation, the rules state that the licensee will not be responsible for information withheld from the licensee by the seller or lessor.

Lead-based paint disclosure form

There is no federally mandated form for disclosing lead-based paint. However, each contract to sell target housing shall include an attachment (disclosure form) containing specific disclosure and acknowledgment elements, in the language of the contract. The disclosure form must be acknowledged by all parties including the seller, purchaser and licensee.

The disclosure and notification requirement for a residential sale must take place before the purchaser is obligated. This requires the seller to disclose information before accepting the purchaser's offer, thereby allowing the purchaser an opportunity to review the information and to possible amend the offer. If a seller were to accept a purchaser's offer and obligate the purchaser before disclosing known information, the seller would be a violation.

Test your Understanding Chapter 1

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