September 28, 2023
As a real estate broker, you are required to retain certain documents related to all real estate transactions you perform even if the transaction is not consummated. A responsible broker shall also exercise reasonable supervision over the activities of their salespersons or broker associates acting in the capacity of a salesperson, including procedures and systems to review, oversee, inspect and manage the filing, storage and maintenance of documents. By following the record retention rules, you will be prepared if you ever encounter litigation over a real estate transaction or if you are ever audited or asked for documents during an investigation by the Department of Real Estate. Failure to retain and produce the required documents upon request or upon audit may subject you to discipline action and possible license revocation.
California Business and Professions Code Section 10148 requires that licensed real estate brokers retain all listings, deposit receipts, canceled check, trust records, and other documents executed by the broker or obtained by the broker in connection with any transaction for which a real estate broker license is required.
Because of the broad definition of records that must be retained, it is good practice to retain every document that you executed or obtained during any transaction.
A licensed real estate broker shall retain the records for a period of three years. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction was not consummated.
Digital documents such as emails and relevant text messages also need to be retained for a period of three years. However, text messages, instant messages or social media messages are excepted from this rule unless you have used these mediums to intentionally create a permanent record for purposes of the real estate transaction, in which case the subject medium should also be retained.
Notwithstanding the required three-year retention period, it is recommended that you retain all records for up to six years due to the fact that real estate laws allow buyers to file legal actions for a contract breach or failure to disclose defects up to four years after the transaction. The four-year Statute of Limitations begins on the date of discovery of the breach or defect. Therefore, if you find yourself in a situation where a claim is brought against you and you have disposed of your records after the three-year period, you will no longer have evidence of the transaction for use in protecting yourself from potential liability.
California law does not require that you keep the original transaction documents. Real estate records should be maintained in a system that is easily accessible. It is good practice to keep an electronic copy of every document and that you establish a system for naming your files that is easily understood by your agents and employees. This will make it more efficient to organize and find the documents when needed. You should also maintain a backup copy of the documents that is not connected to the same electronic system as the original copy so that your documents will still be accessible in the event of a computer virus or failure. It is imperative that you confirm that all required documents have been saved and backed up before destroying any original documents.
Requirements for disposing of records.
When the time comes to dispose of your real estate records, you must be sure that any documents that contain personal information such as names, signatures, social security numbers, addresses, telephone numbers, driver’s license or identification cards or numbers, insurance policy numbers, and any financial information are destroyed by shredding, erasing or otherwise modifying the personal information in the records to make it unreadable or undecipherable through any means pursuant to California Civil Code Section 1798.80 and 1798.81.
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