NAR Legal Update Broker Summit August 6, 2014 Ralph Holmen Associate General Counsel

Independent Contractor Status of Real Estate Sales Agents Historically most real estate agents treated as independent contractors, rather than employees. Various common law “tests” or criteria for determining I/C status. I.R.C. §3508 provides a discrete three factor test for federal tax purposes: –Written agreement –License –Most compensation from sales/output

Independent Contractor Status of Real Estate Sales Agents Monell v. Boston Pads, LLC, (unpublished), No (Mass. Super. Ct. July 15, 2013). Barasani v. Coldwell Banker, No. BC (Cal. Sup. Ct.), complaint filed Nov. 15, Cruz v. Redfin, No. RG (Cal. Supt. Ct.), complaint filed Dec. 23, 2013.

Independent Contractor Status of Sales Agents Trend or aberration? Many states currently expressly address the unique status of real estate sales agents in their statutes. Brokers should be sure to use care in referring to their sales agents as independent contractors. NAR develop educational resources to assist brokers.

Drones General rule: Use of drones (“UAS” ) by hobbyists or for research or public safety is permitted. Any other commercial use requires FAA approval on case-by-case basis. FAA Model Aircraft “guidelines”: Below 400 feet; 3 miles from an airport; away from populated areas; line of sight. FAA v. Pirker: NTSB Administrative Law Judge held March 6, 2014 that Federal aviation regulations inapplicable to drones that are “model aircraft,” even for “business purposes.” June 25, 2014: FAA seeks comment on its Interpretation of the Section 336 Special Rule for Model Aircraft included in the 2012 Modernization and Reform Act.

Data Security and Privacy «« Not just an issue for “big companies.” «« Every brokerage office maintains personally identifiable information (PII). «« Extensive state regulation of collection and retention of PII

«« Most states address collection, disposal, and breach notification of PII. «« Some real estate license regulations address licensees securely maintaining and destroying records, including transaction docs. Tennessee regulation requires principal brokers to develop and utilize a retention schedule. South Dakota applies a policy describing 11 requirements for safeguarding electronically stored records. «« No Federal data security, privacy, and breach notification laws yet, but being considered.

What is personally identifiable information? Defined by state law, but generally means: « « First name/initial and last name in combination with any of the following: « « Social Security Number « « Driver’s license or state-issued ID number « « Financial account number « « Medical/health information

«« Social Security Numbers Sales contracts Credit/background checks on renters W9s (collected by listing brokers from individuals receiving more than $600 cooperating commission) «« Driver’s license or state-issued ID numbers Clients’ driver’s licenses (collected as safety precaution) Rental applications; credit/background checks

« « Financial account number Personal checks given as earnest money Mortgage account number on HUD-1 Credit/background checks on renters Earnest money checks « « Other Employee/agent records maintained in HR files contain many PII elements Copies of loan documents or credit card payments related to transaction even without asking clients to provide such information

Where is PII stored?Where is PII stored? «« Broker systems and networks «« Scanners, copiers, and fax machines «« Agents’ personal «« Agents’ mobile text «« Agents’ personal home computer/laptop «« Cloud storage facilities «« Physical file cabinets

What’s the cost of a breach?What’s the cost of a breach? «« Operational expenses (i.e., damage to systems; time spent investigating breach and working with law enforcement) «« Cost of breach notification (avg. $194 per record) «« Civil penalties «« Annual audit/reporting requirements «« Negative public perception «« Potential future liability (i.e., ID theft)

Five Step Program «« Take Stock «« Scale Down «« Lock it Down «« Pitch It «« Plan Ahead

NAR ResourcesNAR Resources «« NAR Data Security and Privacy Toolkit and-privacy-toolkithttp:// and-privacy-toolkit «« Five Steps towards Achieving Data Security achieving-data-securityhttp:// achieving-data-security «« Data Security and Privacy page on REALTOR®.org «« Data Security Video the-law

Risk Management Fair Housing –Use/display of databases containing demographic information. RESPA –Compliance with Affiliated Business Arrangement disclosure requirements. Antitrust –Competing with new or innovative business models.

Short Sale Auction Programs Auction.com/Nationstar OCWEN/Hubzu