Hot Topics in Broker Risk Reduction

Cybercrime and Wire Fraud

Cybercrime—particularly wire fraud—continues to be a top concern in the real estate industry. In 2023, the FBI Internet Crime Complaint Center (IC3) received a record number of complaints from the American public, a nearly 10% increase over 2022, with potential losses exceeding $12.5 billion, up 22%. The top scams facing consumers and business in the real estate industry are:

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:

1. 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.
2. 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. 
3. Music: Real estate professionals should also 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. 
4. Websites: Real estate professionals should 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.

Deed Fraud

Deed fraud encompasses a range of crimes where the criminal seeks financial gain through a scheme involving real property. One such scheme is seller impersonation fraud, which is on the rise. . According to the American Land Title Association, 28% of title insurance companies experienced at least one seller impersonation fraud attempt in 2023, and in April 2024 alone, two in 10 title companies experienced attempts.

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. 

Fair Housing

Real estate professionals must keep fair housing laws top of mind as they navigate the practice changes and the proposed settlement agreement. With a variety of options and approaches to compensation, there is potential for fair housing violations.

Consistency in applying policies and procedures remains key. Brokerages should establish procedures to ensure that while negotiating a written buyer agreement, all available options are offered to the client so that agents are not treating consumers differently because of their race, sex, national origin, or other protected characteristic. Where different services or pricing are offered to different clients, agents should document the legitimate business reason for the differences.

On the listing side, if the seller authorizes offers of compensation as part of the marketing strategy,; any variation should be based on a legitimate business reason and never based on the buyer or the buyer agent’s protected characteristics. Protected characteristics under federal law include race, color, religion, sex, national origin, disability and familial status. Additional protected characteristics can vary based on jurisdiction, so be familiar with state and local fair housing laws. Remember, if a seller denies housing or a housing-related service—such as an offer of compensation to a buyer broker—based on the buyer or buyer broker’s protected characteristics, the seller and the listing agent could face liability.

Independent Contractor Status

The Federal Trade Commission issued a final rule prohibiting employers from enforcing noncompete agreements against workers. Under the rule, a worker includes independent contractors. The rule was scheduled to take effect September 4, 2024, but has not taken effect due to a preliminary injunction issued by the U.S. District Court for the Northern District of Texas prohibiting FTC enforcement of the rule nationwide. 

The ability to work as an independent contractor is recognized and protected under many statepdf and some federal laws. The risk of misclassification poses a challenge for brokerages, particularly with the proliferation of teams, where team leads may want to dictate how team members manage their tasks and time. While there is often an inherent conflict between common law independent contractor status and the traditional classification of real estate salespeople as independent contractors, some state statutes expressly address the unique status of real estate agents, permitting classification as independent contractors despite the required control and supervision the broker has over the licensees. For example, in 2022, New Jersey amended its real estate brokerage law to retroactively exclude real estate salespersons from the state wage law, which uses the “ABC test” to classify workers. In addition, a recent California appellate decision affirmed a salesperson’s ability to choose to be an independent contractor, citing a 3-part test found in the state business licensing code. 

However, litigation and new federal and state legislation continue to threaten workers’ ability to be classified as independent contractors, including many real estate professionals., On March 11, 2024, a new U.S. Department of Labor (DOL) rulepdf updated the test for determining whether a worked is an employee or independent contractor under the Fair Labor Standards Act. The new rule shifts the analysis of whether a worker is an employee or an independent contractor to a more complex “totality-of-the circumstances” standard. The rule provides for six (6) factors to consider when assessing how a worker is classified under the FLSA. The rule is expected to make it harder for workers to be classified as independent contractors, despite the DOL stating that the new rule will not result in widespread changes to worker classification.

TCPA & DNC: Texting and Calling

Plaintiff lawyers have created a lucrative business model filing class action lawsuits alleging real estate professionals have violated the Telephone Consumer Protection Act (TCPA) and Do Not Call (DNC) laws by sending text messages and placing phone calls without the recipient’s consent. Specifically, the TCPA requires 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 Courtpdf 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. Thus, calls using random or sequential number generators still require prior express written consent, which involves a signed agreement clearly and conspicuously disclosing the text recipient’s permission to receive call and text messages from the sender. Now it is clear that calls generated individually - not using a random or sequential number generator - need not obtain prior consent at all, even if the device has the ability to store and dial call lists. Keep in mind that DNC laws should always be followed, which prohibits individuals from contacting phone numbers contained in the DNC registry.

In response to the U.S. Supreme Court’s decision, several states have enacted so-called “mini-TCPA” laws which change the ATDS definition and provide additional restrictions on telemarketing calls and texts. In some states, the requirement for express written consent has been expanded to include any calls made using an automated dialing device or artificial voice message, not just random or sequential numbers. States have also adopted additional restrictions on the times in which such calls can be made as well as specifying the content and timing of required disclosures during a telemarketing call. These mini-TCPA laws apply to calls made within and to consumers located within the applicable states and could provide the setting for the next wave of litigation on this issue as state courts tend to be more consumer-friendly.

On December 13, 2023, the FCC adopted new rules under TCPA, including: clarifying Do-Not-Call Registry restrictions apply to text messages as well as phone calls; requiring the seller of a product or service t0 obtain consent directly from the consumer, known as 1-to-1 consent, before using an ATDS or sending artificial voice messages; and stating artificial voice messages includes messages developed using generative AI.

Anti-Money Laundering

Beneficial Ownership Rule

Starting January 1, 2024, all domestic and foreign business entities formed or registering to do business in the US must provide the Financial Crimes Enforcement Network(FinCEN), a bureau within the Treasury Department, with the identities of persons with 25% or more ownership interest (“Beneficial Owners”). Business entities include most LLCs and corporations, with some exemptions for regulated entities like banks and insurance companies. Companies formed after January 1, 2024, must register with FinCEN within 30 days; companies formed before January 1, 2024, have until January 1, 2025, to provide the required information to FinCEN.  

Failure to timely file a Beneficial Ownership report may result in penalties of $500 per day and criminal penalties including a $10,000 fine and/or up to two years imprisonment.

The Beneficial Ownership Rule does not impose any obligations on real estate agents, unless they are a Beneficial Owner of a reporting company. 

Real Estate Reports

In August 2024, the Financial Crimes Enforcement Network (FinCEN) issued a final rule, effective December 1, 2025, that imposes reporting and recordkeeping requirements for non-financed, residential real estate transactions and transfers of real estate. The final rule requires certain real estate professionals to file reports for non-financed residential real estate transactions, and transfers of real estate to trusts or legal entities. 

The Real Estate Report for these transactions requires information regarding: 

• A transferee entity or transferee trust; 
• Beneficial ownership for the legal entity or trust receiving the property;
• The business filing the report; 
• The residential real property being sold or transferred.
• The transferor (the seller); 
• Any payments made, including account level information for the source of payments. 

The purpose of the new reporting and recordkeeping requirements is to address money laundering loopholes and vulnerabilities that bad actors exploit. FinCEN expects settlement agents, title insurance agents, escrow agents, and attorneys primarily to be responsible for reporting, however, real estate agents are not specifically exempt from reporting.