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You can get fined, have your real estate license revoked and even face a lawsuit if you offer legal advice to your clients. You may think it’s harmless to answer just a question or two, but it could land you in hot water.
Engaging in “unauthorized practice of law” violates Article 13 of the REALTOR® Code of Ethics, which requires real estate professionals to recommend legal counsel to their clients when handling certain situations during a real estate transaction. State laws can vary on this, creating a gray area in some incidences.
A broker in New York, for example, was disciplined for inserting terms of a purchase money mortgage into a sales agreement. In Ohio, a real estate professional was accused of unauthorized practice of law after answering a landowner’s questions about specific lease terms and legal rights.
You should understand your jurisdiction’s statutes, regulations and court decisions, Mike Rohde, a staff attorney for the National Association of REALTORS®, says in the latest “Window to the Law” video. States like Minnesota, Colorado and Utah have specific statutes governing what’s permissible by real estate professionals during transactions while other state laws may be more vague.
Familiarize yourself with statutes, regulations and case laws about the unauthorized practice of law from your state’s real estate commission, state REALTOR® association or local counsel, Rohde advises.
“Most states prohibit non-lawyers from drafting contracts. However, it is generally acceptable for real estate professionals representing consumers to insert factual information, like party identities, property identifiers and amounts, into blank attorney-approved form agreements,” Rohde says. “But making modifications beyond factual information or offering legal interpretations of provisions likely constitutes the unauthorized practice of law.”
Avoid making major modifications to form agreements; these likely require legal expertise, Rohde says. Also, do not interpret contract provisions or provide legal advice. Always encourage parties to consult an attorney, he says.
