The Code of Ethics - Breaking It Down #4

Before we begin our discussion on Article 4, find out what happened in Article 3 here.

Article 4 deals with disclosure and family ties. Families are like fudge - mostly sweet with a few nuts. ~Author Unknown

Article 4 states: REALTORS® shall not acauire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner's agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser's representative.

The only standard of practice underneath Article 4 says that "for the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by REALTORS® prior to the signing of any contract.

For the purposes of the Code of Ethics, the term "Immediate Family" is much broader than your standard (or health insurance) definition.

"As used in the Code of Ethics, the term ‘immediate family’ includes, but is not limited to, the REALTOR® and the REALTOR®’s spouse and their siblings, parents, grandparents, children (by birth or adoption), grandchildren and other descendants."

So this means, if you are representing your brother-in-law, that needs to be disclosed. The language you often see in listings and on contracts is "Agent related to buyer/seller".

If you are representing a company that you also have ownership interests in, that needs to be disclosed. "Agent has ownership interest in buying/selling entity".

It seems so straight forward! So let's examine the following situation:

Buyer X was interested in purchasing a home listed with REALTOR® B but lacked the down payment. REALTOR® B offered to lend Buyer X money for the down payment in return for Buyer X's promissory note secured by a mortgage on the property. The purchase transaction was subsequently completed, though REALTOR® B did not record the promissory note or the mortgage instrument.

Within months, Buyer X returned to REALTOR® B to list the property because Buyer X was unexpectedly being transferred to another state. REALTOR® B listed the property, which was subsequently sold to Purchaser P. The title search conducted by Purchaser P's lender did not disclose the existence of the mortgage held by REALTOR® B since it had not been recorded, nor did REALTOR® B disclose the existence of the mortgage to Purchaser P. The proceeds of the sale enable Buyer X to satisfy the first mortgage on the property, and he and REALTOR® B agreed that he would continue to repay REALTOR® B's loan.

Following the closing, REALTOR® B recorded both the promissory note and the mortgage instrument. When Purchaser P learned of this, he filed an ethics complaint alleging that REALTOR® B had violated Article 4 by selling property in which she had a secured interest without revealing that interest to the purchaser.

... So? What do you think? Did REALTOR® B have an obligation to disclose her financial relationship with the property to Purchaser P?

As always, tell me what you think in the comments!

Susan Hansen
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