No Call List and Money Laundering

Question #1: My company does not permit cold calling. Do I still need to have a written policy addressing the Do Not Call regulations?

Answer:   Not if you are a one person company. If you have licensees working under you, they may violate your prohibition. Employing brokers need a written policy to create a safe haven insulating the company and employing broker from the mistakes of the associated brokers. The FTC may assess fines of up to $11,000 per call for rule violations. Regardless of the integrity of a company’s broker associates, the rules restricting calls to past clients make it easy to inadvertently violate the regulations. Improper calls might be made to your competitors or no call activists, enhancing the likelihood of a complaint.

Subject to the exceptions discussed below, neither licensees, there employees, or anyone acting on their behalf (“solicitors” in this article) may initiate a telephone call or message for the purpose of encouraging the purchase of, rental of, or investment in, property, goods, or services, made to any person. Examples of telephone solicitation are calls soliciting seller listings, buyer listings, and tenant listings. There are three main exceptions to the general rule.

First, solicitors may call any person with whom the Company has an established business relationship. Under the Federal rules, an established business relationship means either of the following:

i.  The consumer, within the eighteen (18) months immediately preceding the date of the telephone call, has engaged the company for some services. For example, a call can be made to a seller client within the eighteen month period after the expiration of a listing or the closing on the sale of that seller’s property. A call can be made to a buyer client within the eighteen month period after the expiration of a buyer listing or after the buyer closes on a purchase.

ii.  The consumer, within the three (3) months immediately preceding the date of the telephone call, has made an inquiry or application for services from the Company. Examples would be a buyer who registered with a licensee at an open house which the licensee was conducting for a seller, or a buyer who registered for a seminar offered by the licensee.

Even if there is an established business relationship, the exception for an established business relationships shall not apply to any consumer who has expressly terminated the relationship or otherwise asked not to be called by the caller or the Company.

Second, solicitors may call persons with whom they have a personal relationship. A personal relationship means any family member, friend, or acquaintance of the person actually making the call.

Third, solicitors may call persons from whom they have obtained an express invitation or permission. The invitation or permission must be evidenced by a signed, written agreement between the consumer and caller which states that the consumer agrees to be contacted by the caller and includes the telephone number(s) to which calls may be made.

Independent of the exceptions, each real estate company needs to establish a procedure for maintaining a company specific do not call list. To fit the safe haven, the company must train its employees and independent contractors regarding the do not call rules. There are other technical requirements of the safe haven which , although they shouldn’t apply to companies which prohibit cold calling, should be briefly addressed to fit the safe haven.

Question #2: Does the USA Patriot Act require real estate companies to establish anti-money laundering programs?

 Answer:   Not yet. The USA Patriot Act of 2001 requires that all “financial institutions” must establish anti-money laundering programs. The term “financial institutions” includes “persons involved in real estate closings and settlements.” As of the drafting of this article, persons involved in real estate closings and settlements have, for the most part, been temporarily exempted from the requirement to establish an anti-money laundering program. However, real estate brokers remain subject to existing reporting requirements for transaction in cash or currency exceeding $10,000.00.

Question #3: How might someone use a real estate transaction to launder money?

Answer:  A frequent step in the chain of laundering money is to deposit currency (such as U.S. dollars) into the banking system. The following are two examples by which money launders might attempt to launder money through a real estate broker.

Example A.  An apparent buyer might use cash as earnest money. The apparent buyer would have the broker deposit the cash earnest money in the broker’s trust account. The buyer would later use a contingency to terminate the contract, and in the normal course of events would receive a check back for the refund of the earnest money, thereby receiving funds back which have been entered into the banking system.

Example B.  A buyer might use cash as earnest money, and later use cash for the buyer’s down payment at closing. After closing, the buyer completes a cash-out refinance taking the equity out of the property through funds which are now part of the banking system.

A money launderer might attempt to sanitize more that $10,000 (in Example A) and $20,000 (in Example B) by using a series of installment payments of cash. In either example, the earnest money might be $30,000, ten thousand submitted with the offer, another $10,000 due after the offer is accepted by the seller, and another $10,000 due after the expiration of the buyer’s due diligence contingency. With Example B, the seller might carry financing requiring monthly payments from the buyer of $10,000. A year later, using combinations of the schemes above, the buyer closes on a cash out refinance and takes $160,000 out of the property.

Money laundering schemes are often done in combination with other loan fraud schemes (see article entitled How to Commit Loan Fraud) to suck more money out of property than the dirty money contributed by the launderer. (The nerve.)

Real estate licensees should be mindful of the above and report any suspicious transactions to their employing brokers.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN