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Arizona real estate brokers storing documents electronically per SPS No. 2005.06

Oct 26th, 2015 | By | Category: Real Estate Broker Law

Maricopa County Real Estate Property Management Compliance Law Firm!

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Introduction

Property management and general real estate compliance in Arizona is an important topic.  One of the issues that can arise in a AZRE audit of real estate (residential or commercial), cemetery or those brokers working for property owners is the duty to keep and maintain records of the business, employment records, and trust account records.  This blog discusses the DRE’s position on record keeping.

What types of property management records must be kept in Arizona?

The threshold issue many real estate property managers have is “what records am I supposed to keep?”  Here is a handy compliance clip from the AZRE on this important point:

  1. Complete copies of residential or commercial lease
  2. Property management agreement with owner
  3. Confirmation that the deposits or other monies were handled according to instructions
  4. Copy of the listing agreement (if applicable) [See ARS § 32-2175(F)(1-3)]
  5. Financial records
  6. Bank statements
  7. Canceled checks
  8. Deposit slips
  9. Bank receipts Receipts
  10. disbursement journals
  11. Owner statements
  12. Client ledgers
  13. Applicable bills, invoices and statement [See ARS § 32-2175(C)]
  14. Property management firms shall keep records of all finder fees that are paid to tenants for three years after the payment is made or until the records are given to the owner at the termination of the property management agreement. Records shall be kept at the broker’s main office or at an off-site storage location in this state if the broker provides prior written notification of the street address of the off-site storage location to the department. [See ARS § 32-2175]
  15. All financial records pertaining to clients for at least three years from the date each document was executed, including bank statements, canceled checks or bank generated check images, deposit slips, bank receipts, receipts and disbursement journals, owner statements, client ledgers and applicable bills, invoices and statements. [See ARS § 32-2175]

Other technical requirements of property managers in AZ

Here are a few more statutory rules to note that you may not be aware of:

  1.  Only the designated broker or the broker’s authorized real estate licensee, on behalf of the broker, may sign nonresidential rental agreements.
  2. The broker shall execute in writing and shall file any delegation of authority in the broker’s employee file.
  3. Fully executed residential lease agreements are not required to be reviewed and initialed.
  4. The property management firms shall consecutively number or file all signed property management agreements in compliance with a system that is orderly, easily accessible by the commissioner or the commissioner’s representative and consistent with generally accepted professional standards of the industry for that type of real estate.
  5. Property management firms shall maintain each nonresidential real estate lease agreement and the transaction folder in which it is kept in a chronological log or other systematic manner that is easily accessible by the commissioner or the commissioner’s representatives.
  6. For nonresidential lease transactions, transaction folders shall contain: A. Confirmation that the deposits or other monies that were handled by or through the broker were handled according to instructions given by or agreed on by the parties to the transaction. B.  A complete copy of the nonresidential lease or rental agreement. C. If applicable, a copy of the listing agreement.
  7. Property management firms shall number on-site residential rental transaction folders according to dwelling unit number or other systematic manner that is easily accessible by the commissioner or the commissioner’s representative.
  8. A broker is not required to maintain duplicate residential rental transaction folders.
  9. Filing System SALES Chronological log or other systematic manner [per ARS § 32-2151.01(E) ]. The Brokers “initials and the date of review” [ARS § 32-2151.01(G)]
  10. Management agreements; Consecutively numbered, or an “orderly, easily accessible” system [ARS § 32-2175(E) ]
  11. On-site residential rental agreements and related documents according to dwelling number or other systematic manner [ARS § 32-2175(A)]
  12. Nonresidential leases; chronological or other systematic manner [ARS § 32-2175(F) ]
  13. File Retention SALES In the principal office, licensed branch office in this state, or off-site storage location in this state (with prior written notification to the Department of the street address of the off-site storage location) [ ARS § 32-2151.01(A) & (H) ] For at least 5 years [ ARS § 32-2151.01(A) & (H) ]
  14. Rejected offers which do not later result in binding contracts, 1 year [ARS § 32-2151.01(I) ]
  15. In the principal office, licensed branch office in this state, or off-site storage location in this state (with prior written notification to the Department of the street address of the off-site storage location) [ ARS § 32-2151.01(A) & (H) ] For at least 5 years   [ARS § 32-2151.01(A) & (H)]
  16. On site residential rental agreements and related documents; 1 year from expiration, unless given to the owner on termination of management [ARS § 32-2175(A)]
  17. Financial records; 3 years from the execution date of the document [ARS § 32-2175(C)].

As you can see, there are quite a few legal compliance requirements property managers in Maricopa, Coconino, Yavapai, Pinal, Pima and other counties in Arizona must comply with.

Can an Arizona real estate property management broker store records at an off-site storage location?

The general rule is that broker records must be maintained in the employing broker’s “principal office” or a licensed “branch office” in Arizona.  However, it should be noted that a real estate broker may store records at an off-site storage location in Arizona if the broker provides prior written notification of the street address of the off-site storage location to the department. (See A.R.S. § 32-2151.01.A).

A.R.S. § 32-2151(B)(2)

This section of Arizona real estate law requires that trust account records that are maintained electronically be able to be “reconstructed.”  Section B(2) states:

“The broker shall retain a complete record of all monies received in connection with a real estate transaction in the main or branch office of the designated broker in this state or at an off-site storage location in this state if the broker provides prior written notification of the street address of the off-site storage location to the department. A broker’s records shall be kept according to generally accepted accounting principles and shall include a properly descriptive receipts and disbursement journal and client ledger. The broker shall keep any computerized records in a manner allowing reconstruction in the event of destruction of electronic data.

This section goes on to require:

“The broker shall maintain a trust fund account bank reconciliation and client ledger balance on a monthly basis and shall remove any interest earned on a trust fund account at least once every twelve months. A broker shall not permit advance payment of monies belonging to others to be deposited in the broker’s personal account or to be commingled with personal monies. It is not considered commingling if, when establishing a trust fund account, a broker deposits monies not exceeding three thousand dollars to keep the account open or to avoid charges for an insufficient minimum balance.”

Arizona Department of Real Estate SPS 20210.01

Another staff opinion discusses document retention requirements in AZ:

“Production of records: Records must be reproducible for the Department, at the broker’s expense, in a legible, paper form (“hard copy”) upon the request of the Commissioner, or the Commissioner’s representative, for auditing, inspection, or investigation purposes. Brokers who maintain electronic records in a computer based TM and/or document storage program may provide the Department with electronic access to records, unless a hard copy is specifically requested by the Department. 3. Electronic records maintained in an electronic storage system should be legible, exact duplicates of the original documents.”

Is a broker required to notify the Department if electronically stored records are maintained at an off-site location?

What about property management records that are maintained in electronic format, such as in a property management software program (such as Propertyware, Buildium, AppFolio)?  In these circumstances, the broker should provide written notification to the Department of Real Estate (“DRE”) that the broker stores electronically maintained records at an off-site location.  There are some special rules to consider.

What are the requirements for a broker electronically storing required records?

The ADRE has provided a “Substantive Policy Statement”, (See SPS No. 2005.06) which indicates that the broker may store records electronically if the required transaction, employment and trust account records:

  1. Are maintained in a manner allowing reconstruction in the event of destruction of electronic data;
  2. The records can be produced, at the broker’s expense, in legible, written form (“hard copy”) upon the request of the Department for auditing inspection or investigation purposes;
  3. The electronic records are exact duplicates of the original; and,
  4. The stored records are legible.

As the advisory statement notes:

“Records pertaining to trust accounts, if kept electronically, must be able to be reconstructed “ . . . in the event of destruction of electronic data.”

These are the general guidelines to be aware of.  We can help you create a document retention plan and help prepare or respond to DRE audits and investigations.

Contact one of our AZ compliance & licensing lawyers!

We can be reached at (877) 276-5084 or fill out the contact form below to have one of our real estate lawyers or representatives contact you, normally within the hour.  We offer flat rate legal fees for many of our broker compliance cases.

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