Wire Transfer Fraud Scams Are on the Rise

In May 2015, AAR published an article regarding hackers committing wire transfer fraud in Arizona.

Since that article, wire transfer fraud scams are on the rise nationwide. Due to the influx and severity of the scams, the Federal Trade Commission (FTC) and National Association of REALTORS® (NAR) have increased their efforts to warn the public and REALTORS® alike.

If you’re buying a home and get an email with money-wiring instructions, STOP. Email is not a secure way to send financial information, and your real estate professional or title company should know that. If it’s a phishing email, report it to the FTC. – www.consumer.ftc.gov

Specifically, the FTC and NAR have issued warnings and helpful tips on how to avoid wire transfer fraud scams on their respective consumer and media blogs. Additionally, NAR released a video addressing the issue.

While reviewing and sharing the video and articles are important to ensure that security measures are in place for each transaction, the FTC also urges consumers to report the scams for further action.

Rejecting Prospective Residents Based on Criminal History May Violate Fair Housing Laws

Throughout the United States, individuals with criminal records, regardless of whether they pose little or no threat, face significant barriers when seeking to buy or rent a home.

Amazingly, between 70 million and 100 million Americans, or as many as one in three American adults, have some type of criminal record. And while many have been convicted of only minor offenses, having a criminal record carries a lifetime of consequences. This often includes an inability to secure housing.

The Federal Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. Ex-convicts and individuals with a criminal history are not explicitly identified by the Act as a protected class. Nonetheless, the United States Department of Housing and Urban Development (HUD) recently opined that housing providers rejecting tenants or buyers based on their criminal records may violate the Fair Housing Act.

At its core, the issue is whether exclusionary polices based on criminal background checks have an unfair or disparate impact on certain racial minorities who are protected under federal laws governing housing.

On April 4, 2016, HUD’s Office of General Counsel issued guidance concerning how the Fair Housing Act applies to prospective buyers and tenants with criminal records. According to the opinion, landlords and sellers must differentiate between arrests and convictions, and must steer clear of blanket policies that restrict access to housing solely on the basis of criminal history.

HUD’s opinion does not mean that housing providers are entirely prohibited from considering criminal records. However, they must now ensure that their screening policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest.

As HUD notes, “A housing provider must, however, be able to prove through reliable evidence that its policy or practice of making housing decisions based on criminal history actually assists in protecting resident safety and/or property.” To meet this burden, housing providers must consider factors like the nature and severity of the crime, as well as the length of time since the conviction. By conducting this analysis, housing providers can establish that their policy “accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.”

At the heart of HUD’s opinion lies the doctrine of disparate impact, sometime referred to as unintentional discrimination. Pursuant to this doctrine, a policy may be considered discriminatory if it has a disproportionate adverse impact against a protected class. For example, a policy that applies to everyone may still prove discriminatory if it tends to affect a protected group or minority more than others.

As applied to its position on criminal history based restrictions, HUD notes that across the United States, certain minorities are arrested, convicted and incarcerated at rates “disproportionate to their share of the general population.” As a result, restricting access to housing on the basis of criminal history is likely to have a disproportionate adverse impact on racial minorities which constitute a protected class.

HUD’s April 4th guidance also outlines the three steps considered when analyzing claims that housing was denied on the basis of criminal history:

  1. Whether the policy or practice has a discriminatory effect;
  2. Whether the policy or practice is necessary to achieve a legitimate, nondiscriminatory interest; and
  3. Whether there is a less discriminatory alternative.

If nothing else, landlords and property managers should take the time to update and revise their screening policies to ensure that their use of criminal background checks does not act as an arbitrary and overbroad ban on those with criminal records. All criminal records are not alike, and not all ex-convicts pose a risk to safety or property. And now, housing providers who do not take this into account may find themselves on the wrong side of the law.

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

Related article: Fair Housing Act: Criminal History-Based Practices and Policies

Why More Canadians May Sell U.S. Properties in 2016

By Fletcher Wilcox

Many Canadians own residential real estate in Arizona. They are especially attracted to the desert areas of Arizona during the winter when they can soak in the sun rather than shake off the snow.

Many got spectacular deals purchasing residential properties when prices were low and the Canadian dollar was close to being on par with the U.S. dollar.

Changes in the Canadian economy and dollar make it likely that there are now fewer Canadian buyers, but more sellers of their U.S. properties.  According to the Wall Street Journal on February 25, Canada’s economy is under pressure because of a drop in oil prices. In 2015, the Canadian-to-U.S. dollar average was at .75 cents compared to .97 cents in 2011.

Let’s look at a scenario as to why more Canadians may sell their U.S. properties this year than in recent years.

If a Canadian bought a house in the U.S. in 2011 and paid $150,000 USD, they would have paid close to $155,000 CAD.  In 2015, if that same property, because of appreciation, sold for $225,000 USD, a Canadian seller would receive $300,000 CAD, almost double what they paid in Canadian dollars in 2011. Quite a gain. So far in 2016, the Canadian dollar is even weaker against the U.S. dollar than last year.

USD v CAD exchange rate 2010-15

If a Canadian or if any foreigner, decides to sell their U.S. residential property, they should be aware of the Foreign Investment in Real Property Tax Act known as FIRPTA.

FIRPTA is the mandatory withholding of income tax on the disposition of U.S. real property interests by a foreign person(s) defined as a nonresident alien individual, a foreign corporation, a foreign partnership, trust or estate. According to the IRS, not only are sales under FIRPTA, but so are exchanges, gifts and transfers.

On February 17, the FIRPTA withholding tax rate increased up to 15% as demonstrated in the chart below:

FIRPTA demo chart

According to FIRPTA, what is the buyer’s responsibility? A buyer is solely responsible for the FIRPTA withholding tax from a seller.

When the seller is a foreign person? The IRS states:

“In most cases, the transferee/buyer is the withholding agent.  If you are the transferee/buyer you must find out if the transferor is a foreign person.  If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.”

To help make buyers and sellers aware of FIRPTA, Arizona REALTORS® has addressed it in the Seller’s Property Disclosure Statement (SPDS) and Residential Resale Real Estate Purchase Contract (Resale Contract).

Lines 13 and 14 in the SPDS read:
Is the legal owner(s) of the Property a foreign person or a non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA)? Yes No. If yes, consult a tax advisor; mandatory withholding may apply.

Lines 135-138 in the Resale Contract read:
IRS and FIRPTA reporting: Seller agrees to comply with IRS reporting requirements. If applicable, Seller agrees to complete, sign, and deliver to Escrow Company a certificate indicating whether Seller is a foreign person or non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (“FIRPTA”). Buyer and Seller acknowledge that if the Seller is a foreign person, the Buyer must withhold a tax of up to 15% of the purchase price, unless an exemption applies.

The seller in the Resale Contract agrees to comply with FIRPTA if they are a foreign person; if applicable, the buyer must withhold the tax. In the SPDS, the seller must indicate if they are a foreign person or non-resident alien; if they are, they should consult a tax advisor.

While different settlement agents may have different procedures, escrow officers are not equipped to give tax or legal advice concerning FIRPTA.

The IRS does not require the settlement agent to:

  • Determine a seller’s status as a foreign person
  • Decide how much FIRPTA tax should be withheld
  • Decide if the seller qualifies for an exemption, or
  • Complete FIRPTA forms

What then may a settlement agent do?

IF a buyer has determined that a seller owes FIRPTA tax, the escrow officer may assist them in collecting completed forms and withholding tax from the seller and buyer, and send the forms and taxes to the IRS on behalf of the seller and buyer.  (Remember, there is no duty by the escrow officer to complete FIRPTA documents.)

IF a seller applies for an IRS certificate exempting or reducing FIRPTA withholding tax prior to the transaction closing, it is likely that the certificate from the IRS will not be received until post-closing.  A settlement agent may agree to hold FIRPTA funds post-closing and send the funds to the IRS if certain conditions are met prior to the closing.  If the required conditions are met, then both the buyer and seller will have to sign post-closing holdback instructions.

IF the requirements of a post-closing holdback are not met, the seller and buyer will have one of two options.  The settlement agent may collect the proper forms and send in the withholding tax at the time of the closing.  Or the seller and buyer mutually agree in writing that the FIRPTA funds may be transferred to an attorney or CPA’s trust account.  The attorney or CPA will be responsible for the FIRPTA withholding amount.

Tips
If there is a FIRPTA withholding, both the seller and buyer will need either a social security number or a valid U.S. Individual Taxpayer Identification Number (ITIN) in order to process FIRPTA documents. If someone is not eligible for a social security number, they must apply for an ITIN.

Because of the length of time it may take to receive either a social security number or ITIN, it is a good idea to obtain one before a property is put on the market.

Also, talk with the escrow officer where the escrow will be processed prior to contract acceptance to find out what the officer will do on a FIRPTA transaction and what requirements must be met for a post-closing holdback.

A seller and buyer should always consult with a qualified CPA or tax attorney regarding FIRPTA.

Conclusion
In 2016, the Arizona real estate market will likely see more FIRPTA transactions with foreigners, specifically Canadians, selling their U.S. properties.  A knowledge of FIRPTA by both the foreign seller and buyer will help ensure a smother closing.

Fletcher R. Wilcox is vice president of business development at Grand Canyon Title Agency    

Proper Use of Section 1d of the Residential Purchase Contract

Generally speaking, a contract is an agreement with specific terms between two or more persons or entities in which there is a promise to do something in exchange for a valuable benefit known as consideration.

Although it may seem obvious, an essential element of a valid contract is that all parties agree on all major issues. While anyone can make an offer, a contract cannot be formed until the offer is accepted, resulting in a meeting of the minds.

Among the many critical terms to be addressed in a contract is time of performance. Parties to a contract should therefore identify the time of performance with as much specificity as possible, evidencing a common understanding.

Section 1d of the Residential Resale Real Estate Purchase Contract (the “Purchase Contract”) asks the parties to state a date upon which Close of Escrow (“COE”) will occur. Although contracts are not required to identify a specific date for close of escrow, a date certain is the best way to identify with particularity when this important event will occur. It will also ensure that the expectations of both the buyer and seller are the same, thereby avoiding a potentially costly dispute. Nonetheless, instances occur in which a day, month and year are not entered on line 18 of the Purchase Contract. In contradiction to what the date field requests, it has on occasion been populated with ambiguous terms such as “after Labor Day” or “upon completion of all repairs.”

In an effort to address this issue, zipForm® will now limit the field on line 18 of the Purchase Contract strictly to a day, month and year. When the field is being populated, REALTORS® will be presented with a calendar and asked to select a precise date on which escrow will close. While this date can subsequently be changed via an Addendum, limiting the manner in which the date field can be populated will help avoid ambiguity and uncertainty in regard to this important contractual term.


Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal adviser to the association.

This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

February 2016 Form Revisions

AAR Policy Statement P.30 states, “New or revised forms shall be released on or about February 1, June 1 and October 1 unless law or regulation mandates earlier release.” Pursuant to this Policy, at the beginning of February two of AAR’s standard forms have been revised as follows:

PRE-QUALIFICATION FORM
 

12 CFR 1026.19(e)(2)(ii) states:

Written information provided to consumer.If a creditor or other person provides a consumer with a written estimate of terms or costs specific to that consumer before the consumer receives the disclosures required under Paragraph (e)(1)(i) of this section, the creditor or such person shall clearly and conspicuously state at the top of the front of the first page of the estimate in a font size that is no smaller than 12-point font: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.” The written estimate of terms or costs may not be made with headings, content, and format substantially similar to form H-24 or H-25 of Appendix H to this part.

To ensure compliance with this federal law, a sentence has been added to the top of the form stating “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”

PROPERTY MANAGEMENT AGREEMENT

In cases of an automatic renewal provision, A.R.S. § 32-2173(A)(2)(a) requires a property management firm to send the owner a reminder notice at least 30 days before the renewal date. Based on this language, the Arizona Department of Real Estate (ADRE) has expressed that property management agreements cannot be for a term of less than 30 days. Consequently, the box for “days” that appeared on line 13 has been removed. Additionally, because the renewal notice is sent prior to each renewal date, for clarification line 14 has been revised as follows: “Broker shall send Owner a reminder notice at least thirty (30) days prior to the each renewal date.”


Three additional forms will be revised effective mid-February. They are the Residential Resale Real Estate Purchase Contract, the Vacant Land/Lot Purchase Contract and the Commercial Real Estate Purchase Contract.

The reason behind these changes is that The Protecting Americans from Tax Hikes Act (The PATH Act) was signed into law on December 18, 2015 and includes a provision modifying the Foreign Investment in Real Property Tax Act (FIRPTA). The modification increases the tax withholding from 10% to 15% for homes over $1 million. The withholding tax rate increase is effective 60 days after the enactment of the PATH Act, which is February 16, 2016. Because of this federal law change, the FIRPTA section in AAR’s above-referenced purchase contracts will be revised to now refer to the FIRPTA withholding cap as “up to 15%.”

Cybercrime: Data Security Protocols

Data breaches and cyberfraud are becoming increasingly common. A recent study by Javelin, a Greenwich Associates LLC company, found that 12.7 million adults in the U.S. became a victim of some form of identity fraud during 2014.

Unfortunately, the real estate industry is not immune to cybercrime. In fact, Arizona real estate transactions continue to be targeted by hackers perpetrating wire transfer fraud (read more here).

For these reasons, the National Association of REALTORS® recommends that REALTORS® “create, maintain and follow a comprehensive Data Security Program” and properly dispose of consumer information. But in doing so, REALTORS® must balance state imposed record keeping requirements with federal law, namely The Fair and Accurate Credit Transactions Act of 2003.

Arizona Record Keeping Requirements
Arizona state law mandates a number of record keeping requirements, including those imposed upon members of the real estate industry. For example:

  • Each licensed employing broker must retain completed transaction and employee files for a period of at least five years from the date of the termination of the transaction or employment. See A.R.S. § 32.2151.01(A).
  • Property management firms must keep a residential rental agreement and related residential rental agreement documents for one year from the expiration of the rental agreement or until the rental agreement and related documents are given to the owner at the termination of any property management agreement. See A.R.S. § 32.2175(A).
  • Property management firms must keep 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 A.R.S. § 32.2151.01(C).

While the Arizona Department of Real Estate audits compliance with state statutes, REALTORS® must also consider how to properly dispose of records once their retention obligations are at an end.

The Fair and Accurate Credit Transactions Act of 2003
The Fair and Accurate Credit Transactions Act of 2003 (FACTA), 15 U.S.C. § 1681, regulates the disposal of consumer credit information in an effort to reduce the risk of consumer fraud, including cyberfraud. Any business or individual who uses a consumer report for a business purpose is subject to the requirements imposed by FACTA and failure to comply can result in per-violation liability that may prove to be very expensive.

Under FACTA, any person or entity that maintains or otherwise possesses “consumer information” for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with disposal. See 16 CFR 682.3(a).

Consumer information is defined as any record about an individual, whether in paper, electronic or other form, that is a consumer report or is derived from a consumer report. Consumer information also means a compilation of such records. See 16 CFR 682.1(b).

Real estate firms are governed by FACTA, along with lenders, brokers/agents, landlords, property managers, title agents, and short sale negotiators, all of whom maintain significant amounts of confidential third-party information. For example, short sale applications, rental applications, credit reports and leases all contain personal information of the nature targeted by cyber criminals.

So, what constitutes proper disposal? Generally speaking, the disposal rule mandates practices that are reasonable and appropriate to prevent unauthorized access or use of consumer information.

According to the Federal Trade Commission (FTC), the standard for proper disposal is flexible and allows those covered by FACTA to reasonably determine what measures are appropriate based, in part, on the sensitivity of the information, the costs of compliance, and advances in technology. While FACTA does not dictate specific disposal measures, the FTC provides examples of disposal methods that may prove appropriate, such as:

  • Burning or shredding papers;
  • Destroying or erasing electronic files so that the information cannot be reconstructed; and
  • Retaining a document destruction contractor, after due diligence on the company is performed.1

Businesses and individuals governed by FACTA must also consider that it requires them to protect against unauthorized access to or use of confidential information in conjunction with its disposal. The FTC has emphasized that this requirement applies both during and after the disposal process and affects not only the processes and procedures employed, but also the personnel retained to implement them.

Conclusion
As recommended by the National Association of REALTORS®, brokers should consider establishing and implementing internal policies and procedures dictating how confidential information is handled, and the manner in which it is disposed. These guidelines should include such things as defining confidential information, explaining how the information will be stored and transmitted, setting timelines for retention and destruction, and outlining procedures by which consumer information, including that in digital form, will be purged.

Clearly, the threat of data breach and cybercrime has changed the landscape and as a result, the days of simply tossing files and reports in the garbage are over.

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

1The National Association for Information Destruction is a Phoenix-based trade group that certifies destruction contractors and dictates standards for the industry.

Pre-Possession and Post-Possession Checklists

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PACE Loans: Do Arizonans Have Anything to Worry About?

Property Assessed Clean Energy, often referred to as PACE, is a type of financing used by property owners to fund energy efficient upgrades and renewable energy projects. PACE programs therefore help property owners pay for the upfront costs of green initiatives, such as solar panels and energy efficient windows, which the owner pays back through special assessments on local government property taxes.

More specifically, a local government provides the up-front capital to the owner for an energy retrofit, and the owner repays the capital over time through a property assessment tax. The program is touted as an easy way for consumers to save money and go green.

Very clearly, PACE programs offer tangible benefits. These financing products do not encumber personal credit and are based on the value of the property, not the applicant’s credit score or income.

Furthermore, PACE programs provide a lengthy payback period of up to 20 years, meaning that consumers and the environment can reap immediate benefits without the property owner having to make large upfront payments. But despite the benefits, concerns have arisen over the manner in which consumers are being sold energy efficient products through various PACE programs.

Because PACE financing is accomplished via tax assessments, PACE liens become senior to existing mortgages recorded against the property. This arrangement can complicate home sales and refinancing deals, particularly when lenders refuse to accept a secondary position and require the PACE assessment to be paid off.

How clearly the first-lien requirement is laid out in documents provided to the consumer has been a source of concern, with some homeowners believing they have been deceived. Other concerns have been raised about whether contractors pitching the PACE program: (1) charge fair market value for the improvements; and (2) target vulnerable classes of property owners.

So, do Arizonans have anything to worry about? In short, the answer is no. PACE-enabling legislation has passed in 31 states and the District of Columbia; state laws must enable PACE before a local government can legally administer the program . However, Arizona is NOT one of these states.

PACE-enabling bills have been introduced in past legislative sessions, but have not been signed into law. As a result, Arizona state and local governments lack the ability to establish PACE programs and cannot fund the up-front cost of energy improvements to commercial or residential properties, even when the money will be paid back over time by the property owner.

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

Arizona Registrar of Contractors Licensing Requirements

Courtesy of the Arizona Registrar of Contractors

Just as an individual working unlicensed as a real estate agent negatively impacts the livelihoods of licensed agents and poses untold financial and safety risks for the public, contracting work performed by unlicensed entities poses devastating effects on the safety and welfare of the public and livelihoods of Arizona’s licensed contracting professionals.

The Arizona Registrar of Contractors is a state agency and serves two core functions; licensing and regulation of the licensing of contractors.

Currently, there are approximately 38,000 licensed contracting entities in the State of Arizona with 106 classifications ranging from landscaping and painting to general contracting and carpentry, remodeling and repairs.

The importance of a residential buyer or seller using a licensed contracting professional begins with the assurance that the work will be completed by an individual with the knowledge and experience required to perform the work and ends with their potential access to a restitution fund, known as the Registrar’s Residential Recovery Fund, if the contracted-for work fails to meet professional industry standards.

As one can imagine, Arizona Revised Statutes and Rules related to contracting can intimately relate to the work encountered by Arizona’s licensed real estate agents on a daily basis.

Though certainly not an exhaustive list, the Arizona real estate industry likely comes into contact with work impacted by ROC contracting licensure requirements, including ARS 32-1121(A)(14); ARS 32-1121(A)(5) & (A)(6); ARS 32-1151; and ARS 32-1169.

The term handyman is one many use to generally mean an individual who can fix many, if not all, small projects around the home. In Arizona, however, statute dictates the work allowed to be done by an unlicensed individual acting as a handyman. The so-called “handyman exemption,” is as follows:

§32-1121. Persons not required to be licensed; penalties
A. This chapter shall not be construed to apply to:
14. Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, is less than one thousand dollars. The work or operations that are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply:
(a) In any case in which the performance of the work requires a local building permit.
(b) In any case in which the work or construction is only a part of a larger or major operation, whether undertaken by the same or a different contractor, or in which a division of the operation is made in contracts of amounts less than one thousand dollars, excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, for the purpose of evasion of this chapter or otherwise.
(c) To a person who utilizes any form of advertising to the public in which the person’s unlicensed status is not disclosed by including the words “not a licensed contractor” in the advertisement. (emphasis added)

According to the Arizona Republic, more homes were flipped in Maricopa County, AZ than anywhere else in the nation between April 2013 and March 2014. Did you know there are specific licensure and statutory requirements addressing a property owner attempting to sell such property after improving or building structures or appurtenances with the intent to sell. The specific statutes are as follows:

§32-1121. Persons not required to be licensed; penalties
A. This chapter shall not be construed to apply to:
5. Owners of property who improve such property or who build or improve structures or appurtenances on such property and who do the work themselves, with their own employees or with duly licensed contractors, if the structure, group of structures or appurtenances, including the improvements thereto, are intended for occupancy solely by the owner and are not intended for occupancy by members of the public as the owner’s employees or business visitors and the structures or appurtenances are not intended for sale or for rent. In all actions brought under this chapter, except an action against an owner-occupant as defined in section 33-1002, proof of the sale or rent or the offering for sale or rent of any such structure by the owner-builder within one year after completion or issuance of a certificate of occupancy is prima facie evidence that such project was undertaken for the purpose of sale or rent. For the purposes of this paragraph, “sale” or “rent” includes any arrangement by which the owner receives compensation in money, provisions, chattels or labor from the occupancy or the transfer of the property or the structures on the property.

6. Owners of property who are acting as developers and who build structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor licensed pursuant to this chapter and owners of property who are acting as developers, who improve structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor or specialty contractors licensed pursuant to this chapter. To qualify for the exemption under this paragraph, the licensed contractors’ names and license numbers shall be included in all sales documents. (emphasis added).

Finally, licensed real estate agents often encounter questions surrounding the permitting of projects and whether a seller secured them and whether a buyer needs to secure one for a project.

AZROC would recommend real estate agents be familiar with ARS 32-1121(A)(14)(a)1, ARS 32-11512 and ARS 32-11693 as they relate to the need for a licensed contractor to perform work requiring a permit, the prima facie evidence of the existence of a contract when permits are secured, and the need to list a licensed contractor when pulling a permit.

Just as for real estate, requirements for contractors are detailed, extensive and explicit in rule and by statute. If you have specific questions regarding involvement you may have in any of the activities listed above, AZ ROC recommends consulting with an attorney.

If you have questions regarding which licensed contractor you would suggest a buyer or seller to hire to complete a project, you can refer them to the Contractor Search at AZROC.gov or call 877.692.9762.

1§32-1121.A.14 Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including
natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure, is less than one thousand dollars. The work or operations that are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply:
(a) In any case in which the performance of the work requires a local building permit.

2§32-1151. Engaging in contracting without license prohibited
It is unlawful for any person, firm, partnership, corporation, association or other organization, or a combination of any of them, to engage in the business of, submit a bid or respond to a request for qualification or a request for proposals for construction services as, act or offer to act in the capacity of or purport to have the capacity of a contractor without having a contractor’s license in good standing in the name of the person, firm, partnership, corporation, association or other organization as provided in this chapter, unless the person, firm, partnership, corporation, association or other organization is exempt as provided in this chapter. Evidence of securing a permit from a governmental agency or the employment of a person on a construction project shall be accepted in any court as prima facie evidence of existence of a contract.

3§32-1169. Local proof of valid license; violation; penalty
A. Each county, city or other political subdivision or authority of this state or any agency, department, board or commission of this state which requires the issuance of a building permit as a condition precedent to the construction, alteration, improvement, demolition or repair of a building, structure or other improvement to real property for which a license is required under this chapter, as part of the application procedures which it utilizes, shall require that each applicant for a building permit file a signed statement that the applicant is currently licensed under this chapter with the applicant’s license number. If the applicant purports to be exempt from the licensing requirements of this chapter, the statement shall contain the basis of the asserted exemption and the name and license number of any general, mechanical, electrical or plumbing contractor who will be employed on the work. The local issuing authority
may require from the applicant a statement signed by the registrar to verify any purported exemption.
B. The filing of an application containing false or incorrect information concerning an applicant’s contractor’s license with the intent to avoid the licensing requirements of
this chapter is unsworn falsification pursuant to section 13-2704.

Help Protect the Value of Being a REALTOR®

The Arizona Association of REALTORS® (AAR) holds the copyright and exclusive right to AAR branded forms. Protection of this copyright is of critical importance to all REALTORS®.

“If a member of the public desires to use an AAR form, we want them to hire a REALTOR® who has the knowledge and understanding of that form,” said 2015 Risk Management Committee Chair Martha Appel. “If the public can independently access and use AAR forms, the value of being a REALTOR® is undermined and the public puts themselves in potential harm’s way if they don’t understand the terms and conditions to which they have agreed.”

Nonetheless, whether intentional or by mistake, unauthorized use of federally protected AAR forms does happen.

Impermissible use of AAR forms typically occurs when: (1) a non-member copies, distributes and/or utilizes blank forms without AAR’s permission; (2) a non-member removes the AAR branding and changes a few words throughout the form in an effort to make it their own; (3) a REALTOR® member displays blank copies of partially completed forms on their website without the word “SAMPLE” stamped across each and every page; and (4) a REALTOR® member gives a valued client, family member, or friend blank copies of AAR’s forms for their personal use.

Additionally, another impermissible use of AAR forms, which does not involve the general public, occurs when brokers display blank copies of the forms on their internal platforms for their agents’ use. Under each of these circumstances, the unauthorized user has violated federal copyright laws.

A copyright violation is clear when the form displays AAR branding and is distributed to, or utilized by, an unauthorized user. Although not as clear, a violation again occurs when AAR branding has been removed and the offender has changed words throughout the form. In such situations, Arizona law provides that the applicable standard is whether the two works are “substantially similar.” See Scentsy, Inc. v. B.R. Chase, LLC., 942 F.Supp.2d 1045, 1052 (9th Cir. 2013).

Pursuant to this standard, even if a court does not deem the offender’s actions “direct copying,” AAR would still establish a violation by proving that the offender: (1) had access to sample AAR forms via the internet; and (2) the offender’s forms are “substantially similar” to those of AAR.

The creation and development of AAR forms involves countless volunteer and staff hours. AAR therefore aggressively pursues and protects its copyrighted forms. Moreover, the forms are one of the most utilized REALTOR® benefits and are a way in which REALTORS® can distinguish themselves to demonstrate added value.

In other words, although the general public may not always know the difference between a “REALTOR®” and a “real estate agent,” AAR forms are a great way for REALTORS® to start a conversation with potential clients to set themselves apart from non-REALTORS®. But if that member of the public can access blank AAR forms without utilizing a REALTOR®, the significance of being a REALTOR® is diminished.

In order to protect its copyrights, AAR will continue to vigorously pursue all offenders. To do so as effectively as possible, AAR needs your help and asks that you report to AAR all copyright infringements of AAR forms. Working together, we can protect the value of being a REALTOR®.

Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.