Part 3 Indiana License Law Outline
Duties and Confidentiality in Buyer or Tenant Representation
Mandatory Nondisclosure Requirements: A licensee representing a buyer or tenant is strictly prohibited from disclosing specific information without the informed, written consent of the client. These protected categories include:
The fact that a buyer or tenant is willing to pay more than the offered purchase price or offered lease rate.
Any potential contract concessions the buyer or tenant might be willing to grant.
The specific motivations driving the buyer to purchase or the tenant to lease the property.
Any material or confidential information regarding the buyer or tenant. Exceptions to this rule apply only if disclosure is mandated by law or if withholding the information would constitute fraud or dishonest dealing.
Duties and Obligations to Third Parties (Sellers and Landlords):
A licensee representing a buyer or tenant owes no specific duties or obligations to the seller or landlord, with the following exceptions:
The licensee must treat all prospective sellers or landlords with honesty.
The licensee must not knowingly provide false information to sellers or landlords.
Limitations on Investigation Duties: A licensee representing a buyer or tenant is not required to:
Conduct an independent investigation of the buyer’s or tenant’s financial ability to perform the contract for the benefit of the seller or landlord.
Verify the accuracy of any statement (written or oral) made by the buyer, tenant, or a third party.
Permitted Actions and Services: A licensee may perform the following without breaching their duty to the buyer or tenant:
Show properties that interest the buyer or tenant to other prospective clients.
Show competing buyers or tenants the same property.
Assist other buyers or tenants in the purchase or lease of a specific property.
Provide services to a seller or landlord in the ordinary course of a real estate transaction, provided these services do not violate the terms of the agency relationship with the buyer or tenant.
Regulations for Licensees Acting as Limited Agents
Requirement for Written Consent: A licensee can only act as a limited agent with the written consent of all parties involved in the transaction. Consent is presumed if a party signs a document at the time of entering the agency relationship that includes:
A description of the specific real estate transaction(s) where the licensee will serve as a limited agent.
A statement acknowledging that the limited agent represents parties with different or adverse interests.
A statement that the licensee will not disclose specific information without written consent, including:
Material or confidential information (excluding adverse material facts or risks known to the licensee regarding physical property conditions and facts required by law that a reasonable inspection wouldn't reveal).
The buyer’s willingness to pay more than the offered price.
The seller’s willingness to accept less than the listed price.
The motivations of any party.
Terms that create a contractual advantage for one party over another.
A statement that no knowledge or information will be imputed between the parties and the limited agent or among licensees.
A statement that consent to limited agency is not mandatory and must be given voluntarily.
A statement that the disclosure was read and understood.
Permissible Disclosures: A limited agent may provide property information to both parties, such as listings and sold property data from a Multiple Listing Service (MLS).
Liability Protection: No cause of action arises against a licensee for disclosing or failing to disclose information if they are in compliance with these limited agency rules. Making a required disclosure does not terminate the limited agency relationship.
Professional Representations and In-House Agency Relationships
Individual Representation: An individual licensee affiliated with a broker company represents only the client they are personally working with. This client is represented exclusively by that licensee, to the exclusion of all other licensees in the company.
Managing Broker Role: A managing broker does not represent any party in these transactions unless they have a personal agency relationship with a client.
Limited Agency in Dual Representation: If a licensee personally represents both the seller and buyer (or landlord and tenant), they are considered a limited agent and must comply with all limited agent regulations.
Disclosure Standards for In-House Agency: Licensees owe their clients defined duties and must not disclose confidential information to other licensees. However, they may disclose information to the managing broker to seek advice for the client's benefit.
Actual vs. Imputed Knowledge:
In in-house relationships, broker companies, managing brokers, and individual licensees possess only "actual knowledge."
There is no imputation of agency, knowledge, or information between clients, the company, or other licensees.
Knowledge of adverse material facts in prior transaction records cannot be imputed to a broker unless they had actual knowledge.
Legal causes of action cannot be based on imputed knowledge of adverse material facts.
Agency Relationship Policies and Compensation
Written Office Policy: Managing brokers must develop and enforce a written policy describing allowed agency relationships and explicitly stating whether the practice of disclosed limited agency is permitted or rejected.
Disclosure Timing: Licensees must disclose this written office policy to a potential client in writing before the client discloses any confidential information.
Compensation Disclosures: Parties must be advised if compensation will be shared with other broker companies representing adverse interests.
Agency Status: The mere payment of compensation does not create an agency relationship.
Commencement and Termination of Agency Relationships
Timeline of Duties: Duties begin when the agency relationship is entered and continue until termination.
Termination Criteria: If not completed, the relationship ends on the earlier of the agreed-upon expiration date or termination by the parties.
Post-Termination Duties: After termination, limited duties remain:
Accounting for all money and property handled during the relationship.
Maintaining confidentiality of information requested to be confidential, unless disclosure is required by law, the client gives written consent, or the information becomes public through other sources.
Fiduciary Duties and Legal Liability
Superseding Common Law: The duties set forth in this chapter supersede common law principles of fiduciary duty if the common law is inconsistent with these statutes.
Liability for Misrepresentation:
A client is not liable for a licensee's misrepresentation unless the client knew or should have known about it.
A licensee is not liable for another licensee's misrepresentation unless they knew or should have known about it.
Prohibition of Subagency: Licensees cannot offer or agree to subagency through an MLS or other sources. This does not prevent cooperation or compensation for other licensees not representing the client.
The Real Estate Recovery Fund
Establishment: Effective January 1, 1988, with an initial sum of from the State General Fund.
Administration: Managed by the Commission.
Payment Eligibility Requirements: To receive payment, a claimant must:
Sue an Indiana licensee in court.
Notify the Commission at the time the suit is filed.
Prove the licensee is guilty of embezzlement or obtaining property by false pretenses (trickery, forgery, etc.).
Prove an actual cash loss occurred.
Obtain a final judgment (win the suit and all appeals).
File for a court order for payment within one year of the final victory.
Financial Limitations:
Payments cover actual cash losses and court costs only; they do not cover attorney fees or punitive damages.
Limits: per judgment and a lifetime aggregate limit of per one licensee.
Proportional Distribution: If claims exceed , the amount is distributed proportionally based on losses.
Fund Maintenance:
Target balance: Approximately .
Surcharge Trigger: If the balance falls below on June 30 of an odd-numbered year, a surcharge is assessed on new/renewal licenses for the next two years.
Excess Funds: If the balance exceeds , the excess reverts to the State General Fund.
Payment Schedule: Payments are issued twice a year (within 15 days after June 30 and December 31).
Legal Standing: The Commission is a defendant in payout suits and may accept documents for licensees who cannot be located. The Commission acts as a creditor once a payment is made.
Consequences for Licensees: The licensee must repay the amount plus interest. The licenses of both the licensee and their managing broker are suspended until full repayment is made.
Interest Usage: Interest earned by the fund can be used for Commission information/rulings, educational information, and continuing education expenses.
Residential Real Estate Disclosure Regulations
Applicability: Applies to sales, exchanges, land contracts, or leases with an option to buy residential real estate with no more than four () units.
Exemptions: Court orders, estate sales, foreclosures, bankruptcy, eminent domain, specific performance, divorce settlements, transfers between co-owners or relatives (spouse/child), tax sales, government transfers, new construction, and living trusts.
Sales Disclosure Form: Sellers (including For Sale By Owner / FSBO) must disclose defects.
Defining "Defect": A condition that significantly adversely affects property value, impairs health/safety, or significantly shortens the normal life of the property if not repaired.
Timing and Enforceability: The form must be signed and delivered to the buyer before an offer is accepted. An offer is not enforceable against the buyer until both parties have signed the form.
Rescission Rights: If a defect is disclosed after acceptance, the buyer has two () business days to back out in writing and receive a full refund of earnest money.
Liability Limits: Owners are not liable for errors on the form if they reasonably believed the info was correct or relied on professional/public agency reports.
Psychologically Affected Properties
Definition: Properties are considered psychologically affected if there is knowledge or reasonable suspicion of:
Occupant death (any cause).
A felony occurred on the property.
Criminal organization activity.
An officer-involved shooting.
Illegal manufacture or distribution of drugs.
(Note: HIV-related illness/death was previously included but has been removed).
Disclosure Rules: Owners/agents are not required to disclose these facts, even if asked. They are not liable for refusing to disclose, but they must not intentionally misrepresent facts if asked a direct inquiry.
Licensing Standards and Disciplinary Actions
Criminal Convictions: Licenses cannot be denied solely due to conviction, but the underlying acts can be considered. Licensees must notify the Indiana Real Estate Commission (IREC) within days (note: some guidance suggests days) of a conviction.
Specific Crimes for Disciplinary Action: Includes possession/dealing of controlled substances (cocaine, meth, marijuana, etc.), fraud in obtaining substances, sex crimes, and felonies reflecting on fitness to practice.
Standards of Practice Violations: Discipline occurs for fraud to obtain a license (including cheating), misleading advertising, fraudulent billing, professional incompetence (unfit to practice due to disability or addiction), and lewd/immoral conduct.
Sanction Types:
Permanent Revocation: May reapply after years.
Suspension: No set timeframe; requires a hearing for reinstatement.
Censure/Reprimand: Oral or written.
Probation: May include conditions like community restitution or reporting.
Civil Penalty: Fine up to per offense.
Costs of Proceedings: Licensees may be charged for court reporters, transcripts, witness fees, and postage, but cannot be charged for attorney fees or commissioner travel expenses.
Summary Suspension: Can be issued for days if the practitioner is a danger to the public or refuses a mandatory physical/mental exam.