Oregon Administrative Rules 863-015-0250 (Professional Real Estate Activity Records) and 863-015-0260 (Records Retention) are the primary regulations governing a broker’s record keeping and retention responsibilities.
Under these rules, when buyers use promissory notes as earnest money, the Oregon Real Estate Agency historically expected that when redeemed, the physical note would be appropriately marked “paid in full” or “redeemed”, or similar words to that effect, and returned to the buyer. A copy of the redeemed note was then retained in the broker’s file.
That expectation worked for many years. But with the advent of electronic files and DocuSign, promissory notes frequently never saw the light of day. In this era of electronic record-keeping, there often is no physical note containing a “blue ink” signature. Instead, notes are often signed by the buyer electronically, and there is no independent notation made on the document that it had been satisfied. Today, one suspects that many brokers never physically return a copy of the computer-generated document; it remains nothing more than a series of electrons that get summoned up from time-to-time, on a tablet, laptop or computer. After all, upon redemption, escrow issues a receipt to the brokers so they have file confirmation of the event. Shouldn’t that be enough?
Here is what Oregon Administrative Rule 863-015-0260(3) says about electronic record-keeping:
3) A principal real estate broker may use electronic image storage media to retain and store copies of all listings, deposit receipts, canceled checks, clients’ trust account records, and other documents executed by him or her or obtained by him or her in connection with any professional real estate activity transaction under the following conditions:
(a) The electronic image storage must be non-erasable “write once, read many” (“WORM”) that does not allow changes to the stored document or record;
(b) The stored document or record is made or preserved as part of and in the regular course of business;
(c) The original record from which the stored document or record was copied was made or prepared by the principal broker, or its employees at or near the
time of the act, condition, or event reflected in the record;
(d) The custodian of the record is able to identify the stored document or record, the mode of its preparation, and the mode of storing it on the electronic image storage;
(e) The electronic image storage media contains a reliable indexing system that provides ready access to a desired document or record, appropriate quality control of the storage process to ensure the quality of imaged documents or records, and date-ordered arrangement of stored documents or records to ensure a consistent and logical flow of paperwork to preclude unnecessary search time; and
(f) At least once each month, the broker backs up any data that is stored in the computerized system necessary to produce the records. The backup data must be retained for no less than 60 days and must be made available to the commissioner or to the commissioner’s authorized representatives on demand.
There is nothing in the OARs dealing specifically with the handling of electronically-created promissory notes and their redemption. Specifically, once redeemed, must they be treated as negotiable instruments (i.e. checks), and physically returned to their maker? Does an independent copy of the DocuSigned note with an appropriate broker-generated notation need to be retained in his/her electronic file, so that in the case of an Agency audit, the investigator can see and confirm the note’s existence, its redemption, and return?
If so, that would require brokers to print out the DocuSigned note, make the appropriate notation on it, copy it for the file, physically return the annotated note to the buyer, and make an appropriate notation in the file. And is the failure to follow this convoluted, redundant and antiquated process a potential violation of the licensing laws?
This question was recently presented to Commissioner Gene Bentley and Regulations Manager Selina Barnes by OREF and PMAR. The answer today is “No”. Going forward, the process will be as follows:
There merely needs to be a record in the electronic file confirming the following events:
- That the note was redeemed;
- That the client has been notified of the redemption; and
- That a copy of escrow’s receipt for the cash paid upon redemption was sent to the client.
For any broker keeping an electronic log or summary, the process of compliance and record-keeping should be much easier when DocuSigned promissory notes are redeemed. Thus, in an Agency audit, the investigator need only look at the electronic log to confirm that the above protocol was followed.
TIP ~ The source documents, i.e. emails with attachments to the client, should always be retained, just in case the investigator wants to see them.
In light of the above, it is likely that early next year OREF will give consideration to including some text in its Sale Agreements that captures this protocol in the body of the document so that licensees can memorialize the course of the note from creation to redemption, with the appropriate instruction to escrow.
Thanks to Commissioner Bentley, Selina and the Agency, for their timely and helpful cooperation to the industry! ~PCQ