The Texas Real Estate Commission (TREC) is a regulatory body in Texas that oversees, among other things, residential property management. Property managers of single-family homes in Texas are usually required to have a broker’s license. Because residential management companies can manage hundreds of properties, their practices need to be professional, efficient, and accurate. They must address concerns of both tenants and property owners according to TREC Rules and the Real Estate Licensing Act. When a property manager is dishonest, negligent, or incompetent, TREC has the authority to fine, and in some cases, even to revoke a real estate broker’s license.
TREC Enforcement
The Texas Real Estate Commission may suspend or revoke a license and may also penalize a property manager who “acts negligently or incompetently, engages in conduct that is dishonest or in bad faith or that demonstrates untrustworthiness; or fails within a reasonable time to properly account for or remit money that is received by the license holder and that belongs to another person” Tex. Occ. Code § 1101.652(b)(9). When determining a penalty, the commission studies “(1) the seriousness of the violation, including the nature, circumstances, extent, and gravity of the prohibited acts; (2) the history of previous violations; (3) the amount necessary to deter a future violation; (4) efforts to correct the violation; and (5) any other matter that justice may require. The Commission’s rules include a schedule of appropriate penalty amounts for various violations” 22 Tex. Admin. Code § 535.191. The following are some common infractions and their consequences.
Operating Under an Assumed Name
Accuracy of a business name is critically important for tenants, property owners, and TREC because the public must know with whom they are dealing. According to 22 Texas Administrative Code § 535.154(e), if a property management company changes its name, even by one word, that company must notify TREC in writing within thirty days of any name change for a company. Failure to comply with this rule may result in TREC suspending or revoking a license and/or a fine of $100-$1500 per violation.
Assessing Improper Charges or Fees
A property manager is obligated to ensure the accurate billing of property management fees to owners. While owners may agree to allow a management company to collect late charges or other fees, property managers are responsible for ensuring the accuracy of billing statements. If, for example, there is a glitch in billing software which results in overcharging an owner, the property manager is responsible for alerting owners and then correcting any inaccuracies. 22 Texas Administrative Code § 535.191. When a property manager is in charge of hundreds of properties, even a $3 overcharge adds up to a substantial sum being paid wrongfully to the property manager. Repeated failure to address a system-wide billing mistake indicates negligence and/or dishonesty. Failure to comply with this rule may lead to a penalty of between $1,000 and 5,000 per violation.
Failure to Communicate, Account for, and Remit Funds
Since a property manager is usually handling money on behalf of another, either the owner or the tenant, accurate accounting for that money is essential. As the go-between in the situation, the property manager should respond to the tenant and communicate concerns and issues to the property manager. The property manager should address tenant concerns in a timely, efficient way, so that the tenant feels no need to reach out to the property owner directly for assistance. Failure to respond quickly to an issue indicates negligence and incompetence. If a tenant is charged late fees or other penalties, the property manager should fully explain those to the tenant. Charging and collecting fees without explanation is fraudulent behavior by the property manager.
Failure to account for funds may also affect the property owner. For example, if a contract indicates that the property manager must contact the property owner before repairs are made, the property manager must adhere to the contractual agreement. Otherwise, the property manager is spending another person’s money without permission. When repairs are made, the property manager is also obligated to account for the costs of repair, to pay the repair costs, and to the provide accurate records of those services to the property owner for reimbursement. Failure to communicate is negligent and incompetent. Even more egregious is seeking reimbursement for repairs when they have not been made, behavior which the TREC defines as fraudulent. Texas Occupation Code § 1101.652(b)(9). Each time a property manager fails to account for or remit money that belongs to someone else, that property manager is subject to a fine of between $1,000 and $5,000. TREC also has the right to suspend or revoke a license for these offenses.
Maintaining a Separate Trust Account
For accurate financial records, property managers should maintain separate, dedicated bank accounts to facilitate accounting and financial record keeping. Given the amount of other people’s money which passes through a property manager’s hands, establishing separate trust accounts shows not only good business sense but also good faith. Trust and security deposit accounts must by labeled as such according to TREC rules.
Fiduciary Duty
Part of a property manager’s job is to address the safety of tenants and the financial investment of property owners. Failure to do so violates Texas Occupation Code § 1101.652(b)(1). One way to protect property is for the property manager to accompany a prospective tenant on any visit to a property, always. Even if the property manager is running late or fully trusts the prospective tenant, allowing someone to visit the property by sharing an access code could result in property damage. The property manager must accompany any prospective tenant on a tour of a property or cancel the appointment. If the property manager is aware that the access code is no longer secure, the manager is obligated to change the access code to safeguard the property.
Another fiduciary responsibility of the property manager is to address tenant complaints and concerns quickly and completely. A water leak left untended will inevitably lead to greater damage to the property and potentially to the tenant, if, for example, mold grows as a result of the untended water leak. Such issues could also lead to tenant’s breaking the lease, adding unnecessary inconvenience and cost for both tenant and property owner.
Fiduciary irresponsibility may result in TREC suspending or revoking a license.
Property managers provide a valuable service to both tenants and property owners, and most act responsibly in the best interest of their clients. A competent lawyer should be retained to prosecute claims against a property manager. Conversely, property managers should consider hiring a lawyer to defend claims and TREC complaints by owners or tenants.
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