No set of laws is truly perfect. If that were possible, we wouldn’t continue to experience legal reform. There are always problems that need to be addressed—issues requiring clarity, outdated regulations, and weaknesses in enforcement.
The American real estate industry is no exception to that rule. There exists a wide range of vulnerabilities, loopholes, and sticking points in real estate law as it stands now. Today, we discuss three of the major issues and how they can be addressed.
1. There’s No Consistency
First and foremost—and this is an issue that isn’t exactly unique to the U.S.—there’s no real consistency in real estate law. What I mean by that is the rules for mortgaging and maintaining a property in Chicago are vastly different from the laws that govern real estate in Texas.
Take adverse possession (more commonly known as squatter’s rights), as an example. Every state has some variation on this set of laws, taken from English common law in the early 19th and 20th centuries (except for Louisiana where we’re already seeing inconsistencies). Essentially, adverse possession works by allowing a squatter to claim a property after occupying it and paying property taxes for a set number of years, eventually acquiring a fee-simple title.
Different states have different levels of permissiveness where adverse possession is concerned, with California being the most lax and Texas being one of the toughest. The former requires only five years of occupancy, whereas the latter requires as long as 30 years.
But why is this a problem, exactly?
Simply put, it promotes a certain level of inequality in the real estate market between states. A state with more permissive laws might, for example, see far higher sales than one with restrictive or draconian ones. By that same vein, differences in law can create a great deal of confusion for both buyers and sellers.
2. Government Communication About Compliance Is Unclear
Recently, several major real estate firms were slammed for noncompliance with the Americans with Disabilities Act. The reason? Their websites weren’t accessible to people who were hearing or vision impaired.
Maybe this wouldn’t be news if it had been the government urging compliance from these brokerages, but it wasn’t. Instead, it was lawyers representing disabled clients. Unfortunately, this is something of a trend in the real estate industry, and one that seems unlikely to end anytime soon.
Where compliance and regulation in real estate is concerned, many government bodies seem content to simply “fire and forget.” They enact regulations like the Americans with Disabilities Act, yet enforce them rarely, if at all.
“Obviously, we want to make our site work for everyone,” Matthew Rand, Managing Partner at BHG Rand Realty explained in an interview with the Chicago Tribune. “But we’re uncertain about what is expected given the dearth of communication from the government.”
It’s not just real estate either, truth be told. There are many websites that simply aren’t accessible to those with disabilities. Dozens of online retailers have been sued for that reason, so many are ramping up their legal departments.
As for why the government isn’t enforcing this, and why it’s being so tight-lipped? It’s uncertain. The only thing that’s clear is that by failing to adequately push compliance onto real estate agencies, it’s opening them up to litigation.
3. There’s Rampant Corruption and the Law Practically Encourages It
I’ve saved the most controversial topic for last. In a recent report by legal watchdog Transparency International, it was revealed that the U.S., along with Canada, the U.K., and Australia are four countries with a number of major loopholes in their real estate laws. And those loopholes can be easily abused by unsavory individuals.
“None of the four jurisdictions are meeting international monitoring obligations for anti-money laundering, while only the UK requires professionals including real estate agents and lawyers identify the beneficial owners of real estate as part of due diligence procedures,” reads an article by Mortgage Professional America. “That means that trusts and other legal entities can purchase real estate without an actual person being identified.”
That’s only the tip of the iceberg. Real estate professionals are overreliant on banks to perform proper money laundering checks and balances, while compliance and enforcement of laws to prevent corrupt deals are incredibly weak. Lastly, there exists no “fit and proper” test for real estate professionals; it’s a career which anyone could feasibly enter and claim to do.
Fighting the Law
So, now that we know the issues we face, what exactly can we do about them?
First, real estate professionals need to work together and make a major push to establish better checks, balances, and tests within their industry. They must accept the need for higher standards and make an active effort to get those standards enacted. If they work together, they might just catch the ear of someone who can actually work out a reform.
Unfortunately, in order for there to be reform in the real estate industry—lasting, meaningful reform that standardizes real estate laws and fixes the multiple loopholes in the law—law makers and regulatory bodies have to participate in the process. And where varying state laws are concerned, it might be something that’s out of our control. The federal government does not, as a general rule, meddle with state law.
Still, it can’t hurt to make an effort. Even if we don’t manage to standardize the law, we could at the very least promote meaningful changes that improve regulation, increase standards, and eliminate abuse. Until we do, however, we’ll just need to remain cognizant of the issues that exist, and figure out how to manage them within our own agencies.
Ryan B. Bormaster is the managing attorney at Bormaster Law. The law firm practices in a number of areas including real estate, catastrophic injury, and criminal defense. They are trial lawyers who will work hard to try to solve your problem out of the Courtroom but who will proudly stand by your side in the Courtroom if justice so requires.