An Alabama court has ruled that charitable donations made by real estate licensees in Alabama do not violate state real estate law as long as this practice follows some basic rules.

RE/MAX International announced this week that a judgment by the Montgomery County Circuit Court has “recognized the legality of the practice of agents making charitable donations …

An Alabama court has ruled that charitable donations made by real estate licensees in Alabama do not violate state real estate law as long as this practice follows some basic rules.

RE/MAX International announced this week that a judgment by the Montgomery County Circuit Court has “recognized the legality of the practice of agents making charitable donations … on a per-transaction basis” to Children’s Miracle Network, a national nonprofit organization that raises money for children’s hospitals.

The Alabama Real Estate Commission had notified RE/MAX that a program offering charitable donations may be considered unlawful fee-splitting or commission-sharing under state law.

The ruling clears up foggy language in state law on the legality of charitable contributions made by real estate agents.

The judgment notes that the contributions have “no connection whatsoever to the sales associates’ or brokers’ real estate transactions and (the charity) does not refer business to (RE/MAX) in return for the donations.”

Charles Sowell, general counsel for the state commission and an assistant attorney general, said, “We’ve got a poorly drafted statute that has been on our books for a long time. It just flatly says no fee- or commission-splitting with anyone except another dually licensed licensee,” he said, or with a multiple listing service.

The state law prohibits real estate licensees from “paying any profit, compensation, commission or fee to, or dividing any profit, compensation, commission, or fee with anyone other than a licensee or multiple listing service.” Licensees who violate the statute can face fines of up to $2,500 per violation and license revocation.

Sowell said that commission staff met with RE/MAX lawyers to discuss the statute, and commission representatives explained the provisions of the statute and how the company’s agents might avoid conflicts with the statute. RE/MAX lawyers contended that the actions of its affiliated licensees did not constitute a violation of the statute, and they took the matter up with the state Attorney General.

The company’s lawyers provided a draft copy of a legal complaint against the state real estate commission based on the interpretation of the law relating to contributions from real estate transaction proceeds, and the Attorney General’s Office forwarded a copy of this draft complaint to the state commission.

At a May 12 meeting, commissioners decided to settle the issue by allowing the court case to proceed and enter into a legal agreement with RE/MAX to allow the company’s practice of charitable contributions to the Children’s Miracle Network organization.

The court-approved settlement agreement was important, Sowell stated in a May 15 letter to state Attorney General Keith S. Miller, because “it provides exact clarity to us and the RE/MAX organization about how this issue will be dealt with going forward.” He said the settlement agreement will also “provide us guidance on how to treat other programs that are substantially similar to the RE/MAX program. We have become aware that there are other such programs. Lastly, it is carefully crafted so as not to conflict with any other commission implementation of license law provisions.”

The RE/MAX complaint was formally filed June 16 on behalf of RE/MAX International; Joseph P. Long, a RE/MAX broker in Alabama; and RE/MAX of Montgomery. The complaint states that RE/MAX affiliates’ support for the charity program “is completely voluntary,” and that “some RE/MAX sales associates in Alabama support (the organization) by pledging and donating an amount, usually $25 or less, from each commission earned from real estate transactions. As these sales associates earn income, they either have funds taken from their earnings and sent to (the charity) by their brokerage offices on their behalves or they write personal checks from their bank accounts in Alabama and send them to (the charity’s) headquarters.”

Also, the complaint states, “Sales associates’ contributions to (the charity) cannot, as a matter of law, constitute illegal fee splitting because making a charitable contribution from earnings from commissions on real estate closings to someone not involved in any way in the real estate transaction or performing any services for which real estate license is required is not illegal fee splitting.”

Sowell, on behalf of the Alabama Real Estate Commission, did not contest the complaint and acknowledged in a separate June 16 court filing that RE/MAX affiliates’ practices did not violate state law.

“We wound up welcoming the court’s guidance,” Sowell said. He said the court ruling is clear and there hasn’t been any discussion about changing the language of the relevant real estate statute.

He also noted that the statute does not relate in any way to real estate rebates. Separate provisions of Alabama real estate law provide that real estate licensees may give prizes, money, gifts and other incentives to consumers, for example, in an effort to attract new business. But state law prohibits payment of fees to licensees by title and mortgage companies for referral of business, for example.

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