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File Retention

Over the years, one issue that is often discussed is how to handle the retention and storage of files. Some of the questions involve:  How long must I retain my file?  Who should maintain the file?  In what format should I store my file?  Where should I store my file?  Here we examine some of these issues:

How long should files be maintained?

Some folks say three years. Some folks say five years. Some folks say forever. The true answer is as long as possible. The primary reason for long term retention of files is to properly address questions and claims by a party or investigation by the Department of Real Estate. There are various lengths of time for a claimant to file an action before it is time barred. Unfortunately, for certain causes of action such as fraud, the time does not begin until a reasonable person would have discovered the fraud. As such, it is possible that a claim could be raised ten or more years after the close of escrow if the problem were not to have been discovered by a reasonable person until years afterward. It is for this reason, among others, that files should be retained as long as possible.

Who should maintain the files?

Often parts of files are maintained by the agent and other parts by the brokerage. Sometimes duplicate copies are maintained by each. As a general rule, the files should be maintained by the broker. There are a variety of reasons for this. First it gives the brokerage a central location for the file with less risk of loss. Second, often agents store files in less than secure places (can anyone say “garage”) where damage can result or sensitive materials can get in the wrong hands. Third, if files are stored in multiple places or in sub-parts, there is a risk for a gap in what is being maintained. Fourth, at the end of the day, the brokerage is the entity ultimately responsible for the file so it should maintain the file. This is not to say an agent cannot have a duplicate copy of the entire file, although the brokerage should make sure it is kept in a secure location.

In what format should files be maintained?

In our new technological world, maintaining files in electronic form is both acceptable and in fact desirable. It enables files to be kept most securely and efficiently. In fact, the notion of keeping files indefinitely is far more manageable if they are stored on a disk as opposed to four storage boxes. Many in the industry have moved toward paperless transactions. The California Association of Realtors has been a trend-setter in this regard. So naturally, if you are handling a transaction electronically, it is easy to maintain the file in the same fashion. Conversion to such a system has many advantages, from ease of handling the transaction to having a sensitivity to the environment.

Even those who are more comfortable with paper transactions have the ability to scan their files into an electronic format after the fact. If a brokerage has such a policy, it can also destroy the hard copy of the file; although they should have a document, executed by the client, agreeing to having the file converted to an electronic file and the physical file being destroyed. Parenthetically, CRELA is in the process of preparing a form which brokers can use to get consent from their clients to convert paper files to electronic files, and then destroy the paper files.

Where should files be maintained?

As noted above, files should be maintained in a secure location. This security consideration should address protection from loss, damage and from materials getting into the hands of third parties. With paper files, maintaining files for some period at the office is a wise idea as easy access may be needed. Long term, having an arrangement with a business storage company which has a secure environment and appropriate insurance is a good option.

With respect to electronic files, it is a good idea to have these downloaded to discs which are stored in a location which is free from risks of destruction or loss. Storing exclusively on a computer or a server poses the risk of loss in the event the system crashes. The best option is to have the files maintained on the company computer server, but have that downloaded to discs on a regular basis, such as weekly, and have those discs stored off-sight in a secure location. This way, there is ease of access at the office, but also a back-up in case there are any problems such as fires or thefts at that office.

Conclusion

Regardless of how files are retained, it is important to realize that a set policy should be in place for all brokerages, small or large.

With a reasonable amount of effort, every real estate professional can have a safe and efficient policy for maintaining their files. For individual brokers, this can be handled very efficiently with a personal computer system and a disc containing copies of all the files. Likewise, if using paper files, finding a safe location which offers long term reasonable storage options can avoid potential problems. For large brokerages, having a clear document retention policy which is made clear to all agents and uniformly enforced will save the brokerage and its agents from significant risks. This is truly one of those examples where an ounce of prevention can provide a pound of cure.

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