Client Privacy, Confidentiality & Security in Real Estate

Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Professionals involved in real estate transactions are often in possession of personal and confidential information of the participants to the transaction. In this lesson, you'll learn about laws concerning client privacy and security.

Client Privacy, Confidentiality and Security

Meet Catlin. She's buying her first home, and during the process, she's had to cough up some personal and confidential information such as her income, her net worth, financial account information, her debts and even her social security number. Fortunately for Catlin, her personal information is protected to a large extent by state and federal laws. Let's take a quick look at some of these key laws.

The Fair and Accurate Credit Transactions Act

The Fair and Accurate Credit Transactions Act (FACTA) requires that certain information received by businesses be disposed of in a secure manner. Basically, FACTA applies to credit reports or information that has been obtained or derived from a credit report. Credit reports are routinely run in real estate transactions to determine the creditworthiness of buyers or potential tenants. Disposal includes not just destroying or abandoning the information but also selling, donating or transferring it to someone else. For example, if a real estate broker decides to sell a used computer and the computer has consumer data stored on it, FACTA will apply.

Catlin's broker and banker fall within the scope of this act. FACTA regulations require that they dispose of her consumer information using 'reasonable measures.' The regulations provide a list of examples of reasonable measures including things like burning, shredding and deleting data from electronic storage systems so the information cannot be read or reconstructed. For example, a broker or personal banker dumping Catlin's credit report into his computer's recycle bin, where recovery of the data is possible, is probably not a reasonable measure. On the other hand, permanently deleting the data so that it is not recoverable is a reasonable measure.

State Laws

State laws also regulate how Catlin's information is handled. Since Catlin's broker is serving as her agent, state agency law imposes a fiduciary responsibility upon her broker which includes a duty to keep Catlin's information confidential, unless Catlin consents to the disclosure.

Each state has also enacted laws regulating the conduct of licensed real estate agents and brokers. For example, Minnesota holds Catlin's broker responsible for the custody and safety of all the records and documents at the brokerage, even if the broker has delegated the duties to someone else at the firm.

Many states have adopted data breach laws that apply to brokers and other real estate professionals. California, for instance, requires that businesses notify each California resident of a potential data security breach where their personal information may have been obtained by an unauthorized person. For our purposes, personal information under this law includes such things as the person's first name (or initial) and last name coupled either with a social security number, driver's license number, financial account with its passwords, user name for an online account with password, or an email address along with its password. If Catlin lived in California and her broker's computers were hacked, compromising the security of Catlin's personal information, her broker would be required to inform Catlin so she can take steps to protect herself from identity theft and other potential damage.

Suggested Procedures

So what can real estate professionals do to make sure their clients' personal information remains confidential, safe and secure?

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