There’s No Place Like Arizona

noplacelikeaz

By K. Michelle Lind

There is no place like Arizona – it is one of the most unique states in America. Many things make Arizona unique, such as the Grand Canyon, our diverse geography, and our law establishing an official state neck-wear. Arizona real estate brokers and salespersons are also unique when compared to the rest of the nation. In some states, buyers and sellers are required to have an attorney involved in the drafting and execution of the purchase contract, or at close of escrow. But not in Arizona.

Article 26 of the Arizona Constitution authorizes real estate brokers and salespersons to engage in the limited practice of law by drafting the purchase contract and other documents incident to the transfer of real property. This constitutional right affects legal responsibilities of brokers and salespersons.

THE HISTORY OF ARTICLE 26

In 1961, the Arizona Supreme Court held that that real estate licensees and title companies were practicing law without a license by preparing purchase contracts and other legal documents. (State Bar of Arizona v. Arizona Land Title & Trust Co., 90 Ariz. 76, 366 P.2d 1 (1961), supp. 91 Ariz. 293, 371 P.2d 1020 (1962).

The court stated that, “[R]eal estate brokers, agents, and salesmen … may not, as agents, draft or prepare any instruments purporting to create legal rights or impose legal responsibilities as between third parties.”

The court also stated that the legislature had no power to authorize real estate licensees to practice law by drafting purchase contracts because the unauthorized practice of law is governed by the court, not by the legislature.

As a result, Arizona REALTORS drafted the language of Article 26 of the Arizona Constitution and circulated initiative petitions to put a proposal on the ballot to amend the Arizona Constitution and allow real estate licensees to draft purchase contracts. See, Robert E. Riggs, Unauthorized Practice and the Public Interest: Arizona’s Recent Constitutional Amendment, 37 So. Ca. L. Rev. 1 (1964). In an effort to get the amendment approved by the electorate, Arizona REALTORS® undertook an extensive campaign. Despite vigorous opposition by the Arizona State Bar, the voters adopted Article 26 as an amendment to the Arizona Constitution in the 1962 election.

Article 26 states:

Section 1. Any person holding a valid license as a real estate broker or a real estate salesman regularly issued by the Arizona State Real Estate Department when acting in such capacity as broker or salesman for the parties, or agent for one of the parties to a sale, exchange, or trade, or the renting and leasing of property, shall have the right to draft or fill out and complete, without charge, any and all instruments incident thereto including, but not limited to, preliminary purchase agreements and earnest money receipts, deeds, mortgages, leases, assignments, releases, contracts for sale of realty, and bills of sale.

LEGAL RESPONSIBILITY

With power comes responsibility. The court of appeals stated:

Having achieved, by virtue of [Article 26 Section 1 of the Arizona Constitution], the right to prepare any and all instruments incident to the sale of real property, including promissory notes, real estate brokers and salesmen also bear the responsibility and duty of explaining to the persons involved the implications of these documents. Failure to do so may constitute real estate malpractice. Morley v. J. Pagel Realty & Insurance, 27 Ariz. App. 62, 550 P.2d 1104 (1976).

In other words, real estate brokers and salespersons have the responsibility to explain the transaction documents to their clients or be liable for malpractice.

In another case, the court said: “Article 26, §1 of the Arizona Constitution … authorizes brokers and salesmen to engage in limited law practice involving real property transactions. If a broker can practice law in the area of real property sales, it is reasonable to hold him to a full understanding of the implications and ramifications of the Statute of Frauds.” Olson v. Neale, 116 Ariz. 522, 525, 570 P.2d 209 (App. 1977). A contract for the sale of real property must be in writing and signed by the party to be charged to be enforceable. A.R.S. §44-101(6). All material modifications and amendments to a contract covered by the Statute of Frauds must also be evidenced by a signed writing. Many disputes would be avoided if all contract modifications were put in writing and signed.

These cases, and subsequent clarifications by the Arizona courts, indicate that Article 26 imposes a duty upon brokers and salespersons to give competent advice to their clients and to understand the legal implications of the documents they prepare. In addition, a broker or salesperson acting as an agent, has a fiduciary duty to protect and promote the client’s interests.

So, there’s no place like Arizona when it comes to the practice of real estate. And there’s no place like Arizona for official state neck-ware – the Bola tie. A.R.S §41-857.

K. Michelle Lind is an attorney and the CEO for the Arizona Association of REALTORS the largest trade association in Arizona, representing more than 46,000 members. Visit www.aaronline.com for more information about other issues affecting Arizona REALTORS and property owners.