From the title of this article, you may be under the impression that it contains some secret formula for success or survival in today's difficult real estate market. It does not. Instead, it is designed and intended to bring to your attention some of the pitfalls which face real estate brokers and salesmen who are trying to cope with dwindling profits and the baffling array of financing techniques which typify current real estate transactions.

The Real Estate Licensing Board has experienced a growing number of incidents of real estate brokers "borrowing" their clients' trust funds to meet pressing cash flow problems within their firms. The brokers justify their actions by claiming that they are only temporarily using the money and that they have every intention to return the funds to their trust accounts before they are needed by their clients.

Needless to say, such actions are absolutely prohibited. Any use of trust funds by brokers or salesmen for purposes other than those expressly stated in the authorizing document (offer to purchase, lease, etc.) is a direct violation of the Real Estate License Law and will not be tolerated by the Real Estate Licensing Board.

More than ever before, the ability to finance real estate purchases is the key to making sales. Yet high mortgage interest rates have stymied many would-be homebuyers. To counter these high interest rates, an almost infinite variety of financing plans and arrangements have emerged: "Variable Rate Mortgages", "Adjustable Rate Mortgages", "Renegotiable Rate Mortgages", "Buy-Downs", "WrapArounds", "Land Leases", "Resale/ Refinance Programs", "0% Loans" -just to name a few.

Understanding the many fine points and details of these so-called "creative financing" plans would surely challenge the wits of the most experienced banker or lender. Yet every day, real estate consumers, desperate to satisfy their housing needs, enter into these sometimes complicated and sophisticated financial agreements, often upon the advice and encouragement of the real estate broker or salesman.

While the Real Estate Licensing Board does not wish to restrict in any way the use of any legitimate financing technique, the Board is concerned that the decisions of consumers to enter into these financial arrangements may not always be based upon a clear understanding of the mechanics and ramifications of such financing (especially when it involves negative amortization).

Although it is true that real estate agents must at all times protect and promote the interests of their principals (usually the seller), they are also obligated to treat all parties to the transaction fairly.

While this does not require the broker to personally explain to the purchaser all of the intricacies involved in the various new financing arrangements, the broker should make every effort to ensure that the purchaser receives complete and accurate information.

Real estate brokers and salesmen should not attempt to explain any financing plan about which they are not fully informed. Rather, they should refer the purchaser to a competent and experienced lender or attorney for financial or legal advice concerning the proposed financing arrangements.

While the Real Estate Licensing Board recognizes and appreciates the difficulties confronting agents in today's real estate market, the Board cannot excuse brokers and salesmen who fail to strictly adhere to the requirements of the Real Estate License Law, the Board's Rules and Regulations, and established standards of real estate practice.

Brokers and salesmen are especially cautioned (1) not to use client funds for their own personal or business purposes (whether on a temporary basis or otherwise), and (2) to make every reasonable effort to assure that purchasers/borrowers are fully informed as to the terms and conditions of their loans before they enter into a loan or financing agreement.