Broken law in Broken Bow?

By M. Scott Carter | The Journal Record

[ SEPTEMBER 30, 2009 – BROKEN BOW, OK ] – For more than a decade Terry Walker and his wife, Michelle, have rented cabins to tourists in southeastern Oklahoma.

They’ve made the reservations, dealt with the renters, handled the money, fielded the complaints, and made sure the cabins were clean.

“We do whatever needs to be done,” Michelle Walker said.

Like many other families in the area, the Walkers embraced tourism as a career after southeastern Oklahoma’s industrial base began to erode.

“When Weyerhaeuser went under, people turned to tourism to keep afloat,” Terry Walker said. “This was a way to put food on the table.”

Life improved in May of 1996. That year, the state built Lakeview Lodge, a hotel that overlooks Broken Bow Lake.

“After the lodge was built, it seemed that tourism really took off,” Terry Walker said. “Lots of people came to the area and fell in love with the place. Then they built vacation homes here and rented them out when they weren’t using them.”

For that decade, it seemed tourism had saved southeastern Oklahoma.

Then the letters came.

Shock waves

This summer many of the cabin rental companies in the Broken Bow area received letters from the Oklahoma Real Estate Commission. Those letters notified the companies they were under a formal investigation for unlicensed real estate activities.

“This decision to open a formal investigation was based upon information … which indicates you appear to be acting as a property manager of vacation cabins you do not own,” a letter from the commission’s executive director, Anne Woody, said.

Woody’s letter, sent to more than a dozen rental companies, cited Title 59 of the Oklahoma statutes which, she said, made it unlawful for an unlicensed person or entity to engage in licensable real estate activities.

“By offering properties for rent or lease that belong to others, with the intent of receiving compensation, it appears that you are involved in real estate related activities without possessing an Oklahoma real estate license,” she wrote, adding that the commission has the authority to fine an unlicensed person or entity for engaging in licensable activity in an amount up to $5,000 or the compensation earned, whichever is greater, for each violation of the Real Estate Code.

The letters sent shock waves through the area.

“We were frightened,” Terry Walker said. “All our friends started getting these letters. We’re not selling property. We’re leasing these homes to people for a weekend. It’s a transient business, just like getting a room at a motel or a state park cabin.”

For Dian Jordan, the owner of Pine Meadow Cabins, the letters were more than frightening; they were insulting.

“They never once called me or visited with me,” Jordan said. “They just fired off these letters to about 10 of us. To me, it sounds like a witch hunt.”

Like the Walkers, Jordan said she has been managing cabins for years. And she doesn’t understand why, suddenly, she’s now doing something illegal.

“Everything has been fine for a decade,” Jordan said. “There are 600 cabins for rent down here. We’ve all worked hard and paid our taxes. It’s only now there’s a problem.”

Jordan said her business has been inspected yearly by both the state Department of Health and by the state Tax Commission.

“The Health Department comes every six months and inspects us,” she said. “And they’ve never said a thing about us doing something wrong.”

From the Real Estate Commission’s point of view, the Walkers, Jordan, and many of their friends who manage the lakeside cabins are breaking the law.

“All the management companies down here like each other,” Michelle Walker said. “We all get along. We don’t sell any real estate; basically we’re hotel operators. It’s mind-boggling.”

When the Walkers began leasing cabins in 1996, there wasn’t a law that addressed leasing and real estate in a way that affected them. Things changed in 2004. Records show the state Legislature changed a portion of the real estate code that year, and that change laid the foundation for the Walkers’ problems.

“We’ve been doing this for close to 15 years,” Terry Walker said. “There was never any word, or anything. There wasn’t a problem.”

Then, this year, Walker said officials with the Real Estate Commission brought it to their attention that a 2004 law said companies, such as the one owned by the Walkers, needed real estate brokers’ licenses just to rent cabins.

The reason, the state said, is money.

“In order to hold the monies of these owners you have to have a trust account,” Woody said in a telephone interview. “Sales associates can’t have a trust account. Only a broker can have a trust account.”

Oklahoma City attorney Marc Edwards said that may be overreaching.

Edwards, a partner at the Oklahoma City law firm of Phillips Murrah, is defending the Walkers.

“There are other professionals that have their own rules and regulations and that, likewise, can hold their clients’ funds in trust,” he said.

Furthermore, Edwards said, the commission is making an assumption that the cabin rental companies are holding the funds in trust.

“That’s not necessarily true,” he said. “I think it is more common that the down payment and the balance due are being held by third-party corporations like credit cards companies, which provide the consumer some avenue of protection if there’s a concern over the leasing of the cabin.”

Woody countered, saying state law is simple: To legally do the management work the Walkers and others are doing requires a real estate broker’s license. And while she acknowledged none of the property owners had filed complaints about any of the leasing companies, she did express concern about the lack of licenses and the fees some companies are charging.

“I have heard there are fees being charged upward of 40 percent,” she said. “I can’t substantiate that, but if that’s the case, that’s excessive.”

Right now, Woody said, her staff is reviewing several cases.

“We receive anonymous cases too, but we don’t act on every case,” she said. “We research it to find if there’s any validity to it.”

For the Walkers, even a review is frightening.

They and the other companies say the law could have devastating consequences, not just to their business, but to the area’s economy.

Terry Walker said the issue affects more than just the rental companies.

“You know, we don’t get a whole lot of attention down here, unless it’s about raising dope or shooting each other,” he said. “Tourism is enormous. We were the first county in the state to pass a county-wide tourism tax, and it’s been a great success. It took 10 years and now tourism is extremely successful. If we couldn’t do this, we’d be belly-up.”

A shutdown could also harm homeowners.

“Most of these cabins are in the $200,000 to $300,000 range,” he said. “These are massive, big, beautiful investments. A majority of these people couldn’t afford to make their mortgage payments if they couldn’t rent their cabins. This is a lot more than just a few little country folks renting a business down here. This is our lives.”

Fighting back

Fast forward to August. After they got over their initial shock, the Walkers decided to fight back.

In addition to contacting their legislative delegation, the couple hired Edwards and said they are working day and night to bring the problem to an end.

Their strategy is straightforward: They are no different than a hotel or a motel.

“I see very little difference between what the cabin managers are doing, which is leasing out the cabin on a short time basis, and what a hotel or motel is doing,” Edwards said. “It’s our opinion that the law was never intended to apply in this situation.”

State Sen. Jerry Ellis, D-Valliant, agreed.

Ellis said he is working with the author of the 2004 legislation, state Sen. J. Paul Gumm, a Democrat from Durant, to amend the law next year. Gumm, Ellis said, wasn’t trying to hurt the tourism industry in Broken Bow.

“When Senator Gumm passed this legislation, I don’t think this was his intent at all,” Ellis said. “And I think there’s going to be corrective action.”

In the meantime, Ellis said he requested an opinion from Attorney General Drew Edmondson to determine how the law applies. Because opinions by the attorney general carry the weight of law, a favorable ruling would solve the problem until the Legislature returns in February.

In an e-mail to The Journal Record, Edmondson’s spokesman, Charlie Price, said the request would be studied Oct. 7.

Real Estate Commission officials said they have temporarily put their investigation on hold.

“I was told an AG’s opinion had been requested,” Woody said. “And we will have to abide by the attorney general’s opinion.”

But for Jordan, the issue is about more than just state law.

“People say, ‘why don’t you just get your broker’s license?’” she said. “Well, I don’t want to sell real estate, that’s why. And I can tell you the real estate agents down here don’t want me to compete with them. I am in the entertainment and tourism business and that’s what I want to do.”

Terry and Michelle Walker aren’t interested in selling real estate, either. Instead, they simply want to go back to work, bringing tourists to the area.

“It’s funny,” Terry Walker said. “Things are so good down there, the real estate people don’t need to advertise. They just wait for us to send them inquiries. And from the responses they get, it’s not like we’re taking any business from them. Things were fine, but now, if we don’t get this law changed, it could be devastating.”

What it takes to get a broker’s license

According to the Oklahoma Real Estate Commission, obtaining a real estate broker’s license allows a person to do business as a firm and sponsor licensed associates (provisional sales associates, sales associates or broker associates.)

A broker, the commission says, “will be responsible for activities of their associates.”

In order for an applicant to apply for a broker’s license, the applicant must be of good moral character, possess two years of active experience, or its equivalent, as a provisional sales associate or sales associate within the past five years, and submit evidence of successful completion of 90 clock hours of advanced real estate instruction in a course that is approved by the commission.

A broker applicant may request the two years’ experience to be waived but no education course content may be waived, according to information on the commission’s Web site. The broker applicant must show proof of successful completion in the basic, provisional post-license (or its equivalent) and advanced course of study prior to qualifying for the broker examination.

Upon request from the commission, an applicant may attempt to qualify for the two-year waiver and must submit all documentation as required by the commission to verify the waiver. Upon passing the state examination, a broker has the option of applying for a license as a broker associate, proprietor broker, managing broker for a corporation or association, or as a broker partner of a partnership.