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Regulatory Affairs Case Study: Get Answers First

By Sheryl B. Graham, Consumer Protection Officer

An unsuccessful buyer who submitted an offer to purchase a beach-front property through his buyer agent filed a complaint with the Commission against the listing agent. 

Before showing the property, the buyer agent texted the listing agent asking questions about the property.  She asked if there was any storm damage from a prior hurricane, the location of the set-back lines, and if a structure could be rebuilt on the lot if the current structure was extensively damaged.  The listing agent answered some of the questions via text and stated she was waiting for answers to the remaining questions.  There was no response from the listing agent regarding whether or not the lot would be buildable if the structure were to be heavily damaged.  The listing agent and the buyer agent also spoke by telephone.  The buyer agent recalled the listing agent stating the damage from a prior storm was mostly cosmetic and was being repaired.  The listing agent recalled telling the buyer agent to contact the local Division of Coastal Management, which carries out the state’s Coastal Area Management Act (aka CAMA) requirements, regarding the property setback lines. 

The buyer submitted an offer to purchase without receiving additional answers or verifying information.  After the inspections and survey were completed, the buyer contacted a CAMA representative regarding the setback lines. The buyer learned the lot was “non-conforming”, meaning the structure could not be rebuilt in the existing footprint if it was damaged beyond 50%.  According to the CAMA office, a lot classification can change with the location of the first stable vegetation line in relationship with the ocean.  Changes can occur due to storms, hurricanes, and acts of nature. Therefore setback lines and lot classifications of beach-front properties should be verified with current information.  The standard setback from the oceanfront is a minimum of 60’ from the first stable line of vegetation.  If the house or structure is within 60’, the house is “non-conforming,” meaning that repairs and maintenance can be made to the property of up to 50% of the structure (whether caused by storm, hurricane, flood, etc.).  If the repairs / maintenance are for more than 50% of the structure, that is deemed “development” and must be approved through new construction guidelines and meet the current requirements. A standard survey does not indicate the location of setback lines and should not be relied upon to determine if a lot is non-conforming or not.

The buyer was not interested in continuing with the purchase and although it was past the due diligence (DD) date, the seller released the earnest money deposit, but not the DD fee.  The seller updated the Residential Property Owners Association Disclosure and the listing agent revised the MLS to reflect the information about the non-conforming lot.  The buyer filed a complaint against the listing agent for failure to disclose a material fact.

The North Carolina Real Estate Commission (NCREC) publication Purchasing Coastal Real Estate in North Carolina advises consumers: “…If you are working with a licensed real estate broker, the broker has the duty to disclose material facts that the broker knows or reasonably should know.  Although real estate brokers may not always know erosion rates or setback location for particular oceanfront properties, they should advise you of the possibility of erosion and direct you to available sources of information…”.  It further states:  “…Purchasers should determine if the lot and building presently meet the setback for new construction and [if the lot is] eligible for a replacement building, keeping in mind the risk that erosion may make the lot unbuildable in the future.”

            During investigation of the case, both the buyer agent (a provisional broker) and her broker-in-charge were added as Respondents.  The Commission cautioned the listing agent to discover and disclose material facts and features about properties prior to listing.  The Commission cautioned the buyer agent to discover and disclose material facts about a property prior to assisting a buyer with submitting an offer.  The Commission cautioned the buyer agent’s broker-in-charge regarding supervision of provisional brokers and training to discover and disclose material facts.  In this case, confirming answers to the buyer’s questions prior to submitting an offer would have saved the parties time, money and headaches.  Properties in particular markets, such as oceanfront areas, have features and nuances unique to their location.  Brokers representing clients in these areas should know, disclose and communicate those characteristics.     

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How to determine if you have BIC Eligible status

Have you ever wondered what Broker-in-Charge (BIC) Eligible status means? Do you know if you hold BIC Eligible status or if you meet the requirements to attain it?

To determine whether you hold BIC Eligible status, log into your license record on the Commission’s website:

  1. go to www.ncrec.gov;
  2. click on Licensing;
  3. click on Licensee Login; and
  4. click on View/Update License Record.

The View/Update Information page shows whether you currently hold BIC Eligible status. If you do, Yes will appear beside BIC Eligible status. If you do not currently hold the status, No will appear beside BIC Eligible status.

In order to qualify for BIC Eligible status, a broker must:

  1. hold an active license;
  2. have obtained at least two years of real estate brokerage experience equivalent to 40 hours per week within the previous five years;
  3. submit the Request for BIC Eligible Status and/or BIC Designation form (REC 2.25); and
  4. complete the 12-hour BIC Course within one year before submission of Form 2.25 or within 120 days after submission of Form 2.25.

A broker must first have BIC Eligible status to be designated as a BIC. A broker who has BIC Eligible status may step in and out of active BIC designation by submitting the Request for BIC Eligible Status and/or BIC Designation form (REC 2.25).  

BIC Eligible status may be maintained indefinitely by a broker who:

  1. renews their broker license between May 15 and June 30 every year; and
  2. completes the Broker-in-Charge Update (BICUP) course and a four-hour Commission- approved continuing education elective course by June 10 each year.

See Commission Rule 58A .0110 for a full explanation of BIC Eligible status and BIC designation. For more information or to ask a question, contact the Education and Licensing Division at LS@ncrec.gov or 919.875.3700.

Current Stats: Monthly Licensee Count as of November 1, 2020

Kelly Allen receives Larry A. Outlaw Excellence in Education Award

Kelly Allen of Asheville is the 2020 recipient of the Larry A. Outlaw Excellence in Education award. Sandra O’Connor, Commission Chairperson, announced the award on October 8 at the NC Real Estate Educators Conference (NCREEA) conference.

The Commission established the Larry A. Outlaw Excellence in Education Award in 2016 to honor the late former Director of the Education and Licensing Division of the North Carolina Real Estate Commission. Larry A. Outlaw, both an attorney and licensed real estate broker, served as Director of the Education and Licensing Division for 35 years, from its creation in January, 1979 until his retirement February 1, 2014.

Outlaw continually worked to improve real estate prelicensing education and to expand real estate education, creating and implementing a continuing education program in 1994 and a postlicensing education program in 2006.  He advocated for and achieved minimum standards for approval of real estate instructors that included not only effective teaching skills, but real estate brokerage experience as well. He also worked to assure the excellence of the Commission’s licensing examination. Outlaw was a Founding Member of the national Real Estate Educators Association, serving as national president in 1990-1991. 

This year, the Commission established specific criteria for the Larry A. Outlaw Excellence in Education Award, to recognize and honor Outlaw’s legacy as a pioneer in our industry.  To be selected, the 2020 recipient must have demonstrated innovation in real estate instruction during the previous 2 years. Also, the nomination had to be supported by at least three letters of recommendation.

The Commission received multiple nominations. All of the nominees were extraordinary instructors.

The 2020 recipient, Kelly Allen, currently serves as both instructor and education director for Cumbie and Trull School of Real Estate in Asheville. She uses a wide variety of unique and innovative instructional techniques, including song lyrics, props and costumes, body motions, graphic organizers, Kahoot and Connect 4 games.

Allen is a member of NCREEA and REEA, achieved a 72% license examination pass rate during the 2018-19 license year, has a BA in Education, and has mentored other instructors. 

Allen’s students have said: 

Disciplinary Actions

BRANDI UTOPIA BAKER (Greensboro) – By Consent, the Commission suspended the broker license of Ms. Baker for a period of 6 months effective November 1, 2020. The Commission then stayed the suspension in its entirety. The Commission found that Ms. Baker visited the condominium her buyer-client was purchasing after being notified the condominium may have been damaged by a sewage back up. Ms. Brown did not communicate the potential damage to her buyer-client before he signed the closing documents and mailed them to the closing attorney.

Appearances

Miriam Baer, Executive Director, spoke at the HM Properties event on October 29.

Sheryl Graham, Consumer Protection Officer, spoke at the Century 21 Liberty sales meeting on October 29.

Jean Hobbs, Auditor/Investigator, spoke at the NARPM Charlotte Chapter meeting on September 16.

Current Stats: Monthly Licensee Count as of October 1, 2020

How to Register for the Basic Trust Account Procedures Course

Are you interested in becoming a BIC? Did you know that if you open a trust account, Rule 58A .0110(g)(9) requires you to take the Basic Trust Account Procedures course within 120 days of opening the account?

During the Basic Trust Account Procedures course, you will learn about the laws and rules regarding maintaining a brokerage trust account in North Carolina.

The Basic Trust Account Procedures course is now easier than ever to take because it is available online. Also, once you have successfully completed the course, you will receive four (4) hours of continuing education elective credit.

Ready to register for the Basic Trust Account Procedures course? If so,

  1. go to www.ncrec.gov
  2. click Education;
  3. click Trust Account Registration
  4. click Add to Cart; and
  5. click Checkout.

For more information or to ask a question, contact Regulatory Affairs at RA@ncrec.gov or 919.719.9180.

Commission Spotlight: Auditor

Did you know the Commission audits brokers’ trust accounts? Have you ever wondered who performs those audits?

When the Commission receives a complaint against a broker, a staff attorney reviews the complaint to determine whether the allegations fall under the jurisdiction of the Real Estate Commission.  The staff attorney is not attempting to determine whether the allegations are true or false at this stage.  Rather, the attorney must consider: “If all allegations in this complaint are true as written, would there be a violation of License law and Commission rules?”  If the answer is yes, then a case file is opened.

If the allegations in the complaint involve mismanagement of consumer funds, then the case is referred to a Commission Auditor who will likely visit the brokerage office to obtain statements and documents.

In addition to performing complaint-based audits, Auditors:

To learn more about the complaint process or to file a complaint, go to the Commission’s website, or contact Regulatory Affairs at RA@ncrec.gov or 919-719-9180.

Disciplinary Actions

SUSAN CLIFT BROWN (Southern Pines) – By Consent, the Commission suspended the broker license of Ms. Brown for a period of 3 years effective May 1, 2020. The Commission then stayed the suspension in its entirety. Ms. Brown, acting as the qualifying broker and broker-in-charge, failed to review the firm’s trust account records which allowed her bookkeeper, to embezzle at least $37,000 from the firm’s trust account over approximately 7 years. Ms. Brown failed to safeguard her trust account and maintain records in full compliance of Commission rules.

DONNA GLOSSON REZEN (Pittsboro) – By Consent, the Commission suspended the broker license of Ms. Rezen for a period of 12 months effective October 1, 2020. The Commission then stayed the suspension in its entirety. Ms. Rezen, as listing agent for a property, received a buyer’s home inspection report which noted several material facts including: structural problems in a deck extension, non-functioning emergency heat strips in the heating systems, long term leaks in the master bathroom, fungal growth, excessive condensation, and a sagging air duct in the crawlspace, and a dirty water filter for well water. After the first buyer terminated the contract, the subject property went under contract three additional times. Ms. Rezen never advised her seller-client to update the RPOADS to accurately reflect the known material facts and did not otherwise disclose the issues until after Buyer #4 was under contract.

STEPHANIE P WILLIAMS (Shelby) – By Consent, the Commission suspended the broker license of Ms. Williams for a period of 6 months effective September 15, 2020. The Commission then stayed the suspension in its entirety. Ms. Williams acted as the listing agent in a residential transaction and failed to disclose major termite damage to the purchaser of the property at or before the time the offer was made. This material issue was discovered by a previous potential buyer during their inspection and their agent informed Ms. Williams.

S&L REALTY OF CLEVELAND COUNTY LLC (Shelby) – By Consent, the Commission suspended the broker license of S&L Realty of Cleveland County LLC for a period of 6 months effective September 15, 2020. The Commission then stayed the suspension in its entirety. The Firm’s broker-in-charge acted as the listing agent in a residential transaction and failed to disclose major termite damage to the purchaser of the property at or before the time the offer was made. This material issue was discovered by a previous potential buyer during their inspection and relayed to the broker-in-charge by their agent.

RENEE SESSOMS STRICKLAND (Erwin) – By Consent, the Commission reprimanded Ms. Strickland effective September 15, 2020. The Commission found that in or around October 2019 Ms. Strickland listed a property without measuring the property’s square footage. After closing, the buyer discovered the property was approximately 13% smaller than advertised in the MLS.