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Intentional Ignorance
Stephen L. Fussell, Chief Consumer Protection Officer
Ignorance is a lack of knowledge. Intentional ignorance is when you choose to avoid learning information or skills. Why would a broker choose to avoid learning information or skills? One reason is that some brokers mistakenly believe that if they don’t know a material fact then they can’t be required to disclose it.
Here are almost a dozen examples of intentional ignorance which could lead to damage to a client and disciplinary action being taken against a broker: i
- A commercial listing broker lists a large tract of land and subsequently hears a rumor regarding a former unregulated dump site on the property, but fails to make any inquiry into the possible former dump site.
- A residential property manager has been leasing a property to the same tenant for five years, but has not inspected the property since the tenant moved in and therefore doesn’t know about the condition of the property or whether the tenant is complying with the terms of the lease, such as unauthorized occupants or pets.
- A vacation rental manager learns of a beach renourishment project but doesn’t inquire about planned dates or potential impact on guests.
- A residential buyer agent shows a house to a buyer-client and silently doubts the accuracy of the square footage advertised in the MLS, but says nothing to anyone, because the buyer instantly fell in love with the property.
- A commercial broker representing a tenant, who wants to lease a space for a daycare center, fails to ascertain whether the space meets the requirements for operating a daycare center or to advise their client to do so.
- A property manager notices rust-colored stains in sinks, toilets and tubs, but fails to inquire about water quality or water filtration systems or suggest that the owner test the water quality.
- A residential listing agent, whose market area includes a town bordering a river that floods during periods of heavy rain, does not inquire about flooding on the listed property or in the surrounding neighborhood.
- A group of brokers buy an investment property to renovate and resell, but do not order any inspections or discuss conditions with contractors thinking that, if they do not discover material facts about the property, then they will not have to disclose them on resale.
- A residential listing agent lists a house with a septic system, but does not pull and review the septic permit or inquire about the pool of foul-smelling water standing in the yard.
- A residential buyer agent knows their buyer-client wants to construct a barn and raise chickens, goats and other farm animals, but fails to obtain and review the restrictive covenants, zoning restrictions and other regulations that may affect the buyer’s intended use or to advise their client to do so.
- A buyer agent has a client they know to have respiratory issues and notices standing water in the crawl space of a property, but does not inquire about mold or suggest that the buyer hire a mold inspector.
The aforementioned examples illustrate brokers who chose to avoid acquiring information to improve their knowledge and/or skills and thereby failed to position themselves to better represent their clients and protect consumers.
The flaw in using intentional ignorance as a strategy is that a broker is required to discover and disclose material facts. This duty to discover eliminates a broker’s option to avoid learning about a material fact. Moreover, a broker is held responsible for what he/she knows or reasonably should know. This responsibility also applies when a broker is selling or leasing his/her own property (see N.C.G.S. § 93A-6(b)(3)). So, even if a broker doesn’t know a material fact, if the Commission determines that a prudent agent would know it, then the ignorant agent can be disciplined for failing to disclose the fact.
N.C.G.S. § 93A-6(a)(1), (8) and (10) authorize the Commission to pursue disciplinary action against a broker who omits a material fact, is incompetent or unworthy to act in a manner which protects the public or who engages in improper or dishonest dealing, respectively. Therefore, intentional ignorance is not an option for a broker. Every broker must exercise reasonable care and diligence in discovering and disclosing all material facts to all interested persons in a timely manner.
Staff Update
75 Years of Service
Seven Commission staff members received awards for a combined total of 75 years of service: (from left to right) Frederick A. Moreno, Chief Deputy Legal Counsel; Corean E. Hamlin, Director, Education and Licensing Division; and Melissa A. Vuotto, Rulemaking Coordinator, all five years; Tiffany D. Bryant, Executive Assistant/Paralegal, 10 years; Brenda K. Hollings, License Services Officer, 30 years; Bradford A. Cox, Licensing Team Lead, 10 years; and Peter B. Myers (not present), Information Officer, 10 years.
Appearances
Stephen L. Fussell, Senior Protection Officer, spoke to Redfin Corporation in Durham.
Nicholas T. Smith, Consumer Protection Officer, spoke to Acorn + Oak Property Management and to Fathom Realty NC, both in Durham.
Disciplinary Actions
WILLIAM NEWTON DEVORE III (Asheville) – By Consent, the Commission reprimanded Mr. Devore effective May 1, 2019, on certain conditions. The Commission found that Mr. Devore, in or around December 15, 2015, was convicted of a Level 5 DWI, which he disclosed on his broker license application. In or around January 10, 2019, Mr. Devore self-reported his second DWI conviction involving an accident in which he damaged another vehicle. He received a sentence of 34 days in jail, which was suspended. Mr. Devore spent 28 days in an in-patient treatment center, and received 18 months of supervised probation and 240 hours of community service. Mr. Devore is prohibited from driving for one year.
OSCAR H. PACE, JR. (Broadway) – By Consent, the Commission reprimanded Mr. Pace effective April 1, 2019. The Commission found that Mr. Pace acted as broker-in-charge from April 11, 2016 to November 8, 2017. From November 2016 through March 2017, Mr. Pace’s employees falsely communicated to their landlord-client that the firm was continuing to accrue charges against a tenant who had vacated the property before lease end and the firm would eventually send the accrued charges to collections. Instead, Mr. Pace’s employees had already refunded the tenant security deposit to the tenant and informed him that he did not have to continue to pay rent.
TRIPP TOWER JR. (Denver) – The Commission accepted the voluntary surrender of Mr. Tower’s license effective April 17, 2019. Mr. Tower cannot reapply for licensure for one year. The Commission dismissed without prejudice allegations that Mr. Tower violated provisions of the Real Estate License Law and Commission rules. Mr. Tower neither admitted nor denied misconduct.
Spotlight: Wendell Bullard, Commissioner
Wendell Bullard of Durham was appointed to the North Carolina Real Estate Commission by Governor Roy Cooper effective August 1, 2018.
Mr. Bullard is Managing Broker at Bullard Properties, LLC, in Durham and has over 22 years of experience in the real estate industry including affiliations with Prudential Carolinas Realty, and Realty Executives Triangle Southpointe (Co-Owner).
He is past president of the Durham Regional Association of REALTORS® and the North Carolina Association of REALTORS® and past REALTOR® of the Year in both organizations.
One of several founding members for charter high schools in Charlotte and Raleigh, Bullard is past treasurer for Commonwealth and Stewart Creek High Schools and past board president of Central Wake Charter High School in Raleigh.
He is a graduate of North Carolina Central University with a B.S. in Marketing and a United States Air Force Security Specialists veteran.
Spotlight: George Bell, Commissioner
George Bell of Winston-Salem has served on the NC Real Estate Commission since 2014 and was its Chair in 2016-17.
Bell is the Managing Broker and Broker-In-Charge of Forsyth Realty Group, a residential brokerage firm, as well as Bell First Group, a commercial brokerage firm, and president of George Bell Productions, Ltd., a real estate education firm serving real estate brokers across North Carolina.
Bell entered the real estate business in 1978, following graduation from East Carolina University with a BS in Business Administration, as a broker, trainer and marketing representative. He has since held sales management, broker-in-charge, broker/owner and education positions with several brokerage firms.
Bell was inducted into the North Carolina Association of REALTORS® Hall-of-Fame in 2014, and served as the 2010 president of the Winston-Salem Regional Association of REALTORS® and its 2009 REALTOR®-of-the-Year.
In 2012, he received the Billie J. Mercer Excellence in Education Award from the North Carolina Real Estate Commission and the Educator of the Year Award from the North Carolina Real Estate Educators Association (NCREEA). He is a past president of the both the state and international Real Estate Educators Associations.
Bell is a member of the National Association of REALTORS® (NAR) and its Real Estate Brokerage Managers, Residential Specialist, and Real Estate Buyer’s Agent Councils. A licensed auctioneer, he is a member of the Auctioneer Association of North Carolina.
Be Cautious About Renos Without Permits
Reprinted from REALTOR® Magazine Online, February 26, 2019, with permission of the National Association of REALTORS®. Copyright 2019. All rights reserved.
https://magazine.realtor/daily-news/2019/02/26/be-cautious-over-a-house-reno-without-permits cce
Some homeowners bypass the permit process when they remodel their home. They may find the process too expensive or cumbersome. Permitting fees can sometimes cost hundreds of dollars or more. Some homeowners may believe that if they go ahead with a kitchen or bath remodel without a permit, they’ll likely never get caught.
But failing to get a permit could be troublesome when they go to sell the home.
Most states require homeowners to fill out a disclosure statement when they go to sell. In that form, sellers are usually asked if they completed work to the home without a required permit. Lying about it can also backfire—the sellers could be sued later by the new homeowner for making false statements.
“You can personally become liable for work carried out without permits,” writes Bill Gassett, a real estate professional with RE/MAX, REALTORS® in New England, for RISMedia’s Housecall. “Maybe the finished basement built by the previous homeowner with the fancy kitchen that sold the home has to be ripped out, or you’ll have to pay a penalty.”
Also, if there’s any incident that was caused by the lack of permits, the homeowner may face a denial of their insurance claim. If their insurance company finds they didn’t have the required permit, they could deny the claim. Many of these denied insurance claims stem from incidents that involve remodeling projects around electricity, gas, or water that were done without the appropriate permits.
Due Diligence for a New Broker-in-Charge
By Marcia M. Waldron, Auditor �~
We are often approached by licensees who have ‘acquired’ trust accounts by either becoming a Broker-in-Charge (BIC) of a firm with a trust account or by acquiring client accounts through the purchase of a company with trust account(s). Their question is “…who is responsible for any issues with the trust accounts that happened prior to me becoming the BIC?” Here is our simple but extremely important answer: You should assume that you will be held responsible.
In prior cases, both the new and former BICs have faced disciplinary action for trust account issues that remained in existence through a transition. The next question starts with “But what if…” and generally that sentence does not need to be completed. If you acquire trust accounts, once the transfer of funds occurs, YOU are responsible for both accounting and funding of the accounts. If the records are a disaster, then you will have a disaster in your name once the deal is completed. So, what is a Broker to do?
When contemplating the addition of trust accounts, first check with the Commission to see if there is a pending investigation involving the current firm or BIC. We have had situations where the current BIC attempts to divest himself/herself of trust money to avoid disciplinary action. The Broker acquiring these accounts may find themselves inadvertently a party to our investigation.
Next, do your homework: verify that the accounts are fully funded and that the records are compliant. Unless you are an accounting wizard, we recommend hiring an accountant or CPA who understands our rules, specifically those rules governing trust accounts. A business valuation process should always include a thorough due diligence review of accounts and contracts, but since trust funds are included, a specific examination of the trust account and related records is essential.
Knowledge of the monthly reconciliation process is a prerequisite to checking the accuracy of the trust account records. The bank account must be reconciled monthly; with a trust account there is an additional essential step to this monthly reconciliation. A determination needs to be made to see what balance should be held in the trust account.
The Commission calls this report a Ledger Trial Balance. The total on the Ledger Trial Balance should be equal to the reconciled bank balance, and the detail of this report must be verified through an examination of the individual ledgers that constitute the line items on the Ledger Trial Balance. If this information appears inaccurate or contains negative balances, this is a red flag that further investigation is warranted.
In addition to confirming that the trust account is properly funded, the Broker-in-Charge should assure that the accounting records are otherwise compliant with Commission rules NCAC 58A .0108, .0116, .0117, and .0118. Management and lease agreements and/or open sales transactions and agency agreements should be reviewed; cash receipting (if cash is still allowed) should be immediately evaluated. Look at office procedures surrounding all accounting functions and record retention, including keeping copies of security deposit, earnest money, and due diligence checks. Another prime area to review is the vendor list: be sure the records support disbursements, and verify that the vendors are legitimate.
If you become the Broker-in-Charge of a firm with inadequate trust account records or shortages or overages of trust money, you are immediately responsible for making certain those records and the funds are in order. Do your homework in advance; don’t put your license in jeopardy by taking on someone else’s mess.