Following is a summary of proposed rule changes to be effective July 1, 2014:
A .0104: Amend paragraph (d) of the rule governing agency agreements and disclosures to prohibit a broker who is also a party to a transaction from representing an opposing party in the same transaction; clarify circumstances under which a listing broker may purchase his/her client’s property.
A .0109: Amend the rule governing brokerage fees and compensation to prohibit a broker from accepting compensation from a vendor in exchange for recommending the vendor’s services to a party
A .0112: Amend the rule governing offers and sales contracts to incorporate minor technical changes.
A .0114: Rephrase Question #24 on the Residential Property and Owners’ Association Disclosure Statement to inquire whether, based upon the seller’s knowledge, the property is in violation of any local zoning ordinances, restrictive covenants, building code requirements, or other land-use restrictions, and eliminate the reference to notice from a government agency about those restrictions.
A. 0117: Amend Paragraph (f) of the rule governing accounting for trust money to incorporate minor technical changes.
A .0118: Amend the rule governing the handling of trust money belonging to owners’ associations to incorporate minor technical changes.
A .0404: Amend the rule prohibiting cheating and certain other misconduct in connection with the licensing examination to add violations of various examination instructions as rule violations and to add dismissal from an examination, invalidation of examination score and forfeiture of examination and application fees as possible consequences in addition to denial of a real estate license and disciplinary action if an applicant becomes licensed prior to the discovery of the violation.
A .0502: Amend Paragraphs (a) and (d) governing the licensing of business entities to incorporate minor technical changes.
A .1709: Amend the rule governing brokers’ requests for extensions of time within which to complete CE to clarify that a request for extension must be made by a licensee on active status and submitted not later than June 10.
A .1808: Amend the rule governing the handling of trust monies by a non-resident commercial broker to incorporate minor technical changes.
C .0209: Amend the rule governing private real estate school enrollment procedures to require that the mandatory student enrollment contract for post-licensing courses include a description of the provisions in Rules C .0302(c) and A .1904(a)(3) prohibiting schools from knowingly allowing postlicensing students to enroll in two courses simultaneously if the student would be in class for more than 21 hours in a seven-day period and authorizing the Commission to deny or withdraw postlicensing credit as to a student participating in simultaneous courses exceeding 21 hours in seven days.
C .0309(a): Amend the rule to allow school officials’ signatures on course completion certificates to be provided electronically rather than only by signature or signature stamp in a color other than black.
E .0304: Amend the rule governing the criteria for elective course approval to provide that where a proposed new course has been reviewed by the Commission twice and found unsatisfactory after both reviews, any subsequent submission will be treated as an initial application requiring the payment of a $100 course application fee.
E .0408: Amend rule on changes in CE sponsor ownership to be consistent with proposed new rule clarifying G.S. 93A-35(c) on changes in private real estate school ownership.
This article came from the October 2013-Vol44-2 edition of the bulletin.
By Everett “Vic” Knight, Chairman, NC Real Estate Commission
There is NO prohibition against real estate brokers contacting and “talking” to the appraiser. However, there are clearly topics and facts that the appraiser CANNOT discuss or share with anyone other than the appraiser’s client. (Typically, the client is the LENDER.)
Appraisers are highly regulated both on the state and federal levels. “Appraiser Independence” is the Law under Dodd-Frank (Wall Street Reform and Consumer Protection Act), and there are certainly circumstances where a broker can contact and “talk” to the appraiser.
The national housing market downturn brought numerous regulatory changes to the real estate industry, including the entire appraisal process. Dodd-Frank legally sunset the Home Value Code of Conduct and required the Federal Reserve to amend the appraisal independence rules of Regulation Z of the Truth in Lending Act. The interim final rule effective April 1, 2011, applies to all consumer credit transactions secured by a consumer’s principal dwelling. Fannie Mae and Freddie Mac servicing guidelines now reflect this rule. In addition, state laws and regulations require appraisers to comply with Uniform Standards of Professional Appraisal Practice (USPAP). Among many other things, this legislation and the accompanying rules include exactly what can be “asked” of an appraiser.
Recognize that the appraiser’s function is to develop an independent, impartial and objective opinion of the value of the property for the lender to determine what the underlying collateral value is to base their financial lending decision on.
First, the Ethics Rule of USPAP prohibits appraisers from “Disclosing” 1) confidential information or 2) assignment results to anyone other than the “Client” (ie; entities or persons authorized by the client).
Secondly, language in Dodd-Frank states: “The requirements …. shall not be construed as prohibiting a ….. real estate broker, …..or any other person with an interest in a real estate transaction from asking an appraiser to undertake one or more of the following: 1) Consider additional, appropriate property information, including the consideration of additional comps ….. to make or support an appraisal, 2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion, 3) Correct errors.”
This language does not allow a full blown “conversation” or “discussion” with the appraiser, but it does address the points that brokers can “ask” of an appraiser. However, this does imply that the flow of information is essentially one-way, from the broker to the appraiser. The broker CANNOT anticipate there will be any substantial “conversation” or “discussion” about the appraisal or conclusions.
It is unfortunate that some AMC’s have instructed appraisers to significantly limit their interaction with otherwise interested parties to the transaction, creating much of the confusion on what type of contact and talk can be held with appraisers.
The most favorable “window-of-opportunity” to “talk” to the appraiser is as soon as the “appraisal inspection” is scheduled. There are many things that brokers and sellers can do to put the property in the best position possible for the most favorable appraised value outcome. The most important is providing as much accurate, current and detailed information on the subject property as possible. Most of that information can easily be provided through the local MLS (including as many photos as the MLS will allow), which is not only beneficial to the appraiser of the subject property but equally beneficial when the appraiser uses that same information as a future comparable and especially to potential buyers during their search process. This important information is the first opportunity for the listing broker to provide factual insight into the subject property and also disseminates the broker’s unique knowledge of the local real estate market through supporting information and often supporting documentation.
Brokers are allowed to contact appraisers and provide additional property information, including a copy of the sales contract for purchase transactions. Brokers may not intimidate or bribe an appraiser and an appraiser may not disclose confidential information about the appraisal or the assignment at any time.
Therefore, the “new-normal” is the development of an “appraisal package” on every property which comes under contract and subject to a mortgage. Make the “appraisers package” available at the property for the appraisal inspection, or meet the appraiser at the property so you can answer any questions, and inform the appraiser of the unique factual features of the property or neighborhood, and make sure you allow the appraiser the space and time to complete their inspection. The appraisers package could include plats, surveys, deeds, covenants, HOA documents, floor plans, specifications, inspection reports, neighborhood details, recent similar quality comparables, detailed list and dates of upgrades, remodels or repairs, recent CMA’s, etc. Provide the seller/buyer a copy of the brochure developed by The Appraisal Foundation entitled “A Guide to Understanding a Residential Appraisal” available for download at http://www.realtor.org/appraisal/a-guide-to-understanding-a-residential-appraisal.
This article came from the October 2013-Vol44-2 edition of the bulletin.
The Commission awarded three scholarships at the June meeting to brokers who have achieved outstanding academic performance while pursuing real estate education beyond what is required for a broker license.
Winners of the scholarships, which honor former Commission Executive Directors, are Geri Mullinix, Charlotte, Joe Schweidler Memorial Scholarship; Katherine Pierce, Apex, Blanton Little Memorial Scholarship; and Richard Cooke, Asheville, Phillip T. Fisher Scholarship. Cooke was unable to be present. Recipients received a plaque recognizing their achievement and reimbursement of course tuition fees.
Mullinix and Pierce were selected by the North Carolina Real Estate Educational Foundation for courses in the REALTORS® Institute, and Cooke was selected by the North Carolina chapter of the National Association of REALTORS® Council of Real Estate Specialists (CRS).
This article came from the October 2013-Vol44-2 edition of the bulletin.
Michael B. Gray, Chief Financial Fraud Investigator, received the 2013 Investigator of the Year Award from the Association of Real Estate License Law Officials (ARELLO®).He was also recognized by ARELLO® as Investigator of the Year in 2004.
Gray investigated a complex “builder kickback” scheme in which real estate agents and firms listed properties at inflated prices for a builder and solicited buyers through promoters.
Kickbacks were paid to promoters and buyers from property sales proceeds and not disclosed on loan application documents or HUD-1 settlement statements. Real estate licensees collected and distributed the illegal kickbacks and/or received real estate commissions from transactions involving hundreds of homes and over $42 million in illegal loans. Property foreclosures resulted when investors were unable to rent or sell as promised.
Gray’s work led to license revocations for North Carolina licensees and enabled federal law enforcement officials to obtain criminal convictions and sentences for the licensees and other participants.
With the Commission for 17 years, Gray was named Chief Financial Fraud Investigator in 2010 for the Financial Fraud Unit, which investigates mortgage fraud cases involving real estate licensees. His work fostered a cooperative relationship with federal officials in the investigation and prosecution of fraudulent real estate transactions. He holds the ARELLO® “Certified Real Estate Investigator” (CREI) designation.
This article came from the October 2013-Vol44-2 edition of the bulletin.
The Commission requires all brokers-in-charge (BICs) to take a Broker-in-Charge Annual Review (BICAR) course, along with the required Update course. This completes the BIC’s annual continuing education (CE) requirement.
At its August meeting, the Commission considered whether to change the requirement to a biennial review, so that BICs could choose an elective every other year, an approach favored by many. Mindful of its goal to provide BICs with timely information critical to their role, the Commission determined to retain the annual requirement, but to make improvements to the course.
The Commission will be convening a focus group to develop its plan for BICAR course improvements.
The group will include BICAR educators and BICs representing sectors of the brokerage industry including:
• Residential brokerage
• Commercial brokerage
• Property management
• Solo practice
• Firms with multiple associates
The Commission may also survey BICs for more input. If you receive a survey, please respond to give the Commission direct feedback about what would be most useful to you as a BIC.
Watch the Commission’s Web site, blog, and social media for further developments.
This article came from the October 2013-Vol44-2 edition of the bulletin.
Governor Pat McCrory has appointed three new members to the Commission for terms ending July 31, 2016.
Leonard H. “Tony” Craver of Durham, Craver Real Estate;
George Bell of Winston-Salem, G. Bell Properties and George Bell Productions; and Anna Gregory Wagoner of Winston- Salem, attorney with Blanco Tackabery and Matamoros.
This article came from the October 2013-Vol44-2 edition of the bulletin.
Larry A. Outlaw, Director of the Education and Licensing Division, will retire from the Commission effective February 1 after 35 years of service.
Outlaw, both an attorney and licensed real estate broker, assumed the position of director in January, 1979, when the division was established.
A native of Mount Olive, he is a graduate of Davidson College and the University of North Carolina School of Law. Prior to joining the Commission, he worked in the field of education in both administration and development with various types of educational programs at the community/junior college level.
Outlaw worked to improve real estate prelicensing and postlicensing education, encourage community colleges and four-year college/universities to offer the Commission’s real estate prelicensing and postlicensing courses, and expand the educational component of the licensing requirement.
His advocacy of minimum standards for approval of real estate instructors led to the requirement that North Carolina’s instructors possess not only real estate brokerage experience but also effective teaching skills. He established the Commission’s annual sponsorship of a statewide Real Estate Educators’ Conference for real estate instructors and school directors. With the implementation of the continuing education requirement for real estate licensees in 1994, Outlaw crusaded for the implementation of high standards for both the mandatory and elective courses.
Outlaw also worked to assure the excellence of the Commission’s licensing examination. In 1983, when the Commission decided to develop its own license examination, Outlaw collaborated with Professor Kinnard White of the University of North Carolina to assure that the Commission’s examination program would comply with professional standards for development of occupational licensing examinations. Following years of experience developing the Commission’s examinations, he served multiple terms as Chairman of the Examination Certification Committee of the Association of Real Estate License Law Officials (ARELLO®).
After the savings and loan crisis in the late 1980’s and implementation of regulations requiring licensing and certification of real estate appraisers, Outlaw also played a primary role in the development of North Carolina’s appraiser education and licensing program.
In 1990, Outlaw received the Order of the Long Leaf Pine from Governor James G. Martin. The award is given to outstanding individuals who have a proven record of service to the state. In 1990-91, Outlaw served as national president of the North Carolina Real Estate Educators Association.
As a researcher and writer, Outlaw has shouldered major responsibility since 2000 for the biennual editions of the North Carolina Real Estate Manual, which serves as the textbook for real estate postlicensing classes and as a comprehensive reference for matters concerning North Carolina brokerage practice. Prior to publication of the Manual, Outlaw collaborated with law professors James A. Webster, Jr., and Patrick K. Hetrick to produce multiple editions of North Carolina Real Estate for Brokers and Salesmen – the primary textbook for generations of North Carolina real estate prelicensing course students.
This article came from the October 2013-Vol44-2 edition of the bulletin.
Everett “Vic” Knight of Raleigh has been elected Chairman and Thomas R. Lawing, Jr., of Charlotte, Vice Chairman, of the North Carolina Real Estate Commission effective August 1, 2013, it was announced by Miriam J. Baer, Executive Director.
Knight, a member of the Commission since 2009, has been a licensed broker since 1984. He is also a North Carolina Certified General Appraiser and the owner of Chapel Hill Appraisals and Consultants and AppraiZR.com. Previously, he was broker/owner of Century 21 Vic Knight Realty in Hillsborough for 10 years.
A native of Burlington, Knight graduated from North Carolina State University with a BS in Civil Engineering and worked internationally for Bechtel Corporation for several years.
Knight is currently a director of the National Association of REALTORS®, a past president of the North Carolina Association of REALTORS®, past president of the Chapel Hill Board of REALTORS®, past president of the Triangle Multiple Listing Service, and past-chair of the National Association of REALTORS® Appraisal Committee. He is a Continuing Education Instructor for the North Carolina Real Estate Commission and the North Carolina Appraisal Board, and serves on the Board of Trustees of the Appraisal Foundation.
Lawing is a Certified Property Manager and President of T. R. Lawing Realty, a family-owned residential property management company serving the Charlotte region since 1957.
He is a past president and REALTOR® of the Year of both the North Carolina Association of REALTORS® (NCAR) and the Charlotte Regional REALTORS® Association (CRRA) and a past director of the National Association of REALTORS® (NAR).
Active in civic affairs, Lawing currently serves as Chair of the Church Council at Hawthorne Lane United Methodist Church and is a past president of the Charlotte West Rotary Club and past chair of the Eagle Projects Committee of the Mecklenburg County Council of the Boy Scouts of America.
This article came from the October 2013-Vol44-2 edition of the bulletin.
AMERICAN REAL ESTATE ASSOCIATES, INC. (Raleigh) – The Commission accepted the permanent voluntary surrender of the firm license of American Real Estate Associates effective February 6, 2013. The Commission dismissed without prejudice allegations that American Real Estate Associates violated provisions of the Real Estate License Law and Commission rules. American Real Estate Associates neither admitted nor denied misconduct.
DONNA LUCILLE BAKER (Bryson City) – After a hearing, the Commission revoked the broker license of Ms. Baker effective February 21, 2013. The Commission found that Ms. Baker, acting as sole proprietor of a property management and vacation rental business, failed to hold trust moneys in a separate trust account and to account for and remit rental proceeds to owners in a timely manner; commingled her personal funds with trust moneys and by holding trust money in an interest-bearing account without her principal’s permission and without providing for the disbursement of interest; failed to comply with rules adopted by the Commission; failed to commemorate agency agreements with her owner clients in writing; failed to maintain a trust account and the records pertaining to it in compliance with Commission rules; and failed to designate herself broker-in-charge of her sole proprietorship when she was accepting money and holding money for others.
DIVINE PROPERTY MANAGEMENT, LLC (Goldsboro) – By Consent, the Commission revoked the firm license of Divine Property Management effective February 6, 2013. The Commission found that Divine Property Management failed to maintain trust accounts for tenant security deposits, rents, and income in compliance with Commission rules. The Commission also found that Divine Property Management commingled personal funds with monies held in trust for others, converted trust funds for personal gain, and failed to forward rental payments and tenant security deposits in a timely manner.
JOHN MAC CHUBIRKO (Kannapolis) – The Commission accepted the permanent voluntary surrender of the broker license of Mr. Chubirko effective April 4, 2013. The Commission dismissed without prejudice allegations that Mr. Chubirko violated provisions of the Real Estate License Law and Commission rules. Mr. Chubirko neither admitted nor denied misconduct.
KENNEDY EARL GRAY (Wilson) – By Consent, the Commission revoked the broker license of Mr. Gray effective February 6, 2013. The Commission found that Mr. Gray failed to maintain trust accounts for tenant security deposits, rents, and income in compliance with Commission rules. The Commission also found that Mr. Gray commingled personal funds with monies held in trust for others, converted trust funds for personal gain, and failed to forward rental payments and tenant security deposits in a timely manner.
KENNETH D. HARRIS (Marion) – By Consent, the Commission revoked the broker license of Mr. Harris effective February 20, 2013. The Commission found that Mr. Harris managed properties through his sole proprietorship on behalf of his landlord clients, but failed to commemorate their agreement in writing; that he collected rents, but failed to deposit the funds in a trust account and failed to perform reconciliations of his trust accounts; and that he failed to respond to three Letters of Inquiry sent by the Commission. The Commission also found that Mr. Harris converted approximately $3,000 of his client’s funds to his personal use.
FRED LEE HEINA II (Gastonia) – By Consent, the Commission reprimanded Mr. Heina effective March 1, 2013. The Commission found that Mr. Heina performed approximately 350 Broker Price Opinions (BPO’s) in 2010 and 400 in 2011 and that none of the BPO’s resulted in a listing agreement. The Commission also found that Mr. Heina failed to provide a list of his 2011 BPO’s when the records were requested by the Commission.
DERITA KAY MASON (Fayetteville) – The Commission accepted the voluntary surrender of the broker license of Ms. Mason for a period of two years effective February 6, 2013. The Commission dismissed without prejudice allegations that Ms. Mason violated provisions of the Real Estate License Law and Commission rules. Ms. Mason neither admitted nor denied misconduct.
DEXTER A. MCMURRAY (Charlotte) – By Consent, the Commission suspended the broker license of Mr. McMurray for a period of one year effective April 1, 2013. The Commission then stayed the suspension for a probationary period through and including March 31, 2015. The Commission found that Mr. McMurray failed to maintain his trust account in compliance with the Real Estate License Law and Commission rules. The Commission noted that Mr. McMurray has now closed his trust account and no longer holds monies for others and that no consumers were harmed.
THOMAS A. NIELSEN (Raleigh) – The Commission accepted the permanent voluntary surrender of the broker license of Mr. Nielsen effective February 6, 2013. The Commission dismissed without prejudice allegations that Mr. Nielsen violated provisions of the Real Estate License Law and Commission rules. Mr. Nielsen neither admitted nor denied misconduct.
WALTER L. PETERSON III (Jefferson) – By Consent, the Commission suspended the broker license of Mr. Peterson for a period of six months effective February 1, 2013. The Commission then stayed the suspension for a probationary period of six months ending August 1, 2013. The
Commission found that Mr. Peterson acted as a buyer agent for his client in the purchase of a home, but failed to enter into a written buyer agency agreement with his client. The Commission also found that Mr. Peterson failed to discuss or recommend radon testing and, after the purchase, the buyer discovered the property had high radon levels.
REALTY QUEST LLC (Durham) – The Commission accepted the permanent voluntary surrender of the firm license of Realty Quest effective March 31, 2013. The Commission dismissed without prejudice allegations that Realty Quest violated provisions of the Real Estate License Law and Commission rules. Realty Quest neither admitted nor denied misconduct.
JENNIFER MUSSHAFEN ROSS (Kitty Hawk) – By Consent, the Commission revoked the broker license of Ms. Ross effective February 6, 2013. The Commission found that Ms. Ross, on or about November 2, 2011, was convicted in Dare County of misdemeanor injury to personal property and misdemeanor simple assault and, thereafter, pled guilty to and was convicted of various felonies; that Ms. Ross failed to report timely the criminal misdemeanor convictions to the Commission; and that Ms. Ross failed to respond to Letters of Inquiry sent by the Commission.
SANDDOLLAR REALTY MANAGEMENT LLC (Kitty Hawk) – By Consent, the Commission reprimanded Sanddollar Realty Management effective December 31, 2012. The Commission found that Sanddollar Realty Management, a real estate brokerage firm, failed to maintain its trust accounts in compliance with the Real Estate License Law and Commission rules. The Commission noted that the firm has brought its trust accounts into compliance.
HARRY WILLIAM SANDFORD, JR. (Burlington) – By Consent, the Commission reprimanded Mr. Sandford effective March 7, 2013. The Commission found that Mr. Sandford, through his unlicensed company provided rent-to-own, property management and other brokerage services to consumers, and failed to designate himself or any other qualified licensed person as broker-in-charge of the firm. The Commission also found that Mr. Sandford in his advertising of properties and services failed to identify that he was a licensed real estate broker, the name of a licensed firm or the name of a licensed real estate broker. The Commission further found that Mr. Sandford’s advertisements established down payment terms to finance purchases, but failed to disclose interest rates on the loan, the term of such loan, or other details as required by federal Truth-in-Lending laws.
GEORGE D. SEAY (Kitty Hawk) – By Consent, the Commission reprimanded Mr. Seay effective December 31, 2012. The Commission found that Mr. Seay, acting as broker-in-charge and qualifying broker of a real estate brokerage firm, failed to maintain his trust accounts in compliance with the Real Estate License Law and Commission rules. The Commission noted that Mr. Seay has brought his trust accounts into compliance.
SHOWCASE REALTY OF THE CAROLINAS, INC. (Charlotte) – By Consent, the Commission suspended the firm license of Showcase Realty of the Carolinas for a period of one year effective April 1, 2013. The Commission then stayed the suspension for a probationary period through and including March 31, 2015. The Commission found that Showcase Realty of the Carolinas failed to maintain its trust account in compliance with the Real Estate License Law and Commission rules. The Commission noted that Showcase Realty of the Carolinas has now closed its trust account and no longer holds monies for others and that no consumers were harmed.
JULES W. SMYTHE, JR. (Winston-Salem) – By Consent, the Commission revoked the broker license of Mr. Smythe effective February 20, 2013. The Commission found that Mr. Smythe, acting as qualifying broker and broker-in-charge of a real estate brokerage firm, in 2009 received his client’s closing funds of $8,500 and a check for the seller from the buyer outside of closing for $129 for interest to compensate for the delayed settlement and failed to deposit the client funds into a trust account; and that the client suffered no monetary losses. The Commission also found that, in June, 2009, Mr. Smythe received a check for $5,000 from a closing attorney written to Mr. Smythe’s buyer client for escrowed plumbing repair expenses and failed to deposit these funds into a trust account; and that the client suffered no monetary losses. The Commission finally found that, in November 2011, Mr. Smythe was convicted of Misdemeanor Worthless Check and failed to report the conviction to the Commission. The Commission noted that Mr. Smythe’s contention that prolonged health issues and the inability to locate critical witnesses and documents, which were subpoenaed, interfered with his ability to present a full defense.
LARRY A. STANLEY (Jefferson) – By Consent, the Commission reprimanded Mr. Stanley effective March 1, 2013. The Commission found that Mr. Stanley acted as listing agent for a property that he advertised as having three bedrooms; that he failed to obtain a copy of the septic permit to verify the permitted number of bedrooms; and that, after closing, the buyer discovered the property was permitted for only two bedrooms. The Commission noted that Mr. Stanley revised his firm’s written policies to require listing agents to obtain a copy of the septic permit as part of the listing process.
JAMES S. WAGONER (Sneads Ferry) – By Consent, the Commission reprimanded Mr. Wagoner effective April 1, 2013. The Commission found that Mr. Wagoner, who was a certified residential real estate appraiser, in January 2009 entered into a permanent voluntary surrender of his real estate appraisal certificate in order to conclude a disciplinary case before the North Carolina Appraisal Board. The Commission noted that there were no findings of fact in connection with the surrender.
CHERYL CUNNINGHAM WARREN (Charlotte) – By Consent, the Commission reprimanded Ms. Warren effective May 1, 2013. The Commission found that Ms. Warren, acting as broker-in-charge of a property management firm, performed all trust account record keeping for the firm, but failed to designate rental account checks as trust or escrow and failed to maintain duplicate copies of deposit slips for the maintenance account. The Commission also found that Ms. Warren’s reconciliation of the rental account contained numerous undeclared items, the account did not balance, and Ms. Warrant engaged in deficit spending.
JENNIE G. WILKES (Canton) – The Commission accepted the permanent voluntary surrender of the broker license of Ms. Wilkes effective March 7, 2013. The Commission dismissed allegations that Ms. Wilkes had violated provisions of the Real Estate License Law and Commission rules. Ms. Wilkes neither admitted nor denied misconduct.
This article came from the May 2013-Vol44-1 edition of the bulletin.
As a broker who works with landlords and tenants, you should be knowledgeable about those laws.
Federal law is set out in the Service members Civil Relief Act, enacted in 2003 to amend the Soldiers’ and Sailors’ Civil Relief Act of 1940. It provides a broad range of benefits and protections to service personnel including specific rights relating to renting and leasing obligations.
North Carolina law is found under General Statute §§ 42-45 and 42-45.2. It grants special protections to “military personnel, surviving family members, or lawful representatives” involved with early termination of a rental agreement.
The two laws differ in the rights and protections they provide when applied to early termination of a lease. One may be applicable to a particular situation and the other may not, or both laws may be applicable, but yield different outcomes.
The requirements under each law are as follows:
Federal Law
The SCRA’s rights to early termination of a lease are granted based on active duty status, i.e., they are secured for a lease already in force upon entering into military service and, when in active service, relocated to a new permanent duty station or deployed in support of a military operation in excess of 90 days.
In these instances, lease termination is effective 30 days after the next rental payment is due following the landlord’s receipt of proper notice of intent to terminate. [Notice must include a copy of the orders or a written verification by the tenant’s commanding officer.]
(Example: If the monthly rent is due on the 1st day of the month and termination notice is delivered to your landlord five days earlier, your lease terminates and your final obligation to pay rent is effective 30 days following the 1st day of the month.)
State Law
State law, G.S. § 42-45, differs by specifying a permanent change of station of 50 miles or more from the member’s current dwelling and allowing for premature or involuntary release from active duty; it differs slightly as to a deployment of “90 days or more” compared to “in excess of 90 days” in the federal law.
Also under our State law, the lease termination date depends first on which of the three reasons the service member has for terminating the lease.
Whether the service member receives permanent change of station orders to relocate at least 50 miles away or is prematurely or involuntarily discharged or released from active duty, the service member may provide written notice of termination to be effective as quickly as 30 days after the landlord’s receipt of the notice.
A member of the Armed Forces of the United States who is deployed for 90 days or more may terminate 30 days after the next rental payment is due, following the landlord’s receipt of proper notice of intent to terminate, or 45 days after receipt of notice, whichever is shorter.
The application of either or both laws should be determined after consulting with an attorney, who for a member on active duty may be available through the Judge Advocate General’s Corp.
Liquidated Damages
The biggest differences between the SCRA and North Carolina law relate to how much money the service member may owe on the effective date of termination.
Generally, if a service member has been in the lease for less than nine months, the SCRA will be more favorable. How much must be paid will depend on the effective date of lease termination and liquidated damages.
When comparing federal and state law is more advantageous, consider the following:
Example: Under N.C. law, the lease termination date depends first on which of the three reasons the service member has for terminating the lease. Whether the service member receives permanent change of station orders to relocate at least 50 miles away or is prematurely or involuntarily discharged or released from active duty, the service member may provide written notice of termination to be effective as quickly as 30 days after the landlord’s receipt of the notice. For example, if a service member hand-delivers a notice of termination along with his or her official PCS orders on January 15th, the termination date may be as soon as February 15th, only 30 days later.
Example: A member of the Armed Forces of the United States who is deployed for 90 days or more may terminate 30 days after the next rental payment is due, following the landlord’s receipt of proper notice of intent to terminate, or 45 days after receipt of notice, whichever is shorter. For example, if rent is due on the 1st of the month, and the service member provides proper notice to terminate on January 5th, the lease terminates 30 days after February 1st or 45 days after January 5th, whichever comes first. In this case, 45 days after January 5th is shorter and that is the earliest possible effective date of lease termination. However, if a service member terminates under North Carolina law and has been in the lease under nine months, he or she may also be required to pay liquidated damages.
“Liquidated damages” ordinarily refers to an agreed amount designed to estimate the dollar value of the harm that will be caused if a party to a contract violates the terms. If a service member terminates a lease under North Carolina law, the service member may be required to pay rent through the effective date of lease termination and may be required to pay the applicable liquidated damages amount if he or she has completed less than nine months of the lease term. If the service member completed less than six months of the tenancy, the maximum liquidated damage amount is one month’s rent. If the service member completed at least six months of the tenancy but less than nine months, the maximum is one-half of a month’s rent. After completing nine months of the tenancy, no liquidated damages are owed.
If a member of the armed forces terminates a lease under the SCRA, there is no statutory requirement to pay liquidated damages. The service member must pay rent through the effective date of lease termination but there are no further charges resulting from early termination.
It is important to note that even under North Carolina law, the landlord is not entitled to liquidated damages where there are no actual damages due to loss of the tenancy. Actual damages occur when, despite making the required reasonable efforts to mitigate or limit damages, the landlord is unable to find a new tenant for the premises.
Example: If the landlord rents the residence two days after a service person terminates the lease, the liquidated damages cannot exceed two days’ rent.
Notice Requirements
The notice requirements under both the SCRA and North Carolina law are similar. Service members must provide written notice and a copy of military orders to the landlord. Alternatively, a service member can provide a letter from his or her Commanding Officer verifying the reason for the need to terminate the lease. Under the SCRA, the only effective manners of service of notice are hand-delivery, private business carrier, or by US mail with return receipt requested.
Obligations of a Spouse
A North Carolina law was passed to assist service members whose military duties cause them to leave the area, but the law does not specifically address the obligations of a spouse on the lease. The latest version of the SCRA, on the other hand, makes it very clear that termination by the service member terminates the obligations of a spouse and any other military dependent that may have signed the lease as well.
Waiver of Rights
A lease can give a military tenant more lease termination rights than would otherwise be had, but, with one exception, its terms cannot take any of these rights away. While the North Carolina law specifically prohibits waiver or modification of its requirements under any circumstances, the SCRA does permit lease termination rights to be waived. To be legally effective, however, such a waiver must comply with certain requirements, including, but not limited to, the following:
• The waiver must be in writing;
• It must be on a document separate from the lease;
• The waiver must be signed by the service member;
• The waiver must specify the legal instrument (e.g., the lease) to which it applies; and
• It must be in at least 12-point font.
If neither law applies, landlords, property managers, and military tenants should review the lease to see if it contains any other special lease termination rights. If there are none, then early termination may not be permitted. If the tenant leaves the premises early and in breach of the contract, the landlord is likely entitled to damages caused as a result of the breach. These damages include the loss of rent due to any vacancy of the premises during the remainder of the lease term. As always, the landlord must take reasonable steps to mitigate the damages, that is, to re-rent the premises, but the landlord may withhold the security deposit to satisfy these damages and may also sue for any additional damages that exceed the amount of the security deposit.
NC General Statute § 42-45(a3)
Since 2012, North Carolina law provides that when a member of the US Armed Forces dies on active duty, there is a specific right to terminate the lease. An immediate family member or lawful representative may terminate the lease with written notice as required in the other authorized situations. As with the case of a deployment for 90 days or more, termination is effective 30 days after the first date on which the next rental payment is due, or 45 days after the landlord’s receipt of notice, whichever is shorter. Notice must include a copy of the death certificate, military casualty report, or letter from the commanding officer. While cotenants who are immediate family members are also no longer obligated under the lease, cotenants who are not immediate family members remain obligated under the lease. Payment of all rents is due up to the date of termination, and the same liquidated damages provisions discussed earlier apply under this law.
Service members are valued members of our community and should be treated as such. Brokers should be aware of the special circumstances that may allow service members to terminate a lease agreement early. These situations should be explained to landlords prior to entering into any lease agreement with a military tenant.
|
Requirements to Pursue Early Termination of a Lease |
|
|
SCRA |
NCGS § 42-45 |
|
Each allows for early termination in three, but differing, instances: |
|
| (1) Entry into lease before active service;(2) Permanent change of station received whileon active duty;
(3) Deployment in excess of 90 days while on active duty. Termination effective 30 days after next monthly payment following notice to landlord. |
(1) PCS* to depart 50 miles or more from current dwelling;(2) Premature or involuntary service separation;(3) Deployment in excess of 90 days.
Termination effective 30 days after notice to landlord in (1) and (2); 30 or 45 days after notice in (3), whichever is shorter. *Permanent Change of Station |
|
Consequences of Pursuing Early Termination of a Lease |
|
|
SCRA |
NCGS § 42-45 |
| No liquidated damages required
Contract may waive rights • Separate writing 12 point font • Signed by service member • Reference lease Termination explicitly releases the spouse and all dependents of service member |
Liquidated damages• 1 month’s rent if the tenant has lived in the residence for less than 6 months• 1/2 month’s rent between 6 and 9 months
No waiver allowed
No explicit language regarding release of others, but intent of law is likely persuasive |
This article came from the May 2013-Vol44-1 edition of the bulletin.