Why Should A Broker Ask For Copies Of Checks?

By Shanna Hardy, Consumer Protection Officer

During the course of preparing an offer on a property, a buyer observed her broker making copies of the due diligence and earnest money checks. Is this typical and why would a broker do this?

Every buyer hopes that a seller will accept an offer as soon as it is submitted.  When that happens, the effective date is the same as the date of the offer. A buyer agent should anticipate that a seller might accept an offer on the same day it is submitted and collect the due diligence fee and earnest money specified in the offer. A prudent listing agent would want to verify that the buyer’s agent is in possession of the checks at the time the offer is submitted. One way of doing this is to see copies of the checks accompanied with the offer to purchase. 

The reason the Commission staff has suggested this as best practice is because the Commission receives many complaints filed by sellers who are disgruntled because an offer was accepted from a buyer but no due diligence or earnest money was ever received, and the buyer decided to terminate the contract several days later. Typically in these cases, the buyer agent failed to collect the due diligence or earnest money checks when the offer was prepared and therefore was unable to deliver the funds to the sellers or the sellers’ agent on the effective date. 

In addition to the best practice advice, Commission Rule A .0117 (c)(7) states that a broker shall create, maintain or retain, the following records; copies of earnest money checks, due diligence checks, receipts for cash payments, contracts, and closing statements in sales transactions.  Because this rule specifically addresses earnest money checks and due diligence checks, both the listing and buyer agents should make their best efforts to obtain copies of the checks for their transaction files. A scanned or other electronic image of a check will satisfy the Commission’s record-keeping requirements. However, prior to making and sending copies, we recommend redacting certain information, such as the personal account number or a part thereof. 

It is part of the modern practice of brokerage that transactions are often carried out remotely with parties and their brokers not always present in person to hand off documents and checks. A prudent listing agent will want to ensure that funds due to their client or being held by an escrow agent have been sent and received by the seller or escrow agent. A prudent buyer agent will want to ensure that their client has submitted payments as required. Obtaining copies of checks is one thing that an agent can do to help a transaction proceed to a successful close.

Employment Opportunities Available

Are you interested in joining the staff of the North Carolina Real Estate Commission? From time to time, employment opportunities become available. They are posted on the Commission’s website under the “About Us” tab. Click here for more information.

Allan R. Dameron Legal Internship Award 2020

The recipient of the Allan R. Dameron Legal Internship Award 2020 is Lawrence Graham. This annual award is given in honor and memory of Allan Dameron, who served on the Commission for nearly eight years beginning in 1999. During that time, he served two terms as Chairman of the Commission. He was dedicated to serving and protecting the interests of the public in North Carolina real estate transactions. He believed strongly in broker and consumer education as a means of improving the real estate industry.

Each year, this award is given to a North Carolina law student who has demonstrated an interest in public service and in real estate. Graham was selected from a group of very qualified law students.

He is a rising third year law student at Campbell University Law School where he is on Law Review and is a member of the Moot Court Team. He is also a graduate of the University of North Carolina-Chapel Hill, where he received his Bachelor of Arts degree in Political Science with a minor in History in May 2018. He previously interned for Judge Philip Berger on the North Carolina Court of Appeals, and for Representative Lee Zachary in the North Carolina General Assembly.

Graham will work in Regulatory Affairs for about ten weeks before returning to school. In addition to the award, Lawrence’s name will also appear on a plaque which will be permanently displayed in the Commission office as a record of his accomplishment.

Staff Updates

Johnathan Robertson has been named Communications Officer in the Administrative Division.

Nolen Williams has been named Auditor in the Regulatory Affairs Division.

Len Elder has been named Education & Development Officer in the Education & Licensing Division.

Appearances

Starting in August 2020, staff will resume presentations via Zoom. Interested in a program presenter from the Commission? Send your request no later than 30 days before a speech: go to the Commission’s website, click on Forms, and then click on “Program Presenter.”

Disciplinary Actions

MOUNTAIN PROPERTY GROUP LLC (Tryon) – By Consent, the Commission suspended the broker license of Mountain Property Group LLC for a period of 12 months effective July 15, 2020. The Commission then stayed the suspension for a probationary period through July 15, 2021. The Commission found that in 2019 the firm, through its BIC, acted as a dual agent in the transaction without first reviewing a “Working with Real Estate Agents” disclosure with the seller and without entering into a written listing agreement.

LINDA NOBLE TINKLER (Tryon) – By Consent, the Commission suspended the broker license of Ms. Tinkler for a period of 2 years effective April 15, 2020. The Commission then stayed the remaining 21 month suspension, effective July 15, 2020, for a probationary period through April 15, 2021. The Commission found that in 2019, Ms. Tinkler acted as a dual agent without first reviewing a “Working with Real Estate Agents” disclosure with the seller and without entering into a written listing agreement. Ms. Tinkler then gave the buyers $10,000 to use as a part of their down payment without disclosing this gift to the closing attorney or to the buyer’s lender by giving the money to the buyers’ relative for the relative to forward to the buyers.

“Lease-To-Own” versus “Lease Option”

A Regulatory Affairs Division Case Study

By Nicholas Smith, Consumer Protection Officer

The Commission received a complaint from a seller against her listing broker. The broker listed the residential property for sale at $45,000 and acted as dual agent. Due to the condition of the property, the broker believed that traditional financing was going to be unavailable. After procuring a buyer, the broker suggested a lease-to-own arrangement. Both parties were open to the idea and negotiated terms. The buyer would pay a deposit, make regular payments over a three-year period and, at the conclusion of the period, the seller would transfer the deed to the buyer and the buyer would then own the property. This type of lease-to-own transaction is also known as a “contract for deed” or “land installment contract.”

There is no standard contract form for a lease-to-own agreement, so all real estate brokers should advise buyers and sellers to obtain the services of an experienced real estate attorney when conducting these transactions. Rather than referring his clients to an attorney, the broker contacted an attorney himself and communicated that the parties wanted a “lease option” agreement with a three-year term, a $48,000 sales price, a $6,000 deposit and monthly payments of $1,250. A “lease option” is NOT the same as a lease-to-own.

In a “lease option” agreement, the occupant leases the property and has the option of buying the property at an agreed upon price at any point prior to the expiration of the lease. In a lease-to-own agreement, the tenant/buyer pays for the property in full during the payment period with either no balance due at the end of the payment period or a balloon payment due at the end of the payment period.

Based upon the broker’s instructions, the agreement drafted by the attorney in this transaction did not specify that any of the monthly payments would go towards the purchase price, but instead at the end of the three-year term, the buyer had the option to purchase the property at $48,000, less the $6,000 deposit already paid. A signed Offer to Purchase and Contract (Standard Form 2-T) was attached to the agreement reflecting the purchase price and deposit amount with a settlement date at the end of the three-year term.

The broker did not review the attorney-drafted agreement so he failed to realize that the terms were incorrect, to the detriment of his buyer client. The parties signed the agreement and the buyer moved into the property. Fortunately, the buyer learned of the true nature of the agreement after she made approximately five payments rather than her discovering it at the conclusion of the three-year term. The buyer in the transaction said she believed she would own the property at the end of the term, not have the option to buy the property. The broker, attorney and buyer contacted the seller in hopes of executing a new agreement; however, the seller indicated she would not execute a new one as she was satisfied with the deal.

Possible violations of the Real Estate License Law in this case include N.C.G.S. § 93A-6(a) (8) and (10) for being unworthy or incompetent to act in a manner which protects the public and engaging in improper conduct, respectively.

Disciplinary Actions

KIMBERLY RENE CLARK (Charlotte) – By Consent, the Commission reprimanded Ms. Clark effective May 1, 2020. The Commission found that in July 2018, Ms. Clark acting as the broker-in-charge of a firm, failed to discover a broker of her firm inaccurately advertised a property as having a total of 2,619 square feet when the property actually had 1,980 square feet. The broker affiliated with Ms. Clark’s firm also failed to disclose underground storage tanks in August of 2018.

MOUNTAIN ISLAND LAKE REALTY, LLC (Charlotte) – By Consent, the Commission reprimanded Mountain Island Lake Realty, LLC effective May 1, 2020. The Commission found that in July 2018, a broker affiliated with the firm inaccurately advertised a property as having a total of 2,619 square feet when the property actually had 1,980 square feet. The broker affiliated with the firm also failed to disclose underground storage tanks in August of 2018.

In Memoriam

Anthony “Tony” Rand, of Fayetteville, State Senator from 1981-1988 and 1995-2009. On February 22, 2005, the Real Estate Commission’s Raleigh office building was dedicated in his honor. https://www.legacy.com/obituaries/charlotte/obituary.aspx?n=anthony-rand&pid=196133096&fhid=10103

Fred Adams Sr., of Willow Spring, a member of the Commission from 1981 to 1983. https://www.everhere.com/us/obituaries/nc/willow-spring/fred-adams-sr-10734437

Commission Building Closed; Staff are Available by Phone, Email, and Webform

NC REAL ESTATE COMMISSION BUILDING CURRENTLY CLOSED TO ALL VISITORS; STAFF ARE AVAILABLE BY PHONE, EMAIL, WEB FORMS

The members and staff of the North Carolina Real Estate Commission are concerned about the health and safety of our licensees and the public. For the protection of everyone, effective Monday, March 23, 2020, our building is closed to all visitors. The Commission remains open for business via telephone, email, and at ncrec.gov, including applications, web forms, and more.

Contact us at 919-875-3700, via this website, or by email to the addresses listed below. We’re here to help. If you call and get a voice mail, please leave a message and we will return your call

Main Number – 919-875-3700

Education & Licensing – 919-875-3700; LS@ncrec.gov

Regulatory Affairs – 919-719-9180; RA@ncrec.gov

Administration – admin@ncrec.gov

Executive – exec@ncrec.gov