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Tech Corner: Understanding NC’s Rollout of Remote Electronic Notarization
From the NC Department of the Secretary of State
Interest in Remote Electronic Notarization (REN) remains high, yet there are strong cross currents to be factored into North Carolina’s rollout.
The global pandemic increased the appetite—indeed, the necessity–for “remote” conduct of economic activity. Concurrent rapid technological changes have reinforced the importance of ensuring that crucial business, legal, healthcare, and other transactions can be conducted safely, securely and efficiently in a remote environment.
The North Carolina General Assembly addressed the competing needs by passing the Remote Electronic Notarization Act (RENA) last July. Some provisions took immediate effect, such as the extension of Emergency Video Notarization (EVN), which now expires at 12:01AM on June 30th.
Remote electronic notarization (REN)-focused provisions have a longer launch period, however. Although July 1, 2023 is often mentioned as the “Go-Live” date, that is NOT what the statute actually says. July 1st is the date by which the Secretary of State “shall begin rulemaking to implement” RENA, and “no temporary or permanent rule shall become effective prior to July 1, 2023.” So, one might wonder, when will North Carolina notaries be able to conduct remote electronic notarizations?
When dealing with a new law involving high economic stakes and rapidly evolving technology, preparing the necessary rules is not simple. Understanding the factors influencing the timeframe for rollout is key for business planning and to stay the course…so that North Carolina gets what we truly want and need.
As soon as RENA was adopted, the North Carolina Secretary of State initiated internal research and requested external input. On October 21, 2022, the Secretary published Advance Notice of Proposed Rulemaking #1. In ANPR #1, the Secretary sought input on the role of the remote electronic notary public (RENP) and the general procedures and standards needed to implement RENA to ensure the effectiveness, efficiency and integrity of the notarial acts and processes contemplated under RENA. The comment period closed November 30th, and the comments are publicly available at this weblink.
On March 30, 2023, Advance Notice of Proposed Rulemaking #2 was published. In ANPR #2 the Secretary seeks public input on the technical features, components, specifications and standards required by RENA and applicable to the communication, credential analysis, and identity proofing described in the statute. Input is being accepted through May 15th. The Secretary is formulating rules based in part upon stakeholder comments received in response to the ANPRs and has already invested over 2,000 hours in the process.
THE TECHNOLOGY
We need not look far for examples of difficulties and real harm that occur when technology doesn’t perform as expected or gets ahead of regulation and guardrails (e.g., cryptocurrency and generative artificial intelligence). North Carolina has proceeded thoughtfully given the stakes with REN. The General Assembly imposed requirements for security and privacy and background investigations of those providing the technology and storage that the Department is required to flesh out and implement. We must make sure that the technology used is secure for both the notary and the principal—and all those relying on the process. Enhancing security and reliability at this stage facilitates economic growth while reducing costly and avoidable litigation.
For example,
A. We are required to adopt rules regarding geolocation of the principal who is not located in North Carolina.
B. We have to provide rules to prevent the communications technology and the Notary from being deceived, by, for example:
- Hackers and other bad actors and
- Deep fakes who look like the real person but are not. See, e.g., the July 31, 2022, 60 Minutes story on this.
C. We must determine whether the identity proofing technologies must be 100% accurate or, if not, how much inaccuracy can be tolerated in a process that is designed to reduce the likelihood a document has been signed fraudulently or under duress.
Rules drafted on these and other topics must be done with care and only after intense research so that the REN process can be conducted securely, with reasonably available technology, and in accordance with the expectations of the General Assembly.
THE RULEMAKING
Drafting and then promulgating rules is labor intensive and time consuming. Besides creating new rules focused on REN, some existing Notary and E-Notary rules must also be revised so they are consistent with the upcoming REN rules. All rules must be adopted in accordance with the very deliberative notice and comment provisions of the Administrative Procedure Act, and must meet the standards established by an independent body, the North Carolina Rules Review Commission. A flow chart of the Office of Administrative Hearings rulemaking process gives an idea of the time, stages and steps required once rules are drafted, yet it does not include all that must be done in connection with initiating and taking the steps on the flow chart.
LAUNCHING REN
Once rules are finally adopted, the work to launch REN begins. Platforms and third party vendors must apply, be screened and then licensed, and then contract with North Carolina notaries. The Notary Manual must be revised to incorporate all the changes to the law and rules. Forms must be prepared to make it easier for applicants to provide essential information. All notary training must be updated and community colleges engaged so North Carolina notaries may learn how the changes apply to them, and be trained, tested and authorized to conduct remote electronic notarizations. We will also have to coordinate with the Registers of Deeds so that notaries receive the proper commission. All these tasks must be completed before the first REN can be conducted.
So, when will North Carolina notaries be able to use REN? The short answer is we don’t yet know. But, just given the mandatory timelines that have to be met before we can adopt rules to even start the program, we expect it will be a year or more before the RENA is up and running.
WHAT CAN YOU DO NOW?
You, as a stakeholder, are invited to give your input—early—so it can inform and improve rulemaking and expedite the process. You can do that by going to ANPR #2. Submit comments by May 15, 2023 to: Ann B. Wall, General Counsel and Rulemaking Coordinator, ANPR@sosnc.gov. For updates on our rulemaking, add yourself to our interested parties list.
For those planning to incorporate REN into their business operations, in-person electronic notarization (IPEN) is already available today. IPEN provides a secure platform to electronically notarize electronic signatures on electronic documents with the same level of document integrity required by RENA. In fact, when paired with EVN, remote electronic notarizations can be performed today. Click here for information on how to perform a remote electronic notarization using EVN. Find an E-Notary through our “Find a Notary” feature here.
There is little need for those planning to implement REN to wait for RENA to be fully effective when the tools of IPEN and EVN can be utilized today. It is highly likely that those who implement REN will also incorporate IPEN and that both will be employed to service remote as well as in person customers. Click here for information on becoming an electronic notary.
Questions and Answers on What’s Happening with the RPOADS Form
Q. I heard the RPOADS form is changing?
A. On March 15, 2023, the Commission began accepting public comments on proposed changes to the rule that includes the Residential Property and Owners’ Association Disclosure Statement (RPOADS), 21 NCAC 58A .0114. If this rulemaking proposal is adopted by the Commission and Rules Review Commission, the changes will become effective July 1, 2023. In order to receive updates regarding rulemaking, subscribe to the Commission’s mailing list.
Q. So what is changing and why?
A. The biggest change would be moving the RPOADS form out of the rule. Right now, the form is embedded in the rule, and it is difficult, if not impossible to make even the simplest formatting or appearance changes, or even clarify the instructions, without going through the rulemaking process. Moving the form out of the rule will allow those more technical changes to be done easily and will allow the form to receive an updated appearance so that it is a little more user friendly for brokers and consumers. When you look at the rule, you will see the form is marked out. Under the rulemaking proposal, it’s not being eliminated! It’s just coming out of the rule.
Q. Would the Commission add new topics to the form without rulemaking?
A. No. The topics covered in the disclosure must be itemized in either the Residential Property Disclosure Act (N.C.G.S. 47E) (“the law”), or the rule (21 NCAC 58A .0114), and those topics cannot be changed without going through the full rulemaking process. Note that the rule only itemizes the topics not contained in the law, so you have to look at both the law and the rule to see all of the required topics.
Q. What questions are proposed to be added to the form, and why?
A. The Commission is considering adding questions based on public comments received from brokers, attorneys, and others. For example, whether or not any private well has been tested and, if so, when and whether or not a property is in a historic district. Elevators are being covered as well, after the passage of Weston’s Law last year. As a result of federal discussions regarding a mandatory national flood disclosure and a petition filed for rulemaking regarding flood questions, the Commission is considering adding 5 questions related to flooding. A couple of existing questions are also being edited or clarified.
Q. Will brokers still have input in changes to the form that don’t require rulemaking?
A. Absolutely. Any substantial change to the topics require the rule to undergo the rulemaking process or a legislative change. The Commission also adopted internal policies and procedures that require any minor change to be published for at least 30 days on its homepage to allow for written comments before the Commission makes final changes. These suggested changes will be published in the Bulletin as well.
Q. Does this change a broker’s duty?
A. No. A broker’s duty is not changing at all. In fact, the Commission is hoping to make it clearer to sellers that even if they check ‘No Representation’ a broker still has a duty to discover and disclose material facts about the property. That standard has not changed.
Frequently Misunderstood Terms Seen and Heard by NCREC Regulatory Affairs Division Staff
By Stephen Fussell, Chief Consumer Protection
At the Commission, we hear and read lots of statements from real estate brokers. Some of those statements imply that the brokers who made them did not understand the terms they were using. Here are some clarifications for some of the things we routinely hear and read.
The North Carolina Real Estate Commission (“Commission”) and NC Realtors (“NCR”) are two different organizations.
- The Commission is the state government agency which licenses and regulates real estate brokers. The only fillable forms published by the Commission for use with consumers are the Working With Real Estate Agents Disclosure, the Residential Property and Owners’ Association Disclosure Statement, and the Mineral and Oil and Gas Rights Mandatory Disclosure Statement. However, the Commission also publishes informative books and pamphlets including the North Carolina Real Estate Manual, Real Estate eBulletin (monthly), Broker-In-Charge Best Practices Guide, Residential Square Footage Guidelines, and lots of Question and Answer brochures. The Commission regulates brokers through the Real Estate License Law (Chapter 93A of the North Carolina General Statutes) and the Commission’s rules, both of which can be viewed at ncrec.gov.
- The NCR is a private, voluntary trade organization with local associations covering various geographic regions of the State. The local associations usually are associated with the MLS systems used by brokers, and membership in the association is required for access to the MLS. NCR publishes agency agreement forms, contract forms, lease forms, and many other forms used by its members. Members of NCR must adhere to the National Association of Realtors’ Code of Ethics. The term, “Realtor,” applies to someone who is a member of NCR. Not every licensed real estate broker in North Carolina is a member of NCR; therefore, not every broker is a Realtor.
Client vs. Customer: A client is someone with whom a broker has a written agency agreement. The broker represents the client and has a fiduciary duty to act in the best interests of the client at all times. Prior to entering into the written agency agreement, the client was a customer. Additionally, in serving a client, a broker may assist a customer. A broker must be fair and honest with a customer. However, a broker does not represent a customer or have a fiduciary duty to act in a customer’s best interest.
Example #1: A property manager represents a landlord (client). A property manager may assist a prospective tenant (customer) in viewing a rental property and entering into a lease for the landlord’s property.
Example #2: A listing agent may show their listing to an unrepresented prospective buyer (a customer) and prepare an offer for the buyer without representing the buyer. The listing agent must review a Working With Real Estate Agents Disclosure with the buyer at first substantial contact and mark the “Unrepresented Buyer” section at the bottom of the form.
Offer vs. Contract: An offer is an oral or written expression of a willingness to buy, sell or lease at a specified price and terms. A contract is a signed, written agreement that memorializes all of the terms and conditions agreed upon by the parties. Buyers usually submit offers. If sellers sign the offer without changes and communicate this fact to the buyers, then the offer becomes a contract. If sellers make changes to the offer they receive, then the sellers have created a counteroffer. The sellers must initial the changes and sign the counteroffer and the buyers must initial the changes and communicate their acceptance in order for the counteroffer to become a contract.
Acceptance of an offer occurs when the last party to receive an offer or counteroffer signs the offer/counteroffer. Acceptance must then be communicated to all parties before the offer becomes a contract. Pursuant to the Statute of Frauds, there is no such thing as “verbal acceptance” of a real estate sales offer. If a seller says they will accept an offer, it has no effect until the seller actually signs the offer without making any changes to it and then communicates that fact to the buyer. Brokers should never use the terms, “verbal acceptance” and “verbally accepted,” as these terms are misleading and may cause a buyer or seller to falsely believe that a valid contract has been formed. If an offer is not signed by all parties, then it’s not a contract. For more information on the Commission, agency, offer & acceptance, and many other topics, check out the many brochures, publications, and videos available at ncrec.gov.
The April 2023 Commission Meeting will be in Edenton, NC!
The North Carolina Real Estate Commission is pleased to announce that it will be holding its April 19-20, 2023, business meeting and hearings in Edenton, North Carolina. You are cordially invited to join the Commission members for coffee on Wednesday, April 19th at 9:00, before the meeting begins, and to stay or attend the meeting at any time throughout the day.
The business meeting is expected to begin Wednesday at 9:30 and to last until mid-afternoon.
The meeting will be held at:
Historic 1767 Chowan County Courthouse
117 East King Street
Edenton, NC 27932
The Commission members welcome the opportunity to meet you and hear your thoughts. While not required, we will appreciate your RSVP by April 12th to exec@ncrec.gov for planning purposes. We look forward to seeing you in Edenton!
Staff Appearances
Len Elder, Director of Education & Licensing, and Kizzy Crawford Heath, Legal Education Officer, spoke at the Durham Regional Association of Realtors meeting on March 1.
Disciplinary Actions
TRACIE BENNETT (BEECH MOUNTAIN) – The Commission accepted the voluntary surrender of the broker license of Bennett effective March 15, 2023. The Commission dismissed without prejudice allegations that Bennett violated provisions of the Real Estate License Law and Commission rules. Bennett neither admitted nor denied misconduct.
ACTION PROPERTY MANAGEMENT INC (NEW BERN) – The Commission accepted the voluntary surrender of the broker license of Action Property Management Inc effective March 15, 2023. The Commission dismissed without prejudice allegations that Action Property Management Inc violated provisions of the Real Estate License Law and Commission rules. Action Property Management Inc neither admitted nor denied misconduct.
ROSS ZANG (NEW BERN) – The Commission accepted the voluntary surrender of the broker license of Zang effective March 15, 2023. The Commission dismissed without prejudice allegations that Zang violated provisions of the Real Estate License Law and Commission rules. Zang neither admitted nor denied misconduct.
KATIE CARTER (KERNERSVILLE) – The Commission accepted the voluntary surrender of the broker license of Carter effective February 15, 2023. The Commission dismissed without prejudice allegations that Carter violated provisions of the Real Estate License Law and Commission rules. Carter neither admitted nor denied misconduct.
LISA ANDREWS MATHEWS (HAMPSTEAD) – By Consent, the Commission reprimanded Mathews, effective March 15, 2023. The Commission found that Mathews acted as the listing agent in the sale of residential property. The subject property was being used as a vacation rental and was located in Wrightsville Beach. Mathews was aware that the buyers intended to occupy the subject property immediately after closing. The seller advised Mathews that they intended there would be no rental contracts to be honored after the closing date, and that they would inform their rental agency to stop bookings accordingly, but Mathews failed to confirm this, and the property was in fact rented for periods after the closing date. Some tenants with existing leases were forced to move to other locations resulting in some of them incurring greater expenses, in violation of the NC Vacation Rental Act.
Diversity, Equity, and Inclusion Updates
April is National Fair Housing Month.
On April 11, 1968 President Lyndon B. Johnson signed into law the Fair Housing Act; we commemorate the 55th anniversary of its passage this year. The Fair Housing Act, 42 U.S.C. 3601 et seq, is a federal law that prohibits discrimination against people in a protected class in the renting or buying of a home, getting a mortgage, seeking housing assistance, or engaging in other related activities.
Who is protected?
The Fair Housing Act prohibits discrimination in housing and related activities on the basis of one’s race, color, national origin, religion, sex – which includes gender identity and sexual orientation, familial status, and disability.
Does North Carolina Have any Fair Housing Laws?
Yes, the North Carolina Fair Housing act: NCGS § 41A. Similar to the Federal Fair Housing Act, the State Fair Housing Act prohibits, and makes illegal, the discrimination in housing and related activities because of race, color, religion, sex, national origin, physical or mental handicaps, and family status.
For more information on the State or Federal Fair Housing laws visit the North Carolina Real Estate Commission’s DEI and Fair Housing pages on the website, here. Also, refer to the Commission’s 2020-2021 General Update Course for a practical refresher.
Jocelyn Mitnaul Mallette of Raleigh Appointed to North Carolina Real Estate Commission
Jocelyn Mitnaul Mallette of Raleigh has been appointed by Governor Roy Cooper to the North Carolina Real Estate Commission for a term ending July 31, 2025.
Mallette is a partner in the Raleigh office of McGuireWoods LLP. She represents publicly traded and private corporations in product liability claims, complex civil litigation, and environmental litigation in state and federal courts. In addition, she represents military veterans as part of her pro bono practice.
Prior to her role with McGuireWoods LLP, Mallette was a Law Clerk for The Honorable Barbara A. Jackson at the North Carolina Supreme Court. She was previously a Prosecutor and Special Assistant US Attorney in the United States Air Force Judge Advocate General (JAG) Corps.
Mallette holds a Juris Doctor from the University of North Carolina at Chapel Hill School of Law, and a Bachelor of Science in Legal Studies, from the United States Air Force Academy.
While in law school, Mallette was inducted into the James E. and Carolyn B. Davis Society, where she was one of eight inductees in her graduating class recognized for extraordinary leadership ability, integrity, dedication, and character.
She was honored as an “Outstanding Recent Graduate” by the UNC Chapel Hill School of Law Alumni Association in 2022, Best Lawyers: “Ones to Watch,” from 2021-2023, and “40 Under 40: Nation’s Best Advocates,” by the National Bar Association for 2020.
An active member in her community, Mallette currently serves as the Chair of the Southeast Raleigh YMCA Advisory Board and as a member of its Racial Equity Committee. She is a council member of the North Carolina Bar Association’s Military and Veterans Law Section, and a member of the Wake County Bar Association’s Grievance Committee.
Dual Agency – Authorization, Disclosure and Safeguarding Confidential Information
By Stephen Fussell, Chief CPO
An agency agreement is an agreement between a real estate firm (or sole proprietorship) and its client – a buyer, seller, landlord or tenant. The agreement usually describes the relationship between the firm and its client, specifies the services to be provided by the firm, describes any obligations of the client, and indicates how the firm will be compensated for its services.
A real estate firm’s relationship with a client also determines the relationship of the firm’s affiliated brokers with the client. See the following examples:
- Single or Exclusive Agency – the firm and ALL of its affiliated brokers represent only the client (buyer OR seller).
- Dual Agency – the firm and all of its affiliated brokers represent both clients (buyer and seller).
- Designated Dual Agency – the firm designates one or more brokers to represent the seller exclusively and designates one or more brokers to represent the buyer exclusively. However, the firm and all of the firm’s other affiliated brokers represent both parties.
Many firms endeavor to sell their own listings and therefore offer dual agency as a way to achieve this goal. If your firm offers dual agency, then you must obtain the client’s express, written authorization for the firm and its affiliated brokers to act as a dual agent. Ideally, this written authorization will be included in the listing agreement and in the buyer agency agreement.
Additionally, as soon as you learn that the other party in the transaction is also represented by your firm, you must disclose this fact to your client. Remember, you must obtain your client’s authorization to act as a dual agent before a dual agency situation occurs, and then disclose to your client when dual agency arises. Example: An offer is submitted by a buyer who is represented by the listing firm. Even if the agency agreements for both parties authorize dual agency, the listing agent must clearly disclose the dual agency situation when presenting the offer to the seller.
If a buyer or seller has concerns about the inherent conflict of interest posed by dual agency and, if your firm offers designated dual agency, then the client may request designated dual agent. While this will commonly be noted in the agency agreement, a separate written agreement addressing the type of agency the firm and client have agreed to may be used. However, a broker who has received confidential information about one party cannot be designated to represent the other party. Remember, in order for a firm to provide designated dual agency in a transaction, both parties must agree to designated dual agency. And, a firm cannot designate a broker to represent one party without also designating a different broker to represent the other party.
Firms that offer either form of dual agency (designated or non-designated) must exercise great care to safeguard the confidential information received from its clients. A designated dual agent who accidentally receives confidential information regarding the other party in a transaction which could affect their client’s decisions regarding that transaction must share the information with their client. While the sharing of this information may be detrimental to the other party in the transaction, the designated broker’s fiduciary duty requires him or her to disclose any information that could affect their client’s decision-making. It is therefore imperative that firms practicing dual agency and/or designated dual agency have clear, strictly-enforced policies and procedures for protecting clients’ confidential information to prevent accidental disclosures of confidential information.
The April 2023 Commission Meeting will be in Edenton, NC!
The North Carolina Real Estate Commission is pleased to announce that it will be holding its April 19-20, 2023, business meeting and hearings in Edenton, North Carolina. You are cordially invited to join the Commission members for coffee on Wednesday, April 19th at 9:00, before the meeting begins, and to stay or attend the meeting at any time throughout the day.
The business meeting is expected to begin Wednesday at 9:30 and to last until mid-afternoon.
The meeting will be held at:
Historic 1767 Chowan County Courthouse
117 East King Street
Edenton, NC 27932
The Commission members welcome the opportunity to meet you and hear your thoughts. While not required, we will appreciate your RSVP by April 12th to exec@ncrec.gov for planning purposes.
We look forward to seeing you in Edenton!