Proposed Rule-Making
The Commission is considering amendments to eight rules. Additionally, four rules are planned for readoption, without substantive changes, as required under NCGS § 150B-21.3A(c)(2)(g). Text for the proposed rule amendments and readoptions under consideration may be found on the Commission’s website under ‘License Law and Rule Changes.’ Changes to the proposed rule text are reflected by underlining text that will be added and striking through text that will be deleted. The rules have a proposed effective date of July 1, 2019, except for 21 NCAC 58A .0105 and .1902, which have a proposed effective date of July 1, 2020, that is noted in the history note of each rule.
The Commission is now accepting public comments on the proposed rules until April 1, 2019. Members of the public may submit comments on any of the proposed rules by contacting the Commission’s Rule-making Coordinator, Melissa Vuotto, or by attending the public hearing on the proposed rules to be held at the Commission’s office, located at 1313 Navaho Drive, Raleigh, North Carolina, on Wednesday, March 13, 2019, beginning at 9:00 a.m.
The Commission will review all public comments before reaching their final decision on April 17, 2019. Once the final rule text is approved by the Rules Review Commission, the Commission will publish the approved rules. If you would like to receive notifications of rule-making proceedings, please visit www.ncrec.gov/home/subscribe.
Robert A. Patchett, Associate Legal Counsel II
Brokers have a fiduciary duty to act in the best interests of their clients while also acting within the confines of the Real Estate License Law and Commission rules. In a handful of transactions there are instances when brokers’ fiduciary duties to their clients could appear to conflict with the Law and rules. One of those situations is a designated dual agency transaction involving the broker-in-charge and a broker or provisional broker supervised by that broker-in-charge.
According to Rule 58A .0104(i) – (l), in a dual each designated broker is required to act only in the interest of the client they represent and is prohibited from disclosing their client’s purchase price, terms, motivation, or confidential information to the other party. To prevent disclosure of confidential information in designated dual agency transactions, a broker-in-charge should have office procedures and policies in place to maintain the confidentiality of client information. But what happens when the broker-in-charge is one of the designated dual agents?
A broker-in-charge is responsible for maintaining all of the firm’s records required to be kept under Rule 58A .0108. The record retention rule requires brokers to provide a copy of, among other things, agency agreements, offers, and any other related transaction documents to the firm within three days of receipt. This means that at any given time a broker-in-charge has access to all of the firm’s records, including documents in an active transaction. If a broker-in-charge has access to the entire firm’s records and confidential information how can the broker-in-charge also be a designated dual agent in a transaction?
The best practice is for a broker-in-charge to not represent a party in a designated dual agency situation. This would reduce the chance that a broker-in-charge will violate the Commission rules for either failing to maintain and review transaction records or for learning confidential information about the other party and using (or failing to use) that confidential information to the advantage of their client in a designated dual agency situation.
If a broker-in-charge decides to represent a party in a designated dual agency transaction, the broker-in-charge must establish policies and procedures to ensure compliance with the Commission’s rules. The broker-in-charge should designate another broker in the office to collect and review records from the transaction. This will prevent the broker-in-charge who is a designated dual agent from having access to confidential information about the other party in the transaction. It will also provide comfort to the other designated dual agent that they can provide records in compliance with Rule 58A .0108(d) and not have their client’s confidential information shared with the other party in a designated dual agency transaction.
Remember also that a broker-in-charge can never be a designated dual agent in a transaction where the other party’s designated agent is a provisional broker under the broker-in-charge’s supervision. A broker-in-charge is expected to fully supervise a provisional broker including reviewing all transaction records. The broker-in-charge must have access to the same information as the provisional broker in order to successfully mentor and train the provisional broker. This duty to supervise the provisional broker cannot be delegated to another.
Reprinted from REALTOR® Magazine Online, November 2, 2018, with permission of the National Association of REALTORS®. Copyright 2018. All rights reserved. https://magazine.realtor/live/article/2018/11/co-marketing-tips-for-following-respa-rules
November 2, 2018
By Erica Christoffer
What’s a settlement service provider? What constitutes something of value? Does it count as a referral if it’s only done in writing?
In live polling via text messaging Thursday during the Business Issues Policy Committee at the REALTORS® Conference & Expo in Boston, attendees answered real estate trivia questions such these, as well as gave feedback on who they are and what they’re interested in learning.
The vast majority of the room answered correctly that a settlement service is a closing attorney, title company, real estate broker, or mortgage broker; that something of value could be money, discounts, catering, advertising, tips, and lease payments; and a transaction can be considered a referral even if it’s not in writing.
Their knowledge encouraged Loretta Salzano, founding partner of the Atlanta-based Franzen and Salzano law firm who works with real estate professionals on how to increase their business while remaining within the confines of the law. She spoke to the group of about 75, offering compliance tips on the Real Estate Settlement and Procedures Act (RESPA), specifically when it comes to co-marketing and advertising.
Section 8(c)(2) of RESPA includes an anti-kickback and referral fee prohibition, and if it’s violated, it’s considered a federal crime. “Of course, you can refer as long as it’s free, and you’re doing it because you think that person will do a bang-up job,” she says. “You can pay your own employees for referrals all day long.”
But if a settlement service provider gives you something of value, even as minimal as a cup of coffee, Salzano says, it should in no way be tied to a referral. “Don’t get cute and think because you don’t have a marketing service agreement, it’s OK. All you have to do is follow the money, so do it right,” she says. The same applies to social media—likes and testimonials could be considered things of value.
Real estate professionals can be paid for goods, facilities, or services provided as long as the price is reasonable and not based on referral business. You have to monitor whether the services are actually being performed. For example, if you’re being paid to put yard signs out for a fellow settlement provider, you must able to verify that the work is actually being done.
Tread carefully when an industry cohort asks for your endorsement or you list preferred partners or providers on your website, Salzano says. “Someone might dig into that to see what you’re getting from having that on your site.”
It’s permissible for settlement service providers to participate in your regular promotional events and educational activities, such as lunch and learns, education sessions, or trainings, as long as it’s not based or conditioned on referrals.
When it comes to joint advertising with a fellow settlement service provider, it’s allowed as long as each party pays its pro-rata share. A simple example would be a post card with each party’s information side by side, the cost of which would be split 50-50. But co-marketing online is trickier, Salzano says. If two parties have an ad on the same webpage, you have to come up with a sensible metric for those ad campaigns. “As long as you’re both displayed equally, even in an online video,” she says. “You have to be able to look a regulator in the face and explain this is what you’re doing and how you came up with that arrangement.”
Lastly, if you’re going to lease space in your office to a settlement service provider, make sure it’s actual space with finished floors, walls, desks, etc., and that it’s being used, Salzano says. Get comparables to ensure the rent you’re charging is fair market value, then put your documentation in a file. “If you own the building, you have to come up with the fair market rent. When a lender is paying you money as the building owner, you don’t want it to look like it’s them giving you money for referrals,” she says.
Rob Patchett, Associate Legal Counsel II, spoke at the Vacation Rental Management Association (VRMA) Connect NC event.
Anna Gregory Wagoner, of Winston-Salem, has been elected Chair of the North Carolina Real Estate Commission and Thomas R. Lawing, Jr., of Charlotte, Vice Chair, for the term beginning August 1, 2018, it was announced by Miriam J. Baer, Executive Director.
Ms. Wagoner is a shareholder with the law firm of Blanco Tackabery & Matamoros, P.A. in Winston-Salem and practices in the areas of commercial real estate and renewable energy.
Active in the practice of real estate law for approximately 18 years, Ms. Wagoner began her legal career in Greensboro and was formerly associated as an attorney with Investors Title Insurance Company, of Chapel Hill.
Ms. Wagoner is a member of the North Carolina Bar Association, Forsyth County Bar Association, Piedmont Triad Commercial Real Estate Women, North Carolina Land Title Association, and NAIOP (Commercial Real Estate Development Association).
She is a graduate of Wake Forest University with a BA in Psychology and holds a Juris Doctor degree from the Wake Forest University School of Law.
Lawing, a former Chair of the Commission, is a Certified Property Manager and President of T. R. Lawing Realty, a family-owned residential property management company serving the Charlotte regional since 1957.
He is a past president and REALTOR® of the Year of both the NC REALTORS® and the Charlotte Regional REALTORS® Association (CRRA) and a past director of the National Association of REALTORS® (NAR).
Active in civic affairs, Lawing has held leadership positions at Hawthorne Lane United Methodist Church, is a past president of the Charlotte West Rotary, past chair of the Eagle Projects Committee of the Mecklenburg County Council of the Boy Scouts of America and has co-chaired the Will Call Committee of the Wells Fargo Championship since its inception.
This article came from the October 2018-Vol49-2 edition of the bulletin.
Wendell Bullard of Durham and Jeffery J. Malarney of Manteo have been appointed to the North Carolina Real Estate Commission by Governor Roy Cooper, it was announced by Miriam J Baer, Executive Director.
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 BS in marketing and a United States Air Force Security Specialists veteran.
Malarney, a former member of the Real Estate Commission, serves as General Counsel for Twiddy & Company, a North Carolina Vacation Rental Management Firm, and is a principal of the Law Offices of Jeff Malarney, PLLC. He is also a licensed real estate broker and property insurance agent.
A Commander (ret.) of the United States Navy Judge Advocate Corps, he is a former Special Assistant United States Attorney, past president of the North Carolina Vacation Rental Manager’s Association, and past chairman of the Outer Banks Chamber of Commerce.
Malarney holds a JD from Wake Forest University School of Law and BA (cum laude) in Economics and Management from Albion College.
This article came from the October 2018-Vol49-2 edition of the bulletin.
By Jean A. Wolinski-Hobbs, Auditor/Investigator
The Real Estate Commission has three rules governing how brokers handle and account for trust monies – A.0116, .0117, and .0118. Additionally, the ncrec.gov website has a number of videos available on trust account handling. Familiarize yourself with these rules to avoid the following common mistakes.
A variation on the same theme is depositing trust monies into an operating account and then transferring them into the trust account. Well, DON’T! All trust monies must be deposited into a trust account and all clients and invoices need to be paid out from the trust account. The only time it is acceptable to move money from a trust account into an operating account is when you are disbursing your earned commission or are reimbursing yourself for invoices that were paid by you from your operating account in advance and on behalf of the client.
If the bank account into which you deposit client monies is not identified as a trust or escrow account, then it will not be treated as such by the IRS or courts, meaning they can attach or freeze the monies. The FDIC may also deny insurance coverage for each individual customer whose money is deposited into an account not properly designated.
Well, DON’T! Ensure that incoming funds clear prior to paying the client or any invoices on behalf of the client. Failure to do so can cause a deficit in the account if the funds do not clear.
Well, DON’T! This also causes a deficit in the account. Instead, make sure that service charges are covered by depositing enough of your own money to cover them and keep a ledger to keep track of those personal funds.
Well DON’T! To do so is commingling. Also, don’t use a money market account if it requires a large balance of personal funds in order to avoid service fees – that is also commingling. Money market accounts are acceptable if there is a large enough balance of customer funds, such as a security deposit trust account holding a substantial number of deposits.
Well, DON’T! Trust accounts must be custodial and if the owner of the funds has access to make their own deposits or withdrawals, then it is no longer a custodial account.
Well, DON’T! Homeowner’s associations must each have their own individual trust account. If you manage ten (10) homeowner’s associations, then you must maintain at least ten (10) trust accounts.
Well, DON’T! Embezzlement happens even with trusted bookkeepers or long-time employees and is made easier when one person is in charge of everything. Simple steps can help ensure that trust money is safeguarded. For example, the person who receives cash should not be the same person who reconciles the trust account. Cash receipts should be verified at the end of each day and logged by the broker-in-charge or another person in a supervisory role. And, the bookkeeper should not be the person initially receiving the bank statement. The broker-in-charge should verify the items in the bank statement against the journal and also check cash receipts against deposits on a monthly basis, prior to the reconciliation. A bookkeeper who never takes vacations or is obsessed with getting the mail is not a good thing, it is a RED FLAG.
Well, DON’T! If you “touch” the money, then you must have a trust account and the money must go through your trust account. If the check is written to the client, do not accept it. The only time it is acceptable for a broker to deliver monies to a client is when the payment is subject to a specific exception such as a due diligence check or check payable to a designated escrow agent.
Well, DON’T! Just because there is $50,000 in the trust account does not mean that you can pay for a new water heater costing $1000 for client Smith if only $200 of the $50,000 belongs to client Smith. To do so means you are using other clients’ money to pay for client Smith’s water heater and causing a deficit in client Smith’s ledger. No client should ever have a negative balance on their ledger.
Well, DON’T! If a tenant owes a $15 late fee but has not paid that amount, do not pay yourself or the client the late fee. Disbursements on rentals must be calculated upon the amount actually paid for that month.
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If this sounds confusing, you are not alone. Come to one of our monthly trust account courses and learn the rules in detail. Bring along anyone who also handles trust accounts for your firm. As a broker-in-charge, at a minimum you will learn what you need to know to adequately supervise your bookkeeper and what you or your software program needs to be able to produce in the way of reports in order to be compliant. As a bonus, it qualifies as an elective continuing education course.
This article came from the October 2018-Vol49-2 edition of the bulletin.
By Elizabeth W. Penney, Information Officer
Brokers know that most sellers of residential property are required by law to give the buyer two disclosure forms: the Residential Property and Owners’ Association Statement (RPOADS) and the Mineral and Oil and Gas Rights Mandatory Disclosure Statement (MOGS).
The four-page RPOADS form should be given prior to an offer to purchase. The seller has the option of answering each question “yes’, “no,” or “no representation.” Thus, while it is a mandatory disclosure form, it does not actually mandate any disclosure because of the “no representation” option. Sellers who choose to answer the questions “yes” or “no” should do so honestly, based on their actual knowledge as a seller can be held accountable in a court of law for the truth and accuracy of the representations made.
Sellers and brokers should understand that regardless of the seller’s decision to disclose issues and defects concerning the property, a broker must disclose any material facts to a prospective buyer. If a home inspection reveals a significant defect and the seller refuses to repair, that defect becomes a material fact which the agent has discovered and must disclose affirmatively to prospective buyers.
If the seller originally answered any of the relevant questions “no”, then the broker should also advise the seller-client to amend the RPOADS once a defect becomes known to avoid charges of misrepresentation and fraud. If the seller decides not to disclose, the seller still has the option of “no representation” but, again, the broker still must disclose the known material fact separately from the RPOADS.
Failure to provide the RPOADS can have consequences. The statement should be provided to a prospective buyer prior to the buyer making an offer. A seller or listing agent who fails to present a completed statement prior to an offer being extended opens the door to the possibility of the buyer rescinding the contract within either three days of contract formation or three days from receipt of the statement, whichever occurs first. It is the listing agent’s duty to inform seller-clients of their rights and obligations regarding the completion and distribution of this mandatory form.
Additionally, sellers of residential property are now required by law to give the buyer the single-page MOGS form prior to the Offer to Purchase. The seller has the option to mark “no representation” only as to the severance of mineral or oil and gas rights by a previous owner.
It is important to note that the fact the property is investment property and has not been owner-occupied does not negate the obligation of the seller to provide a disclosure statement to prospective buyers. When in doubt as to whether the RPOADS or MOGS must be given in a certain transaction, sellers should contact the Commission or err on the side of caution and provide the Statement.
Exemptions to Providing RPOADS/MOGS Disclosure Forms
North Carolina state law (General Statute Chapter 47E) requires that the RPOADS/MOGS be given in all transfers of residential one-to-four unit dwellings by sale, exchange, installment land sales contract or option to purchase, subject to a few very narrow exceptions in NCGS § 47E-2 as shown below:
NCGS § 47E-2 (a)… [RPOADS/MOGS exemptions]
(1) Transfers pursuant to court order, including transfers ordered by a court in administration of an estate, transfers pursuant to a writ of execution, transfers by foreclosure sale, transfers by a trustee in bankruptcy, transfers by eminent domain, and transfers resulting from a decree for specific performance.
(2) Transfers to a beneficiary from the grantor or his successor in interest in a deed of trust, or to a mortgagee from the mortgagor or his successor in interest in a mortgage, if the indebtedness is in default; transfers by a trustee under a deed of trust or a mortgagee under a mortgage, if the indebtedness is in default; transfers by a trustee under a deed of trust or a mortgagee under a mortgage pursuant to a foreclosure sale, or transfers by a beneficiary under a deed of trust, who has acquired the real property at a sale conducted pursuant to a foreclosure sale under a deed of trust.
(3) Transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.
(4) Transfers from one or more co owners solely to one or more other co owners.
(5) Transfers made solely to a spouse or a person or persons in the lineal line of consanguinity of one or more transferors.
(6) Transfers between spouses resulting from a decree of divorce or a distribution pursuant to Chapter 50 of the General Statutes or comparable provision of another state.
(7) Transfers made by virtue of the record owner’s failure to pay any federal, State, or local taxes.
(8) Transfers to or from the State or any political subdivision of the State.
NCGS § 47E-2 (b)… [Additional RPOADS exemptions]
(1) Transfers involving the first sale of a dwelling never inhabited.
(2) Lease with option to purchase contracts where the lessee occupies or intends to occupy the dwelling.
(3) Transfers between parties when both parties agree not to complete [the RPOADS].
This article came from the October 2018-Vol49-2 edition of the bulletin.
By Corean E. Hamlin, Director of Education and Licensing
Since July 1, 2014, Commission rule 58A .0503 has required brokers to renew their licenses on the Commission’s website or by calling the Commission’s office. Despite the rule, the Commission has attempted to accommodate brokers who preferred to pay their renewal fees by check.
Effective July 1, 2018, there is no longer an option to renew by phone has been removed. In addition, checks will no longer be accepted by mail. Going forward, brokers will renew their licenses on the Commission’s website between May 15 and June 30 each year. Brokers who wish to reinstate their licenses within the first six months of license expiration will also be required to do so electronically.
The Commission eliminated the option to renew by phone for the security of broker information. Entering payment information on a secure website affords better protection than communicating such information over the phone.
The decision to stop accepting checks resulted from two law changes requiring certain information to be gathered during the renewal process.
First, as required by the NC state legislature in NCGS § 143-765, all applicants for occupational licenses, including license renewal, must disclose any investigations for employee misclassification. All applicants must certify that they have read and understand a Public Notice Statement from the Employee Classification Section of the State Industrial Commission (http://www.ic.nc.gov/121317ECSPublicNotice.pdf) and must disclose any investigations for employee misclassification. If an applicant does not provide the certification and disclosure, the NC Real Estate Commission is not permitted to process the application or renew the license. The certification and disclosure have been added into the online renewal program.
Second, Commission rule 58A .0503 now requires Brokers-in-Charge to disclose information regarding trust account(s) and criminal convictions or disciplinary actions. These questions, too, have been added to the online renewal program.
If you have been in the practice of renewing by phone or sending checks by mail for your renewal fee, please be aware that these options will not be available in 2019. Online renewal will be required. Detailed instructions will be provided on the Commission’s website and in the Bulletin to assist you during the renewal period. Also, Commission Staff will be happy to answer your questions regarding the process by phone (919.875.3700) or in person at the Commission office.
This article came from the October 2018-Vol49-2 edition of the bulletin.
Rachel E. Rogers of Fayetteville, a second year law student at Campbell University, is the recipient of the Allan R Dameron Legal Internship Award. Rogers received the award at the Commission’s June meeting.
The award is given annually in memory of and tribute to former Commission Chairman Allan R. Dameron for his dedicated service to protect the interests of consumers.
This article came from the October 2018-Vol49-2 edition of the bulletin.