INNOCENT UNTIL PROVEN GUILTY

Have you been charged with a criminal offense, or do you know of a broker who has?

Commission Rule A.0113 requires that a broker file with the Commission a Criminal Conviction Disciplinary Action Reporting Form within 60 days of:

• a final judgment, order, or disposition of any felony or misdemeanor conviction;
• a disciplinary action or entering into a conciliation agreement or consent order with a governmental agency or occupational licensing agency;
• a final judgment, order, or disposition of a military court-martial conviction; or
• a notarial commission sanction pursuant to G.S. 10B-60.

Notice that this rule refers to final judgments and orders, not charges. Once an investigation concludes, criminal and other charges are sometimes dropped or reduced. That’s why a broker is not required to report any charges which are pending against them, only convictions and final dispositions.

When we receive information about charges being filed against a broker, the Commission normally holds those matters open until after a conviction or final judgement occurs, assuming it does.  Like everyone else, brokers are considered innocent until proven guilty.    

House Bill 422 Passes

On Thursday, August 24th, Governor Cooper signed into law House Bill 422, protecting homeowners from a recent wave of unfair real estate agreements tying up their properties for 40 years. The North Carolina Real Estate Commission’s staff worked for the past year in conjunction with the Attorney General’s office and the NC REALTORS® to draft this important piece of consumer protection legislation and support it through the legislative process.

Reminder: The North Carolina Real Estate Commission is on Facebook!

Do you have a Facebook page? Did you know that the Commission has a Facebook page designed specially for licensees?

The Commission is committed to ensuring that licensees are provided with multiple opportunities to receive real-time, current information. In addition to the monthly eBulletin and North Carolina Real Estate Commission Blog, brokers can receive current updates from the Commission through its Facebook Licensee Group page.

This Facebook page for licensees will provide relevant information on Commission announcements, rule interpretations, rulemaking, and policy decisions. Additionally, the Commission posts valuable resources for licensees to use to ensure their brokerage practices are in compliance with the License Law and Commission rules.

Do you want to stay up-to-date with Commission news? Join the North Carolina Real Estate Commission Facebook Group today! You can click here to join.

Employment Opportunities

Are you interested in joining the staff of the North Carolina Real Estate Commission? The Commission is currently seeking an Assistant Director of Regulatory Affairs and an Auditor. These positions are posted on the Commission’s website. Click here for more information regarding these positions.

Jeff Malarney Elected Chair, T. Anthony Lindsey, Vice Chair

Jeffery J. Malarney of the Outer Banks has been elected as Chair of the North Carolina Real Estate Commission, and T. Anthony Lindsey of Charlotte, as Vice Chair. Their terms will begin August 1, 2023.

Malarney, a former member of the Real Estate Commission, was reappointed to the Commission in 2018 by Governor Roy Cooper. He has practiced law in the Outer Banks for over 27 years and is the founder of Malarney & McCown, 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 Management Association, and past chairman of the Outer Banks Chamber of Commerce.

Malarney founded and operated a mortgage brokerage company, an insurance agency, and is a founder of H20BX Waterpark in Currituck, North Carolina. Additionally, he started Pro 1 Pest Control in 2019.

Malarney holds a JD from Wake Forest University School of Law and BA (cum laude) in Economics and Management from Albion College. He is married to the Honorable Amber Malarney, a District Court Judge in the First Judicial District and is the father to Cullen and Lainy Malarney.

T. Anthony Lindsey was appointed to the Commission in 2019 by Governor Roy Cooper. Lindsey has been active in the real estate industry for nearly 30 years. He is currently Head of Community Development Services with Steel Skin Realty in Charlotte, where he leads their commercial brokerage and real estate development business. He has also worked extensively in support of affordable housing and advocacy of home ownership for low and moderate income households.

Lindsey is a former long serving member of the Board of Directors of the North Carolina REALTORS^®, where he served on, and lead, various committees. He also served as the Federal Political Coordinator from 2003 to 2014 for the National Association of REALTORS. ^® The North Carolina Association of REALTORS® presented him with the President’s Award in 2019 and the Region 8 Service Award for his commitment, leadership, and service in 2020. 

Lindsey is a past member and chair of the City of Charlotte’s Housing Trust Fund Advisory Board, past director and treasurer of the Charlotte Regional REALTOR^® Association (now Canopy), and a past director on the Board of Governors of the Real Estate and Building Industry Coalition (REBIC). In 2020, Lindsey received the most esteemed, REALTOR^® Of The Year recognition by the Canopy REALTOR^® Association, for his contributions to the profession and the community.

A former contributing writer on affordable housing for PRIDE Magazine, Lindsey speaks at various real estate industry conferences and has served on numerous industry boards and committees.  

He is a founding board member, past president, and now treasurer of the North Carolina High School for Accelerated Learning, Inc., a charter school focused on drop out recovery and prevention. A graduate of Johnson C. Smith University, Lindsey started his career with AT&T and Bell Communications Research where he served in several executive positions including corporate director of their Minority & Women-Owned Business Enterprise program and Manager of International Technology Licensing.

Options to Purchase May Leave Few Options

By Fred Moreno, Chief Deputy Legal Counsel

Have you ever had a client under a lease with an option to purchase who wants to assign their option? Chapter 47G of the North Carolina General Statutes governs option to purchase contracts executed with residential lease agreements. Recently, the North Carolina Court of Appeals handed down a decision regarding the assignment of an option in a lease and determined that, in that case, there was no interest in real property that could be conveyed.

Last year, the North Carolina Court of Appeals published its decision in Cabrera v. Harvest St. Holdings, Inc. (“Cabrera case”). In this case, the Plaintiffs were tenants of a commercial property where they operated their auto mechanic shop. The property owner later became interested in selling his property to Plaintiffs, so the parties entered into an option to purchase contract where the Plaintiffs would pay $2,400 per month as lessees for a period of nineteen (19) months. This lease/option agreement went on to say that during this time, the Plaintiffs could elect to purchase the subject property for $150k and that title to the property would transfer upon full payment of that amount to the owner. The lease/option agreement was not recorded with the Register of Deeds. At some point later on, the Plaintiffs decided to sell their interest in the lease/option agreement to the Defendants for $140k.  After going under contract, the Plaintiffs decided they no longer wanted to sell their interest and tried to void the contract. The Defendants then bought the subject property directly from the owner, and the deed was recorded with the Register of Deeds. The Plaintiffs then sued and argued that the lease/option contract that they retained gave them an interest in the subject property.

The NC Court of Appeals, citing the NC Supreme Court case of Mizell v. Dennis Simmons Lumber Co. in a 1917 opinion, said “Generally, option contracts do not themselves create any interest in the property, but only amount to an offer to create or convey such an interest when the conditions are performed, and working a forfeiture when not strictly complied with.” The court went on to say, “In other words, until the option is exercised, the optionee does not hold any property interest to the property in question.” The court found that the Plaintiffs never exercised the option to purchase in the lease/option agreement and therefore never had an interest in the property that they could assign, transfer, or sell. If anything, the agreement between the Plaintiffs and the Defendants only transferred the right to purchase the property under the lease/option agreement.

This is an interesting case and one that brokers should be aware of when dealing with wholesalers. Although this case involved commercial property, the reasoning of the court could provide a similar outcome in a residential transaction. Since the tenant of a lease/option agreement is not the property owner under the reasoning of the Cabrera case, the tenant may not have any real property interest that the broker can market for the tenant. Even if the tenant has exercised the option to purchase and may now have a real property interest, their interest is limited to assigning their option to purchase the subject property, and only then if their agreement allows such a transfer.  If you come across such a transaction, seek legal counsel before you list to be sure you know what you are listing, and how it can and should be advertised. 

Reminder: Did You Know About the Following Rule Changes?

Rule 58A .1711 Continuing Education Required of Nonresident Brokers

The Commission repealed Rule 58A .1711 on July 1, 2023. Effective July 1, 2023, nonresident brokers must now comply with North Carolina CE requirements as specified in Rule 58A .1702, Continuing Education Requirements.

Essentially, Rule 58A .1702 requires all brokers to take eight credit hours of NCREC-approved real estate continuing education courses within one year prior to the expiration of their license as follows:

1. four credit hours of elective courses; and
2. four hours of either:
3. the “General Update Course,” or
4. for a broker with BIC Eligible status, “the Broker-in-Charge Update Course” in lieu of the “General Update Course.”

Therefore, nonresident brokers will no longer be able to utilize the CE requirements from another state to certify they have met the CE requirements in North Carolina. Both the General Update and Broker-in-Charge Update Courses, and a number of other elective courses are available via online delivery enabling brokers to take North Carolina CE even when not present in the state.

NOTE: Nonresident brokers must complete their CE requirements by June 10 of each license year according to Rule 58A .1702.

Rule 58A .1708 Equivalent Credit [for teaching or developing a CE course]

Rule 58A .1708 was amended on July 1, 2023. The Rule now states in part:

1. The Commission shall award an approved instructor continuing education credit for teaching a Commission Update course….
2. The Commission shall award a broker continuing education elective credit the first time an approved continuing education elective course is taught by the broker….
3. The Commission may award continuing education elective credit for developing a continuing education elective course the first time it is approved by the Commission pursuant to 21 NCAC 58H .0401….

Approved instructors and brokers seeking equivalent continuing education credit under Rule 58A .1708, shall submit a form, available on the Commission’s website, that requires them to set forth the information specified in subsections (a), (b), and (c) of the Rule. 

NOTE: In order for any application for equivalent credit to be considered and credits applied to the current licensing period, a complete application, the appropriate fee, and all supporting documents shall be received by the Commission no later than 5:00 p.m. on June 17.

Staff Appearances

Steve Fussell, Chief Consumer Protection Officer and Leslie Schwartz, Consumer Protection Officer, spoke at Hodge Kittrell Sotheby’s International Realty on July 11.

Brian Heath, Consumer Protection Officer, spoke at NorthGroup RE on July 19.

Current Stats: Monthly Licensee Count as of July 1, 2023

Tech Corner: Do You Know Your Trust Account Software?

Do you have a trust account? Have you taken the Basic Trust Account Procedures Course?

The Commission does not require brokerages to have a trust account. However, if a broker will be receiving money while acting in their fiduciary capacity, they must deposit the monies in a trust or escrow account as defined by Rule 58A .0117(b). Additionally, they must deposit the money no later than 3 banking days following receipt unless another time frame is stated under Rule 58A .0016(b).

The Basic Trust Account Procedures Course is required when a BIC assumes responsibility for a trust account (i.e. opens a new account or takes over an existing account). Further, this course must be taken within 120 days of assuming responsibility per Rule 58A .0110(g)(9). During the course, brokers will learn the law and rules regarding trust accounts so they will be able to maintain them in adherence with the License Law and Commission rules. BICs are not required to take the course more than once in a three year period.

Trust Account Tutorials are also available on the Commission’s website to assist brokers with learning the process of maintaining trust account records that comply with Real Estate Commission rules. The tutorials cover Deposits, Disbursements, and Monthly Account Reconciliations using ledgers and trust account journals.

The Commission does not dictate the software that a brokerage must use while maintaining their trust account. However, brokers should possess in-depth knowledge of the trust account software system they choose to use. It would be in the best interest of brokers to receive training and/or hire an expert to ensure they can utilize the full capabilities of the system. Additionally, BICs should be sure to keep the software systems they use up-to-date.

To assist brokers with evaluating the capabilities of their system, the Commission has provided “Broker Software Evaluation Forms” for Sales, Long Term Rentals, and Vacation Rentals on its website. The evaluation forms ask a variety of questions such as:

• Does the software generate a trust/escrow journal?
• Does the software generate supplemental disbursement worksheets that identify each disbursement transaction?
• Does the software generate supplemental deposit worksheets for each bank deposit?

These forms may assist with determining if the software provides the broker with the necessary information and documentation for compliance with the License Law and Commission rules.

NOTE: The Commission encourages brokers to consider whether they can utilize the trust account software independently and comply with the License Law and Commission rules or if they need to employ an expert to assist them.

If you have any further questions and/or comments regarding trust accounts, please email Regulatory Affairs at regulatoryaffairs@ncrec.gov.