What is Radon Gas?
Radon is a colorless, odorless, radioactive gas which occurs naturally from the decomposition of uranium and is found in varying amounts in virtually all soils and in every state. It poses little to no health risk when allowed to dissipate in open air, but can present a significant health risk over time if it becomes trapped and accumulates in buildings. Radon gas rises through cracks and fissures in the earth’s surface, and enters homes through cracks or holes in the foundation or walls, in gaps around service pipes, around construction joints, and sometimes in water if the source is groundwater, rather than surface water.
What Level of Radon Gas is Safe?
Theoretically, any amount of radon poses some health risk since it is radioactive. The danger comes more from breathing radon. If radon is in the groundwater, then the gas is released whenever water is used. Radon gas decays into radioactive particles which become trapped in the lungs and as they continue to decay, they release small bursts of energy which can damage lung tissue and lead to lung cancer. The Environmental Protection Agency (EPA) recommends that indoor radon levels not exceed 4 picocuries per liter (pCi/l) of air.
Is the Presence of Radon Gas a Material Fact that Must Be Disclosed?
If a broker knows that dangerous levels of radon are present in any structure which will be occupied regularly by people, then the broker must disclose that to all prospective buyers or tenants.
A broker is not expected to test all properties for radon. However, a broker listing a property should have the homeowner complete the Residential Property and Owners’ Association Disclosure Form. Question 25 on that form deals with hazardous or toxic substances, including radon gas. If the broker has any reason to suspect that radon may be present at a hazardous level, the broker has a duty to inquire as to whether the property has been tested for radon. If the results of such a test were above the level recommended by the EPA, the broker has a duty to disclose this information to any prospective buyers. A buyer agent should always recommend to a buyer that the buyer have a radon test as a part of their due diligence, particularly if the broker knows that other buildings in the area have unusually high radon levels.
How Are Radon Levels Determined?
It is extremely easy to test for radon in a home or business. There are several “do-it-yourself” kits which may be purchased in hardware stores or from the EPA or over the internet and there are qualified testers trained to conduct such tests. A list of qualified testers may be obtained from the North Carolina Department of Environment and Natural Resources, Division of Radiation Protection at www.ncradon.org. Test kits can be ordered from the same website. There are both short-term and long-term tests available. Radon levels may vary from day to day and season to season and may be influenced by severe storms or high winds. Short-term tests are less likely to render an accurate picture of the year-round average radon level but do provide immediate feedback. They generally take a couple of weeks to get results. If the results are 4.0 pCi/l or above, it is recommended that a second test, either short-term or long-term be conducted. Long-term testing generally takes more than 90 days. Long-term tests will provide a more accurate reading of the year-round average radon level.
What if the Seller Installed a Radon Reduction or Mitigation System?
If a seller had a radon problem in the past, but installed a radon reduction system to remediate the problem and bring the radon within acceptable EPA levels, is the broker required to disclose the presence of the system? In the 2008-2009 Update Course, Commission staff stated that the system was installed to remedy an existing problem which could reoccur if the system failed to operate correctly and therefore the mere presence of the system should be viewed as a material fact and disclosed to prospective purchasers. However, since that time radon mitigation systems have become far more common and are often being installed in new construction homes with no history of radon gas. Such systems are often included as part of a green building program or as a feature in new homes since installation at the time of construction is much less expensive than installing an after-market system. In order to not stigmatize such homes as this feature becomes more prevalent, the Commission has since revisited the issue and determined that the mere presence of a system is not, in and of itself, a material fact but the best practice for a listing broker is to disclose and let potential buyers make a fully informed decision before they go under contract. When a radon mitigator system is evident, buyer agents should inquire as to why a mitigater system was installed. And, buyers should be advised to have the property tested for radon gas and have the mitigation system tested to be certain it is functioning properly as part of their due diligence if they are interested in purchasing the home.
The North Carolina Radon Program at www.ncradon.org provides much helpful information about radon including a map showing various radon levels across the state.
This article came from the May 2017-Vol48-1 edition of the bulletin.
By Robert J. Ramseur, Jr., Vice Chair, Real Estate Commission
As a lawyer who has practiced real estate law in North Carolina for over 20 years, I have seen my fair share of real estate transactions: residential and commercial, challenging and simple, stressful and enjoyable- and everything in between. Admittedly, I viewed the real estate closing process early in my career through a narrow lens, one that focused simply on my role in the process. I was so wrapped up in the zealous representation of my client that I often failed to recognize and appreciate the hard word and dedicated professionalism being exhibited by the other participants in the closing process.
Two events in my career radically changed my focus and shaped the way I practice today. First, I was chosen to serve on the Joint Forms Committee of the North Carolina Bar Association and the North Carolina Association of Realtors®. Next, I was appointed to serve as a lay member of the North Carolina Real Estate Commission. Service on the Joint Forms Committee and the Real Estate Commission afforded me the privilege to work with some exceptionally smart and dedicated real estate brokers from all over the state. It allowed me to step back from the daily grind of office work and see things from a different perspective, providing me with great insight as to the true mechanics of the real estate transaction. It enabled me to appreciate how critical it is for every professional involved in a real estate transaction to be an active participant in the success of that transaction.
I suspect that many of you may be in a place where I found myself many years ago, focused on day-to-day survival rather than how the pieces of the transaction should properly fit together to benefit your clients. Last month I was asked to speak at the Real Estate Commission’s North Carolina Educators Conference to discuss the implementation of the TRID Disclosure Rules by the Consumer Financial Protection Bureau. To prepare for my presentation, I sent an email to real estate lawyers across the state asking for feedback on issues and problems that they are experiencing with TRID. To my surprise, the responses were extremely consistent – the TRID Disclosure Rules were actually not a problem at all. In fact, most of the feedback was positive – consumers appeared to like the new closing process and despite a rough start, lenders and closing attorneys were beginning to understand and streamline the process.
Another surprise was that I received a tremendous amount of feedback requesting that real estate brokers become more active participants in the closing process. It was a remarkable call to action – closing attorneys wanted brokers as partners in the process, not just passive participants. A variety of closing attorneys from every corner of our state- urban, rural, large firm, small firm, solo practitioner, residential, commercial- responded that they wanted and needed your assistance in making the closing process more efficient. The feedback contained consistent themes and constructive advice that I have summarized below. So how can you, as a licensed Real Estate Broker, assist North Carolina’s closing attorneys in streamlining and simplifying the closing process?
Attorneys suggested that many issues and closing table delays would be prevented if brokers simply exercised caution when placing a property under contract. Is the buyer’s name really “Betty Sue” or is it actually “Elizabeth Susan”? Did your contract provide for a non-closing cost credit from the seller to the buyer- something that most lenders have not allowed in a decade? Did you ask for the closing attorney to draft an addendum to the contract rather than undertaking the task yourself?
The 2008 banking crisis and the 2015 implementation of the CFPB’s TRID regulations have created due diligence requirements and timing challenges for lenders and other professionals that take time to navigate. A contract that calls for a short due diligence period and a quick closing is simply not feasible in today’s environment. Before adding dates in a contract, make sure that you have communicated with the lender, the home inspector, the surveyor, the closing attorney, etc. to make sure that your client can meet the due diligence and closing deadlines without difficulty.
Many closing issues would be minimized if your clients have made alternative plans in the event of a closing delay. If your closing is scheduled on a Friday afternoon of a holiday weekend, it is a good idea to insist that your clients not schedule movers that day. Try to avoid closings on Fridays and the last day of the month. Caution your clients against scheduling painters and hardwood floor installers the day of closing. Have your clients wire their funds to close several days prior to the closing. Many attorneys reported that most of the stress in a closing delay was unrelated to the actual closing- it was created by the fact that buyers had not made any contingency plans for a delay. Anticipate challenges before they arise so that your client can easily adapt in the event of a delay.
The TRID regulations have made it extremely difficult for closing attorneys to make last minute changes to the settlement statement and Closing Disclosure. Get invoices to the closing attorney as soon as you receive them. Remember that many lenders require that any changes to the Closing Disclosure and settlement statement be approved by the underwriter prior to closing. Fill out closing information sheets immediately and completely- closing attorneys need that information to prepare for closing. Obtaining a payoff statement or homeowners’ association statement can take 7-10 business days, so every minute is critical in attempting to avoid a delay.
If you tell the closing attorney that you will follow up with an email, make sure you follow up with an email. What is the closing attorney’s preferred method of communication? Are you checking to see if the closing attorney has everything ready for closing or are you just assuming that he has it under control? Effective communication between the broker and closing attorney is essential. Attorneys crave your active participation in the process as it makes for a smoother transaction and reduces the chance of a closing day surprise.
Are you frustrated that the new TRID closing procedures appear to have reduced your participation in the process? There may be a good reason why- lenders and closing attorneys have had to spend vast sums of money upgrading their systems to protect consumer privacy and they tend to exclude those participants in the process who have not. Privacy was one of the primary mandates of the new TRID Disclosure regulations and lenders are going to great lengths to comply. Consider upgrading to an encrypted email system. Never send social security numbers or wiring instructions via email. Get rid of that outdated email provider and invest in your business. In fact, consider bringing back some of the methods that we used to use to conducting business- reintroduce yourself to the telephone, the fax machine, Federal Express and hand delivery.
While there is some variation as to what documents closing attorneys send brokers to review prior to a closing, there is no doubt that closing attorneys want your assistance in carefully reviewing those documents for accuracy. In addition to reviewing the commission calculation, look for other potential errors. Review them with your client prior to closing. Remember that closing attorneys are human and another set of eyes on a settlement statement is extremely helpful. Once the transaction has closed and the funds have been disbursed, it is difficult, if not impossible, to make corrections and adjustments.
On behalf of real estate lawyers across the state, I want to thank each of you for being our partners in this process. Without you, our task would be next to impossible. With you, we can accomplish great things for our clients.
This article came from the May 2017-Vol48-1 edition of the bulletin.
WARREN KEITH BARNES (Autryville) – Following a hearing, the Commission permanently revoked the broker license of Mr. Barnes effective March 2, 2017. The Commission found that Mr. Barnes, acting as broker-in-charge, managed the properties of various owners; that Mr. Barnes failed to respond to Letters of Inquiry and document requests sent by the Commission; that Mr. Barnes failed to provide owner statements, copies of management agreements, copies of leases, and rent proceeds to various property owners; and that Mr. Barnes failed to maintain documents in accordance with Commission rules. A review of the trust accounts found that cancelled checks failed to identify the purpose for the disbursement; the deposit slips were not designated “trust” or “escrow”; the deposit tickets failed to identify the purpose of the deposit, the property or owner, or the remitter of the monies deposited; and that multiple funds received were being transferred to Mr. Barnes’ personal account, indicating conversion. Finally, Mr. Barnes’ firm was administratively dissolved by the North Carolina Office of the Secretary of State in May 2012, and Mr. Barnes failed to notify the Commission of the firm’s dissolution while continuing to practice brokerage under its name.
CHESLEY G BOWENS, JR. (Raleigh) – By Consent, the Commission reprimanded Mr. Bowens effective January 1, 2017. The Commission found that Mr. Bowens entered into an Exclusive Buyer Agency Agreement with three buyer clients, in which they agreed to compensate Mr. Bowens $1000 for his services; that the Exclusive Buyer Agency Agreement was not for a definite period; that the buyers were Spanish-speakers and Mr. Bowens did not speak Spanish; that on December 29, 2015, buyers submitted an offer to purchase a property, with a due diligence period ending January 8, 2016; that the buyers were unable to obtain financing and the sellers terminated the contract; that Mr. Bowens requested that his buyer clients pay an additional commission based on his fulfillment of his duties, but he was not entitled to additional compensation under the terms of the Exclusive Buyer Agency Agreement; that the buyers did not pay the additional commission demanded.
CRAVEN RANDALL CASPER (Morehead City) – Following a hearing, the Commission permanently revoked the broker license of Mr. Casper effective January 30, 2017. The Commission found that on September 8, 2016, Mr. Casper pleaded guilty to one count of Felony Larceny after Breaking and Entering, one count in each of four cases of Felony Obtaining Property by False Pretenses, one count of Felony Identity Theft in each of six cases, and one count of Felony Larceny; that Mr. Casper was sentenced to a maximum of 25 months of incarceration, given credit for 62 days of confinement prior to his plea and ordered to spend an additional 45 days in jail, after which the remainder of his sentence was suspended and he was placed on supervised probation for 60 months; that Mr. Casper was ordered to pay restitution and court costs totaling $34,560.21; that as a condition of his supervised probation, Respondent was prohibited from engaging in real estate brokerage in the State of North Carolina; that Mr. Casper failed to respond to two Letters of Inquiry sent by Commission staff.
CHARLES H. COOPER, JR. (Fayetteville) – Following a hearing, the Commission permanently revoked the broker license of Mr. Cooper effective January 31, 2017. The Commission found that Mr. Cooper, acting as the broker-in-charge of his sole proprietorship, entered into an Exclusive Property Management Agreement with the owner of a residential property and agreed to hold money in trust as a repair deposit to be used pursuant to an agreement by the owner; that, in fact, Mr. Cooper failed to use the deposit to cover repairs, never accounted for the deposit and that between 2011 and 2015, Mr. Cooper provided the owner with annual financial statements that were inaccurate and misleading; that Mr. Cooper wrote seven checks for trust money from his personal bank account rather than from a trust account; that Mr. Cooper placed a stop payment order on some of the checks; that Mr. Cooper failed to provide any trust account documentation to the Commission investigator after requested to do so; that Mr. Cooper transferred funds from his trust account to his personal accounts and made personal purchases using trust monies; that Mr. Cooper deposited rent checks from tenants into his personal account and wrote rental proceeds disbursement checks to the property owner clients from his personal account.
JAMES E. GRIMES (Spring Lake) – By Consent, the Commission permanently revoked the broker license of Mr. Grimes effective March 15, 2017. The Commission found that Mr. Grimes, acting as broker-in-charge of a sole proprietorship, collected and deposited $21,825.70 on behalf of a single property owner client and failed to deliver said funds to his client; that Mr. Grimes collected $21,703 in cash payments belonging to at least seven additional property owner-clients and failed to deposit said funds into a trust account and converted them to personal use; that Mr. Grimes failed to create and maintain trust account records in accordance with Commission rules and, as a result, his trust account had a significant shortfall.
KEVIN EMANUEL GRULLON (Fayetteville) – By Consent, the Commission reprimanded Mr. Grullon effective April 1, 2017. The Commission found that Mr. Grullon, acting as a dual agent for a new construction residential property, failed to provide a buyer with full and timely disclosure of a $1,500 selling agent bonus.
DESIREE CHARMAINE HILLARD (Charlotte) – By Consent, the Commission revoked the broker license of Ms. Hillard for a period of one year effective February 15, 2017. The Commission found that Ms. Hillard collected a check payable to the firm with which she was affiliated in the amount of $3,780 at the conclusion of a closing on a Friday; that Ms. Hillard took the check to the firm and was told that it could not be processed until Monday; that Ms. Hillard left with the check and on Monday, cashed the check at a check cashing business, and retained the full commission for personal use.
WILLIAM RODNEY HAIRE (Cameron) – The Commission accepted the voluntary surrender of the broker license of Mr. Haire for a period of four years effective February 15, 2017.The Commission dismissed without prejudice allegations that Mr. Haire violated provisions of the Real Estate License Law and Commission rules. Mr. Haire neither admitted nor denied misconduct.
STEFAN ERIC KOMODOWSKI (Asheville) – By Consent, the Commission suspended the broker license of Mr. Komodowski for a period of 28 months effective December 1, 2016. Three months of the suspension were active with the remainder stayed until May 1, 2019. The Commission found that in April 2016, Mr. Komodowski pleaded guilty to felony breaking and entering, felony larceny after breaking and entering, and misdemeanor assault on a female; that Mr. Komodowski was sentenced to 127 days incarceration, six months electronic monitoring, and 36 months supervised probation; and that all of the guilty pleas stemmed from entering a residence that Mr. Komodowski had at one time occupied.
ANDREW B. MIDDLEDITCH (Charlottesville, Virginia) – By Consent, the Commission reprimanded Mr. Middleditch effective March 6, 2017. The Commission found that Mr. Middleditch, on April 27, 2016, entered an Alford plea to one count of felony DUI Manslaughter and one count of misdemeanor DUI 2nd offense within five years in the Circuit Court of Albemarle County, Virginia; that Mr. Middleditch timely reported these criminal convictions to the Commission and to the Virginia Department of Professional and Occupational Regulation; and that Mr. Middleditch is in compliance with all court imposed requirements.
MARC PAPPALARDO (Raleigh) – The Commission accepted the voluntary surrender of the broker license of Mr. Pappalardo for a period of three years effective March 15, 2017. The Commission dismissed without prejudice allegations that Mr. Pappalardo violated provisions of the Real Estate License Law and Commission rules. Mr. Pappalardo neither admitted nor denied misconduct.
KAITLIN CAROL RUSH (Charlotte) – By Consent, the Commission suspended the broker license of Ms. Rush for a period of six months effective January 1, 2017. Three months of the suspension were active with the remainder stayed for a probationary period until June 30, 2017. The Commission found that Ms. Rush acted as the listing agent for a property which was owned by an LLC; that her husband was the only member of the LLC; that Ms. Rush and her husband had made substantial renovations to the property; that a buyer contracted to purchase the property, which was to be sold “as is”; that the property failed a final inspection and a Certificate of Occupancy was not issued; that Ms. Rush was aware that the property had failed the final inspection, but failed to disclose that fact to the buyer prior to closing.
RUSH REALTY LLC (Charlotte) – By Consent, the Commission suspended the firm license of Rush Realty for a period of six months effective January 1, 2017. Three months of the suspension were active with the remainder stayed for a probationary period until June 30, 2017. The Commission found that Rush Realty, through its qualifying broker/ broker-in-charge acted as the listing agent for a property that was owned by an LLC; that the husband of the qualifying broker/broker-in-charge of Rush Realty was the only member of the LLC property owner; that a buyer contracted to purchase the property, which was to be sold “as is”; that the property failed a final inspection and a Certificate of Occupancy was not issued; that Rush Realty aware that the property had failed the final inspection, but failed to disclose that fact to the buyer prior to closing.
ANNETTE N. STEWART (Brevard) – By Consent, the Commission suspended the broker license of Ms. Stewart for a period of 24 months effective December 14, 2016. Two months of the suspension were active with the remainder stayed for 22 months. The Commission found that Ms. Stewart falsely represented to her landlord-client that she only had the executed signature page of a lease from a tenant and failed to deliver the full lease and the pet addendum which were in her possession until after the tenant had taken occupancy; that Ms. Stewart disbursed tenant security deposit funds to the tenant contrary to the written agreement signed by both the landlord and tenant that disbursement would be to the landlord; that an audit of Ms. Stewart’s trust account showed a shortage, deficit spending and a number of violations of Commission trust account rules.
THE REALTY GROUP OF NEW BERN, LLC (New Bern) – The Commission accepted the permanent voluntary surrender of the firm license of The Realty Group of New Bern effective March 15, 2017. The Commission dismissed without prejudice allegations that The Realty Group of New Bern violated provisions of the Real Estate License Law and Commission rules. The Realty Group of New Bern neither admitted nor denied misconduct.
LINDA SUE TURNER (Cornelius) – The Commission accepted the permanent voluntary surrender of the broker license of Ms. Turner effective April 12, 2017. The Commission dismissed without prejudice allegations that Ms. Turner violated provisions of the Real Estate License Law and Commission rules. Ms. Turner neither admitted nor denied misconduct.
SHIRLEY MIDDLETON VANSTORY (Greensboro) – By Consent, the Commission suspended the broker license of Ms. Vanstory for a period of one year effective March 1, 2017. The Commission found that Ms. Vanstory, acting as the broker-in-charge of a sole proprietorship failed to maintain trust account records in compliance with Commission rules; that an audit of Ms. Vanstory’s trust accounts indicated shortages in both her rental and security deposit accounts; that the audit also revealed that Ms. Vanstory improperly paid an employee and purchased office supplies with trust account funds; that Ms. Vanstory failed to provide trust account records to a Commission auditor upon request and failed to return a tenant security deposit or provide the tenant an accounting of its use within 30 days of the termination of the tenancy.
OLEDA WELLS (Whittier) – By Consent, the Commission suspended the broker license of Ms. Wells for 18 months effective March 7, 2017. The Commission then stayed the suspension for a probationary period until September 7, 2018. Ms. Wells is also prohibited from acting as a broker-in-charge for a period of five years. The Commission found that Ms. Wells, acting as the qualifying broker and broker-in-charge of a licensed real estate firm, took over the rental properties from her son after he failed to renew his broker license; that an audit of Ms. Wells’s firm’s trust account revealed that she failed to collect from her son all tenant security deposits and owner reserves for these properties, which caused a shortage of over $40,000 in the account; that Ms. Wells became aware of the shortage and stopped collecting the full amount of management fees owed to the firm in order to decrease the deficit, which caused her personal funds to comingle with entrusted funds; that the audit further discovered that the bank accounts were not designated “trust” or “escrow”, bank reconciliations and ledger trial balances were not performed monthly, and lack of an audit trail. The Commission notes that Ms. Wells has sold all of the firm’s assets to another licensed entity which has agreed to accept the liability and fully fund the trust account.
MICHAEL V. WELSH (Asheville) – By Consent, the Commission suspended the broker license of Mr. Welsh for a period of one year effective February 1, 2017. The Commission found that Mr. Welsh owned a rental property in Boone, North Carolina; that the Town of Boone passed an ordinance prohibiting the owners of single-family residential properties from renting to more than two unrelated persons; that Mr. Welsh rented his property to more than two unrelated tenants and the Town sent Mr. Welsh a Notice of Violation for exceeding the occupancy limit; that, despite knowing about the ordinance, Mr. Welsh again rented his property to four unrelated persons; that when the Town discovered the violation, the tenants were forced to vacate the property before the end of their lease term.
CHRISTA MARIE WILLEY (Arden) – By Consent, the Commission suspended the broker license of Ms. Willey for a period of three years effective June 7, 2017. The Commission then stayed the suspension for a probationary period until June 7, 2020. The Commission found that Ms. Willey, acting as the qualifying broker and broker-in-charge of a real estate brokerage firm, failed to disburse rental proceeds to landlord-clients in a timely manner; that Ms. Willey failed to provide transaction records or ledgers when requested by the Commission representative; that Ms. Willey admitted that she failed to perform reconciliations as required and a trust account inspection of subpoenaed bank documents showed evidence of shortages, and trust accounts not maintained in full compliance of Commission rules; that Ms. Willey has hired an accountant and provided evidence that her trust account is fully funded and being maintained in compliance with Commission rules.
WNC MOUNTAIN PROPERTIES LLC (Arden) – By Consent, the Commission suspended the firm license of WNC Mountain Properties for a period of three years effective June 7, 2017. The Commission then stayed the suspension for a probationary period until June 7, 2020. The Commission found that WNC Mountain Properties, a licensed real estate brokerage firm, failed to disburse rental proceeds to landlord-clients in a timely manner; that WNC Mountain Properties failed to provide transaction records or ledgers when requested by the Commission representative; that WNC Mountain Properties failed to perform reconciliations as required and a trust account inspection of subpoenaed bank documents showed evidence of shortages, and trust accounts not maintained in full compliance of Commission rules; that WNC Mountain Properties has hired an accountant and provided evidence that its trust account is fully funded and being maintained in compliance with Commission rules.
ZOLA ENTERPRISES LLC D/B/A FLAT RATE REALTY SMOKY MOUNTAINS (Whittier) – By Consent, the Commission revoked the firm license of Zola Enterprises LLC effective February 15, 2017. The Commission found that Zola Enterprises took over the rental properties from the son of its qualifying broker and broker-in-charge after the son failed to renew his broker license; that an audit of the firm’s trust account revealed that the firm failed to collect from the son all tenant security deposits and owner reserves for these properties, which caused a shortage of over $40,000 in the account; that the broker-in-charge of the firm became aware of the shortage and stopped collecting the full amount of management fees owed to the firm in order to decrease the deficit, which caused the personal funds of the broker-in-charge to commingle with entrusted funds; that the audit further discovered that the bank accounts were not designated “trust” or “escrow”, bank reconciliations and ledger trial balances were not performed monthly, and lack of an audit trail. The Commission notes that the firm has sold all of its assets to another licensed entity which has agreed to accept the liability and fully fund the trust account.
This article came from the May 2017-Vol48-1 edition of the bulletin.
At its December 14, 2016 meeting, the Commission approved a payment totaling $3,100 out of the Real Estate Education and Recovery Fund to one applicant who suffered financial loss due to the misconduct of Alicia A. Christian.
By Consent, the Commission ordered permanent revocation of the real estate license of Ms. Christian effective October 15, 2014.
At its October 13, 2016 meeting, the Commission approved payments of $46,006.89 to six applicants who suffered financial losses due to the misconduct of Rebecca L. Niemchak.
The Commission, following a hearing, ordered the permanent revocation of the broker license of Rebecca L. Niemchak effective October 24, 2014.
At its May 5, 2016 meeting, the Commission approved payments of $75,000 to 17 applicants who suffered financial losses due to the misconduct of Cheryl B. Wilkins.
By Consent, the Commission ordered the permanent revocation of the broker license of Cheryl B. Wilkins effective November 12, 2014.
This article came from the February 2017-Vol47-3 edition of the bulletin.
Real estate brokers involved in the purchase or sale of property near the NC/SC state line should advise their clients to get a survey, or at least some professional location of their property in relation to the state line, if there is any question at all about whether the property has been affected by the re-survey.
Anyone involved with properties affected by the re-survey should be sure to discuss title issues and the necessary certifications of title in detail with professionals who are knowledgeable about the many legal issues involved in these titles, whether the property is now all in North Carolina or is still partially in South Carolina, or vice versa.
Planning for transactions involving affected properties should take place much farther in advance than usual, as such transactions may require dual title examinations, dual recordings, potential delays and very importantly may affect TRID disclosures.
This article came from the February 2017-Vol47-3 edition of the bulletin.
By Will Martin, NC REALTORS® Legal Counsel
NOTE: Much of the following information has been taken from a memo from the Real Property Section of the NC Bar Association and the NC Land Title Association. The full memo is available on the Bar Association’s website and may be viewed at http://www.ncbar.org/media/727134/nc_sc_boundarymemonovember2016.pdf.
In 1995, North and South Carolina created a Joint Boundary Commission to research and tweak the 334-mile border between them. The original border was established in the 1700s, but over many decades, the landmarks for the original boundary have disappeared or become corrupted. What people thought was the state line in some counties wasn’t the actual state line. People have developed, conveyed and improved properties based on an erroneous assumption of the location of the legal boundary.
After 20 years of negotiations, surveys, and research, the governments of the two states reached an agreement about where the state border lies. The boundary has been re-surveyed based on historical monumentation and research back to original colonial records. Effective January 1, 2017, some parcels (or portions of larger tracts) previously believed to be in South Carolina are now confirmed to be in North Carolina, and vice versa.
The re-survey could affect properties in any of the counties along the NC/SC boundary from Polk County east (including a portion of Polk County). Although some counties may not have very many properties that show the line incorrectly, a case-by-case determination will need to be made by an attorney reviewing a property’s title.
A “Notice of Affected Parcel” based on taxpayer listings has or will be recorded in the office of the Register of Deeds of each county, along with the re-survey maps. The Notice should contain certain information concerning each parcel potentially affected by the boundary certification, including the following:
The recording reference for the final survey of the confirmed boundary.
The names of the record owners of the affected parcel.
The property address of the affected parcel.
A tax parcel identification number or other applicable identifier for the affected parcel used by a county tax office, if available.
A brief description of the affected parcel, if available.
The Notice should be indexed in the names of all record owners of the affected parcels (or at least the names of the taxpayers identified in the county’s property tax rolls).
Information regarding the surveys is available on-line at the office of the North Carolina Geodetic Survey at http://www.ncgs.state.nc.us/Pages/County-and-State-Boundaries.aspx. These surveys do not indicate owners or tracts. They only show the location of the monuments of the border found. Surveyors will have access to these surveys to be able to identify them on the ground when they do a survey.
This article came from the February 2017-Vol47-3 edition of the bulletin.
Property management, radon, and protecting confidential consumer information are among the topics for the General Update Course (GENUP) and the Broker-in-Charge Update Course (BICUP) for the 2017-2018 license year beginning July 1.
GENUP
Property Management – changes in the Vacation Rental Act and the Landlord/Tenant statutes; HUD guidelines concerning use of criminal records in leasing; duties of a broker/owner (“unintended property manager”); and surcharges paid to brokers on service/repairs.
Radon – in conjunction with the North Carolina Radon Program of the Department of Health and Human Services (DHHS).
Protecting Confidential Consumer Information – broker’s duty to protect client/consumer confidential information; identity theft; scam alerts; use of email; Craig’s List; etc.
License Law and Rule Updates – application and reinstatement fee increases and rules relating to registering assumed names and delivery of instruments, and Consumer Finance Protection Bureau updates including the release of closing disclosures to brokers.
BICUP
All GENUP topics plus three-way trust account reconciliation, BIC duty to supervise, and breaking issues and updates.
This article came from the February 2017-Vol47-3 edition of the bulletin.
By Janet B. Thoren, Legal Counsel
Diligent property managers often run criminal background checks on prospective tenants before allowing them to lease a landlord’s property. In April 2016, HUD issued guidance on how the Fair Housing Act (“the Act”) impacts the use of such a background check by all providers of housing, including property managers. When designing a process for screening tenants, it is important for brokers to consider this guidance and how the use of such background checks might violate fair housing laws.
Before getting into the HUD guidelines, there are a few terms brokers should recognize and understand. The Act includes the following seven protected classes: race, color, religion, national origin, sex, disability, and familial status. A landlord or property manager may not discriminate against anyone in one or more of the protected classes. Another term, “disparate impact”, is often used in housing discrimination cases and refers to a policy or practice that is neutral on its face, but its application actually has a discriminatory impact on a protected class.
The use of a criminal background check as part of a tenant screening process seems to be a neutral process as long as it is required of all potential tenants, not just certain ones selected by the landlord or property manager. However, HUD has determined that due to higher than average incarceration rates among certain races relative to their percentage of the total population, and when compared to incarceration rates of other races, the use of criminal background checks to deny housing may actually cause a disparate impact on certain races and therefore be discriminatory.
What does all of this mean for a landlord or property manager? First, criminal background checks should only be used for a non-discriminatory business objective, and there cannot be an alternative to the background check that is less discriminatory. There should be some evidence that the background checks actually accomplish the goal. Does a refusal to rent to individuals with criminal convictions actually mean fewer criminal acts or property destruction in the properties being managed? A blanket prohibition against anyone with any type criminal record likely would not survive a charge of discrimination. There are a couple of exceptions. The Fair Housing Act specifically states that landlords do not have to make housing available to persons with convictions for the manufacture or distribution of controlled substances. Just remember, though, other drug-related convictions are not specifically exempt from fair housing requirements. In addition, project-based HUD subsidized properties must prohibit anyone subject to a lifetime registration requirement under a state government sex offender registration program.
For anything outside the exceptions, HUD suggests that landlords and property managers should consider the following factors when using criminal background checks for prospective tenants:
Do not consider charges or arrests that did not result in conviction. Arrest records should not be used as a basis for denying an applicant for housing. Such a record does not indicate that the applicant actually engaged in any criminal activity. Remember – innocent until proven guilty.
Do not have a blanket policy against renting to anyone with any type of criminal conviction. Explain to landlord-clients the dangers of such a policy and advise them to use a more tailored approach.
Consider the type of conviction. Look at the nature and severity of each conviction. A shoplifting conviction should not carry the same weight in a housing decision as a conviction for distributing cocaine. While fishing without a license is not good, an applicant participating in that type of activity will likely be a lesser risk to residents and property than someone selling drugs, which often brings more dangerous people and illegal drugs into the neighborhood.
Consider the timing of the conviction. How long ago did the event happen and how long ago was the conviction? Research tends to show that the likelihood that a person with a prior criminal conviction will commit another offense decreases over time. HUD offers no insight into how long might be a reasonable period to consider, so consider a reasonable amount of time that you feel you can defend if challenged.
Consider each offense individually. Create an assessment plan that is fair and takes into account mitigating factors such as the surrounding events, the age of the individual at the time, rehabilitation efforts, and the rental history of the individual. In other words, each instance should be reviewed on a case-by-case basis and narrowly tailor any refusals.
As a property manager, you have a duty to discuss these issues with your landlord clients and create a program that will help keep you and your clients out of trouble and will allow all housing applicants fair access to available housing. To see the HUD guidelines in full, use the link below.
https://portal.hud.gov/hudportal/documents/huddoc?id=HUD_OGCGuidAppFHAStandCR.pdf
This article came from the February 2017-Vol47-3 edition of the bulletin.
By Sarah E. Herman, Consumer Protection Officer
A pest control company solicits real estate brokers to join what they refer to as a “Preferred Broker Program.” Among other listed benefits of becoming a Preferred Broker, the company offers all broker participants quarterly pest control services at their personal homes at no charge. In order to receive the free pest control, the broker must refer their buyer clients to the pest control company for the completion of lender-required pest inspections.
The question posed to the Commission’s legal staff was whether this type of program is in violation of the Real Estate Settlement Procedures Act (RESPA). RESPA prohibits kickbacks and unearned fees in any real estate transaction involving a federally related mortgage loan. The kickback provision is generally referred to as RESPA’s “Section 8.”
Section 8 prohibits anyone, including real estate brokers, from “…accept[ing] any fee, kickback, or thing of value…” as “…part of, a real estate settlement service involving a federally related mortgage loan…” 12 U.S. Code Chapter 27 § 2607(a).
A “thing of value” is any payment, advance, funds, loan, service, or other consideration with more than nominal value.
“RESPA also defines the term “Settlement service” as any service provided in connection with a real estate settlement for which the buyer or seller will pay. These services include, but are not limited to, the following:
When a lender requires a buyer to have a pest inspection as part of the loan qualification process, the inspection is considered a settlement service. On the other hand, if a seller independently chooses to have a pest inspection as part of the listing process, and pays for that service separately from the settlement process, it is not related to the real estate settlement and is not considered a settlement service.
If a broker receives a quarterly pest control from the pest control company at no cost, a service that would typically have an associated cost, they have received a “thing of value.” And if that broker receives that thing of value for referring a client to the pest control company to do a lender-required pest inspection, there is very likely a RESPA violation.
Even if the broker is referring a client to the pest control company for services unrelated to a closing and there is no apparent problem with RESPA, the broker must fully disclose their arrangement with the pest control company to their client per Commission Rule A .0109.
As you can see from the example above, whether a referral is prohibited under RESPA depends greatly on the specific transaction. If you are confronted with a business referral program, use the following fill-in-the-blank sentence as a test to determine whether the program may be in violation of RESPA: As part of this program, I will receive _________, which will enrich or benefit me or my firm, in exchange for referring clients to _________ for services related to a real estate settlement. If you can fill in these blanks, the safest course is to consider the program a no-go.
This article came from the February 2017-Vol47-3 edition of the bulletin.
By Marcia M. Waldron, Auditor/Investigator
If you keep any funds related to a real estate transaction, an easy way to make some peace in your life is to reconcile your trust account records on a monthly basis.
While many see this as a daunting task, once the process is set up and completed properly, it does not need to be difficult or time consuming. However, reconciling does need to be a priority. There are so many seemingly mundane tasks in our life that, if ignored, lead to large and costly problems. If you don’t brush your teeth, you have pain and costly dental bills (or worse); if you don’t service your car, the repairs can be astronomical; if you don’t balance (reconcile) your Trust Account on a regular basis, the result can be missing client/tenant funds, the loss of your real estate license, and even criminal charges.
So begin with the basics: Step 1 is to reconcile your bank statement to your Trust Account or your ‘Books’; this might be your general ledger cash account, your trust account journal, a check register, or even your checkbook for your trust account. Stated simply, you are resolving differences between the bank and your Books: errors (yours or the bank’s), bank charges or interest earned, and timing differences. To minimize timing differences, always use the bank statement ending date, ideally, the last day of the month, as your cut-off date for your Books. This is the same process used to balance a personal checkbook.
Always begin the process by marking (or ‘ticking’) each cleared item either by hand or using software. You can’t skip this first step of checking each matching item on your Books and each matching item on your bank statement. All unticked entries are your adjustments (i.e., your reconciling items). Post interest earned, bank charges, and other reconciling items to your Books, then adjust the bank statement balance for bank errors (if any). If all reconciling items haves been addressed (and your beginning bank balance was reconciled to the Books), this formula will be correct:
Ending Bank Balance + Deposits in Transit – Outstanding Checks = Your Book Balance.
Once the bank statement has been reconciled to the Books, you are ready for step 2, which is balancing the reconciled figures from Step 1 to the Property Trial Balance (this is your client liability balance). The Property Trial Balance itemizes whose funds you are holding; that is, the monies being held in trust belonging to other people. It is an accounting of every dollar in the Trust Account by the tenant or client; this is a critical report since every dollar held in a Trust Account needs to be identifiable by owner. The Property Trial Balance is created by listing of each of your property (or owner) ledgers and their month-end balance (assuming month-end is the cut-off).
As long as reconciliations are being performed monthly, it will be only the current month’s transactions (or prior period adjustments, if any) that need to be reviewed to locate discrepancies. If reconciliations have not been performed in the past, the first reconciliation could be a long process, but it is essential to have this reconciliation on file (as required by Real Estate Commission Rule A.0117 (e)).
If you want an easier – or even seamless – reconciliation, improve the record keeping. Think of bank reconciliation as a monthly report card on the state of your accounting records. With the possible exception of credit card processing fee issues or large high volume firms, if your bank reconciliation process is difficult, chances are good that improvements are needed in your accounting.
Key Points
The Commission offers a Basic Trust Account Procedures Course multiple times throughout the year; go to www.ncrec.gov to view the class schedule and register online.
This article came from the February 2017-Vol47-3 edition of the bulletin.