Few processes in the practice of real estate brokerage are more important for a broker to understand than those relating to negotiating contract offer and acceptance. While many considerations arise between buyers and sellers during negotiations, three deserve special attention:
• Knowing when a legally binding contract between a buyer and a seller has been formed;
• Clear communication by each party to the contract throughout the period of negotiation;
• Timely and complete notice of acceptance when all parties have reached agreement.
Know When Contract is Binding
Buyers and sellers rely upon brokers to guide them through offers and counter-offers of price and terms, to know the difference between potentially binding and non-binding proposals, and to inform them when a contractual relationship has been established.
Consider this example illustrating the difference between a non-binding proposal and a potentially binding offer or counter-offer:
The listing agent, having received and presented an offer to the sellers, sends an email to the buyer agent stating, “My clients have reviewed your buyers’ offer and they are unable to accept it. However, they would accept an offer of $225,000 with the same terms in your clients’ original offer.”
A few hours later the buyer agent sends an email back stating, “I spoke with my buyers and they will pay the $225,000 your clients are looking for; we have a deal. I will have the amended paperwork to you first thing tomorrow.”
The buyer agent tells the clients that they “have a deal” and the next morning emails the amended offer signed by the buyers to the listing agent. Later that day, another email arrives from the listing agent:
“My sellers have received a second offer, so we are now in a multiple-offer situation. My clients are asking the buyers to submit their highest-and-best offer.”
The buyer agent emails the listing agent stating the belief the buyers are “under contract” (they are not) and the buyers expect the sellers to honor the deal. The listing agent advises the sellers that they are free to consider another offer (which they are) and the sellers subsequently accept the offer of the second buyer.
Clear Communication
Here the buyer agent mistakenly believes that because the necessary terms for a contract were in writing between the brokers, a binding contract was formed. It is important to understand that “negotiations” between the brokers, even those in writing, will generally not bind their clients to a contract since brokers do not generally possess the necessary power or authority. (This may not be the case when the buyer and seller negotiate in writing, as a binding contract can then be formed).
Also, in this example, clarity in both oral and written communications is vitally important for a broker. When you as a broker propose possible terms on your client’s behalf, use language to signal that it is a non-binding proposal: “The seller will consider an offer of $225,000 upon the same terms,” or simply “This is a non-binding proposal.”
Although emails between brokers regarding contract terms should never be interpreted as a binding agreement between the principals, avoiding ambiguity is in everyone’s best interest. Brokers should always advise clients that contracts are not binding unless accepted and signed by all the parties, with any changes initialed and approved by all parties.
Notice of Acceptance
Finally, in the example, there was no clear notice of acceptance. This is the final step in forming a binding contract, and can be made orally or in writing. It is the notice given to the offeror that the offeree has signed and accepted the offer, and a binding contract has been formed. It does not mean that a broker is accepting on their client’s behalf.
When a broker gives notice of acceptance, he or she is communicating that the seller has signed and accepted the buyer’s last offer as written (without any changes to the terms) and the parties are under contract. A broker simply stating “we have a deal” does not, by itself, create a contract. The broker giving notice of acceptance should always be clear as to whether or not the contract in the possession of the seller is signed and the broker receiving notice of acceptance should always ask.
Brokers often raise the issue of whether it is ethical for a seller (or buyer) to consider other offers when they have made a “commitment” to a buyer (or seller). Until a binding, written contract is formed, the parties are free to consider other options.
This article came from the Feburary 2013-Vol43-3 edition of the bulletin.
The following article is copyrighted by and reprinted with the permission of the National Association of REALTORS®.
The crime of money laundering continues to be a growing area of concern in the United States. Therefore, law enforcement agencies and the financial sector devote considerable time and resources to combatting these illegal financial activities. However, many non-financial businesses and professions are also vulnerable to potential money laundering schemes.
Real estate professionals are a category of the non-financial business sector that may encounter persons engaging in money laundering activities. The purpose of this fact sheet and suggested voluntary guidelines is to increase real estate professionals’ awareness, knowledge, and understanding of the potential money laundering risks surrounding real estate and enable them to identify practical measures to mitigate the risks.
What is Money Laundering?
Money laundering is the process criminals use to disguise the illegal origin of their funds. Certain criminal activities generate substantial proceeds. Legitimizing, or “laundering” this money through the financial system, is a critical component for criminals to hide their activities and not draw attention to their illegally derived proceeds.
The actual process of money laundering is a three step process that is initiated by introducing the illegal proceeds into the financial system, e.g., breaking up large amounts into small deposits or by purchasing financial instruments, such as money orders, which is referred to as placement. This is typically followed by distancing the illegal proceeds from the source of the funds through layers of financial transactions, referred to as layering, and finally by returning the illegally derived proceeds to the criminal from what appears to be a legitimate source, known as integration.
A real estate transaction can be used in any one of the three stages of money laundering. For example, if an individual purchases a home and uses illegal funds as part of the down payment, this would be considered integration.
Generally speaking, most money laundering activities are concentrated in the financial sectors. Therefore, banks and other financial institutions are subject to anti-money laundering/counter-terrorist financing (AML) laws and regulations, primarily the Bank Secrecy Act (BSA), and have safeguards in place to help detect and mitigate money laundering activity. But other industries, such as real estate, can also be exposed to questionable business practices and be utilized as a vehicle for money laundering activities.
The Role of Real Estate Agents
As a general matter, the real estate agent’s AML risk is substantially mitigated by the fact that the great majority of real estate transactions involve regulated entities such as banks and non-bank mortgage companies, which have BSA obligations. However, when a transaction steps outside the norm or in cases where certain risk factors are present, as detailed below, a real estate agent faces an elevated chance of encountering a possible money-laundering scheme and should consider taking measures to address the risk.
As a real estate professional, knowledge of how real estate transactions normally progress and the resulting ability to recognize and evaluate whether variances from the norm may signify an enhanced AML risk is an important way real estate agents can help to mitigate AML risk in real estate transactions. This requires brokers and agents to be aware of how real estate transactions may be used in illegal financing schemes and what steps should be taken to detect and deter those activities.
Being familiar with the signs of money laundering activity in the real estate market will help real estate agents to:
1. Identify potential money laundering activities;
2. Take appropriate steps to mitigate the money laundering risk; and
3. If necessary, alert the proper authorities to help deter and mitigate the use of real estate in money laundering schemes.
Guidelines
Law enforcement and financial experts have identified some of the warning signs of money laundering activity in connection with real estate. By familiarizing oneself with these voluntary guidelines, real estate agents can assist and help minimize the risk of real estate becoming a vehicle for money laundering activities.
Know Your Business
Every broker and agent should be aware of certain characteristics of a real estate transaction that may be indicative of illegal financing activities. A real estate agent’s familiarity with the normal course of business will help them to identify any unusual or suspicious patterns. Law enforcement, regulators and the international community have identified multiple money laundering risk factors. In general, these risk factors (red flags) can be grouped in the three categories: country/geographic, customer, and transaction risk.
Geographic Risk:
Geographic risk may arise because the customer and/or the source of the customer’s funds are located in a jurisdiction that has a weak AML regime, supports or funds terrorism, or has a high degree of political corruption. Although there is no definitive list of such jurisdictions, one good source is the list of jurisdictions subject to sanctions of the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.
OFAC-administered sanctions can be either comprehensive or selective, and generally restrict or prohibit dealings (including business and financial activities) by U.S. persons or in the United States that involve countries (or persons) subject to OFAC sanctions. Countries subject to comprehensive OFAC sanctions include Iran, Cuba, and Syria. The names of individuals, groups, and entities subject to OFAC sanctions are generally listed on OFAC’s List of Specially Designated Nationals and Blocked Persons.
Customer Risk
Location of property in relation to the buyer.
Is there a large unexplained geographic distance between the two?
Unusual involvement of third parties.
Titling a residential property in the name of third party; for example, a friend, relative, business associate, or lawyer. Use of legal entities (corporations, LLCs or partnerships) that obscure the identity of the person who owns or controls them without a legitimate business explanation.
High-ranking foreign political officials or their family members.
Transaction Risk
Under or over-valued properties.
For example, is the property owner selling the property for significantly less than the purchase price?
Does the seller seem disinterested in obtaining a better price?
Use of large amounts of cash.
Buyer brings actual cash to the closing.
The purchase of a property without a mortgage, where it does not match the characteristics of the buyer.
While rules and regulations governing the financial sector are designed to detect situations where large amounts of cash are being introduced, real estate agents should keep this factor in mind when evaluating whether a transaction seems suspicious.
Property purchases inconsistent with the individual’s occupation or income.
Is the property being purchased significantly beyond the purchaser’s means?
Immediate resale of the property.
Especially if the sale entails a significant increase or decrease in the price compared to the prior purchase price, without a reasonable explanation.
Speed of transaction (without reasonable explanation).
Unusual source of funding.
Example: use of third-party funds to purchase a property where it doesn’t make sense, i.e. third-party is not a parent, sibling, etc., use [of] several different sources of funds without logical explanation, funding coming from a business but property not being held in business’ name, or purchase of property doesn’t match the business’ purpose.
Purchases being made without viewing the property, no interest in the characteristics of the property.
Any other activities which demonstrate suspicious behavior and do not make professional or commercial sense based on the agent’s familiarity with the real estate industry and the normal course of business.
What Real Estate Professionals
Can Do to Mitigate Risk
The presence of a single risk factor, or even multiple factors, does not necessarily mean the purchaser or seller is engaging in money laundering activities. The role of real estate agents is to be familiar with these risk factors, and exercise sound judgment based on their knowledge of the real estate industry, and when a combination of these factors truly raises a red flag, know the proper action to take.
Know Your Customer/Customer Due Diligence (CDD)
This is a critical component of the role real estate professionals can play in helping to identify and combat money laundering. Knowing an agent’s true customer and understanding their interest and planned use for a property will help agents evaluate a situation where one or more red flags are raised.
The process by which the real estate agent forms a reasonable belief that he/she knows the true identity customer and is then able to assess AML risk, is commonly referred to as know-your-customer or customer due diligence (CDD). In cases where red flags are present, the agent should apply increased levels of CDD, which could include the following:
Obtain additional information, a driver’s license, passport or other reliable identification document, to confirm the true identity of the customer.
If a legal entity is involved, such as a corporation or LLC, take additional measures to identify who actually controls or owns the entity and take risk based measures to verify the identity of the owner. This is commonly referred to as beneficial ownership information.
Obtain other appropriate information based on the agent’s experience and knowledge to understand the customer’s circumstances and business.
In addition, depending on the size of the firm, it may be appropriate for the agent to notify and discuss with senior management the higher risk customer or a particular situation that raises red flags, and to monitor the relationship if there are a series of transactions with the customer.
Reporting Suspicious Activity
When confronted with suspicious activity, real estate agents always have the option of reporting the information to local law enforcement or the FBI.
In addition, agents may also consider filing a suspicious activity report, or SAR, which is reported to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). SARs are primarily designed for use by financial institutions and are a significant tool for enforcement agencies to combat money laundering. Real estate professionals are not required to file a SAR, but should be aware of the availability of this tool to the extent that they have reasonable suspicion that a transaction may be a vehicle for illegal financing activity.
The electronic SAR form is available at: http://bsaefiling.fincen.treas.gov/main.html.
For further information or assistance regarding how to file a SAR, real estate professionals may call FinCEN’s Regulatory Helpline 1-800-949-2732.
It is important to note that while the Bank Secrecy Act contains a safe harbor shielding financial institutions from civil liability in connection with the filing of a SAR, there is no precedent to suggest that the safe harbor would extend beyond financial institutions to real estate professionals. Therefore, a real estate agent should be prudent and file a suspicious activity report only after thoroughly evaluating the circumstances surrounding the suspicious activity, and additionally should consider consulting an attorney on the matter prior to filing a SAR. Otherwise, a real estate agent could subject themselves to civil liability as a result.
Form 8300
A Form 8300 must be filed by a business that receives more than $10,000 in cash in the course of a single transaction or two or more related transactions. It is not a SAR and is not used to report suspicious activity. Form 8300 is an information report that is required to be filed by any trade or business (such as a car or boat dealer) that receives in excess of $10,000 in cash in a single transaction. Therefore, if for any reason a real estate agent or broker receives more than $10,000 in cash from a buyer or seller in the course of a real estate transaction, the form must be filled out and filed, and can be found at http://www.irs.gov/pub/irs-pdf/f8300.pdf.
Cash, for purposes of this requirement, includes cash equivalents such as cashier’s checks, bank drafts, money orders. If the cash equivalent instrument is for more than $10,000, the transaction will be reported by the issuing bank, and the agent does not need to also file a Form 8300. If, however, an agent receives a cashier’s check or other cash equivalent of less than $10,000, but which in combination with other cash or cash equivalents totals more than $10,000, a Form 8300 must be filed.
Conclusion
While the illicit finance risk for real estate agents is often mitigated by the involvement of financial institutions already subject to strict AML laws, the use of real estate in money laundering schemes continues to be an area of concern to the government. Adherence to these voluntary guidelines will help the real estate agent identify potential money laundering risks. These voluntary guidelines will also help real estate agents be effective partners with enforcement agencies in detecting and addressing the use of real estate in illegal financing activities.
This article came from the Feburary 2013-Vol43-3 edition of the bulletin.
Two recently issued documents from the North Carolina Department of Justice (DOJ) relating to oil and gas leases merit the attention of real estate brokers as they conduct business at a time of substantially increasing interest in oil and gas leasing in the state.
The documents are available on the Home page of the Commission’s Web site, www.ncrec.gov, and inform landowners of their rights and summarize public protections in the Law.
Last year, the General Assembly passed the Clean Energy and Economic Security Act which legalizes fracking and horizontal drilling (see “Fracking: What Every Agent Needs to Know” in the Real Estate Bulletin, October 2012) and establishes the North Carolina Mining and Energy Commission. The Act prohibits drilling until the Commission establishes rules for fracking (to be in place by October 1, 2014), requires companies to obtain drilling permits from the NC Department of Environment and Natural Resources (DENR), and requires General Assembly approval before DENR can issue permits.
In the meantime, landowners with property in locations deemed more likely to contain oil and gas deposits will be confronted with solicitations to lease rights to companies to extract these deposits from the properties. These leases are complex legal documents and DOJ advises contacting an attorney with expertise in real estate law.
Brokers should read the DOJ documents to understand the issues facing owners and, when representing buyers or sellers, to be better able to fully disclose any material facts affecting value and title and to advise customers and clients about obtaining advice from attorneys who specialize in real estate law.
In “Landowners’ Rights”, DOJ offers tips when considering leasing for oil or gas exploration. These include:
• contacting the mortgage lender, conservation easement holder, or Farm Service Agency office
• checking out the salesman (landman) soliciting a lease
• researching the salesman’s company
• knowing the risks to your land and water supply
• making sure your payment is reasonable and it covers damages and costs
• talking with your neighbors, get all promises in writing, get a copy of your lease and your legal protections
• not being pressured to sign and know your right to cancel
• knowing where to turn for help
In “Summary of Landowner and Public Protections Under the Law”, DOJ provides discussion of the following nine key points:
• Notice and entry to property
• Water supply and water contamination
• Surface activities and compensation for damages
• Indemnification
• Reclamation
• Actions for damages
• Landman registry
• Required lease terms
Additional provisions include recording, assignment, and, very important for brokers to know, mandatory disclosure of mineral rights with real estate sales.
This article came from the Feburary 2013-Vol43-3 edition of the bulletin.
The 2013-2014 North Carolina Real Estate Manual is now available for purchase. It is the definitive work on the legal aspects of real estate brokerage in North Carolina and essential for any practicing real estate broker.
Published in late December, the volume serves as the mandatory textbook for the three 30-hour postlicensing courses. It is widely used as a reference book for attorneys, instructors and anyone interested in real estate law and brokerage practice.
The 1,021-page Manual is available as a printed book, on CD-ROM disks, and as a subscription to the files on the Commission’s Web site, www.ncrec.gov. The link to order a subscription can be found on the Home page of the Web site.
Orders for books and CD’s should be made through the online or mail-in order forms on the Web site publications page. An order form for mailing or faxing is available in every issue of the Real Estate Bulletin.
The printed Manual is priced at $49 for a single copy and $44 for additional copies on the same order. The CD-ROM and subscription are $20 each. Prices include shipping, handling and sales tax where applicable.
In the updated Manual, the most significant revisions relate to the new state law and Commission rules that permit brokers other than provisional brokers to perform a broker price opinion (BPO) or comparative market analysis (CMA) for a fee. Other revisions address significant changes to the standard offer to purchase and contract form, the Residential Property and Owners’ Association Disclosure Statement, the Dodd-Frank Wall Street and Consumer Protection Act and various other laws and rules, as well as the general updating of information and forms.
This article came from the Feburary 2013-Vol43-3 edition of the bulletin.
Laura B. Bromhal of Raleigh and Walter (Walt) F. Crayton, Jr. of New Bern have been appointed to the Commission by former Governor Beverly E. Perdue, it was announced by Miriam J. Baer, Executive Director.
Benjamin Cone III, Commission Chairman and a Commission member since 2007, has been reappointed by Perdue for the term ending July 31, 2013.
Bromhal is a listing and sales REALTOR® with Prudential York Simpson Underwood Realty in Raleigh, with whom she has been associated for more than twenty years. She succeeds M. Rick Watts of Fayetteville for the term ending July 31, 2013.
Crayton succeeds former Vice Chairman Alice L. Mosteller of Waynesville for a three-year term ending July 31, 2015.
Bromhal, a native of Roanoke Rapids, is a graduate of Meredith College and, as an alumnus, has served on the Meredith College Advisory Committee. She is a past president of the Wake County Bar Auxiliary and is a sustaining member and past director of the Junior League of Raleigh.
Bromhal is active in the arts and civic affairs and has participated in the work of numerous area organizations including the North Carolina Museum of History, North Carolina Arts Museum, Mordecai Historic Society, Executive Mansion, The Opera Company of North Carolina, North Carolina Symphony, Raleigh Chamber of Commerce, YWCA, United Way and the SPCA.
As a member of a family with a long heritage in North Carolina, she is actively involved with the Colonial Dames of Raleigh, First Families of North Carolina, Daughters of Colonial Wars, Jamestown Society, Daughters of the American Revolution, the Crepe Myrtle Society, and the Sovereign Colonial Society Americans of Royal Descent.
Crayton is the president and owner of Crayton Commercial, LLC, which specializes in retail shopping center development, re-development, leasing and management throughout the southeastern United States. He also is a licensed real estate broker in both North and South Carolina and broker-in-charge of his company.
Prior to establishing Crayton Commercial, Crayton worked in the retail leasing and shopping center development field in Charlotte, and is an Official Member of the International Council of Shopping Centers.
Crayton is a 2004 graduate of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill with a BS in Business Administration and a Life Member of the UNC Alumni Association. He is an Eagle Scout, Life Member of the National Eagle Scout Association, a member of the New Bern Noon Rotary, and a member of Centenary United Methodist Church and its finance committee.
This article came from the Feburary 2013-Vol43-3 edition of the bulletin.
The North Carolina Real Estate Commission monitors applicant performance on the license examination and regularly reports this information to schools and instructors. In particular, the Commission uses information about the performance of applicants who are taking the licensing examination for the first time in order to assure that quality instruction is being provided in prelicensing courses by schools and instructors. The most recent performance record for each school can be found on the Commission’s website at: http://www.ncrec.gov/pdf/schools/LicExamPerfRep.pdf.
The overall examination performance for all first-time candidates on the real estate examination for the eight-month period July 1, 2011 through February 29, 2012 was 75%. The Commission would like to congratulate each of the following schools and instructors (with six or more students tested) for achieving an outstanding examination performance record of 85% or higher during the eight-month period immediately preceding implementation of the new two-part license examination. The Commission recognizes that to have students perform at such a level on the license examination requires a combination of high quality instruction and high course completion standards.
School
Allen Tate School of Real Estate, Charlotte/Raleigh; Central Piedmont Community College, Charlotte/Matthews/Huntersville; Coastal Carolina Real Estate Academy, Wilmington; Cumbie and Trull School of Real Estate, Asheville; Elliot Real Estate Academy, Greensboro; Mingle School of Real Estate, Charlotte/Cornelius; North Carolina Academy of Real Estate LLC, Nags Head; Southwestern Community College, Sylva; Superior School of Real Estate, Charlotte/Concord/Cornelius/Greensboro/Morrisville//Pineville; Terry Farr Real Estate School, Fayetteville; Triad Real Estate School, Greensboro/Winston-Salem.
Instructor
Oscar M. Agurs, Charlotte; Gammel D. Bates, Jr., Winston-Salem; Pascal S. Camak, Pine Knoll Shores; Cheryl C. Crawford, Mooresville; Barbara L. Crites, Kill Devil Hills; Terry E. Farr, Sr., Fayetteville; Victoria B. Ferneyhough, Raleigh; William H. Gallagher, II, Charlotte; Corean E. Hamlin, Asheville; Robert N, Holt, Franklin; Carolyn C. Lambert, Charlotte; Teri J. Minnis, Wilmington; Joseph D. Moore, Jr., Greensboro; Rashad I. Phillips, Charlotte; Dana S. Rhodes, Charlotte; Lynda Sargent, Wake Forest; Tim R. Terry, Charlotte; William J. Trull Jr., Asheville; Terry M. Wilson, Davidson; Ben Wirtz, Iron Station.
This article came from the October 2012-Vol43-2 edition of the bulletin.
Following is a summary of changes to the Real Estate License Law and Commision rules during 2012:
Commission Rules
Residential Property Disclosure Form. The form has been modified for easier completion by users. (See the article in this issue of the Bulletin, beginning on page 1).
(Temporary Rules) Broker Price Opinions/Comparative Market Analyses. Non-provisional brokers may now prepare broker price opinions for fees.(See the article in this Bulletin beginning on page 1).
Real Estate License Law
Broker Price Opinions/Comparative Market Analyses (S521). See Session Law 521 on the General Assembly Web site and the article in this issue of the Bulletin on page 1.
Rental Property/Lithium Battery Smoke Alarms (S77). Provides that after December 31, 2012, landlords shall, when installing a new smoke alarm or replacing an existing smoke alarm, install a tamper resistant, ten-year lithium battery smoke alarm except in certain cases, and providing that landlords may deduct from the tenant security deposit damage to a smoke alarm or carbon monoxide alarm, as recommended by the Child Fatality Task Force.
Landlord Tenant Law Changes (H493). Amends the laws related to landlord tenant relationships including tenant appeals in evictions and abandoned property, and permitted uses of a tenant security deposit. Establishes a process whereby a landlord may remove from a residential dwelling unit tangible personal property belonging to a deceased tenant after filing an affidavit with the clerk of Court in the county in which the residential dwelling unit is located. Provides that a vacation rental agreement may include a cleaning fee, the amount of which shall be provided in the agreement, reasonably calculated to cover the costs of cleaning the residential property upon the termination of the tenancy. (See the May 2012 issue of the Bulletin for a discussion of Fair Housing Law relating to tenant rights).
Severance of Mineral Rights Disclosure (S820). Requires almost all contracts for sale of residential properties on or after October 1, 2012, to include a disclosure explaining the severance of mineral rights and disclosing whether the seller (1) has knowledge that mineral rights were severed from the property by a previous owner; (2) has previously severed the mineral rights from the property; and (3) intends to sever the mineral rights from the property prior to transfer of title to buyer. (See the article on “Fracking” in this issue of the Bulletin on page 6).
This article came from the October 2012-Vol43-2 edition of the bulletin.
New to the Commission Web site are four informative videos for licensees and consumers:
–Trust Accounting – how to administer earnest money deposits to protect the buyer and comply with Commission rules.
–Continuing Education Requirements – an overview of CE and how you can keep current in meeting your educational requirements.
–Real Estate License Requirements – explains how to obtain a North Carolina real estate license, step-by-step from initial application to examination to final receipt.
–License Renewal – know when and how to renew your real estate license each year.
Additional videos are planned on a variety of topics. Stay in touch with the Commission’s Web site to see them as they are published.
To view these videos, click on Video Library on the Home page.
This article came from the October 2012-Vol43-2 edition of the bulletin.
With the passage of laws during the 2011-12 North Carolina legislative session regarding the regulation of hydraulic fracturing, also called “fracking”, knowing whether your client’s new purchase has had or will have mineral rights severed prior to closing is important for you to responsibly represent your client.
Under long‐established principles of property law, the minerals in place underneath the surface of the earth, including oil and gas, can be owned separately from the surface of the property. Essentially, this means that minerals and mining rights can be created and transferred separately from the surface rights, and that those mineral rights constitute a separate and distinct property interest. As such, mineral rights can be transferred by a reservation in a deed, or by a direct grant, sale, or assignment of such rights, or by some other legal process just like the typical conveyance of a home.
Mineral deeds that convey the rights to all minerals may or may not specify the conveyance of oil and gas rights, in addition to the mineral rights. It is important to note that in North Carolina, a standard reservation of “mineral rights” in a deed, or a conveyance of “mineral rights” alone may not convey oil and gas rights. The ultimate determination of whether a plain “mineral rights” conveyance alone would include oil and gas rights would be made by a court or other arbiter based upon the terms of the conveyance and the intent of the parties at the time of the conveyance. Therefore, to avoid any ambiguity, agreements to transfer oil and gas rights along with any mineral rights should and typically do describe with specificity what the parties mean to convey.
When oil and gas companies believe deposits containing oil or gas may exist in an area, their employees or investors may approach private and public landowners with offers to lease such land for exploration and future mining. If a landowner decides to enter into a lease with a gas company, the company pays the landowner for the right to access and use the landowner’s land for exploration and extraction. Developers have sought to sever, or reserve, the mineral rights to a property before selling new construction homes. This means that the developer, and not the homeowner, has the right to lease its interest to gas companies and retain any benefits of the profits or possibly mine for the natural resources themselves.
Compensation
The main forms of compensation that are paid to landowners who enter into leases are bonus payments, royalties, and rentals. A bonus payment is a lump sum payment made to the landowner at the time the landowner executes the lease. Gas companies often negotiate bonus payments on a per acreage basis. Royalties are a share of the production profits that may be paid when and if there is oil or gas production on the property. Lastly, “delay rentals” are rentals paid to the landowner to maintain the lease during the interim period before production begins. In some cases, delay rentals are included as part of the initial bonus payment. Gas leases, like other types of contracts, are unique to the parties negotiating the terms and can vary greatly.
The process of fracking begins with well construction by drilling hundreds to thousands of feet below the land surface. This vertical well can then extend out into lateral or horizontal sections, often stretching as far as one thousand to six thousand feet outward (more than a mile). Fluids, consisting primarily of water with chemical additives, are pumped down into the well at high pressure. This process will open or enlarge fractures in the shale rock – fractures that may extend several hundred feet away from the wellbore. If the mineral rights are severed from the land being purchased by your client, then natural gas could be extracted from beneath that lot in the future through fracking.
Pursuant to property laws, the owner of the mineral rights typically has the right to use the surface of the property in such ways and to such an extent as is reasonably necessary to obtain the minerals under the ground. As such, in oil and gas extraction cases, the mineral rights owner’s interest is referred to as the “dominant” estate, and the surface of the land is deemed “servient” to the mineral owner’s right of use. Therefore, unless otherwise agreed upon, the mineral and gas rights owner may enter onto the land to explore for production, construct roads to the drill site, build pipelines, storage tanks, power stations, and other structures, and perform other activities consistent with the owner’s right to exercise its oil and gas rights. These substantial rights held by the owner of the subsurface mineral, oil, and gas rights demand that homebuyers understand fully what, if any, rights are severed from the land they seek to purchase.
With very few exceptions, state law now requires all sellers, even builders and sellers of new construction, to disclose in the sales contract the status of oil and gas rights regarding any property offered for sale. The limited exceptions deal primarily with transfers of property pursuant to court order or the administration of an estate, sales between co-owners of the property, and lease with option to purchase contracts where the lessee occupies the dwelling. Notably, parties negotiating a real estate sale cannot waive this oil and gas rights disclosure even if they agree not to complete a residential property disclosure statement pursuant to N.C. Gen. Stat. Chapter 47E.
Mandatory Language
To find the mandatory language that all real estate contracts must now include in boldface type, see N.C. Gen. Stat. § 47E-4(b2). The law requires the seller to answer three specific questions, and then obtain the buyers’ initials to acknowledge the oil and gas disclosure as part of the real estate contract. The seller must answer the following:
1) whether the oil and gas rights were severed from the property by a previous owner;
2) whether the seller has personally severed such rights from the property in the past; and,
3) whether the seller intends to sever said rights from the property prior to transfer of title to the potential buyer.
All three questions must be answered “yes” or “no,” except that question 1) may be answered “no representation” by the seller.
Severance of mineral rights will also be disclosed in a deed in the chain of title of the property being sold. However, it is important to inform consumers about any severance or reservation of mineral rights at the time they are considering making an offer and going under contract for the purchase of the property. Since the conveyance or severance of mineral rights is a material fact, it must be disclosed to potential buyers at or before the time a buyer makes an offer to purchase. To ensure that you provide the best service for your clients, be diligent when reading all contracts to determine what the seller discloses as to the conveyance of mineral rights.
This article came from the October 2012-Vol43-2 edition of the bulletin.
STEPHANIE ANDREW (Reidsville) – By Consent, the Commission reprimanded Ms. Andrew effective September 1, 2012. The Commission found that Ms. Andrew, acting a broker-in-charge of a real estate brokerage firm, allowed the firm to engage in deficit spending in the amount of $14,600 out of liabilities of $35,000. The Commission also found that checks issued by Ms. Andrew failed to consistently identify the purpose of disbursements or reference to property/owner ledgers and that she failed to identify the purpose of disbursements in her journals. The Commission noted that Ms. Andrew and the firm have refunded the accounts and have instituted procedures to bar deficit spending.
CHERRI LYNN BATES (Apex) – By Consent, the Commission revoked the broker license of Ms. Bates effective August 8, 2012. The Commission found that in December 2011, Ms. Bates was charged in Wake County with embezzling rental proceeds from Wilson Property Management, Inc. The Commission also found that Ms. Bates pled guilty to embezzling $26,435.01 in rental proceeds from Wilson Property Management and was sentenced to 60 months’ probation and ordered to pay restitution in the amount of $26,436.01.
JEFFERY A. BAXTER (Kitty Hawk) – By Consent, the Commission suspended the broker license of Mr. Baxter for a period of 12 months effective July 1, 2012. The Commission found that Mr. Baxter pled guilty in Currituck Superior Court to first-degree trespass on July 15, 2010. The Commission noted that Mr. Baxter reported the conviction appropriately to the Commission.
RECCILLE D. BEAMON (Greensboro) – By Consent, the Commission reprimanded Ms. Beamon effective July 1, 2012. The Commission found that Ms. Beamon, acting as rental agent for a residential property, promised to lease the unit to an individual and received $665 as a deposit, but failed to memorialize her agreement with the prospective tenant. The Commission also found that Ms. Beamon did not deposit the money in a trust account, instead remitting it to the owner, and when a dispute arose as to the property’s availability and the prospective tenant demanded a refund of the deposit, Ms. Beamon refused to either return or account for the deposit. The Commission finally found that Ms. Beamon had no written agency agreement with the owner of the property.
JASON BENTON (Knoxville, Tennessee) – By Consent, the Commission suspended the broker license of Mr. Benton for a period of six months effective May 1, 2012. The Commission found that Mr. Benton held a minority interest in a marketing organization which was an unlicensed entity and was an affiliate broker with a licensed real estate brokerage firm. Although Mr. Benton intended to sign a contract as representative of the licensed entity to market and sell real estate in North Carolina, he actually contracted to receive commissions through the unlicensed company. Following a ruling by the Federal District Court, Mr. Benton was barred from collecting any commissions as the contract was void because it was a brokerage contract entred into by an unlicensed entity.
RAMONA G. BRINSON (Arapahoe) – By Consent, the Commission suspended the broker license of Ms. Brinson for a period of thirty-six months effective April 1, 2012. One month of the suspension was active with the remainder stayed for a probationary period beginning on May 1, 2012 and ending on March 31, 2019. The Commission found that Ms. Brinson was convicted of driving while intoxicated, Level 1, driving while license revoked, and two counts of making harassing phone calls. The Commission also found that Ms. Brinson was sentenced to a term of imprisonment of two years, suspended on condition that Ms. Brinson serve 30 days in jail followed by supervised probation for 36 months, and refrain from consuming alcohol and obtain treatment for alcohol abuse. Finally, the Commission found that Ms. Brinson’s driver license was revoked because she had been convicted of three drinking and driving offenses in six years.
JAMES J. BURNS (Raleigh) – By Consent, the Commission reprimanded Mr. Burns effective August 8, 2012. The Commission found that Mr. Burns, acting as qualifying broker and broker-in-charge of a real estate brokerage firm, owned a residential property which was listed with his firm and advertised as having four bedrooms and which he sold; that subsequent to the sale, the home was destroyed by fire; that during reconstruction, the buyer discovered that the local health department had permitted the home for three bedrooms, not four; and that, as a result, the buyer rebuilt the house with only three bedrooms rather than upgrade the septic system.
CAPE FEAR REALTY, LLC (Wilmington) – By Consent, the Commission suspended the firm license of Cape Fear Realty for a period of one year effective September 1, 2012. The Commission then stayed the suspension for a probationary period of two years ending August 31, 2014. The Commission found that between 2005 and 2008 Cape Fear Realty participated in a series of condominium sales transactions; that an unlicensed entity may have been paid for producing investor buyers of the condominium units; and that adequate disclosures may not have been made to the investor buyers concerning the value of the condominium units they were purchasing. The Commission noted that prior to and during the course of these transactions, Cape Fear Realty was represented by counsel and acting on the advice of counsel.
LAWRENCE L. DOMONKOS (Cornelius) – By Consent, the Commission suspended the broker license of Mr. Domonkos for a period of 12 months effective July 1, 2012. The Commission then stayed the suspension for a probationary period of 24 months ending June 30, 2014. The Commission found that Mr. Domonkos drafted a memorandum relating to a lot-purchase contract which provided that if the seller failed to purchase a tract of land adjoining the subdivision where the lot was located, the seller would repurchase the lot from the buyer; that, relying on the memorandum, the buyer purchased the lot; that the seller subsequently did not purchase the other tract; and that when the buyer demanded that the seller buy the lot back, the seller repudiated the memorandum. The Commission also found that Mr. Domonkos, who acted as seller’s agent, was not licensed as an attorney and that the memorandum purporting to secure the parties’ rights which Mr. Domonkos prepared was not a pre-printed contract form. The Commission noted that Mr. Domonkos has offered to refund to the buyer the commission Mr. Domonkos received.
NATHALIE HENRIETTE DUEZ (Wrightsville Beach) – By Consent, the Commission suspended the broker license of Ms. Duez for a period of six months effective May 9, 2012. The Commission found that Ms. Duez was convicted on June 29, 2011 for Impaired Driving, level 2, and placed on probation for 12 months, and on November 21, 2011 was convicted for Resisting a Public Officer and Intoxicated and Disruptive and was placed on unsupervised probation for 12 months and ordered to pay a fine and costs of court. The Commission noted that both convictions were timely reported to the Commission as required by Commission rule. The Commission also found that the Commission had suspended the broker license of Ms. Duez for three months in April 2009 and placed Ms. Duez on probation for 21 months for her conviction for Impaired Driving Level 2 and for failure to respond to Letters of Inquiry.
RICHARD D. EVANS (Fayetteville) – The Commission accepted the permanent voluntary surrender of the broker license of Mr. Evans effective August 22, 2012. The Commission dismissed without prejudice allegations that the Mr. Evans violated provisions of the Real Estate License Law and Commission rules. Mr. Evans neither admitted nor denied misconduct.
BRIAN D. FULTON (Jacksonville) – Following a hearing, the Commission revoked the broker license of Mr. Fulton effective August 30, 2012. The Commission found that Mr. Fulton, acting as qualifying broker and broker-in-charge of a licensed real estate brokerage firm and as property manager of a condominium development, failed to respond to multiple Letters of Inquiry from the Commission during 2011and 2012 on two separate matters. The Commission also found that Mr. Fulton failed to account for or remit monies coming into his possession which belonged to others.
HASTY REALTY, INC. (Laurinburg) – By Consent, the Commission reprimanded Hasty Realty effective August 1, 2012. The Commission found that Hasty Realty managed property for a landlord-client and received excess rent payments from a tenant, but failed to credit the tenant with the overpayments and filed an inaccurate 1099 for its landlord-client. The Commission also found that Hasty Realty failed to maintain trust accounts and agency agreements in accordance with Commission rules, failed to perform reconciliations for over three years, and had an $8,000 overage in the sales trust account. The Commission noted that Hasty Realty revised the inaccurate 1099 and repaid the landlord-client for the overpayments the client had to refund to the tenant.
MICHAEL ELMER HORTON (Hendersonville) – The Commission accepted the permanent voluntary surrender of the broker license of Mr. Horton effective August 22, 2012. The Commission dismissed without prejudice allegations that Mr. Horton violated provisions of the Real Estate License Law and Commission rules. Mr. Horton neither admitted nor denied misconduct.
RODNEY HYSON, SR. (Bald Head Island) – By Consent, the Commission suspended the broker license of Mr. Hyson for a period of one year effective September 1, 2012. The Commission then stayed the suspension for a probationary period of two years ending August 31, 2014. The Commission found that between 2005 and 2008 Mr. Hyson participated between in a series of condominium sales transactions; that an unlicensed entity may have been paid for producing investor buyers of the condominium units; and that adequate disclosures may not have been made to the investor buyers concerning the value of the condominium units they were purchasing. The Commission noted that prior to and during the course of these transactions, Mr. Hyson was represented by counsel and acting on the advice of counsel.
RODNEY JAMES HYSON, JR. (Bald Head Island) – By Consent, the Commission suspended the broker license of Mr. Hyson for a period of one year effective September 1, 2012. The Commission then stayed the suspension for a probationary period of two years ending August 31, 2014. The Commission found that between 2005 and 2008 Mr. Hyson participated between in a series of condominium sales transactions; that an unlicensed entity may have been paid for producing investor buyers of the condominium units; and that adequate disclosures may not have been made to the investor buyers concerning the value of the condominium units they were purchasing. The Commission noted that prior to and during the course of these transactions, Mr. Hyson was represented by counsel and acting on the advice of counsel.
INNSPIRED MANAGEMENT, INC. (Hendersonville) – The Commission accepted the permanent voluntary surrender of the firm license of Innspired Management effective August 22, 2012. The Commission dismissed without prejudice allegations that Innspired Management violated provisions of the Real Estate License Law and Commission rules. Innspired Management neither admitted nor denied misconduct.
MARLIN MAURICE JACKSON (Raleigh) – By Consent, the Commission suspended the broker license of Mr. Jackson for a period of three months effective May 15, 2012. The Commission found that Mr. Jackson, a property manager for apartments, submitted a Criminal Conviction Disciplinary Action Reporting Form indicating that he had been convicted on January 14, 2011, of Possession of Marijuana stemming from an incident that occurred on November 18, 2010, and was given a suspended sentence of 45 days, placed on probation for 18 months, and ordered to pay a fine and to complete 100 hours of community service.
VAN M. JOHNSON (Charlotte) – By Consent, the Commission suspended the broker license of Mr. Johnson for a period of two years effective August 1, 2012. The Commission then stayed the suspension for a probationary period of three years ending August 1, 2015. The Commission found that Mr. Johnson, while his license was inactive, formed a company which has never been licensed by the Commission as a real estate broker and which operated as a tenant locator service to procure tenants, prepare leases, and collect security deposits for his personal properties and for other property owners. The Commission also found that Mr. Johnson failed to execute written agency agreements with landlord-clients and that the unlicensed firm retained security deposits as its compensation and required its landlord clients to refund tenant security deposits from their own personal funds. The Commission further found that Mr. Johnson failed to hold tenant security deposits in a trust or escrow account and that Mr. Johnson’s and the unlicensed firm’s lease contracts required tenants to pay fees in violation of North Carolina General Statutes. Finally, the Commission found that Mr. Johnson failed to report a 2010 conviction for injury to real property and resisting a public officer.
BRUCE M. MANEY (Sneads Ferry) – The Commission accepted the voluntary surrender of the broker license of Mr. Maney for a period of one year effective August 8, 2012. The Commission dismissed without prejudice allegations that Mr. Maney violated provisions of the Real Estate License Law and Commission rules. Mr. Maney neither admitted nor denied misconduct.
SOPHIA ELIZABETH MATTHEWS (Huntersville) – The Commission accepted the voluntary surrender of the broker license of Ms. Matthews for a period of three years effective August 8, 2012. The Commission dismissed without prejudice allegations that Ms. Matthews violated provisions of the Real Estate License Law and Commission rules. Ms. Matthews neither admitted nor denied misconduct.
JAMES R. MCCOOK, JR. (Laurinburg) – By Consent, the Commission reprimanded Mr. McCook effective August 1, 2012. The Commission found that Mr. McCook, as broker-in-charge of a real estate brokerage firm, managed property for a landlord-client and received excess rent payments from a tenant but failed to credit the tenant with the overpayments and filed an inaccurate 1099 for his landlord-client. The Commission also found that Mr. McCook failed to maintain trust accounts and agency agreements in accordance with Commission rules, failed to perform reconciliations for over three years, and had an $8,000 overage in the sales trust account. The Commission noted that Mr. McCook revised the inaccurate 1099 and repaid the landlord-client for the overpayments the client had to refund to the tenant.
MARK G. PARKER (Raleigh) – By Consent, the Commission suspended the broker license of Mr. Parker for a period of six months effective August 1, 2012. The Commission then stayed the suspension on certain conditions. The Commission found that Mr. Parker, acting as broker-in-charge of a real estate brokerage firm, failed to adequately supervise an associated broker who performed Broker Price Opinions (BPOs) for various lending institutions and their agents, but did not confirm with the BPO clients that there was a reasonable opportunity to list the properties on which the BPOs were performed and did not obtain listing agreements to sell any of the properties examined.
PLATINUM PROPERTIES USA LLC (Leland) – By Consent, the Commission suspended the firm license of Platinum Properties USA for a period of one year effective August 1, 2012. The Commission then stayed the suspension for a period of one year ending August 1, 2013. The Commission found that Platinum Properties, acting as listing agent for a real estate development company and with a qualifying broker who was a member-manager of the development company, listed a subdivision and advertised to buyers that it would have full amenities, private streets maintained by a Homeowners Association, and that septic permits would be available; over five years after the first closings, the amenities have not been completed although the developer continues to attempt to complete the project. The Commission also found that Platinum Properties failed to indicate on a Working With Real Estate Agents brochure that it represented only the seller, failed to use an appropriate contract form for the type of transaction, and failed to issue a subdivision street disclosure statement to buyers.
DAWN CRAIG POTTER (Sneads Ferry) – By Consent, the Commission permanently revoked the broker license of Ms. Potter effective May 9, 2012. The Commission found that Ms. Potter ran a real estate brokerage firm after its broker-in-charge stopped supervising the firm, but did not remove himself as broker-in-charge and never notified the Commission of his retirement. The Commission further found that Ms. Potter stopped keeping trust account records at the end of 2010, but continued to manage properties until October 2011.
DEWEY W. PROPST (Southport) – By Consent, the Commission revoked the broker license of Mr. Propst effective July 12, 2012. The Commission found that Mr. Propst pled guilty to one count of fraudulently burning a dwelling, was sentenced to 6-8 months in prison, which was stayed for a supervised probationary period of 18 months, and ordered to pay $1,049.50 in court costs, fines and legal fees.
R. D. EVANS REALTY, INC. (Fayetteville) – The Commission accepted the permanent voluntary surrender of the firm license of R. D. Evans Realty effective August 22, 2012. The Commission dismissed without prejudice allegations that R. D. Evans Realty violated provisions of the Real Estate License Law and Commission rules. R. D. Evans Realty neither admitted nor denied misconduct.
BRENDA H. SMITH (Graham) – By Consent, the Commission suspended the broker license of Ms. Smith for a period of one year effective June 1, 2012. The Commission then stayed the suspension for a probationary period of two years ending June 1, 2014. The Commission found that Ms. Smith refinanced her home in 2007 and at the insistence of the loan officer and under some duress from him, paid the loan officer a fee outside of closing that was not disclosed on the HUD-1 closing statement. The Commission noted that Ms. Smith has not defaulted on her loan.
SOUTHEASTERN CAROLINA REALTY, INC. (Jacksonville) – After a hearing, the Commission revoked the firm license of Southeastern Carolina Realty effective August 30, 2012. The Commission found that Southeastern Carolina Realty, acting as property manager of a condominium development, failed to respond to multiple Letters of Inquiry from the Commission during 2011 and 2012 on two separate matters. The Commission also found that Southeastern Carolina Realty failed to account for or remit monies coming into its possession which belonged to others.
SUN REALTY OF NAGS HEAD d/b/a THE OUTER BANKS SCHOOL OF REAL ESTATE (Harbinger) – By Consent, the Commission suspended the school license of the Outer Banks School of Real Estate for a period of six months effective October 1, 2013. The Commission then stayed the suspension for a probationary period through and including October 1, 2013. The Commission found that Outer Banks School of Real Estate conducted a prelicensing course in an unapproved facility with knowledge that the facility had not been approved because it did not meet Commission requirements. The Commission also found that Outer Banks School of Real Estate registered students and accepted student fees but failed to obtain enrollment contracts with the students.
ELIZABETH E. WHITCRAFT (Harbinger) – By Consent, the Commission suspended the approval of Ms. Whitcraft to teach prelicensing, postlicensing, Update and Broker-in-Charge Annual Review courses for a period of one year effective September 5, 2012. The Commission found that Ms. Whitcraft, as director of a licensed real estate school, during 2012 conducted a prelicensing class in an unapproved facility which she knew had not been approved because it did not meet Commission requirements. The Commission also found that Ms. Whitcraft registered students and accepted student fees but failed to obtain enrollment contracts with her students. The Commission noted that Ms. Whitcraft is not currently employed with the school.
CHRISTINE R. WILLARD (Reidsville) – By Consent, the Commission suspended the broker license of Ms. Willard for a period of two years effective May 15, 2012. The Commission then stayed the suspension for a probationary period of two years effective May 15, 2012. The Commission found that Ms. Willard served as listing agent for a property with an original listing price of $89,000, had the owner sign a short sale addendum, and advised the seller to stop paying the mortgage, and had the seller sign documentation authorizing a third party negotiator who is not licensed as an attorney or by the Commission and whose firm had been administratively dissolved in 2007 to act on the seller’s behalf with lienholders. The Commission further found that Ms. Willard prepared a comparative market analysis (“CMA”) for the seller as potential client showing a value range of $84,000 to $104,000, but produced a second CMA and subsequent broker priced opinion for the seller’s lienholders showing a value range of $38,000 to $58,000 although other properties in the neighborhood were listed in the range of $90,000 to $109,000. Finally, the Commission found that Ms. Willard falsely represented to the lienholders that the property was owner-occupied.
WILLIFORD & ASSOCIATES, INC. (Garner) – By Consent, the Commission reprimanded Williford & Associates effective June 30, 2012. The Commission found that Williford & Associates served as listing agent for a house owned by its qualifying broker’s building company and failed to disclose to the prospective buyer the existence of moisture-related damage to wooden structural components in the crawlspace. The Commission also found that when the buyer discovered the damage, Williford & Associates refused to refund the due diligence of $500 but offered to reduce the purchase price, and when Williford & Associates subsequently offered to resolve this matter with the buyers by refunding to them the due diligence fee of $500, the buyers rejected the offer.
MARGARET E. WILLIFORD (Garner) – By Consent, the Commission reprimanded Ms. Williford effective June 30, 2012. The Commission found that Ms. Williford, acting as qualifying broker and broker-in-charge of a licensed real estate brokerage firm, contracted to sell a house owned by her building company and listed with her brokerage firm and failed to disclose to the prospective buyer the existence of moisture-related damage to wooden structural components in the crawlspace. The Commission also found that when the buyer discovered the damage, Ms. Williford refused to refund the due diligence fee of $500 but offered to reduce the purchase price; and that Ms. Williford subsequently offered to resolve this matter with the buyers by refunding to them the due diligence fee of $500, but the buyers rejected the offer.
This article came from the October 2012-Vol43-2 edition of the bulletin.