Property Disclosure Form Revised as of January 1 To Include Properties Governed by Owners’ Associations

By Curtis E. Aldendifer, Associate Legal Counsel

As mandated by legislation effective January 1, 2012, owners of residential real estate are now required (with certain statutory exceptions) to furnish purchasers with a revised Residential Property Disclosure Statement. The Statement is set forth in the recently amended Rule A.0114 and available on the Commission’s Web site, www.ncrec.gov.

Now four pages in length and titled “Residential Property and Owners’ Association Disclosure Statement,” the revised form includes additional disclosures that apply when a property is governed by an owners’ association or system of mandatory covenants.

The instructions and questions 1 through 20 of the revised form remain essentially unchanged except for the addition of language in the instructions clarifying that disclosure requirements apply to sellers of condominiums, townhouses, and similar residences in the same way it applies to sellers of single-family detached residences.

The new disclosures, beginning with question 21 page 3, pertain to properties governed by an owners’ association.

Question 21 asks whether the property is “subject to regulation by one or more owners’ association(s) and governing documents which impose various mandatory covenants, conditions, and restrictions upon the lot, including, but not limited to obligations to pay regular assessments or dues and special assessments.”

The available responses to question 21 are “yes”, “no”, and “no representation”, indicated by marking the appropriate box adjacent to the question. If the seller responds “no” or “no representation”, then the remaining questions need not be answered. However, if the seller responds “yes”, then the remaining questions, 22 through 25, must be completed.

Question 22 asks for the name of the governing owners’ association, the amount of dues or assessments and the period of time covered by each payment, and the contact information for the president of the owners’ association or the association manager. The seller may respond with “N/A” to any of the information requested by question 22 that does not apply to the property.

Question 23 is framed as a declaration that, as of the date the disclosure statement is signed, there are no dues, fees, or special assessments that have been approved as required by the applicable declaration or bylaws and are payable to the owners’ association to which the lot is subject except for those identified by the seller in the space provided. The seller should list any duly approved dues, fees, or assessments that remain payable to the governing association, and should include any fees charged by the association or management company in connection with the transfer of title to the new owner.

Question 24, also framed as a declaration, states that, as of the date the disclosure statement is signed, there are no unsatisfied judgments against or pending lawsuits involving either the property or lot to be conveyed or the planned community or association to which the property and lot are subject, except those identified by the seller in the space provided. The disclosure is not intended to include any action filed by the association for the collection of delinquent assessments on lots other than the lot for sale.

The last question, number 25, addresses the disclosure of any services and amenities that are paid out of the association’s regular assessments or dues and includes a list of typical services and amenities. Additional space is provided in which the seller can disclose any other services or amenities not addressed in the list paid for by association dues, or provide any additional information or explanation necessary to a full and complete disclosure.

Once completed, the disclosure form should be signed and initialed in the appropriate places and made available to all prospective purchasers.

A good broker will assist his or her owner-clients with obtaining the information necessary to complete the owners’ association disclosures. In some instances, owners’ associations and association managers will be restricted in how and to whom they furnish certain information. In order to avoid unnecessary delay in obtaining the information needed to complete the disclosure form, brokers should be aware of the association’s policies and procedures prior to requesting information needed for the disclosure statement.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Law, Commission Rules Book Available

An updated and expanded edition of the North Carolina Real Estate License Law and Commission Rules booklet is being published.

The printed booklet contains the Real Estate License Law, Commission Rules, Trust Account Guidelines, and the Commentary on the Law and Rules (a study guide for the licensing test) and is a convenient portable reference source.

Each of the booklet’s four sections is also published as an individual PDF file on the Law/Rules page of the Commission’s Web site, www.ncrec.gov.

The Law section has been expanded with the inclusion of Article 3 of the Real Estate License Law covering Private Real Estate Schools. Articles 1 (Real Estate Brokers), 2 (Real Estate Recovery Fund), and 4 (Time Shares) are already included.

The Rules section with Subchapters 58A (Real Estate Brokers) and 58B (Time Shares) has been expanded to include Subchapters 58C (Real Estate Prelicensing Education), 58E (Real Estate Continuing Education) and 58G (Real Estate Commission Administration).

The booklet may be ordered at $3 per copy using the publications order form in this issue of the Bulletin or the online or mail-in order forms on the Publications page of the Commission’s Web site.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Changes to Rules Effective January 1

Following is a summary of Real Estate Commission rule changes which became effective January 1, 2012.

General Brokerage

Trust Accounting

• Clarifies that a broker may hold and transmit a check for a due-diligence fee in the same manner as an option fee.
• Clarifies that properly documented electronic deposits into and disbursements from a broker’s trust account are permissible.

Residential Property Disclosure Form

• Provides for a revised residential property disclosure form containing new disclosures required for properties governed by owners’ associations and more specific instructions concerning the type of residential properties for which the form is required. (See related story page 4-5.)

Examination and Licensing

• Requires license applicants to pass an examination consisting of a national section and a North Carolina section and provides modified procedures for scheduling and taking the two-part examination.
• Eliminates examination review by failing applicants.
• Provides new procedures for licensing persons licensed in another jurisdiction after licensing by reciprocity is discontinued effective February 29, 2012.

Postlicensing Education

• Provides that when a provisional broker fails to complete required post-licensing education within three years of initial licensure, the broker’s license will be placed on inactive status rather than canceled.
• Provides educational requirements that a provisional broker whose license is on inactive status for failing to timely complete required post-licensing education must meet to reactivate his or her license.
• Clarifies the Commission’s authority to extend the time for completing post-licensing courses by reason of hardship.

Schools and Instructors

• Prohibits real estate schools and sponsors from using a van or other motor vehicle as a classroom and requires that classroom facilities comply with health, safety, and welfare requirements and are equipped for electronic visual presentations.
• Provides that an individual applying for approval as a prelicensing and postlicensing instructor may be granted only one six-month grace period to attend the Commission’s New Instructor Seminar and satisfactorily demonstrate his or her teaching skills on a video recording.
• Prescribes requirements for reinstatement of an expired instructor approval to teach the Real Estate Update continuing education course.

Please see the Commission’s Web site for the actual language of each rule.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Thomas R. Miller to Retire

Licensing Reciprocity Ends February 29; Replaced with New Exam Requirements

Current reciprocal licensing arrangements between North Carolina and all other states with which such arrangements are currently in place will end February 29, 2012. Those reciprocal states are:  Arkansas, Connecticut, Georgia, Iowa, Louisiana, Mississippi, Nebraska, South Carolina, Tennessee and West Virginia.

The current approach to reciprocal licensing arrangements allows resident licensees of one reciprocal state to obtain a license in another reciprocal state without taking any prelicensing education or license examination. Thus, applicants for a North Carolina license by reciprocity currently do not have to demonstrate any knowledge of North Carolina real estate laws and practices. Also, applicants for a North Carolina license by reciprocity presently must be a resident of the reciprocal state or must not have resided in North Carolina for more than 90 days before applying for a reciprocal license.

New Approach

Beginning March 1, 2012, any person applying for a license in North Carolina based on current licensure in another state, U.S. territory or possession or a Canadian province, regardless of their place of residency, will not have to take the North Carolina prelicensing course or the “National” section of the North Carolina license examination; however, all such applicants will have to pass the “State” section of the North Carolina license examination.

This new approach might be described as a “limited license recognition” approach – it recognizes completion of prelicensing education and passing the “National” section of a license examination in another jurisdiction, but does not fully exempt the entire North Carolina license examination requirement. By requiring the applicant to pass the “State” section of the North Carolina license examination, the new approach provides some assurance that the applicant has a basic knowledge of North Carolina real estate laws and practices.

Additionally, rather than North Carolina having full license reciprocity with only a small number of states, (currently 10), the new approach allows licensees of any other state, U.S. territory or possession or Canadian province to obtain a North Carolina license by passing only the “State” section of the license examination. Moreover, the place of residence of the applicant is not an issue under this approach.

Like the licensing agencies of several other states that have moved from a reciprocity approach in recent years to the “limited license recognition” approach described above, the Commission determined that this approach would better protect the interests of North Carolina consumers.  Consequently, the Commission obtained from the 2011 General Assembly the authority to adopt a new system of licensing persons based on their licensure in another jurisdiction and adopted rules to implement the system described in this article. Additionally, the Commission decided to change its license examination from a one-part  examination to a two-part examination, also effective March 1, 2012, in part to facilitate this change in licensing standards for applicants licensed in other jurisdictions. [See the article on “License Examination Changes” on page 1 of this Bulletin.]

Effect on Current Reciprocal Licensees

North Carolina licensees who obtained their licenses by reciprocity may retain those licenses indefinitely by keeping the North Carolina license current (i.e., properly renewed each year) and meeting the continuing education requirement (waived if the licensee maintains an active license in the reciprocal state). However, if such a licensee allows his/her license to expire for more than six months or the license is suspended, revoked or surrendered, the former reciprocal licensee must satisfy the new requirements in order to reinstate such license.

*NOTE: The South Carolina Real Estate Commission has advised that, beginning March 1, 2012, if will require North Carolina licensees to take the appropriate South Carolina “state” license examination section.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Commission Implements Major Changes To Real Estate Licensing Examination

The North Carolina Real Estate Commission is implementing major changes to the real estate license examination program on March 1, 2012. To understand these changes, however, one must first recall how the current examination program works.

The license examination that applicants must pass to initially obtain a real estate broker license (on provisional status) has consisted for many years of a one-part comprehensive examination with 110 scored questions and a 75% passing score. This one-part examination approach has been followed by the Commission since it assumed full responsibility in 1984 for developing and maintaining its own examination “in-house.”  Initially the Commission also actually administered the examination, but since 2000, the examination has been administered for the Commission on computer by PSI Examination Services, Inc.  Also since 2000, North Carolina has had a single entry-level license examination, with no separate examination for an advanced-level broker license status. North Carolina’s approach contrasts with the system followed by a majority of states whereby the state licensing agency contracts with a testing company to provide a two-part examination consisting of a “national” section on general real estate laws, principles and practices and a “state” section on state-specific laws and practices.

While the Commission has been quite satisfied with its “in-house” examination, the Commission determined that the current high quality and standards of the examination program could best be maintained by enlisting the assistance of a testing company to do more than just administer the examination. Moreover, the Commission determined that the two-part examination approach followed by most other states would have the additional benefit of enabling the Commission to require persons applying based on licensure in another jurisdiction to pass the “State” section of the license examination, thereby providing some assurance that such applicants possess a good basic knowledge of North Carolina real estate laws and practices.

Consequently, the Commission went through a procurement process in 2011 to select a testing company to assist in developing and administering a two-part examination program. Following a thorough selection process, the Commission contracted with Applied Measurement Professionals, Inc. (AMP) of Lenexa, KS to handle its examination program.

The “New” Examination

Beginning March 1, 2012, the license examination will be a two-part examination consisting of (1) a “national” section of 100 scored questions on general real estate laws, principles and practices and (2) a “state” section of 40 scored questions on primarily North Carolina laws and practices. The “national” section is AMP’s national salesperson (entry-level) examination administered in 11 other states, while the “state” section is developed by and will be maintained entirely by the Commission. The passing score for each section is 75%. Most applicants must pass both sections of the examination; however, persons applying based on licensure in another jurisdiction will be required to pass only the “state” section of the examination. [See article on “License Reciprocity Changes” on page 1 of this Bulletin.]

Approved schools and instructors have been aware of the impending changes for several months and the Commission is working closely with them to assure they have the information necessary to properly prepare their students for the new examination.

This article came from the Feburary 2012-Vol42-3 edition of the bulletin.

Update, BICAR Topics Available Online

Selected topics from the Commission’s Update and Broker-in-Charge Annual Review Courses from 2005-2006 to 2010-2011 are now available online.  More content will be added in the future.

Organized by topic, the content can be reviewed on the new Update Course/BICAR Web page under the “Bulletins/Publications” link. To search for specific information within the topics, use Google on the Web site Search page.

The text is the same as that provided in the courses and, in digital form, provides a fast, convenient reference source.

This article came from the October 2011-Vol42-2 edition of the bulletin.

Staff Update

S. Adam Stallings has been employed as Deputy Legal Counsel in the Legal Division. He is a graduate of Wake Forest University and Wake Forest University School of Law and was formerly in private practice as a trial lawyer.

Amanda M. Hohl has been employed as Auditor/Investigator in the Audits and Investigations Division. She holds BS degrees in Criminal Justice and Sociology from the University of North Carolina and an MBA from Strayer. Most recently, she was a State Bureau of Investigations Special Agent.

This article came from the October 2011-Vol42-2 edition of the bulletin.

S. R. “Buddy” Rudd, Jr. Reappointed

S. R. “Buddy” Rudd, Jr., of Oak Island has been reappointed to the Commission by Governor Beverly E. Perdue. Rudd has been a Commission member since 2007.]

This article came from the October 2011-Vol42-2 edition of the bulletin.

Requirements to Remember In the Landlord Tenant Act

Many licensees are unaware that the Landlord Tenant Act limits fees a landlord or his property manager may charge when pursuing evictions or monies owed by a tenant, determines the timing of landlord security deposit accounting to tenants, imposes duties on landlords to provide fit premises, and permits tenants to terminate leases early in foreclosure situations. Since property managers often assist their landlord clients in complying with the law, an understanding of the requirements of the law is important.

Permitted Landlord Fees

In addition to allowable late fees, the law permits a landlord or property manager to charge a tenant in an eviction situation one of the following three additional fees pursuant to a written lease:

• Complaint Filing Fee – When a tenant is in default and sued for summary ejectment or money owed, but permitted by the landlord to cure the default, the landlord may charge the tenant a filing fee of $15 or 5% of the monthly rent, whichever is greater, even though the landlord dismisses the claim.
• Court Appearance Fee – When a landlord successfully sues a tenant in default in small claims court and the tenant does not appeal, the landlord may charge the tenant a fee of 10% of the monthly rent.
• Second Trial Fee – When a landlord successfully sues a tenant in default in small claims court and, if the tenant has appealed, and the landlord is also successful in district court, the landlord may charge the tenant up to 12% of the monthly rent. (Note that a property manager cannot act on behalf of a landlord at the district court level.)

Administrative fees in addition to court filing fees are no longer permitted when pursuing the eviction of a tenant or recovery of monies owed. Each of the defined fees is exclusive of the others and may only be charged in situations where the landlord has a written lease with the tenant. The law allows only one to be collected. The fee cannot be deducted from a subsequent rent payment and cannot be the basis of a default on the lease in a subsequent summary ejection action.

Security Deposit Accounting

The requirement that landlords account to tenants for security deposits within 30 days of tenancy termination was modified in 2009 to permit an interim report within 30 days and a final accounting within 60 days. The change provides additional time for landlords to obtain estimates and actual costs to repair any damage.

Under the statute, willful failure by a landlord to comply with the deposit, bond or notice requirements of the Tenant Security Deposit Act voids certain of the landlord’s rights. If a tenant does not receive an accounting in a timely manner, the tenant can sue the landlord and, despite any legitimate claims for damages, win the right to have the entire security deposit returned in addition to charging the landlord for attorney fees. Licensees should make certain they send notices in a timely manner and document files carefully to avoid liability for themselves or their landlord clients.

Duty to Provide Fit Premises

An entirely new section added in 2009 requires landlords to remedy any “imminently dangerous condition” once they have actual knowledge of it, whether they have received notice of it from the tenant or not. If the tenant caused the dangerous condition, the landlord/agent may charge the tenant the “actual and reasonable” cost of repairs. The term “imminently dangerous condition” means any of the following:

• Unsafe wiring, flooring, steps, ceilings or roofs, or chimneys or flues
• Lack of potable water, operable toilet, operable bathtub or shower
• Lack of operable locks on all doors leading outside, broken windows or a lack of operable locks on all ground level windows
• Lack of operable heating facilities capable of heating living area to 65° when it is 20° outside (November 1 – March 31)
• Rat infestation as a result of defects in the structure
• Excessive standing water, sewage or flooding problems caused by plumbing leaks or inadequate drainage that contribute to mosquito infestation or mold

Landlords must also supply carbon monoxide detectors on each level of any residential rental unit that has:

• A fireplace
• A fossil fuel burning heater or appliance (i.e. coal, oil or natural gas)
• An attached garage

Responsibility for repairs, installation and replacement of batteries are the same as current laws regarding smoke detectors.

Foreclosure and Tenant Rights

Tenants residing in residential properties with less than 15 rental units and being sold in foreclosure have the right to terminate their lease upon 10 days’ written notice to the landlord.  While a broker has a duty to disclose that a property is in foreclosure, frequently the broker only becomes aware of it after the Notice of Sale has been posted at the rental unit. A notice that has been posted constitutes receipt. Once the Notice of Sale is received, the tenant has the right to terminate early. At that point, the landlord/agent must prorate the rent to the effective date of the termination and cannot hold the tenant liable for any other rent or damages due only to the early termination.

Brokers should be aware that state and federal statutes can change from year to year. Property managers in particular should stay up to date with the changing laws to best represent and protect their landlord or tenant clients.  State laws and pending bills can be found on the North Carolina General Assembly website at www.ncleg.net.

This article came from the October 2011-Vol42-2 edition of the bulletin.