The Real Estate Commission has voted to support legislation proposed by North Carolina Attorney General Roy Cooper to address abuses in real estate transactions where dealers contract to purchase for resale real estate subject to an existing loan or deed of trust.
The legislation would not apply to real estate licensees because resale dealers who have real estate licenses are regulated by the Commission.
Problems with resale dealers arise when a purchase contract enables the dealer to buy and resell property for a profit, “subject to” an existing loan. The terms of most loans call for repayment of the entire amount owed if the property is sold. Often, the person from whom the dealer purchased the property is not aware of this “due on sale” clause and assumes that the dealer is responsible for paying off the loan. However, the original owner is still responsible for the loan.
If the resale effort is unsuccessful and the dealer simply walks away, the owner may face an immediate demand for payment of the loan from the original financing source.
The legislation proposed by Attorney General Cooper would require a resale dealer to make certain disclosures at least seven days before entering into a real estate transaction with a homeowner/seller. These would include statements disclosing that:
• The homeowner/seller is not relieved of responsibility for the existing mortgage and will be held responsible for any delinquencies or defaults if the real estate resale dealer fails to make payments.
• The current mortgage loan or deed of trust may contain a “due on sale” clause obligating the homeowner/seller to inform the lender at any time title to the property is transferred and that the lender has the right to call the entire amount of the loan due at that time.
• The homeowner/seller should consult an attorney as to his or her liability and obligations for providing insurance and for maintenance of the property.
• The resale dealer has secured a bond as required by state law with the surety company’s name and address provided and advice to check with the surety company to determine the bond’s current status.
• The nature of the resale dealer’s business and people involved with it including the number of transactions entered into within the preceding 12 months and a description of services to be rendered.
Additional disclosures relate to tenant/buyers and encompass deposits, down payments and payment for options to purchase, any existing deed of trust and related obligations, advice concerning eligibility for a mortgage and the dealer’s securing of a bond.
If the law passes, copies of the disclosure statements must be filed with the Secretary of State’s office before any advertising is undertaken or representation to buyers is made. A copy of the state law must be provided to participants in any real estate resale transaction seminar. Finally, any resale dealer who offers to assist a purchaser in securing financing must be licensed as a mortgage broker.
This article came from the May 2005-Vol36-1 edition of the bulletin.