Disciplinary Actions

DANIELLE KATHLEEN MORAN (FAYETTEVILLE) – Following a hearing, the Commission reprimanded Moran effective October 3, 2023. The Commission found that Moran, while acting as a listing agent, misrepresented the square footage of a property despite having measurements from three licensed appraisers. Moran failed to follow firm policies and procedures regarding measuring square footage. 

ANTHONY NEZEL SMITH (HIGH POINT) – By Consent, the Commission suspended the broker license of Smith for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Smith failed to verify the accuracy of information provided by his seller-client regarding the age of the HVAC unit, resulting in Smith incorrectly representing that the HVAC was only three years old when it was actually nine years old. Smith further failed to notify the lender or closing attorney of cash paid to the buyer by Smith and listing firm outside of closing. The payment was made pursuant to an agreement between buyer’s firm, buyer’s agent, listing firm, and Smith with the approval and involvement of both Brokers-in-Charge to resolve a question regarding whether a refrigerator conveyed.

BARBARA ELIZA HART (RALEIGH) – By Consent, the Commission suspended the broker license of Hart for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Hart, acting as a buyer’s agent, failed to review the Working with Real Estate Agents disclosure with her client at first substantial contact.  Hart advised her buyer-client that she could submit multiple simultaneous offers, which included due diligence fees.  Hart advised the buyer-client that the due diligence fees would not be due for 24 hours after acceptance and would not be owed if the contract was terminated within the 24-hour period. Hart’s buyer-client submitted simultaneous offers on three properties, each including a $10,000 due diligence fee. One of the three offers was accepted but the buyer-client terminated within 24 hours.  The seller requested the $10,000 due diligence fee and when it was not paid they took legal action against the buyer-client.  The seller was awarded a judgment for the due diligence fee plus interest and costs totaling $10,882.57.

RENEE DIANE BRANDON (JACKSONVILLE) – By Consent, the Commission suspended the broker license of Brandon for a period of 9 months, effective November 1, 2023, but stayed the suspension after 1 month upon certain conditions. The Commission found that Brandon acted as a co-listing agent for the sale of certain property and advertised said property for sale as having a square footage in excess of that shown by a subsequent listing broker and appraiser. Brandon failed to retain calculation documents used to determine square footage.

BRITTNEY PAIGE ROSEBERRY (WRIGHTSVILLE BEACH) – By Consent, the Commission reprimanded Roseberry, effective December 5, 2023. The Commission found that Roseberry represented a buyer of a vacant lot that was advertised as “Build your dream home on one of the larger homesites in River Run Plantation…” by the listing agent. Roseberry assumed that the builder was handling the soil test as the cost for it was noted on the Closing Disclosure.  However, Roseberry failed to ensure that a soil test was performed for her client prior to closing. After closing, it was discovered that a residential structure could not be built on the lot and that a previous septic permit application, accessible in public records, had been denied by the county who classified the lot as “unsuitable” due to wetness and insufficient space for a septic system and repair area. Roseberry’s client executed the Exclusive Buyer Agency Agreement and signed the Working with Real Estate Agents Disclosure two days after going under contract to purchase the subject property.

DANIELLE NICOLE GILLESPIE (WRIGHTSVILLE BEACH) – By Consent, the Commission reprimanded Gillespie, effective December 5, 2023. The Commission found that Gillespie acted as a team lead of a provisional broker who represented a buyer of a vacant lot, which was advertised as “Build your dream home on one of the larger homesites in River Run Plantation…” by the listing agent.  The provisional broker assumed that the builder was handling the soil test as the cost for it was noted on the Closing Disclosure.  However, the provisional broker failed to ensure that a soil test was performed for her client prior to closing. After closing, it was discovered that a residential structure could not be built on the lot and that a previous septic permit application, accessible in public records, had been denied by the county who classified the lot as “unsuitable” due to wetness and insufficient space for a septic system and repair area. The provisional broker’s client executed the Exclusive Buyer Agency Agreement and signed the Working with Real Estate Agents Disclosure two days after going under contract to purchase the subject property.

LEE THOMAS EATMON (WRIGHTSVILLE BEACH) – By Consent, the Commission reprimanded Eatmon, effective December 5, 2023. The Commission found that Eatmon acted as the broker-in-charge of a provisional broker who represented a buyer of a vacant lot, which was advertised as “Build your dream home on one of the larger homesites in River Run Plantation…” by the listing agent. The provisional broker assumed that the builder was handling the soil test as the cost for it was noted on the Closing Disclosure.  However, the provisional broker failed to ensure that a soil test was performed for her client prior to closing. After closing, it was discovered that a residential structure could not be built on the lot and that a previous septic permit application, accessible in public records, had been denied by the county who classified the lot as “unsuitable” due to wetness and insufficient space for a septic system and repair area. The provisional broker’s client executed the Exclusive Buyer Agency Agreement and signed the Working with Real Estate Agents Disclosure two days after going under contract to purchase the subject property.

DAVID HERNANDEZ (CHARLOTTE) – By Consent, the Commission suspended the broker license of Hernandez for a period of 24 months, effective September 1, 2023, but stayed the suspension after 6 months upon certain conditions. The Commission found that an audit of Hernandez’s trust accounts revealed that they were not designated trust or escrow, contained incomplete deposit/withdrawal worksheets, lacked deposit tickets, ledgers failed to include all identifying information, no journal was maintained, and three-way reconciliations were not performed. At times, Hernandez disbursed owner proceeds prior to receiving rental payments from tenants causing deficit spending and transferred funds between the security deposit and rental accounts to keep them balanced.

PAUL A SETER (CONOVER) – The Commission accepted the permanent voluntary surrender of the real estate license of Seter, effective December 13, 2023. The Commission dismissed without prejudice allegations that Seter violated provisions of the Real Estate License Law and Commission Rules. Seter neither admitted nor denied misconduct.

CORY STEPHEN RUSHATZ (SANFORD) – By Consent, the Commission suspended the broker license of Rushatz for a period of 2 months, effective December 1, 2023. The Commission found that Rushatz engaged in brokerage services while his license was on active suspension.

CAROLINA UNITED REALTY LLC (CHARLOTTE) – By Consent, the Commission suspended the firm license for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that an audit of the firm’s trust account records found that the firm failed to perform monthly reconciliations, failed to maintain accurate journals, and failed to include all required information in property ledgers. The firm also failed to disburse earned management fees for a period in order to reimburse the account for the embezzled funds; however, this caused comingling.

GRAHAM VINCENT MOTT (DELRAY BEACH, FL) – The Commission accepted the voluntary surrender of the real estate license of Mott, effective December 1, 2023. The Commission dismissed without prejudice allegations that Mott violated provisions of the Real Estate License Law and Commission Rules. Mott neither admitted nor denied misconduct.

EVAGELIA EUSTATHIOU (RALEIGH) – The Commission accepted the permanent voluntary surrender of the real estate license of Eustathiou, effective December 13, 2023. The Commission dismissed without prejudice allegations that Eustathiou violated provisions of the Real Estate License Law and Commission Rules. Eustathiou neither admitted nor denied misconduct.

CHARLES FRANKLIN ALEXANDER III (WILMINGTON) – The Commission accepted the voluntary surrender of the real estate license of Alexander, effective December 13, 2023. The Commission dismissed without prejudice allegations that Alexander violated provisions of the Real Estate License Law and Commission Rules. Alexander neither admitted nor denied misconduct.

KENNETH RUSSELL EDWARDS JR (SOUTHERN PINES) – By Consent, the Commission suspended the broker license of Edwards for a period of 24 months, effective December 15, 2023, but stayed the suspension after 1 month upon certain conditions. The Commission found that in sixteen transactions conducted by Edwards between 2020 and 2022, the closing prices noted in the MLS by Edwards was higher than the actual closing price noted on the Closing Disclosure and tax records. On at least five occasions, properties with inflated prices were used by appraisers as comparables in determining the Fair Market Value of other properties.

EDISON REALTY LLC (GREENSBORO) – The Commission accepted the permanent voluntary surrender of the real estate firm license, effective December 13, 2023. The Commission dismissed without prejudice allegations that the firm violated provisions of the Real Estate License Law and Commission Rules. The firm neither admitted nor denied misconduct.

ALEXIS CAMILLA EDISON (GREENSBORO) – The Commission accepted the permanent voluntary surrender of the real estate license of A. Edison, effective December 13, 2023. The Commission dismissed without prejudice allegations that A. Edison violated provisions of the Real Estate License Law and Commission Rules. A. Edison neither admitted nor denied misconduct.

MAXWELL FIUME EDISON (GREENSBORO) – The Commission accepted the permanent voluntary surrender of the real estate license of M. Edison, effective December 13, 2023. The Commission dismissed without prejudice allegations that M. Edison violated provisions of the Real Estate License Law and Commission Rules. M. Edison neither admitted nor denied misconduct.

DAVID DEMETRY SAWYERS (GARNER) – By Consent, the Commission reprimanded Sawyers, effective December 12, 2023. The Commission found that Sawyers failed to disclose his convictions and discharge on his North Carolina Real Estate License Application.

RAAED ABDULZAHRA AL HADDAD (FAYETTEVILLE) – By Consent, the Commission suspended the broker license of Al Haddad for a period of 12 months, effective December 5, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Al Haddad purchased, renovated, and listed a property for sale. The first buyer terminated due to finance issues but their home inspection report revealed structural issues in the crawl space resulting from moisture and termites and Al Haddad failed to update the RPOADS and failed to disclose the structural defects to the second buyer prior to the time of offer. Al Haddad also performed structural repairs without obtaining a permit.

BEST INVESTMENT REALTY LLC (FAYETTEVILLE) – By Consent, the Commission suspended the firm license for a period of 12 months, effective December 5, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that the firm listed a property owned by broker-in-charge, Al Haddad, and failed to disclose structural defects in the crawl space that were discovered during a previous home inspection to the second buyer prior to the time of offer.

GLEN SOTO (SALISBURY) – By Consent, the Commission suspended the broker license of Soto for a period of 12 months, effective December 15, 2023. The Commission found that Soto purchased a property with the intent to renovate and resell and failed to hire a licensed general contractor for renovations exceeding $30,000. Soto misled the buyer as to the condition of the property and the status of agreed-upon repairs.  Soto also failed to provide documents as requested by the Commission in accordance with Commission rules.

MARCUS & MILLCHAP REAL ESTATE INVESTMENT SERVICES OF NORTH CAROLINA INC (RALEIGH) – By Consent, the Commission suspended the firm license for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that the firm entered into a listing agreement for the sale of a hotel offered via an auction website.  The firm failed to discover and disclose material facts prior to the start of the action, provide and review WWREA at first substantial contact, to properly supervise all brokers and unlicensed employees as required by Commission Rules, and to ensure that all individuals and entities receiving compensation for real estate brokerage activity were properly licensed. 

BENJAMIN ADAM YELM (RALEIGH) – By Consent, the Commission suspended the broker license of Yelm for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Yelm, acting as a broker-in-charge, failed to ensure proper agency disclosure requirements were followed by affiliated brokers, properly supervise provisional brokers and unlicensed employees as required by Commission Rules, ensure that all individuals and entities receiving compensation for real estate brokerage activity were properly licensed, and timely renew his real estate license and engaged in real estate brokerage activity during a time in which his license was on inactive status.

JOCE MESSINGER (RALEIGH) – By Consent, the Commission suspended the broker license of Messinger for a period of 15 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Messinger, acting as a listing agent for the sale of a hotel offered via an auction website, failed to discover and disclose obvious defects to the subject property prior to the start of the auction. 

MILIN V MEHTA (RALEIGH) – By Consent, the Commission suspended the broker license of Mehta for a period of 18 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that Mehta, acting as a listing agent for the sale of a hotel offered via an auction website, failed to discover and disclose obvious defects to the subject property prior to the start of the auction and complete post-licensing leading to his license becoming inactive.  During the time in which his license was inactive, Mehta engaged in brokerage activity. Mehta also failed to obtain a firm license for his real estate firm.

EXP REALTY LLC (RALEIGH) – By Consent, the Commission reprimanded the firm, effective December 5, 2023. The Commission found that the firm failed to provide specific policies or training regarding buyer agent communications with a buyer regarding the payment of due diligence fees and multiple offers. 

EXP REALTY LLC (RALEIGH) – By Consent, the Commission reprimanded the firm, effective December 10, 2023. The Commission found that an affiliated broker represented a seller of property serviced by a long private driveway that separated it from the nearest road. Respondent Broker indicated on the Working with Real Estate Agents Disclosure that the firm only practiced Dual Agency and falsely advertised that a subject property had road frontage. Respondent Broker also failed to disclose that there was no written easement for the private driveway that connected the subject property to the nearest road. A buyer under contract to purchase the property discovered the lack of road frontage or written easement after paying a $1000 due diligence fee and $2800 in additional costs for a survey and other tests.

TIFFANY FAYE MADDUX (RALEIGH) – By Consent, the Commission reprimanded Maddux, effective December 15, 2023. The Commission found that a broker under Maddux’s supervision represented a seller of property serviced by a long private driveway that separated it from the nearest road. The broker indicated on the Working with Real Estate Agents Disclosure to the seller that the firm only practiced Dual Agency and falsely advertised that the subject property had road frontage. The broker also failed to disclose that there was no written easement for the private driveway. A buyer under contract to purchase the property discovered the lack of road frontage or written easement after paying a $1000 due diligence fee and $2800 in additional costs for a survey and other tests. Maddux failed to supervise her affiliated broker with regard to agency and disclosure of material facts.

DANIEL KOUMOU NETE (CHARLOTTE) – By Consent, the Commission reprimanded Nete, effective December 5, 2023. The Commission found that Nete listed a residential property for sale in which he was a co-owner. The first buyer went under contract to purchase the subject property and had a home inspection performed. The first buyer terminated the contract during the due diligence period and shared their inspection report with Nete. Nete re-listed the subject property for sale without disclosing the material issues discovered in the inspection report, without repairing those issues, and without updating the property disclosure. A second buyer went under contract and terminated after their home inspection discovered similar issues. Nete then re-listed the subject property and made all of the appropriate disclosures to the third buyer who ultimately purchased the property.

KRISTIE LEE BRENNAN (FRANKLIN) – By Consent, the Commission reprimanded Brennan, effective December 5, 2023. The Commission found that Brennan listed a residential property for sale and stated in the TV/Internet section that the property had Fiber Optics. The seller’s current internet at the time of listing was Morris Broadband, which Brennan believed had been bought by Optimum Internet. Brennan therefore stated in the Agent Remarks section of the listing that the subject property had Optimum Internet. After the due diligence period expired, but prior to closing, it was discovered that Optimum Internet was not available at the subject property and that it would cost thousands of dollars to have it connected. Brennan’s seller-client offered to refund the due diligence fee, earnest money deposit, and inspection fees back to the buyer, who declined and closed on the transaction.

RASHAUNE HOPE DE LA CRUZ (FRANKLIN) – By Consent, the Commission reprimanded De La Cruz, effective December 5, 2023. The Commission found that De La Cruz, as the broker-in-charge, listed a residential property for sale and stated in the TV/Internet section that the property had Fiber Optics. The seller’s current internet at the time of listing was Morris Broadband, which De La Cruz’s’s agent believed had been bought by Optimum Internet. De La Cruz’s’s agent therefore stated in the Agent Remarks section of the listing that the subject property had Optimum Internet. After the due diligence period expired, but prior to closing, it was discovered that Optimum Internet was not available at the subject property and that it would cost thousands of dollars to have it connected. De La Cruz’s seller-client offered to refund the due diligence fee, earnest money deposit, and inspection fees back to the buyer, who declined and closed on the transaction.

THOMAS EVAN HARRELL (FRANKLIN) By Consent, the Commission reprimanded Harrell, effective December 5, 2023. The Commission found that Harrell acted as a buyer agent in a residential purchase transaction where his buyer-client told him that having Optimum Internet was a non-negotiable item on their must-have list. Harrell submitted an offer on a property that was advertised as having Optimum Internet. Harrell relied on the listing and did not verify this information before submitting the offer or during the due diligence period. After the due diligence period expired, but prior to closing, it was discovered that Optimum Internet was not available at the subject property and that it would cost thousands of dollars to have it connected. The seller offered to refund the due diligence fee, earnest money deposit, and inspection fees back to the buyer, who declined and closed on the transaction.

WILLIAM JAMES ACORD (CHARLOTTE) – By Consent, the Commission suspended the broker license of W. Acord for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that W. Acord discovered that an employee embezzled funds from the trust account so he terminated her, filed a police report, and notified the Commission. An audit of the firm’s trust account records found that W. Acord failed to perform monthly reconciliations, failed to maintain accurate journals, and failed to include all required information in property ledgers. W. Acord also failed to disburse earned management fees for a period of time in order to reimburse the account for the embezzled funds; however, this caused comingling.

KIMBERLY SUZANNE ACORD (CHARLOTTE) – By Consent, the Commission suspended the broker license of K. Acord for a period of 12 months, effective December 15, 2023. The Commission then stayed the suspension in its entirety upon certain conditions. The Commission found that K. Acord, acting as part-owner and accountant for Carolina United Realty LLC, discovered that an employee embezzled funds from the trust account so she terminated her, filed a police report, and notified the Commission. An audit of the firm’s trust account records found that no monthly reconciliations were performed, no accurate journals were maintained, and not all required information was recorded in the property ledgers. K. Acord also failed to disburse earned management fees for a period of time in order to reimburse the account for the embezzled funds; however, this caused comingling.

Vacation Rental Fraud Scam Alert

By Tiffany Ross- Consumer Resource Officer

Over the past year, the North Carolina Real Estate Commission has released several detailed scam alert articles, including Fake Seller / Fake Buyer Scam Alert, Notary Fraud / Deed Fraud Alert, Be Aware of Scam Sellers, and Rental Fraud Scam Alerts. In addition to these, NCREC, in conjunction with the North Carolina State Bar and Investors Title, hosted several Wire Fraud Conferences across the state. Vacation Rental Fraud is the latest scam that we want to educate consumers about.

Vacation Rental Scams

Many vacation rental scammers use reputable vacation rental websites to advertise, so the scams are harder to spot. These scams affect both the vacation rental tenant, and the property owners, as bad actors will pose as either to run their scheme.  For those looking to rent a vacation property, there may be a fake listing where someone asks you to send money in advance as a deposit or full advance payment.  Additionally, scammers may hack the email accounts of actual property owners or managers and then contact legitimate travelers and request payments to be made providing different instructions from previous deposits paid. Beware of sending any funds without verifying the receiver is legitimate.

For owners looking to rent out their vacation property, there are several scams to be aware of, including fake guests that will send a fraudulent check for more than the rental rate, and then ask for a refund of the difference.  Real guests sometimes will stay and damage the property or plant insects in the property and claim it was damaged on arrival or infested.  Another example is parents knowingly renting  properties for their underage children for spring break without an adult being physically present to supervise and prevent damage to the property or underage consumption of alcohol.  Being aware of these scams and not falling for these tactics can prevent the loss of hundreds or even thousands of dollars.

Action You Can Take:

1. Never send money to someone online or electronically without verifying it is going to a legitimate place.  Do your research and independently contact and verify that the person or firm who will be holding any money is a real attorney, licensed real estate broker, or the true property owner.
2. Be skeptical of anyone asking for money upfront before completing any paperwork or written or online agreement concerning the rental.  Make sure that you are communicating with the actual property owner or a licensed real estate broker.  Look up the property owner in public records for the county (typically through the tax department) and make sure to verify the identity of the person and their contact information.  To verify someone is a licensed real estate broker in NC, search the licensee look up page.   From this page, verify that their email and other contact information matches the advertisement.
3. If you are scheduling your vacation rental through a well-known or reputable platform, don’t leave the main app or platform.  Any protection offered to users of the platform ends when communication or payments are made by any other means than the platform itself. 
4. Search legitimate websites, or actual licensed real estate broker property management company websites for true vacation rental listings by licensed real estate professionals.
5. Be especially cautious if you are asked to pay with wire transfers, mobile payment apps, crypto or similar methods.  If possible, use a credit card to make payments preferably with zero fraud liability for an added layer of protection.
6. If you are an owner/property manager, change the access codes and/or WiFi passwords to the property after each guest.  Adjust your policies to be clear about who is required to be present during the rental term and any action that will be taken if unauthorized guests are found or if underage guests are left unsupervised.
7. Don’t fall for urgent requests or offers that are too good to be true.  Decline offers that seem suspicious.  Look for the Red Flags listed below and beware of these tactics.

Red Flags That You May Be Dealing With a Fake Owner/Manager Scammer

1. You can’t talk to an actual person, or they don’t want to answer your questions about the property or area/local attractions.
2. The listing has typos or poor grammar.
3. The price is too good to be true.
4. Reviews and ratings are short or non-existent.
5. They ask for rent, a security deposit, or other up-front money before signing a lease or agreement.
6. There is no screening process or any attempt to verify identity of tenant.

What To Do If You Are Already a Victim Of a Vacation Rental Fraud Scam in NC

If you responded to a fake ad and sent money, but never heard from the scammer again, contact the North Carolina Attorney General’s office to notify them of the scam and provide as much information as you can.  If the property is located outside North Carolina, contact the Attorney General’s office for that particular state.  You should also report the incident to the service or website you were using, and/or the actual owner/property manager if you were a tenant victim, as well as the Federal Trade Commission.  You can also contact local law enforcement (sheriff or police) and submit an internet crime complaint to the FBI to report the scam and see if there is any chance of recovery.

How You Can Protect Yourself or Your Clients

If you work in vacation rental property management and have clients who rent their vacation properties to tenants, educate them on these dangers and assist them by enhancing your screening processes of potential vacation rental tenants.  If you are working with a vacation rental tenant, provide information like this article to help them avoid the scams and traps, and assist them with carefully verifying the vacation rental details.  Stay in contact with them, and make sure they are aware of the NC Vacation Rental Act. If you are considering a vacation rental, be sure to verify that the rental is legitimate and watch out for the red flags above to protect yourself in the process.

If you or your clients have a problem with a vacation rental, and a licensed real estate broker is involved, contact the Commission’s Regulatory Affairs Division at (919) 719-9180. If there are concerns about the actions of an unlicensed property owner managing their own property, or other unlicensed property management activity, contact this office and the Attorney General’s office (877) 566-7226.

Interest Rate Buydowns – Are You Violating Regulation Z?

A fresh look at broker responsibilities under the Truth in Lending Act.

By Beth McGonigle, Education Content Officer

When home prices and interest rates rise, as we’ve seen recently, mortgage companies may look for ways to make home ownership more affordable for buyers.  Some are offering loan programs with interest rate buydowns.  It is important that brokers understand what is required when advertising that a lender is offering a buydown for a listed property. This article provides a brief refresher on the requirements of Regulation Z, as it applies to real estate brokers, and more specifically, what items must be disclosed when advertising the availability of a buydown.

Truth in Lending Act Refresher

The Truth in Lending Act (TILA) was enacted in 1968 to protect consumers of credit by requiring that lenders provide disclosures related to the terms and true cost of credit to consumers.  The law has been amended several times, including after the financial crisis during 2007-2008.  Sweeping legislation, aimed at preventing excessive risk-taking and abuses in the credit industry, was enacted at that time. These changes also created the Consumer Financial Protection Bureau (CFPB).

One of the roles of the CFPB was to create regulations for the new laws and TILA.  These are known as Regulation Z and can be found at 12 Code of Federal Regulations (CFR) Part 1026.  The CFPB was also tasked with creating a new disclosure format by replacing the existing Truth in Lending Statement under TILA and the disclosures required under the Real Estate Settlement Procedures Act (RESPA).  Thus, the Loan Estimate and Closing Disclosure that are used today were created and implemented in 2015.

All mortgage lenders, including banks, credit unions, and finance companies, are subject to TILA and Regulation Z.  “Arrangers of credit” are not.  Arranging credit means a person or entity is simply introducing or referring a consumer to a lender.  Mortgage brokers and real estate brokers are considered arrangers of credit and therefore not subject to the law.  However, if an arranger of credit advertises certain terms of a loan, called “trigger terms,” then the ad becomes subject to TILA.  See the chart below for a list of trigger terms.

Additional Terms That Must Be Disclosed (When Triggered)

If a broker includes a trigger term in their advertising, then the broker must also disclose all of the following within the same advertisement:

–The amount or percentage of the required down payment.

–The full terms for loan repayment or payment schedule including any balloon payments.  This must include the payment amounts for the full term.  These can be generic, such as 360 monthly payments of $5.68 per $1,000 borrowed.

–The annual percentage rate (APR).  This calculation includes all charges to the borrower including interest on the loan, origination fees, mortgage insurance, underwriting fees, and other closing costs, expressed as an annual percentage of the loan amount.  Most brokers do not possess the knowledge or desire to calculate the APR for a mortgage loan.  They would need to know the amount of all borrower fees in order to properly disclose the APR. Without that knowledge and ability, the broker should avoid advertising an APR.

Interest Rate Buydown

When triggered, the additional required disclosure becomes more complicated when the interest rate is variable or there is an interest rate buydown.  An interest rate buydown, sometimes called a “mortgage buydown” or simply a “buydown,” is a loan program in which the initial interest rate is lower than the current market rate for a specific number of years or for the life of the loan.  After the initial term, if applicable, the interest rate jumps up to the higher original market rate. 

In exchange for the lower rate, borrowers must pay a fee for the buydown.  The fee is generally paid at settlement.  Often the seller offers to pay for the buydown fee.

3-2-1 Buydown Example

TERMS:  $300,000 mortgage loan at 7.25% market interest rate with a 3-2-1 buydown

Each of the numbers in “3-2-1” represent the reduction in the interest rate for the first three years.  Thus, the first year’s interest rate would be:

7.25% minus 3% = 4.25%

The monthly payment (principal and interest only) and the amount saved by the borrower in each year are provided in the table below.

Buydown and Regulation Z

Regulation Z states that when an advertisement includes a buydown:

• An arranger of credit may advertise the reduced simple interest rate, provided the ad shows the limited term to which the reduced rate applies and states the simple interest rate applicable to the balance of the term.

• The advertisement may also show the effect of the buydown agreement on the payment schedule for the buydown period, but this will trigger the required additional disclosures (required down payment, full terms of payment schedule, and APR).

Can You Identify the Trigger Term?

Below are actual advertisements from brokers.  Most are on behalf of a builder-client.

AD #1:             YEAR END CLOSEOUT SALE!!

Put one of our finished homes under contract before the end of the year and take advantage of an insanely low 5.63% interest through 2/1 buydown OR $10,000 in concessions!  Available properties include…

AD #2:             LIMITED TIME OFFER!!

For a limited time, our builder is offering a rate buydown with a 5.99% fixed interest rate available on select homes in…  Payment includes P&I, 20% down, 30 year conventional fixed rate at 5.99% (6.125% APR).  Call for details.

AD #3              DID YOU KNOW…

Did you know that you can buy a brand new home in XYZ town for less than $2,500/month?

Ad #1 quotes an interest rate of 5.63%.  However, it does not include the term or number of years the rate would apply.  Is it the first year, second year, or all remaining years?  To be compliant with Regulation Z, the ad would need to indicate which years of repayment would reflect the quoted rate.

In Ad #2, the trigger terms include the 20% down payment and the interest rate for the buydown.  As in Ad #1, this ad would also need to state the terms applicable to the 5.99% interest rate.  In addition, the full payment terms or schedule would need to be included, showing the payment amounts for years 1, 2, and all remaining years.  In addition, the use of the term “fixed interest rate” is confusing since the interest rate is different in years 1 and 2.

Ad #3, while not related to a buydown, quotes a monthly payment of $2,500.  This is a trigger term under Regulation Z.  To be compliant, the ad must include the required down payment, full terms of payment schedule, and the APR.

Penalties and Recommendations for Brokers

Violation of Regulation Z may result in various penalties including imprisonment, fines (a fine of $6 million was levied in 2022 to a violator); civil actions that could include treble damage awards, and for companies, class action lawsuits.  Violations can also render the mortgage loan “unsecured,” meaning the property is no longer collateral for the loan.  In addition to trigger term issues, violations include inaccurate calculations of APR, finance charges, and the amount financed.

Regulation Z violations can also affect your broker license.  Under North Carolina General Statute 93A-6(a) (8) and (10), the Commission can discipline a broker for violating Regulation Z.

Here are a few recommendations to avoid penalties:

1. Review your existing ads against the requirements of Regulation Z and make adjustments as needed.
2. When creating a new ad, be sure to adhere to Regulation Z.  Look for trigger terms.
3. You may want to work with a lender on the specific financial terms.  However, if it’s your ad, YOU are responsible.
4. If you represent a builder, educate them on the requirements of Regulation Z and/or review their ads containing financial information.
5. Seek legal advice on these types of ads.

The 5 Most Frequently Asked Questions by Brokers in December

By Tiffany Ross, Consumer Resource Officer and Bruce Rinne, Information Officer

The North Carolina Real Estate Commission is contacted daily with questions from brokers about various topics. The responses to the five most frequently asked questions are below.

Question #1:  Once a buyer has sent the termination form to the seller, can I change the property back to active in the MLS, or do I have to wait for the buyer and seller to agree in writing on the disposition of the earnest money? 

This response depends on the status of the current transaction, which termination form was used, and the local MLS rules.  Therefore, a broker should review the transaction with their BIC and ask for guidance on the transaction. Depending upon the geographic location, each MLS may have different rules and regulations, and brokers should review these rules prior to changing the status.  If a broker uses the Offer to Purchase and Contract, Standard Form 2T, there are 4 standard termination forms created by NC REALTORS®/NCBA; therefore, it is important to use the correct form to terminate the transaction. 

The contract may be terminated:

1. at any time from the effective date to any time after the last agreed upon closing date by using either Form 390-T TERMINATION OF CONTRACT BY MUTUAL AGREEMENT WITH RELEASE OF EARNEST MONEY DEPOSIT or Form 391-T TERMINATION OF CONTRACT BY MUTUAL AGREEMENT WITHOUT RELEASE OF EARNEST MONEY DEPOSIT.
2. by the Buyer during the Due Diligence Period by using Form 350-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO SELLER FROM BUYER.
3. by the Seller should the Buyer fail to deliver the Due Diligence Fee or initial Earnest Money Deposit after the Seller has demanded payment by using Form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER . Once the seller has demanded payment using Form 355-T, and payment has not been made as required, the seller can terminate using Form 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER.
4. by the non-delaying party 7+1 days past the last agreed upon closing date (unless there is an agreement to shorten that time from 7 days to 4 days per Form 4-T AGREEMENT TO AMEND in which case the Buyer can use Form 350-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO SELLER FROM BUYER. The Seller may also use 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER.

Further, failure to close does not automatically terminate a standard contract.  It becomes voidable by the non-delaying party, but a termination form should be used to ensure it is properly terminated.

Question #2:  Can I do business under a team name “powered by” my firm’s name, without having a business entity created in that team name?

A broker may advertise in their firm name, and even a team name, if the correct entities and/or the correct assumed business name certificate for the company is in place.  Brokers may review this article published in the March 2022 eBulletin for more details: A Rose By Any Other Name – Names, Name Changes and Assumed Names.   The Commission has several other resources to assist brokers with advertising their brokerage business, such as Team Scenario: Setting Up a Team Inside a Firm. 

Question #3:  How much time does a firm have to pay me my earned commission?

The Commission does not dictate the method/process BICs use to disburse commission /referral fees. Brokers should review their Independent Contractor Agreement that they signed with their firm. This agreement should specify the timing and method for payment of funds to the broker at the conclusion of the transaction. As a reminder, NCREC does not handle commission disputes.

Question #4:  Property Management / Tenant Security Deposit Questions.

The Commission expects brokers to possess competency in the areas of brokerage in which they choose to practice. Further, if a broker chooses to practice residential property management, they must be competent in federal and state fair housing laws, the North Carolina Tenant Security Deposit Act, Residential Rental Agreements Act, and the Vacation Rental Act (if applicable), and License Law and Commission rules.Just as in sales transactions, Brokers engaged in property management are required to disclose material facts and treat consumers with honesty and fairness.    

Question #5:  When is the due diligence fee due?  What can my seller/client do if it is not paid?

If your clients are using the Offer to Purchase and Contract, Standard Form 2-T, the due diligence fee is due immediately on the effective date of the contract, which is the date the contract is signed by all parties, and acceptance is communicated back to the offering side.  If the buyer fails to deliver the due diligence fee on the effective date of the contract, the buyer could be in breach of the contract.  Also, the buyer’s failure to provide the funds within one banking day of written notice can result in the contract being terminated by the seller. Moreover, the seller may be entitled to all monies due per the contract, including the due diligence fees, and any earnest money paid or due to be paid.

In the Offer to Purchase and Contract, Standard Form 2-T, if a buyer fails to deliver the Due Diligence Fee and Earnest Money Deposit, the Seller has the right to terminate the contract. However, the contract does not specify a means by which they must formally request the money. The Seller can use Form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER and provide it to the Buyer. The Buyer will then have until the end of the next banking day to provide the Due Diligence and/or Earnest Money Deposit to the Escrow Agent as Cash, Official Bank Check, Wire Transfer or Electronic Transfer. If the Buyer does not deliver the monies, the Seller can then use Form 352-T TERMINATION OF CONTRACT (FORM 2-T) BY NOTICE TO BUYER FROM SELLER and check the box.

Once the seller submits Form 352-T, they have unilaterally terminated the contract which allows the seller to place the residential property back on the market for sale. Additionally, it may allow the Seller to sue the Buyer for not only the Due Diligence Fee but the Earnest Money Deposit as well. We recommend brokers advise their clients to seek the advice of legal counsel if they have questions about terminating a contract.

If the Offer to Purchase and Contract, Standard Form 12-T for vacant land is used, the process is similar. The Seller would use form 355-T NOTICE TO BUYER TO DELIVER CASH, OFFICIAL BANK CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER. If the Buyer fails to comply to the demand for the monies, the Seller would then use Form 353-T TERMINATION OF CONTRACT (FORM 12-T– VACANT LOT/LAND) BY NOTICE TO BUYER FROM SELLER. Next, the seller may place the property back on the market to sell and speak to an attorney about the prospects of suing the Buyer for the Due Diligence and Earnest Money Deposit. If you have questions or comments regarding any information in this article, contact Regulatory Affairs at 919.719.9180.

Announcement: The Commission names new Assistant Directors of Regulatory Affairs and Education and Licensing

Kristen Fetter was named the Assistant Director of Regulatory Affairs for the North Carolina Real Estate Commission in October 2023. Ms. Fetter graduated from North Carolina State University with degrees in Political Science and Spanish Language and Literature. She received her law degree from the Norman Adrian Wiggins School of Law at Campbell University in 2006.

Since graduating from law school, Kristen has spent the majority of her career working in the court system. Kristen was the Trial Court Administrator in Wake County for 3 years. She served as a criminal prosecutor for nearly 12 years and is licensed to practice law in North Carolina, Arizona, and Virginia. Kristen joined the Commission’s Regulatory Affairs staff in November 2021.

As the Assistant Director of Regulatory Affairs, Kristen’s duties involve prosecuting complaints before the Commission, conducting settlement negotiations of contested cases, representing the Commission on appeal, and responding to inquiries relating to the License Law, Commission rules, and real estate transactions, generally.

Kizzy Crawford Heath was named the Assistant Director of Education and Licensing for the North Carolina Real Estate Commission in December 2023. Ms. Heath graduated from Elizabeth City State University with a degree in Criminal Justice and a minor in Pre-law. She received her Masters in Adult Education degree from the University of Phoenix in 2004, and her law degree from North Carolina Central University School of Law in 2010.

Since graduating from law school, Kizzy was on the faculty at North Carolina Wesleyan University and Wake Technical Community College where she taught Legal Environment, Criminal Law, Constitutional Law, Court Procedure and Evidence, and Ethics. Ms. Heath authored supplemental instructional resources for the education and publishing company, Pearson Education, prior to joining the Commission. As the former Legal Education Officer at the Commission, she wrote various educational material, the mandatory Update Course for real estate brokers each license year, and co-authored the North Carolina Real Estate Manual.

As the Assistant Director of Education and Licensing, Kizzy’s duties involve overseeing the development of educational materials for consumers and real estate brokers, licensure of brokers and business entities, responding to inquiries relating to License Law, Commission rules, and educational programs, generally.

Case Study: Material Facts

FACTS: A provisional broker located a property for their buyer client. The description of the property indicated that the driveway encroached on the adjacent lot.

The provisional broker did not disclose the encroachment to their buyer client, inquire with the listing agent about the encroachment, or ask to view the property survey. After the provisional broker informed the buyer client about the property, the buyer client expressed an interest in viewing it.

After viewing the property, the buyer client asked the provisional broker to submit an offer on their behalf. The seller accepted the buyer’s offer and the parties went under contract for the property.

The contract allowed for a due diligence period for the buyer to conduct inspections on the property. During the due diligence period, the buyer hired vendors to conduct a home inspection and a survey. At the conclusion of the survey, the buyer was notified by the surveyor that the driveway of the property encroached on the adjacent lot.

The buyer asked the provisional broker about the encroachment. The provisional broker indicated that it was the duty of the listing agent to disclose the encroachment to all parties in the transaction. Subsequently, the buyer terminated the contract during the due diligence period.

ISSUE: Did the provisional broker comply with N.C.G.S. §93A-6(a)(1)?

ANALYSIS:  No. N.C.G.S. §93A-6(a)(1) indicates that the Commission has power to suspend or revoke at any time a license issued under the provisions of this Chapter, or to reprimand or censure any licensee, if following a hearing, the Commission adjudges the licensee to be guilty of making any willful or negligent misrepresentation or any willful or negligent omission of material fact. 

A material fact is any fact that could affect a reasonable person’s decision to buy, sell, or lease. Therefore, a broker has an affirmative duty to discover and disclose material facts to all parties in a transaction. Additionally, brokers are expected to take reasonable steps to discover all pertinent facts that are necessary to serve their clients’ interest. In this scenario, the driveway encroaching on the adjacent lot is a fact about the property that the provisional broker should have timely disclosed to their buyer client.

Further, the Commission assesses whether or not a broker knew the existence of a material fact by analyzing documents and reviewing written correspondence. Essentially, the Commission uses the Reasonableness Standard to evaluate a broker’s duty to discover and disclose material facts. This standard dictates that a broker has a duty to discover and disclose any particular material fact if a reasonably knowledgeable and prudent broker would have discovered the fact during the course of the transaction and while acquiring information about the property.

In this scenario, the provisional broker was made aware via the property description that the driveway of the property encroached on the adjacent lot. Therefore, the provisional broker was aware of the existence of the encroachment prior to informing their client about the property’s availability and viewing it. Further, the provisional broker did not act like a reasonably prudent broker because theyfailed to ask additional questions about the encroachment or the property survey.

In this case, the provisional broker had a duty to investigate the encroachment and should have assisted the buyer-client in obtaining any information related to the encroachment and property. The provisional broker’s assertion that the discovery of the encroachment was the duty of the listing agent is incorrect. Every broker must exercise reasonable care and diligence in discovering and disclosing all material facts to all interested parties in a timely manner in adherence to N.C.G.S. §93A-6(a)(1). Lastly, Rule 58A .0506 indicates that a provisional broker must be supervised by a broker-in-charge in order to conduct brokerage activity. The provisional broker failed to adhere to N.C.G.S. §93A-6(a)(1) and as a result, the provisional broker and broker-in-charge may be subject to disciplinary sanction by the Commission.

RESOURCES:

N.C.G.S. § 93A-6(a)(1), 93A-6(a)(8), and 93A-6(a)(10)

License Law and Commission Rules: Rule 58A .0506

Articles: What is Common Knowledge?

Material Facts: Speak Up!

Staff Appearances

Brian Heath, Consumer Protection Officer, spoke at Coldwell Banker Howard, Perry, and Walston on December 5.

Steve Fussell, Chief Consumer Protection Officer, spoke at Fonville Morisey Realty-Cary on December 5.

Bruce Rinne, Information Officer, spoke at Burlington-Alamance County Association of REALTORS® on December 14.

Diversity, Equity, and Inclusion

Dr. Martin Luther King Jr. was a tireless advocate for racial equality, the working class, and marginalized people around the world. In honor of Dr. King’s life and legacy the third Monday in January of each year is celebrated as Martin Luther King, Jr. Day (MLK Day), a federally recognized holiday. MLK Day is also designated as a National Day of Service, the only federal holiday with this designation. The National Day of Service was established as a way to honor Dr. King by serving the community, taking action to create a more just and equitable society for all.

The Commission encourages you to take this day to engage in your community through volunteer opportunities. To learn more about Dr. Martin Luther King, Jr or to find volunteer opportunities visit the links below:

Martin Luther King, Jr. | About Dr. Martin Luther King, Jr. (thekingcenter.org)

The Martin Luther King, Jr. Research and Education Institute (stanford.edu)

Martin Luther King, Jr. | NAACP

Volunteer Opportunities | nc.gov

MLK Day of Service | Youth Service America (ysa.org)

Martin Luther King, Jr., National Day of Service | AmeriCorps

Birthday of Martin Luther King, Jr. – NPS Commemorations and Celebrations (U.S. National Park Service)

Tech Corner: The Commission’s Tech Study Group Investigates New Technology Uses

The Commission’s Tech Study Group, led by Vice Chair T. Anthony Lindsey, is excited to share new technology that is being investigated by the Commission. You can hear more about the Tech Study Group by watching the video below.

If you have any additional questions about the Tech Study Group, please visit our website at www.ncrec.gov.

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