Bulletin Search
The April Outreach Commission Meeting in Edenton Was a Success
The Commission held its April 2023 meeting in Edenton, NC at the Historic 1767 Chowan County Courthouse as part of its outreach initiative. The Commission welcomed local brokers and the public to the meeting. The Commission held two hearings in the historic courtroom, a rule-making hearing and a disciplinary hearing. You can view past meetings, and a schedule of the upcoming meetings, on the Commission’s website.
Renewing Your Real Estate License is a SERIOUS Matter!
Are you a Qualifying Broker (QB)? Did you know that QBs are responsible for renewing the firm license? Are you a Broker-in-Charge (BIC)? Are you aware that a BIC’s failure to renew their broker license or complete the appropriate continuing education (CE) can adversely affect their affiliated brokers?
Every year during license renewal, a brokerage is adversely impacted due to the QB or BIC failing to renew their individual broker license, firm license, or complete the appropriate CE, respectively.
Let’s discuss some of the consequences of a QB or BIC failing to renew their broker and/or firm licenses and complete the appropriate CE, under Rules 58A .0503 and .1702.
Qualifying Brokers
Question: What if the QB fails to renew their broker license?
Answer: If a QB fails to renew their broker license during May 15-June 30, the firm’s license will go on inactive status even if the firm’s license has properly been renewed. The firm’s license will go on inactive status because the QB’s broker license is expired and the firm must have an active QB to conduct brokerage activity in North Carolina.
Question: What if the QB fails to take the appropriate CE?
Answer: If a QB fails to take the appropriate CE according to their license status, the firm’s license will go inactive. The firm’s license will be inactive because the QB’s broker license is inactive and the firm must have an active QB to conduct brokerage activity in North Carolina.
Question: What if the QB renews their license but does not renew the license of the firm?
Answer: If the QB renews their license, but not the firm’s license, the firm’s license expires effective midnight of June 30. If the firm’s license is expired, the affiliated brokers must cease all brokerage activity. Also, all of the agency agreements are immediately at risk, since the brokerage can no longer legally fulfill its contractual obligations.
Question: What if the QB quickly renews their own license and that of the firm – does everything go back to normal?
Answer: Once the firm license is reinstated, as well as the QB’s, the QB must re-designate a BIC for each office of the firm; then, the BIC(s) must re-affiliate all the brokers with their brokerage office using Form 2.08, License Activation and Affiliation.
Brokers-in-Charge
Question: What if the BIC fails to renew their broker license?
Answer: If a BIC fails to renew their broker license during May 15-June 30, the BICs license will expire. Due to the BIC’s license expiration, the affiliated brokers will not be able to conduct brokerage activity legally. Affiliated full brokers will remain on active status at their home address but may not list property, advertise, or collect trust monies, and provisional brokers will be marked inactive.
Question: What if the BIC fails to take the appropriate CE?
Answer: If a BIC fails to take the appropriate CE according to their license status, the BIC’s license will go inactive. The BIC’s license will be inactive; therefore, the affiliated brokers will not be allowed to conduct brokerage activity. Although affiliated full brokers will remain on active status at their home address, provisional brokers will be marked inactive. In order for the BIC to regain BIC Eligible status, they must complete all of their CE requirements, including the current year’s CE and curing the CE deficiency and then take the 12-hour BIC course if it was not completed within the previous 12 months. Additionally, BICs must also submit Form 2.25 to Request BIC Eligible Status and/or Broker-in-Charge Designation after the completion of the 12-hour BIC course, if they had to take it.
NOTE: BICs must also consider that if they lose their BIC status, they might not qualify for BIC Eligible status in the future. They may not qualify because they do not have 2 years of full-time brokerage experience within the previous 5 years and/or they may have a pending complaint.
Lastly, once a BIC has completed the required CE, regained BIC Eligible Status and designated themselves as BIC of the brokerage, they must re-affiliate all brokers again with the brokerage using Form 2.08, License Activation and Affiliation.
Bottom Line
The consequences of a QB, BIC, or firm failing to renew have significant repercussions and require a lot of paperwork and potentially, education, to get back on track. All of this can be avoided if the QB renews their individual broker license and the firm’s license, and the BIC renews their broker license between May 15-June 30 of each year, and completes their required CE by June 10.
Managing a Vacation Rental Purchase Transaction
By Fred Moreno – Chief Deputy Legal Counsel
Have you acted as a broker in a transaction where the subject property was being leased? If so, you may have learned that North Carolina has two different sets of laws relating to rental property, one pertaining to long-term rentals (Chapter 42), and the other to “vacation” rentals (Chapter 42A). This article will discuss the implications that Chapter 42A may have on the transfer of vacation rental properties.
What makes a rental property a “vacation rental”? Chapter 42A, the Vacation Rental Act (“VRA”), defines a vacation rental as “The rental of residential property for vacation, leisure, or recreation purposes for fewer than 90 days by a person who has a place of permanent residence to which he or she intends to return.” The bulk of the VRA deals with the management of these properties, so anyone handling the management of vacation rentals should be familiar with this law. But, what about brokers who only deal in sales? Do they need to know about the VRA? Absolutely – they might be listing one for sale, or representing a buyer who is purchasing one.
There is a common misconception that the VRA only deals with properties located at the beach. In reality, however, rental properties that fall under the VRA are found on the coast, in the mountains, and everywhere in between. More residences in more locations are available now than ever before due to the emergence of the Internet and sites run by companies such as VRBO, Airbnb, and FlipKey, among others. These sites have made it much easier for property owners to rent their places out for a week, two weeks, a month, or even just a weekend get-a-way. The VRA may apply to these properties whether they are being managed by licensed brokers or by unlicensed property owners.
It is common practice for tenants in vacation rentals to submit their applications months or even a year in advance of the dates they intend to occupy the property. Typically, these tenants will also pay most, if not all, of the rental amounts well in advance of their secured dates. This should create two major questions for any buyer agent or listing agent when faced with binding vacation rental agreements during the sale of the property: (1) how are the future tenants going to be handled by the new buyer, and (2) how are the deposits being handled as a result of the sale?
What do we do with these tenants when a property is sold prior to their reserved dates?
NC law requires that a residential property purchaser takes title subject to any vacation rental agreements that are to end “no later than 180 days after the grantee’s interest in the property is recorded”. This means that the purchaser MUST honor those vacation rental agreements. Failure to do so subjects a buyer to a civil lawsuit. A purchaser is not required to honor vacation rental agreements that end more than 180 days after recording, but if they do not, then the tenant is entitled to a refund of the monies paid, minus any fees allowed by law.
The VRA also requires that the property owner disclose to the potential buyer the time periods of any vacation rental agreements currently in place, prior to entering into any contract for sale. Existing reservations within the 180-day window are a material fact that any listing broker must disclose to prospective purchasers. The property owner is also required, within 10 days after the property transfer, to disclose the name and address for each tenant and to provide a copy of each vacation rental agreement. This task is often handled by the listing agent, working with the seller’s vacation rental manager, if any. A listing agent should ensure that required disclosure is being handled as part of the transaction.
The new purchaser also has duties under the law. Within 20 days of recording, the purchaser must: (1) notify each tenant in writing of the property transfer, the new purchaser’s name and address, and the date the interest was recorded; (2) advise each tenant whether they have the right to occupy the property subject to the terms of their vacation rental agreement and the provisions of the law; and (3) advise each tenant of whether they have the right to receive a refund of any payments they made.
What do we do with their money?
In a purchase transaction, buyer agents and listing agents must know what is going to happen to the advanced rents, already paid by tenants. These could have been paid to the owner directly, or to a property management firm on behalf of the owner. Some of it may have already been disbursed to the property owner by the management firm prior to the tenant occupying the property. In any case, the law requires that the property owner, or their agent, transfer these funds minus any lawful deductions to the new owner. The law requires this to occur within 30 days of the property transfer; typically, it is reflected on the Closing Disclosure statement and sent from the closing attorney’s trust account at closing. This means the amount being held must be accounted for and transferred to the closing attorney prior to closing. It is important for both the listing agent and buyer agent to verify that the correct amount of funds are being transferred.
The law also requires the property owner to refund any advanced rents minus any lawful deductions, back to tenants whose vacation rental agreements end after 180 days of recording and whose agreements the new owner will not honor. This must also occur within 30 days of transfer.
What are “lawful deductions”?
Lawful deductions may include fees earned by a property management company who managed the property up until recording. Management fees are owed by the prior owner, not the tenant. So, if they have already been deducted from the tenant’s deposit, the prior owner is responsible for either reimbursing the tenant or adding the deducted amount to the funds being transferred to the new owner as part of the deposit transfer.
In a Nutshell The sale of residential property that is or has been used as a vacation rental can harbor a number of potential issues that can come back to bite a broker who is not alert to the situation. It is imperative that a listing agent talk with their seller client and gather all information prior to listing about current vacation rental agreements in place. It is also imperative that a buyer agent talk with their buyer client and discuss the implications of the VRA, including that the buyer would have to honor vacation rental agreements within that 180-day period. The listing agent should also reach out to the property manager, if there is one, and bring them into the loop regarding the sale. The property manager could be a valuable asset for things such as providing copies of vacation rental agreements and documentation regarding repair issues, as well as providing an accounting of advanced rents that have already been collected or disbursed. Finally, if the proper steps are not followed under the VRA, such conduct may be found to constitute an unfair or deceptive act under N.C.G.S. §75-1.1, which can result in treble damages in a successful lawsuit.
Disciplinary Actions
MICA HOPE MATHEWS (GREENSBORO) – By Consent, the Commission reprimanded Mathews, effective April 1, 2023. The Commission found that June 2021, Mathews acted as a listing agent for a seller and advertised the renovated property as having a new HVAC. The dates of the HVAC units were actually 2003 and 2015 although a new range hood air makeup system had been installed. The buyer discovered the discrepancy and terminated the transaction, requesting a return of a portion of the $10,000 due diligence fee. Mathews revised her MLS listing following termination of the contract.
HEATHER NICOLE SHELTON (GREENBORO) – By Consent, the Commission suspended the broker license of Shelton for a period of 18 months, effective February 1, 2023. The Commission found that as the broker-in-charge and the qualifying broker of a Firm, Shelton executed a listing agreement to advertise real property for sale. Shelton failed to have all owners of the Subject Property sign the agency agreement. After the Subject Property went under contract, the owners changed the water source from City/County to a well. One of the owners notified Shelton of this change a few days before closing. Shelton failed to inform the buyers or their agent of the water source change. After closing, buyers expended thousands of dollars to run a new water line and meter to the Subject Property as the well could not be used as a water source for the Subject Property. Shelton’s license was on “inactive” status from July 1, 2022 through September 15, 2022, yet Shelton continued to engage in brokerage.
THE PRESTIGE GROUP OF THE TRIAD INC. d/b/a PRESTIGE GROUP REALTY (GREENBORO) – By Consent, the Commission suspended the broker license of Prestige Group Realty for a period of 18 months, effective February 1, 2023. The Commission found that the broker-in-charge (BIC) and the qualifying broker of the Firm, executed a listing agreement to advertise real property for sale. The BIC failed to have all owners of the Subject Property sign the agency agreement. After the Subject Property went under contract, the owners changed the water source from City/County to a well. One of the owners notified the BIC of this change a few days before closing. The BIC failed to inform the buyers or their agent of the water source change. After closing, buyers expended thousands of dollars to run a new water line and meter to the Subject Property as the well could not be used as a water source for the Subject Property. Prestige Group Realty’s license was on “inactive” status from July 1, 2022 through September 15, 2022, yet Prestige Group Realty continued to engage in brokerage.
VANESSA GRUNDAS (ETOWAH) – The Commission accepted the voluntary surrender of the broker license of Grundas effective April 19, 2023. The Commission dismissed without prejudice allegations that Grundas violated provisions of the Real Estate License Law and Commission rules. Grundas neither admitted nor denied misconduct.
WILBUR BECK JR (FAYETTEVILLE) – The Commission accepted the voluntary surrender of the broker license of Beck Jr effective April 19, 2023. The Commission dismissed without prejudice allegations that Beck Jr violated provisions of the Real Estate License Law and Commission rules. Beck Jr neither admitted nor denied misconduct.
RENEE HILL DAVIS (ASHEBORO) – The Commission accepted the voluntary surrender of the broker license of Davis effective April 19, 2023. The Commission dismissed without prejudice allegations that Davis violated provisions of the Real Estate License Law and Commission rules. Davis neither admitted nor denied misconduct.
Diversity, Equity, and Inclusion Updates
The Commission recently updated its website and now includes a dedicated diversity, equity, and inclusion (DEI) page. The new DEI page can be used as a resource to learn more about the Commission’s commitment to fostering a diverse and inclusive culture and community in real estate brokerage. You can also learn about new DEI initiatives, as they become available, and connect with other industry resources on diversity, equity, and inclusion. Please review the new page here and feel free to share with others who you feel might benefit from viewing it.
Staff Appearances
Minerva Mims, Diversity Equity Inclusion Officer, spoke at the NC REALTORS meeting on April 3.
Sheryl Graham, Consumer Protection Officer, and Angela Munsie, Auditor, spoke at the Realty Executives of Hickory meeting on April 26.
Tech Corner: Understanding NC’s Rollout of Remote Electronic Notarization
From the NC Department of the Secretary of State
Interest in Remote Electronic Notarization (REN) remains high, yet there are strong cross currents to be factored into North Carolina’s rollout.
The global pandemic increased the appetite—indeed, the necessity–for “remote” conduct of economic activity. Concurrent rapid technological changes have reinforced the importance of ensuring that crucial business, legal, healthcare, and other transactions can be conducted safely, securely and efficiently in a remote environment.
The North Carolina General Assembly addressed the competing needs by passing the Remote Electronic Notarization Act (RENA) last July. Some provisions took immediate effect, such as the extension of Emergency Video Notarization (EVN), which now expires at 12:01AM on June 30th.
Remote electronic notarization (REN)-focused provisions have a longer launch period, however. Although July 1, 2023 is often mentioned as the “Go-Live” date, that is NOT what the statute actually says. July 1st is the date by which the Secretary of State “shall begin rulemaking to implement” RENA, and “no temporary or permanent rule shall become effective prior to July 1, 2023.” So, one might wonder, when will North Carolina notaries be able to conduct remote electronic notarizations?
When dealing with a new law involving high economic stakes and rapidly evolving technology, preparing the necessary rules is not simple. Understanding the factors influencing the timeframe for rollout is key for business planning and to stay the course…so that North Carolina gets what we truly want and need.
As soon as RENA was adopted, the North Carolina Secretary of State initiated internal research and requested external input. On October 21, 2022, the Secretary published Advance Notice of Proposed Rulemaking #1. In ANPR #1, the Secretary sought input on the role of the remote electronic notary public (RENP) and the general procedures and standards needed to implement RENA to ensure the effectiveness, efficiency and integrity of the notarial acts and processes contemplated under RENA. The comment period closed November 30th, and the comments are publicly available at this weblink.
On March 30, 2023, Advance Notice of Proposed Rulemaking #2 was published. In ANPR #2 the Secretary seeks public input on the technical features, components, specifications and standards required by RENA and applicable to the communication, credential analysis, and identity proofing described in the statute. Input is being accepted through May 15th. The Secretary is formulating rules based in part upon stakeholder comments received in response to the ANPRs and has already invested over 2,000 hours in the process.
THE TECHNOLOGY
We need not look far for examples of difficulties and real harm that occur when technology doesn’t perform as expected or gets ahead of regulation and guardrails (e.g., cryptocurrency and generative artificial intelligence). North Carolina has proceeded thoughtfully given the stakes with REN. The General Assembly imposed requirements for security and privacy and background investigations of those providing the technology and storage that the Department is required to flesh out and implement. We must make sure that the technology used is secure for both the notary and the principal—and all those relying on the process. Enhancing security and reliability at this stage facilitates economic growth while reducing costly and avoidable litigation.
For example,
A. We are required to adopt rules regarding geolocation of the principal who is not located in North Carolina.
B. We have to provide rules to prevent the communications technology and the Notary from being deceived, by, for example:
- Hackers and other bad actors and
- Deep fakes who look like the real person but are not. See, e.g., the July 31, 2022, 60 Minutes story on this.
C. We must determine whether the identity proofing technologies must be 100% accurate or, if not, how much inaccuracy can be tolerated in a process that is designed to reduce the likelihood a document has been signed fraudulently or under duress.
Rules drafted on these and other topics must be done with care and only after intense research so that the REN process can be conducted securely, with reasonably available technology, and in accordance with the expectations of the General Assembly.
THE RULEMAKING
Drafting and then promulgating rules is labor intensive and time consuming. Besides creating new rules focused on REN, some existing Notary and E-Notary rules must also be revised so they are consistent with the upcoming REN rules. All rules must be adopted in accordance with the very deliberative notice and comment provisions of the Administrative Procedure Act, and must meet the standards established by an independent body, the North Carolina Rules Review Commission. A flow chart of the Office of Administrative Hearings rulemaking process gives an idea of the time, stages and steps required once rules are drafted, yet it does not include all that must be done in connection with initiating and taking the steps on the flow chart.
LAUNCHING REN
Once rules are finally adopted, the work to launch REN begins. Platforms and third party vendors must apply, be screened and then licensed, and then contract with North Carolina notaries. The Notary Manual must be revised to incorporate all the changes to the law and rules. Forms must be prepared to make it easier for applicants to provide essential information. All notary training must be updated and community colleges engaged so North Carolina notaries may learn how the changes apply to them, and be trained, tested and authorized to conduct remote electronic notarizations. We will also have to coordinate with the Registers of Deeds so that notaries receive the proper commission. All these tasks must be completed before the first REN can be conducted.
So, when will North Carolina notaries be able to use REN? The short answer is we don’t yet know. But, just given the mandatory timelines that have to be met before we can adopt rules to even start the program, we expect it will be a year or more before the RENA is up and running.
WHAT CAN YOU DO NOW?
You, as a stakeholder, are invited to give your input—early—so it can inform and improve rulemaking and expedite the process. You can do that by going to ANPR #2. Submit comments by May 15, 2023 to: Ann B. Wall, General Counsel and Rulemaking Coordinator, ANPR@sosnc.gov. For updates on our rulemaking, add yourself to our interested parties list.
For those planning to incorporate REN into their business operations, in-person electronic notarization (IPEN) is already available today. IPEN provides a secure platform to electronically notarize electronic signatures on electronic documents with the same level of document integrity required by RENA. In fact, when paired with EVN, remote electronic notarizations can be performed today. Click here for information on how to perform a remote electronic notarization using EVN. Find an E-Notary through our “Find a Notary” feature here.
There is little need for those planning to implement REN to wait for RENA to be fully effective when the tools of IPEN and EVN can be utilized today. It is highly likely that those who implement REN will also incorporate IPEN and that both will be employed to service remote as well as in person customers. Click here for information on becoming an electronic notary.