2015-16 Broker-In-Charge Update

Welcome to the
2015-2016
BICUP Course

Should you be here???
Brokers-in-Charge
& BIC Eligible Brokers
should take this course.
Provisional Brokers and
non-BIC Brokers
must take the
General Update Course.

Course Completion Reporting
We are responsible for reporting
course completion information to the
NCREC via Internet within 7 days .

Today’s Topics
• Farewell HUD-1? Hello TRID!
• Sales of Vacation Rentals
• Changes to Commission Rules, Contracts
and Addenda
• Broker Safety
• Licensing and Education
• Handling Complaints
• Handling Trust Monies
• BIC Requirements

It’s March 10 and you just received a
“Buyer Closing Disclosure” from the
attorney for your closing on March
14.
The document is 5 pages long, and
your Buyers are waiting for you to
explain it to them.
Are you ready to do that?
Scenario 1
p1

Your Buyers’ closing is scheduled
for Monday, May 23.
In order to close on that date, your
Buyers must receive a Closing
Disclosure by May 19.
The clock is ticking…
Scenario 2
p1

Your obligations are not changing.
There are many similarities between the
old and new forms.
p2

Objectives
At the end of this section, you should be able to:
• explain the purpose of the changes.
• identify events that trigger the Loan Estimate (LE).
• identify key elements of the Closing Disclosure (CD).
• identify critical dates for delivery of the CD.
• explain the broker’s responsibility for LE and CD.
• identify issues that may cause closing delays.
p2

Abbreviations
• CFPB: Consumer Financial Protection Bureau
• TRID: TILA-RESPA Integrated Disclosures
• TILA: Truth-In-Lending Act
• RESPA: Real Estate Settlement Procedures Act
• TIL: Truth-in-Lending (Statement)
• GFE: Good Faith Estimate
• HUD-1: Settlement Statement
• LE: Loan Estimate
• CD: Closing Disclosure
• BCD: Borrower’s Closing Disclosure
• SCD: Seller’s Closing Disclosure
p2

What WAS the Problem?
BEFORE October 2015: Duplicate forms
required by TILA and RESPA
Dodd-Frank was tasked with
consolidating the forms
p2

Hence…
HELLO, TRID:
TILA/RESPA
Integrated Disclosures
p3

New Disclosure Forms
GFE
Early
TIL
Loan
Estimate
(LE)
HUD-1
Final
TIL
Closing
Disclosure
(CD)
p3

So, what does this mean for you
as a Broker???
p5

Your obligations are not changing.

New rules apply to
LOAN APPLICATIONS
RECEIVED
on or after
October 3, 2015.
p5

Who’s Responsible?
LENDERS are responsible for
knowing which transactions are
covered.
Real estate brokers should have a
GENERAL understanding.
Table on page 6 provided for your reference.
pp5-6

May lenders use the new Loan
Estimate and Closing Disclosure
forms in excluded transactions
(when the forms are not required)?
p7

The HUD-1 is…
Stayin’ Alive.
It will still be used in some transactions.
p7

Which changes require
a new 3-day review of CD?
1. APR increases by MORE than:
• 1/8% for fixed-rate
• 1/4% for adjustable
2. Prepayment penalty
added
3. Basic loan product
changes
p8

Are Brokers responsible for the
accuracy of the Loan Estimate?
NO
p9

Should Brokers have a general
understanding of when their
clients are supposed to be given
the Loan Estimate?
p9

The Loan Estimate
Must be given within 3 days
of Loan Application
p9

Loan Application
Borrower has provided:
1. legal name
2. gross income
3. SSN (for credit report)
4. property address
5. estimate of property value
6. amount of mortgage loan requested
p9

The Loan Estimate
A lender may NOT charge a consumer
any fee(s) prior to providing
the Loan Estimate other than
a reasonable fee for a…
p10

Tolerance Limits still apply
and are now called
“Permissible Variations”
Brief explanations of permissible variations are
provided on page 10.
p10

Brokers’ Responsibility for LE
GENERAL
understanding of…
• which
transactions are
subject to TRID
• timing & purpose
of Loan Estimate
Lenders are responsible for the Loan Estimate.
p11

If a transaction begins with the OLD
forms, it will end with the OLD forms.
If a transaction begins with the NEW
forms, it will end with the NEW forms.
Reminder: TRID rules apply to
loan applications received
on or after October 3.
p11

2 Separate Closing Disclosures:
Borrower (Buyer) and Seller
Information has not changed.
It’s just been reorganized.
p11

Why are there two separate
Closing Disclosure forms?
Borrower’s
confidential loan
information
is not shared with
Seller.
p12

“What HIPAA did to medical
offices, TRID has done to
closing attorney offices.”
p13

of HUD-1 is now Page 3 of Buyer’s CD
HUD-1 page 1 BCD page 3

BCD page 3 – ALMOST IDENTICAL TO HUD-1

of HUD-1 is now Page 2 of Buyer’s CD
HUD-1 page 2 BCD page 2

BCD page 2 (top half of page)
Loan Fees
Attorney &
Title Fees
POC items

BCD page 2 (bottom half of page)
Loan Escrows
Recording Fees
& Excise Tax
Brokerage fees
Inspections &
Other Fees

The Seller’s Closing Disclosure (SCD)
SCD page 1
(seller’s total debits & credits)
SCD page 2
(seller’s costs/expenses)

SCD page 1 (bottom portion of page)
Total
Seller
Credits
Total
Seller
Debits
Broker
Info
Settlement
Agent Info

SCD page 2 (bottom portion of page)
Seller Costs/Debits & Seller-Paid Items

The Biggest Impact for Brokers:
The Borrower’s Closing Disclosure
must be
RECEIVED BY THE BORROWER
at least 3 BUSINESS DAYS
before Settlement
p18

What is a “Business” Day?
A Business Day is
Monday-Saturday
Sundays and
10 federal public
holidays are
excluded
p18

Definition of “RECEIVED”
If delivered IN PERSON:
The CD is “received” on the same day it
is provided.
If MAILED or delivered ELECTRONICALLY:
The CD is “received”
• on the 3rd business day after delivery
OR
• when lender has EVIDENCE of receipt.
p18

Example
If the BCD is RECEIVED BY THE BORROWER
on Monday, what is the earliest possible
date closing may occur?
Answer: Thursday (unless a federal holiday
occurs during the period)
Monday Tuesday Wednesday Thursday
Delivery Day 1 Day 2
Settlement
(3rd business day)
p19

Brokers:
The disclosure timeline is
It’s important to educate
your clients and customers.
p19

Rules apply to delivery of
BCD ONLY
No requirements for
delivery of SCD to Seller
p19

BCD must be delivered to
BORROWER
Delivery to Broker / Buyer Agent
is NOT Sufficient
p19

If the lender decides to issue
2 separate closing disclosures,
a broker acting as a dual agent should
only give the parties their respective CDs
Buyer should only see the BCD
Seller should only see the SCD
p19

Settlement Statement:
Broker Obligations
Broker must
Disclose
AND
Confirm Accuracy of
all entries that s/he has direct
knowledge
p21

Settlement Statement:
Broker Obligations
Broker must
Review
AND
Confirm Accuracy of
all calculations
p21

Potential Issues
• Closings may be delayed
• Tasks will have to be performed
earlier (ex: title search)
• Some lenders will create
Disclosures and send to closing
attorneys & attorneys will not be
allowed to make changes
p22

Review and Discuss
the Fact Situation
and related Closing Disclosures
on pages 23-28.
Small Group Exercise:

Section 2:
Sales of Vacation Rentals
p29

You discover a “For Sale” sign in the
yard of one of the vacation rental
properties you manage.
The sign shows the name of another
broker/firm.
What should you do?
Scenario 1
p29

You’ve listed a property that is in
high demand. The seller tells you he
sometimes uses it as a vacation
rental. It is not his primary residence.
What questions should you ask him?
Scenario 2
p29

Your buyers are interested in a
mountain home they can use as a
second home and a vacation rental.
What questions should you ask the
listing agent?
Scenario 3
p29

Objectives
At the end of this section, you should be able to
explain:
• seller and buyer obligations when a vacation rental
property is sold.
• how to handle early termination of the manager-
broker’s agency agreement.
• how to disburse trust monies when a vacation rental
property is sold.
• the value of communication & cooperation between
brokers managing & selling the same property
p30

Vacation Rental Act (VRA) Applies to…
A landlord (person or entity)
OR
real estate broker
that manages residential property for
vacation rental.
VRA applies to ALL owners of residential property
used for vacation rentals even if no broker is
involved.
p30

“Vacation Rental”
• Rental of residential property
• Vacation, leisure or recreation purpose
• Less than ninety (90) days
• Renter has permanent residence elsewhere
p30

Handling Monies Related to
Vacation Rentals
Owner-Landlords OR Brokers…
• must deposit advance payments into trust
or escrow account within 3 banking days
of receipt.
• may NOT disburse sales or occupancy tax
or security deposit prior to end of tenancy
or breach by tenant UNLESS refunding to
tenant.
pp30-31

What Monies May Be Released or
Paid Out Prior to the Tenancy?
• “Administrative fees”
• Fees owed to third
parties on tenant's
behalf
• Maximum of 50% of
advance rent
p31

Tenant Security Deposits (TSDs)
• Cannot post a bond for TSD in lieu of trust
account
• Telephone and cable television charges may
be deducted (if specified in lease)
• Account to tenant within 45 days
pp31-32

When a Vacation Rental is SOLD
• ALL Reservations must be disclosed to
prospective buyers
• Copies of lease agreements must be
provided to Buyer within 10 days of closing
• Buyer must honor lease agreements
within 180 days of closing
p32

Exception
If the Buyer continues to
use the same
Broker-Property Manager,
the Seller doesn’t have to
provide lease agreements
(because the Broker can
provide them).
p32

Exception
If the Seller uses a standard lease agreement,
the Seller may provide only the unique info
from each lease.
p32

If the Buyer DOES NOT continue to use
the Seller’s Broker-Property Manager…
Within 20 days of closing, the Buyer must
notify each tenant in writing of:
• date of sale
• Buyer’s name & address
• whether tenant’s lease will be honored
• whether tenant has right to any refund
p32

Disbursing Monies
in Escrow Account
Tenancy
Occurs or Ends
Advance
Payments
Tenant Security
Deposits
1) Less than 180 days
after sale
Transfer to buyer within
30 days
& mail buyer’s info to
tenants
30 days
tenants
3) More than 180 days
after sale
that Buyer won’t honor
Disburse to tenant
within 30 days of sale
Disburse to tenant
within 30 days of sale
2) More than 180 days
after sale
but Buyer agrees to
honor
30 days
tenants
30 days
tenants
p33

Brokers Managing Vacation Rentals
are subject to:
• Landlord-Tenant Law
• Vacation Rental Act
• Real Estate License Law
• Commission Rules
• Agency Agreement
with Owner
• Lease Terms
p34

Release of Advance Payments?
The statute permits a broker to
disburse some monies to owner prior
to the tenancy but does not require it.
p34

What Monies May Be Released or
Paid Out Prior to the Tenancy?
• “Administrative fees”
• Fees owed to third
parties on tenant's
behalf
• Maximum of 50% of
advance rent
p34

May a Broker disburse the
property management (brokerage)
fee with other advance payments?
YES, IF:
Broker is disbursing partial advance rents to
owner
AND
Fee is earned and authorized to be
disbursed in the prop mgmt agreement
p34

Scenario
Broker's policy:
• 50% of total rent due at lease signing
• remaining 50% due 30 days prior to tenancy
1. Tenant signs a lease.
2. Broker pays initial advance rent payment to
owner, minus commission.
3. Before the tenancy, Tenant cancels reservation
and is due a refund OR the owner ceases to
own the property.
p35

Scenario Discussion Questions
1. What does the law require?
2. Who is liable for the 50% rent already paid
to the owner?
3. Who is liable for brokerage fees paid to the
broker from advance rents prior to the
tenancy?
p35

May an owner terminate the
property management agreement
prior to the termination date?
but there may be consequences
p36

May the vacation property
management agreement contain a
termination penalty?
IF IT IS CLEAR AND CONSPICUOUS
p36

Early Termination Fees
May a seller compel a buyer to use the
seller’s property manager as a condition
of the sell/purchase agreement?
(NO)
p36

A broker/vacation property manager
drives by a property he manages and
discovers a “For Sale” sign in the yard with
the name of another company.
No one had contacted the broker-property
manager regarding the sale.
What should he do?
p37

Answer: Communicate with
the Owner & the Listing Firm
p37

Is it a material fact that a property
is being used for long-term or
vacation rentals?
p37

Listing Agents need to know…
• whether the property is being leased.
• property manager’s name & contact info.
• dates of occupancy for any signed leases.
• when the property management
agreement expires.
• whether an early termination fee may be
charged.
p37

Buyer Agents need to know…
• dates of future tenancies.
• whether advance funds have been
collected and/or released.
• whether advance rents have been paid to
owner; and, if so, if broker retained
brokerage fees.
• when the property management
agreement expires.
• whether funds are being held in escrow.
p37

Standard Forms
REALTORS® may use Vacation Rental
Addendum with standard Offer to Purchase
Non-REALTORS® may use standard forms
with NC BAR logo only (not REALTOR® logo)
REALTORS® and Owners may use Vacation
Rental Agreement
p38

Monies related to
NC vacation rentals must be deposited…
• in trust/escrow account
• in insured bank or savings & loan
in North Carolina
• within 3 banking days of receipt
p38

A Broker managing
vacation rental properties
must have a
written property management agreement
with the owner
BEFORE
providing any brokerage services.
p39

• know the VRA.
• deposit monies in a NC-based trust
account.
• transfer monies for rentals in 180 days to
Buyer within 30 days of closing.
• refund monies to tenants for rentals that
will not be honored.
• transfer monies if agency agreement is
terminated.
Brokers managing vacation rentals must…
p39

For Discussion…
2014 Disciplinary Case
p40

Section 3:
Changes to
Commission Rules,
Contracts and Addenda
p45

Objectives
At the end of this section, you should be
able to explain:
• changes to Commission Rules and
Contracts & related Addenda
p45

Commission Rule Changes
as of July 1, 2015
p45

Rule A.0104: Early Termination Fee
• May be included in any agency
agreement (listing, buyer
agency, or property
management agreement)
• If included, must be clearly
and conspicuously disclosed
on the agreement
p46

Rule A.0104(o) Review
If a Broker has an
ownership interest
in a property, the
Broker MAY NOT
be a Buyer’s Agent
for that property.
p46

Rule A.0104(o) Exception
Commercial Transactions Only
If broker has less than 25% ownership
interest, Broker may represent a Buyer
IF
Buyer consents after full written
disclosure of broker’s ownership interest
p46

What is a Commercial Transaction?
Sale or Rental of real property that is
NOT a residential one-to-four unit dwelling
“Commercial Real Estate” defined by Rule A.1802. See page 44.
p46

Rule A.0105 Advertising
To advertise, ALL Brokers must…
have the consent of their BICs
and
include the names of their BICs
and/or their firms in all their ads
p46

Remember:
You are required to keep copies of
every ad! (per Rule A.0108)
p47

Rule A.0116 Handling of Trust Money
Before July 1, 2015:
A Listing Firm/Broker was not allowed to
hold an EMD check made payable to an
escrow agent other than his/her own firm.
p47

As of July 1, 2015…
A Buyer’s Agent or Listing Firm/Broker may
hold an EMD check made payable to an
Escrow Agent other than the Broker or Firm.
p47
The check must be delivered to the Escrow Agent
within 3 days of contract formation.

What if a Buyer asks for the DDF
or EMD check back before it is
delivered?
p48
Answer: It depends…
Let’s consider 2 different scenarios.

Listing Firm DOES hold earnest money.
If Listing Firm still has possession
of the checks, Listing Firm must…
deposit EMD into trust account
and return DDF to Buyer.
Buyer Agent delivers
offer to Listing Firm
with DDF (payable to
seller) and
EMD (payable to Listing
Firm).
2 days after effective
date of contract, Buyer
asks for both checks
back.
Listing Firm holds both
checks throughout
contract negotiation.
Offer is negotiated and
becomes a contract.
pp48-49

MLS states “Listing Firm does not hold
earnest money. ‘Jane Smith, Attorney’ is
Escrow Agent.”
Buyer Agent delivers
offer to Listing Firm
with DDF (payable to
seller) and
EMD (payable to Jane
Smith, Atty).
Listing Firm holds both
checks throughout
contract negotiation.
Offer is negotiated
and becomes a
contract.
2 days after effective
date of contract, Buyer
asks for both checks
back.
If Listing Firm still has
possession of the checks,
Listing Firm must return BOTH
checks to Buyer.
pp48-49

As long as a Broker holds a
check/instrument payable to the seller
or another escrow agent,
the Broker must follow the Buyer’s
instructions
even after the parties have entered
into a legally binding contract.
pp48-49

Sunshine Enterprises, Inc., Manager.
Because this entity is a Manager,
the entity’s officers must be disclosed on/with
QRS Realty’s firm license application.
Manager
(an individual)
Sunshine Properties LLC,
unlicensed entity,
Member-Manager.
Because Sunshine Properties LLC is a Manager,
its Managers must be disclosed on/with
QRS Realty’s firm license application.
Sally Smith,
licensed Broker,
Member-Manager.
Identified as QB.
John Davis,
unlicensed individual,
Member-Manager.
Rule A.0502
QRS Realty LLC:
Submits application for Firm Broker License
pp50-51

Rule A.1711:
CE Required of Nonresident Brokers
Nonresident Broker must notify the
Commission within 10 days of…
• Change in status
of out-of-state
license
OR
• obtaining ANY
NC address
p52

Rule A.1711, cont’d
Broker's NC license will be made INACTIVE in
30 days unless…
Broker proves s/he
completed CE during
previous license period
(in another state or
NC).
Also: Once a broker has ANY NC address, the
Broker must begin taking NC CE.
p52

Which Transactions?
• sales subject to Residential Property
Disclosure Act
• first sale of a dwelling never inhabited
• lease with option to purchase where
lessee occupies the dwelling
• sale of residential property where parties
agree not to complete a Residential
Property and Owner Association
Disclosure Statement
p53

Is the MOG Disclosure required in
vacant land sales?
NO
p53

WHO must provide MOG and WHEN?
Seller must provide
MOG to Buyer no
later than time of
offer
Must be signed by
Seller
Buyer should also
sign to acknowledge
receipt
p53

What if MOG is NOT Provided?
Buyer may cancel the contract
within 3 calendar days of contract formation
OR
3 calendar days following receipt of disclosure
whichever occurs first.
If Buyer cancels due to MOG, all deposits
should be refunded.
p53

Broker’s Duty for MOG
Inform owner of legal obligation to provide
the MOG Disclosure Statement
and the possible consequences of not
providing it.
p53

Revisions to
Sales Contracts & Addenda
p56

Offer to Purchase & Contract (Form 2-T)
• Blank initial lines will not
invalidate contract
• Fixtures Provision
Rewritten
• Buyer & Seller
authorizations regarding
closing disclosures
• Seller must provide loan
payoff info
• Seller responsible for
paying certain HOA
charges
• Use of Electronic Means
• Date/Time defined as
date/time of day in NC
• Statement to confirm
that contract is binding
when signed and
communicated
• Deletion of “Seal” next
to Signatures
• Acknowledgement for
receipt of DDF
pp56-57

Revised Addenda
• 2A11-T: Additional Provisions
Addendum
• 2A12-T: Owners’ Association
Disclosure and Condominium Resale
Statement Addendum
• 4-T: Agreement to Amend Contract
pp57-58

You have a listing that hasn’t attracted
many showings.
You receive a call from a prospective
buyer who claims to be sitting in his car
in front of the listing. He says he is a
cash buyer and wants to close in two
weeks.
He would like to see the property
immediately.
What would you do?
Scenario 1
p59

You’ve scheduled an open house for
Sunday afternoon. The home is
located in a popular neighborhood
and is occupied.
What steps will you take to prepare
for the open house?
What IS a “safe open house?”
Scenario 2
p59

Learning Objectives
At the end of this section, you
should be able to
describe various safety skills and
strategies for real estate brokers.
p59

Every Broker, Office, & Firm
should have a Safety Policy
p60

Safety Tip #1:
Identify the consumer.
Be suspicious!
p60

Safety Tip #2:
Always leave your Itinerary
p60

Safety Tip #3:
Have a fully charged cell phone
and have it readily available
p61

Safety Tip #4:
Have a Prearranged Distress Code
p61

Safety Tip #5:
Implement a Buddy System
p61

Safety Tip #6:
Practice Vehicle Safety
p61

Safety Tip #7:
Walk Behind
p61

Safety Tip #8:
Dress for Safety and Success
p61

Safety Tip #9:
Conduct safe personal marketing and
be careful how you use social media
p62

Safety Tip #10:
Conduct safe open houses
p62

Section 5:
Licensing and Education Review
p63

My parents want to buy a beach
house near Wilmington. They’ve
asked me to be their buyer’s agent.
I’ve had a license for more than 10
years, but I haven’t taken any CE for
the last 4 years.
Can I represent them?
Scenario 1
p63

I’ve decided to stop practicing
brokerage on a day-to-day basis, but
I want to be able to get referral fees.
Will I still need to pay the $45
renewal fee each year?
Will I need to take CE?
Scenario 2
p63

Objectives
At the end of this section, you
should be able to explain:
• license categories
• license renewal requirements
• CE requirements
• BIC requirements
p63

License Categories
• Broker License
–Provisional Broker
–Broker
–Broker-In-Charge
• Limited Nonresident
Commercial License
• Firm License
p64

Expired or Inactive =
NO BROKERAGE ALLOWED!
(including referral fees)
p64

Current vs. Expired License
CURRENT: $45 renewal fee was
RECEIVED by the Commission
ON OR BEFORE JUNE 30
p65

Current vs. Expired License
EXPIRED:
Renewal fee was not
received on time
EXPIRED = NO LICENSE
p65

Reinstatement
Can reinstate within 6 months by paying $55.
Deadline: December 31 of expiration year.
If expired more than 6 months…
Submit application with fee & criminal
background check
AND
Complete additional education and/or exam.
p65

Reinstatement:
Additional Education Requirements
• PB expired 6 mos-5 yrs
• Broker expired 6 mos-2 yrs
• Broker expired 2 yrs-5 yrs
• PB OR Broker expired more than 5 years
p65

Active vs Inactive
ACTIVE = Up-to-date on CE and/or
Postlicensing Education
INACTIVE = Education Deficiency (or a PB with
no BIC affiliation)
p66

UPDATE
Non-BIC Brokers & Provisional Brokers take GenUp
BICs or BIC-Eligible Brokers take BICUP
AND
ELECTIVE
EVERY LICENSE YEAR
Continuing Education
p66

All CE must be
completed by June 10.
What happens if you
miss the June 10
deadline?
Inactive on July 1.
Continuing Education
p66

You didn’t take CE for the past 4
years. Now you want to activate your
license. What must you do?
1. Complete current year’s CE
2. Take elective courses to make up missed
hours from last year (4 or 8 hours)
AND
3. Submit license activation form (REC 2.08)
p66

On your own or with a partner…
Answer the 3 questions on page 67.
p67

REALTOR® Code of Ethics Training
Quadrennial training deadline:
December 31, 2016
Applies to REALTOR®-members only
(not a Commission requirement)
Call your local board or association
or visit www.realtor.org for information

The only license category that requires
brokerage experience.
Broker-in-Charge
p68

• Active Status and NOT Provisional
• 2 years full-time brokerage experience
within past 5 years.
• Complete 12-hour BIC course within 120
days of declaration (unless taken within the
preceding 3 years).
Broker-in-Charge
Qualification Requirements
p68

Your license record will show
“BIC Eligible” status AFTER:
1. You’ve satisfied all BIC qualification
requirements.
2. You’ve submitted and NCREC has
processed your BIC Declaration Form.
3. You’ve taken the 12-hour course on
time.
p68

To Maintain BIC Status-Eligibility…
Renew your license on time
($45 by June 30)
AND
Take appropriate CE on time
(BICUP and one Elective by June 10).
p69

1. Return to Active / Current Status
2. Submit Activation Form (REC 2.08)
3. Attend 12-hour BIC Course
4. Submit BIC Declaration Form (REC 2.04)
Next: Submit affiliation forms for all Brokers & PBs.
To Regain BIC Status/Eligibility
p69

Scenario 1
You return from lunch to find a brown
envelope from the
North Carolina Real Estate Commission
waiting on your desk.
p71
What’s in the brown envelope?

One of your affiliated brokers was
convicted of a DWI in Virginia three
months ago.
Must the Broker report the
conviction to NCREC?
If so, how quickly must he report it?
Scenario 2
p71

Objectives
At the end of this section, you should
be able to:
• define which violations must be
reported to the Commission and
when they must be reported
• explain brokers’ duties to
cooperate with, respond to and
produce records for the
Commission
p71

Commission’s Authority
1. take disciplinary
action
2. investigate licensees
and unlicensed
activity and hold
hearings
3. issue subpoenas and
compel witnesses to
testify at hearings
4. impose sanctions
p72

Sanctions
Revocation
• Loss of licensure for an indefinite time
• A broker whose license is revoked has no
license.
Suspension
• Broker still has a license but is prohibited
from using it for a specified period of
time.
p72

Sanctions
Reprimand
• Public statement of disapproval by NCREC.
• Broker may continue to practice brokerage.
Commission may also “ ... impose reasonable
conditions, restrictions, and limitations upon
the license...”
p72

License revocation or suspension
must be reported to
Clerk of Superior Court
in county of broker’s
principal place of business.
p72

The Commission has
the authority to obtain
a court order directing
an unlicensed person
or entity to cease
engaging in illegal
brokerage.
p72

Brokers’ Obligations & Duties
• report convictions and disciplinary actions
within 60 days
• file responses within 14 days
• make records available for inspection and
reproduction upon request
p73

What do you have to report?
ANY
• felony OR misdemeanor
• disciplinary action regarding an
occupational license
• restriction, suspension or revocation of a
notarial commission (notary public)
p73

When do you have to report?
Within 60 days of conviction
p73

Must you report…
• an arrest?
• a prayer for judgment?
• a misdemeanor traffic
offense that was reduced
to an infraction?
• a DWI conviction in
another state?
p73

How is a Complaint Initiated?
Rule A.0601 requires that a
complaint...
• be in writing
• identify the broker(s)
complained against
• provide essential facts
p74

Anonymous Complaints
Complainant does not
have to be identified;
however…
copies of all information
sent with complaint will
be provided to the
respondent-broker.
p74

Most Common Complaints
• Misrepresentation
• Contract problems
• Agency issues
• Loan Fraud
• [Lack of]
Professionalism
p74

How & When will a Broker know a
Complaint has been filed?
Regulatory Affairs begins a
Correspondence or Field Investigation
p75

Regulatory Affairs
makes no assumptions
concerning truth of allegations
until case is investigated.
p75

Investigation Period
This is your opportunity to explain your side
of the story.
Don’t underestimate the importance of a
thorough reply.
p75

Correspondence Investigations
Consumer Protection Officer
sends a Letter of Inquiry
with all information submitted with
complaint.
p75

If you receive a Letter of Inquiry
You must respond within 14 Days.
p75

What if you need an Extension?
p75

What to Send?
• A written statement of your position
• A chronological narrative of your
involvement
• Specific documents or a copy of the
transaction file as requested
p75

You must respond in writing.
p76

Everything you send
becomes Public Record
p76

Failure to promptly and fully
respond to a letter of inquiry
is itself an offense.
p76

Field Investigations
Used when cases
require…
• witness interviews
• trust account audits
• examination of
evidence
that cannot be
obtained through
correspondence
p76

Don’t Say…
• “You don’t have jurisdiction over me.”
• “As you can see from the consumer’s
ranting, they are deranged and no
credence should be given to anything
they say.”
p76

Don’t Say…
• “Sorry, but I’m super busy right now and
won’t have a chance to get into this for a
couple of months.”
• “Do you have any idea who I am? I’m a
top producer who’s been in the business
for more than 20 years and have sold
millions of dollars of property!”
p76

Don’t Say…
• “This was a personal matter and the
Commission shouldn’t get involved.”
• “I’m not required to keep the documents
you request.”
p76

Investigator Case Files
Treated as public record unless disclosure
would impede on-going investigation
p77

Possible Outcomes
Case is dismissed
• Does NOT mean the broker is innocent
Case is NOT dismissed
• Regulatory Affairs must prove probable cause
to Commission
• Next step is settlement or hearing
p77

Will the BIC be notified if an
affiliated agent gets a brown
envelope?
If PB: Yes, always.
If Full Broker: It depends.
p78

All affiliated brokers must notify you
immediately upon receiving:
notice of any inquiry or investigation
or
receipt of any demand letter from an
attorney
p78
Suggested Written Office Policies

Affiliated brokers-respondents
must submit proposed responses
TO YOU for review
BEFORE submitting them to the Commission.
p79
Suggested Written Office Policies

Training Needs
A complaint may highlight a need for
additional training and development.
p80

Avoid disciplinary proceedings by…
• following Laws & Rules
• avoiding
misrepresentations
• disclosing material facts
• maintaining records
• answering questions and
producing documents
requested by Commission
staff
p80

If and when something goes wrong,
don’t just “fix it” — make it right!
p80

Section 7:
Handling Trust Monies
p81

May a broker ever receive a
check/negotiable instrument
payable to someone other
than the broker or the
broker’s real estate company?
Scenario 1
p81

Your firm receives an offer on one of your
listings from a buyer with a DDF check
written to the Seller-Owner and a EMD check
made payable to your firm as escrow agent.
Contract states that EMD must be paid within
5 days of Effective Date.
When must you deposit the EMD check?
Scenario 2
p81

You are a broker-property manager.
A tenant vacates, leaving the property in
excellent condition.
Your owner-principal insists that you deduct
$800 from the TSD to help pay for new
carpet.
The tenant disputes the $800 deduction.
May you turn the TSD over to the Clerk of
Court (based on the Disputed Funds Rule)?
Scenario 3
p81

Objectives
At the end of this section, you should be
able to:
• define “trust money”
• explain how a trust account must be
designated
• describe the general rule for depositing
trust monies
• describe options for handling disputed
funds
• define “deficit spending”
p82

• ALL brokers must
safeguard the money
or property of others
• Commingling is
ILLEGAL
• BIC is responsible for
the trust account
License Law – Key Points
p82

What IS Trust Money?
• Funds belonging to
others
• Received by a
licensee
• Acting as an agent in
a real estate
transaction
p83

Examples of Trust Money
• earnest money deposits
• tenant security deposits
• rent payments
• final settlement funds
• advance rental deposits
• sales and use taxes
• funds used for maintenance of owners’
properties
p83

MUST a Firm have a Trust Account?
If Firm is not holding trust monies,
no trust account is required.
Almost impossible for property management office
to avoid having a trust account.
p83

If you hold trust monies, how many trust
accounts must you have?
Sales & Rentals: ONE Account
HOA or POA Management: A separate account
for EACH Association.
p83

What IS a Trust Account?
Separate, Custodial, Demand
p83

Proper Account Designation
“Trust Account” or “Escrow Account”
must appear on ALL
• Bank statements
• Checks
• Deposit tickets
YOUR REALTY COMPANY, INC.
TRUST ACCOUNT
DATE _______________________
CURRENCY
COINS
CHECKS
1
2
3
TOTAL
YOUR REALTY COMPANY, INC.
TRUST ACCOUNT
p84

Insured Deposits
$250,000 per individual
p84

License Law defines a “Bank” as:
• Federally-Insured
Depository
• Lawfully doing
business in NC
• That agrees to
provide its records
to NCREC
p84

Tenant Security Deposits
must be in a Trust Account
in a bank IN NORTH CAROLINA.
p84

When to deposit?
Trust Monies must be deposited
within 3 banking days of receipt
p85

Exception:
EMDs and TSDs may be deposited
no later than 3 banking days
of contract acceptance
NO EXCEPTIONS FOR CASH
p85

Who should deposit?
• PB must deliver trust
money to BIC.
• Limited Nonresident
Commercial Licensee
must deliver trust
money to affiliated
NC Broker.
p85

May a broker accept a
check/instrument payable to
someone other than the
broker/firm?
p85
NO, UNLESS…

THE CHECK IS PAYABLE TO…
a seller for a DDF or option fee
OR
a third party escrow agent for an EMD in
a sales transaction.
p85

Broker must deposit the $$$ in the firm’s
trust account
OR
deliver the $$$ to the appropriate payee
NO LATER THAN
3 days of contract acceptance.
pp85-86
If a Broker holds an EMD and/or DDF:

As long as a Broker holds a
check/instrument payable to the seller
or another escrow agent,
the Broker must follow the Buyer’s
instructions
even after the parties have entered
into a legally binding contract.
pp85-86

Example 1
Your buyer-client writes a DDF check to the
owner and an EMD check to the listing
company.
May you (as the buyer-agent) receive and
hold these checks or must they be delivered
to the listing company?
What if the buyer-client gives you cash?
p86

Example 2
Your firm receives an offer on one of your
listings from a buyer with a DDF check written to
the Seller-Owner and a EMD check made
payable to your firm as escrow agent.
Contract states that EMD must be paid within 5
days of Effective Date.
When must you deposit the EMD check?
p86

Disputed Funds
Retain in trust account until…
Written release signed by all parties
OR Court Order
OR Deposit with Clerk of Court (after 90-day
period with notice per G.S. 93A-12)
p87

G.S. 93A-12 Procedure
• Broker may pay disputed funds to Clerk
of Court ONLY AFTER 90-day written
notice to parties.
• Parties must initiate action to disburse
funds within 1 year.
• If neither party initiates action within 1
year, funds are escheated to State.
p87

Release of Funds
p88
Must a Broker obtain parties’ signatures
before releasing funds?
Answer: It depends.
See discussion on page 88.

Residential Tenant Security Deposits
• Disputed Funds Rule does NOT apply
• Broker must disburse within 30 days if
residential lease and 45 days if vacation
rental
p88

What should a broker do if a
landlord and residential tenant
dispute the tenant security
deposit?
Answer: Follow the
lawful instructions
of the landlord.
p88

What should a broker do if a
landlord and commercial tenant
dispute the tenant security
deposit?
Answer: If the TSD is in
the Broker's trust
account, the Broker
must hold the money.
Disputed funds rule
DOES apply here.
p88

May a Broker have an
Interest Bearing Trust Account?
YES IF…
parties have given CLEAR &
CONSPICUOUS written authorization
p89

A Broker must deposit
security deposits and earnest monies
for his or her own properties
in a separate trust account.
pp89-90

Example: Betty Broker
Betty personally owns 4 residential rental
properties.
Betty engages in sales and property
management under her licensed firm -
Sunshine Properties LLC.
See discussion questions on page 90.
pp89-90

License Law = Consumer Protection
A Broker is in a position of trust.
A Clear audit trail is the best offense AND
defense.
Commission will be more lenient if Broker
self-reports.
p91

Need more info about
Trust Account Record-Keeping?
Sign up for NCREC’s
4-hour Basic Trust Account Course.
Also: Visit www.ncrec.gov for videos & resources.
p94

SECTION 8:
BIC REQUIREMENTS
p?
p97

Scenario 1
• I had an Active license from 1995-2008.
• In 2008, I left the real estate business
and went to work full-time in another
profession.
• I’ve renewed my license and completed
CE every year.
• Now I want to open my own office.
• What do I need to do?
p97

Scenario 2
• I took the 12-hour BIC Course in April 2014
while I was an associated broker with QRS
Realty.
• I left QRS in October 2014 to open my own
sole proprietorship working out of my home.
• I took the BICUP (Broker-in-Charge Update)
course in May 2015.
• I received a notice from the Commission that I
will not receive credit for the BICUP class.
• Why not?
p97

Objectives
At the end of this section, you should
be able to:
• define BIC qualification
requirements
• explain the purpose and benefit of
“BIC Eligible” status
• explain how to regain BIC status &
eligibility
p97

Broker-In-Charge Qualifications
• Active Status
• Full Broker
• 2 years full-time
brokerage experience
within previous 5 years
• Complete 12-hour BIC
course within 120 days
of designation (or
within 3 yrs prior)
pp97-98

Becoming BIC and BIC Eligible
1. Achieve required
experience AND
Broker status
2. Take 12-hour BIC
course
3. Submit BIC
Declaration form
within 3 years of
course completion
*Now BIC
AND BIC-Eligible*
1. Achieve required
experience AND
Broker status
2. Submit BIC
Declaration form
*Now BIC*
3. Take 12-hour BIC
course within 120
days of designation
*Now BIC
AND BIC-Eligible*
OR
pp99-101

To Maintain BIC Status-Eligibility…
Renew your license on time
($45 by June 30)
AND
Take appropriate CE on time
(BICUP and one Elective by June 10).
p101

1. Return to Active / Current Status
2. Submit Activation Form (REC 2.08)
3. Attend 12-hour BIC Course
4. Submit BIC Declaration Form (REC 2.04)
Next: Submit affiliation forms for all Brokers & PBs.
To Regain BIC Status/Eligibility
p102

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