PowerPoint Presentation

Welcome to the2015-2016BICUP Course

Should you be here???Brokers-in-Charge& BIC Eligible Brokers should take this course.

Provisional Brokers and non-BIC Brokersmust take the General Update Course.

REQUIRES 90% Attendance

3

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

Todays TopicsFarewell HUD-1? Hello TRID! Sales of Vacation RentalsChanges to Commission Rules, Contracts and AddendaBroker SafetyLicensing and EducationHandling ComplaintsHandling Trust MoniesBIC Requirements

Section 1:Farewell HUD-1?Hello TRID!p1

Its 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 1p1

Your Buyers closing is scheduledfor Monday, May 23.

In order to close on that date, your Buyers must receive a Closing Disclosure by May 19.

The clock is tickingScenario 2p1

Your obligations are not changing.

There are many similarities between the old and new forms.p2

ObjectivesAt 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 brokers responsibility for LE and CD.identify issues that may cause closing delays.p2

AbbreviationsCFPB: Consumer Financial Protection BureauTRID: TILA-RESPA Integrated DisclosuresTILA: Truth-In-Lending ActRESPA: Real Estate Settlement Procedures ActTIL: Truth-in-Lending (Statement)GFE: Good Faith EstimateHUD-1: Settlement Statement LE: Loan EstimateCD: Closing DisclosureBCD: Borrowers Closing DisclosureSCD: Sellers Closing Disclosurep2

What WAS the Problem?BEFORE October 2015: Duplicate forms required by TILA and RESPA

Dodd-Frank was tasked with consolidating the forms

p2

HenceHELLO, TRID:

TILA/RESPAIntegrated Disclosuresp3

New Disclosure Forms

GFE

Early TIL

Loan Estimate(LE)

HUD-1

Final TIL

ClosingDisclosure(CD)p3

p4

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

p5

Your obligations are not changing.

New rules apply toLOAN APPLICATIONS RECEIVEDon or afterOctober 3, 2015.

p5

Whos 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 isStayin Alive.It will still be used in some transactions.

p7

Which changes requirea new 3-day review of CD? APR increases by MORE than:1/8% for fixed-rate1/4% for adjustable

Prepayment penalty addedBasic loan product changesp8

22

The Loan Estimate (LE)p9

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 EstimateMust be given within 3 days of Loan Application

p9

Loan ApplicationBorrower has provided:

legal namegross incomeSSN (for credit report)property addressestimate of property valueamount of mortgage loan requestedp9

The Loan EstimateA lender may NOT charge a consumerany fee(s) prior to providingthe Loan Estimate other thana reasonable fee for a

p10

Tolerance Limits still applyand are now calledPermissible Variations

Brief explanations of permissible variations are provided on page 10.p10

Brokers Responsibility for LEGENERAL understanding ofwhich transactions are subject to TRIDtiming & purpose of Loan Estimate

Lenders are responsible for the Loan Estimate. p11

THE CLOSING DISCLOSURES (CDs)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 receivedon or after October 3. p11

2 Separate Closing Disclosures:Borrower (Buyer) and SellerInformation has not changed.Its just been reorganized.

p11

Why are there two separate Closing Disclosure forms?Borrowers confidential loan informationis not shared with Seller. p12

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

p13

Page 1 of HUD-1 is now Page 3 of Buyers CDHUD-1 page 1BCD page 3

BCD page 3 ALMOST IDENTICAL TO HUD-1

Page 2 of HUD-1 is now Page 2 of Buyers CDHUD-1 page 2BCD page 2

BCD page 2 (top half of page)Loan FeesAttorney & Title FeesPOC items

BCD page 2 (bottom half of page)Loan EscrowsRecording Fees & Excise TaxBrokerage feesInspections & Other Fees

The Sellers Closing Disclosure (SCD)SCD page 1 (sellers total debits & credits)SCD page 2 (sellers costs/expenses)

SCD page 1 (bottom portion of page)Total Seller CreditsTotal Seller DebitsBroker InfoSettlement Agent Info

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

The Biggest Impact for Brokers:The Borrowers Closing Disclosure must beRECEIVED BY THE BORROWERat least 3 BUSINESS DAYS before Settlementp18

What is a Business Day?A Business Day is Monday-Saturday

Sundays and 10 federal public holidays are excluded

p18

Definition of RECEIVEDIf 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 deliveryOR when lender has EVIDENCE of receipt.p18

ExampleIf 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)MondayTuesdayWednesdayThursdayDeliveryDay 1Day 2Settlement(3rd business day)

p19

Brokers:The disclosure timeline is

Its important to educate your clients and customers.

p19

Rules apply to delivery of BCD ONLY

No requirements for delivery of SCD to Sellerp19

BCD must be delivered to BORROWERDelivery to Broker / Buyer Agentis NOT Sufficient

p19

If the lender decides to issue2 separate closing disclosures, a broker acting as a dual agent should only give the parties their respective CDsBuyer should only see the BCDSeller should only see the SCD

p19

Settlement Statement:Broker ObligationsBroker mustDiscloseANDConfirm Accuracy ofall entries that s/he has direct knowledgep21

Settlement Statement:Broker ObligationsBroker mustReviewANDConfirm Accuracy ofall calculationsp21

Potential IssuesClosings may be delayedTasks 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 changesp22

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

Section 2:Sales of Vacation Rentalsp29

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 1p29

Youve 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 2p29

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 3p29

ObjectivesAt 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-brokers 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 propertyp30

Vacation Rental Act (VRA) Applies toA landlord (person or entity)ORreal 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 RentalRental of residential propertyVacation, leisure or recreation purposeLess than ninety (90) daysRenter has permanent residence elsewhere

p30

Handling Monies Related to Vacation RentalsOwner-Landlords OR Brokersmust 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 feesFees owed to third parties on tenant's behalfMaximum of 50% of advance rent p31

Tenant Security Deposits (TSDs)Cannot post a bond for TSD in lieu of trust accountTelephone and cable television charges may be deducted (if specified in lease)Account to tenant within 45 dayspp31-32

When a Vacation Rental is SOLDALL 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 closingp32

ExceptionIf the Buyer continues to use the sameBroker-Property Manager,

the Seller doesnt have to provide lease agreements (because the Broker can provide them).

p32

ExceptionIf 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 Sellers Broker-Property ManagerWithin 20 days of closing, the Buyer must notify each tenant in writing of:date of saleBuyers name & addresswhether tenants lease will be honoredwhether tenant has right to any refundp32

Disbursing Moniesin Escrow AccountTenancyOccurs or EndsAdvance PaymentsTenant Security Deposits

1) Less than 180 days after saleTransfer to buyer within 30 days& mail buyers info to tenantsTransfer to buyer within 30 days& mail buyers info to tenants

3) More than 180 days after sale that Buyer wont honorDisburse to tenant within 30 days of sale Disburse to tenant within 30 days of sale

2) More than 180 days after salebut Buyer agrees to honorTransfer to buyer within 30 days& mail buyers info to tenantsTransfer to buyer within 30 days& mail buyers info to tenants

p33

Brokers Managing Vacation Rentalsare subject to: Landlord-Tenant LawVacation Rental ActReal Estate License LawCommission RulesAgency Agreement with OwnerLease 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 feesFees owed to third parties on tenant's behalfMaximum of 50% of advance rent

p34

May a Broker disburse theproperty management (brokerage) fee with other advance payments?YES, IF:Broker is disbursing partial advance rents to owner ANDFee is earned and authorized to be disbursed in the prop mgmt agreementp34

ScenarioBroker's policy: 50% of total rent due at lease signing remaining 50% due 30 days prior to tenancy

Tenant signs a lease.Broker pays initial advance rent payment to owner, minus commission. Before the tenancy, Tenant cancels reservation and is due a refund OR the owner ceases to own the property.p35

Scenario Discussion QuestionsWhat does the law require? Who is liable for the 50% rent already paid to the owner?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 consequencesp36

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

p36

Early Termination FeesMay a seller compel a buyer to use the sellers 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 withthe Owner & the Listing Firmp37

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

p37

Listing Agents need to knowwhether the property is being leased.property managers 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 knowdates 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 FormsREALTORS 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 toNC vacation rentals must be depositedin trust/escrow accountin insured bank or savings & loan in North Carolina

within 3 banking days of receipt

p38

A Broker managingvacation rental propertiesmust have awritten property management agreement with the ownerBEFOREproviding 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 mustp39

For Discussion2014 Disciplinary Case

p40

Section 3:Changes toCommission Rules, Contracts and Addendap45

ObjectivesAt the end of this section, you should be able to explain:

changes to Commission Rules and Contracts & related Addendap45

Commission Rule Changesas of July 1, 2015p45

Rule A.0104: Early Termination FeeMay be included in any agency agreement (listing, buyer agency, or property management agreement)

If included, must be clearly and conspicuously disclosed on the agreementp46

Rule A.0104(o) ReviewIf a Broker has an ownership interest in a property, the Broker MAY NOT be a Buyers Agent for that property.p46

Rule A.0104(o) ExceptionCommercial Transactions Only

If broker has less than 25% ownership interest, Broker may represent a Buyer IF Buyer consents after full written disclosure of brokers ownership interestp46

What is a Commercial Transaction?Sale or Rental of real property that isNOT 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 BICsandinclude the names of their BICs and/or their firms in all their adsp46

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

Rule A.0116 Handling of Trust MoneyBefore 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, 2015A Buyers 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?p48Answer: It dependsLets consider 2 different scenarios.

Listing Firm DOES hold earnest money. If Listing Firm still has possession of the checks, Listing Firm mustdeposit EMD into trust accountand return DDF to Buyer.Buyer Agent delivers offer to Listing Firm with DDF (payable to seller) andEMD (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) andEMD (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 Buyers 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 entitys officers must be disclosed on/with QRS Realtys 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/withQRS Realtys 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 Licensepp50-51

Rule A.1711:CE Required of Nonresident BrokersNonresident Broker must notify the Commission within 10 days of

Change in status of out-of-state licenseORobtaining ANY NC addressp52

Rule A.1711, contdBroker's NC license will be made INACTIVE in 30 days unlessBroker 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

MOG Disclosurep52

Which Transactions?sales subject to Residential Property Disclosure Act first sale of a dwelling never inhabitedlease with option to purchase where lessee occupies the dwellingsale of residential property where parties agree not to complete a Residential Property and Owner Association Disclosure Statementp53

Is the MOG Disclosure required invacant land sales?NOp53

WHO must provide MOG and WHEN? Seller must provide MOG to Buyer no later than time of offer Must be signed by SellerBuyer should also sign to acknowledge receiptp53

What if MOG is NOT Provided?Buyer may cancel the contractwithin 3 calendar days of contract formationOR3 calendar days following receipt of disclosurewhichever occurs first.

If Buyer cancels due to MOG, all deposits should be refunded. p53

Brokers Duty for MOGInform owner of legal obligation to provide the MOG Disclosure Statementand the possible consequences of not providing it. p53

p53

Revisions toSales Contracts & Addenda

p56

Offer to Purchase & Contract (Form 2-T)Blank initial lines will not invalidate contractFixtures Provision RewrittenBuyer & Seller authorizations regarding closing disclosuresSeller must provide loan payoff infoSeller responsible for paying certain HOA charges

Use of Electronic MeansDate/Time defined as date/time of day in NCStatement to confirm that contract is binding when signed and communicatedDeletion of Seal next to SignaturesAcknowledgement for receipt of DDF

pp56-57

Revised Addenda2A11-T: Additional Provisions Addendum2A12-T: Owners Association Disclosure and Condominium Resale Statement Addendum4-T: Agreement to Amend Contractpp57-58

Section 4: Safety

p59

You have a listing that hasnt 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 1p59

Youve 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 2p59

Learning ObjectivesAt the end of this section, you should be able todescribe various safety skills and strategies for real estate brokers.p59

Develop Situational Awareness

p59

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

p60

Safety Video

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

Safety Tip #11:

p62

p62

Section 5:Licensing and Education Review

p63

My parents want to buy a beach house near Wilmington. Theyve asked me to be their buyers agent. Ive had a license for more than 10 years, but I havent taken any CE for the last 4 years. Can I represent them?Scenario 1p63

Ive 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 2p63

ObjectivesAt the end of this section, you should be able to explain:

license categorieslicense renewal requirementsCE requirementsBIC requirementsp63

License CategoriesBroker LicenseProvisional BrokerBrokerBroker-In-Charge

Limited Nonresident Commercial License

Firm License

p64

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

Current vs. Expired LicenseCURRENT: $45 renewal fee wasRECEIVED by the CommissionON OR BEFORE JUNE 30

p65

Current vs. Expired License

EXPIRED:Renewal fee was not received on time

EXPIRED = NO LICENSE

p65

ReinstatementCan reinstate within 6 months by paying $55.Deadline: December 31 of expiration year.

If expired more than 6 monthsSubmit application with fee & criminal background checkANDComplete additional education and/or exam.p65

145

Reinstatement:Additional Education RequirementsPB expired 6 mos-5 yrs Broker expired 6 mos-2 yrsBroker expired 2 yrs-5 yrsPB OR Broker expired more than 5 years

p65

146

Active vs InactiveACTIVE = Up-to-date on CE and/or Postlicensing EducationINACTIVE = Education Deficiency (or a PB with no BIC affiliation)

p66

147

UPDATE Non-BIC Brokers & Provisional Brokers take GenUpBICs or BIC-Eligible Brokers take BICUP

AND

ELECTIVE

EVERY LICENSE YEARContinuing Educationp66

148

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 didnt take CE for the past 4 years. Now you want to activate your license. What must you do?Complete current years CETake elective courses to make up missed hours from last year (4 or 8 hours)ANDSubmit license activation form (REC 2.08)p66

150

On your own or with a partnerAnswer the 3 questions on page 67.

p67

REALTOR Code of Ethics TrainingQuadrennial training deadline: December 31, 2016

Applies to REALTOR-members only(not a Commission requirement)

Call your local board or associationor visit www.realtor.org for information

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

p68

Active Status and NOT Provisional2 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-ChargeQualification Requirementsp68

Your license record will showBIC Eligible status AFTER:Youve satisfied all BIC qualification requirements.Youve submitted and NCREC has processed your BIC Declaration Form.Youve taken the 12-hour course on time.p68

155

To Maintain BIC Status-EligibilityRenew your license on time($45 by June 30)ANDTake appropriate CE on time(BICUP and one Elective by June 10).

p69

156

1. Return to Active / Current Status2. Submit Activation Form (REC 2.08)3. Attend 12-hour BIC Course4. Submit BIC Declaration Form (REC 2.04)

Next: Submit affiliation forms for all Brokers & PBs.To Regain BIC Status/Eligibility

p69

Section 6:Complaintsp71

Scenario 1You return from lunch to find a brown envelope from theNorth Carolina Real Estate Commission waiting on your desk.p71Whats 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 2p71

p71

ObjectivesAt the end of this section, you should be able to: define which violations must be reported to the Commission and when they must be reportedexplain brokers duties to cooperate with, respond to and produce records for the Commissionp71

NCREC Video

Commissions Authoritytake disciplinary action investigate licensees and unlicensed activity and hold hearings issue subpoenas and compel witnesses to testify at hearingsimpose sanctionsp72

SanctionsRevocationLoss of licensure for an indefinite timeA 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

SanctionsReprimandPublic 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 suspensionmust be reported toClerk of Superior Courtin county of brokersprincipal 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 & Dutiesreport convictions and disciplinary actions within 60 daysfile responses within 14 daysmake records available for inspection and reproduction upon request

p73

What do you have to report?ANYfelony OR misdemeanordisciplinary action regarding an occupational licenserestriction, suspension or revocation of a notarial commission (notary public)p73

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

p73

Must you reportan 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 writingidentify the broker(s) complained againstprovide essential facts

p74

Anonymous ComplaintsComplainant does not have to be identified; however

copies of all information sent with complaint will be provided to the respondent-broker.

p74

Most Common ComplaintsMisrepresentationContract problemsAgency issuesLoan 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 Affairsmakes no assumptionsconcerning truth of allegationsuntil case is investigated.

p75

Investigation PeriodThis is your opportunity to explain your side of the story.Dont underestimate the importance of a thorough reply.

p75

Correspondence InvestigationsConsumer Protection Officersends a Letter of Inquirywith all information submitted with complaint.p75

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

What if you need an Extension?

p75

What to Send?A written statement of your positionA chronological narrative of your involvementSpecific 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 inquiryis itself an offense.

p76

Field InvestigationsUsed when cases requirewitness interviewstrust account auditsexamination of evidencethat cannot be obtained through correspondence

p76

Dont SayYou dont have jurisdiction over me.

As you can see from the consumers ranting, they are deranged and no credence should be given to anything they say.p76

Dont SaySorry, but Im super busy right now and wont have a chance to get into this for a couple of months.

Do you have any idea who I am? Im a top producer whos been in the business for more than 20 years and have sold millions of dollars of property!p76

Dont SayThis was a personal matter and the Commission shouldnt get involved.

Im not required to keep the documents you request.p76

Investigator Case FilesTreated as public record unless disclosure would impede on-going investigation

p77

Possible OutcomesCase is dismissedDoes NOT mean the broker is innocent

Case is NOT dismissedRegulatory Affairs must prove probable cause to CommissionNext step is settlement or hearingp77

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 p78Suggested Written Office Policies

Affiliated brokers-respondentsmust submit proposed responsesTO YOU for reviewBEFORE submitting them to the Commission.

p79Suggested Written Office Policies

Training NeedsA complaint may highlight a need for additional training and development.

p80

Avoid disciplinary proceedings byfollowing Laws & Rulesavoiding misrepresentationsdisclosing material factsmaintaining recordsanswering questions and producing documents requested by Commission staff

p80

If and when something goes wrong, dont just fix it make it right!

p80

Section 7: Handling Trust Moniesp81

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May a broker ever receive a check/negotiable instrument payable to someone other than the broker or the brokers real estate company?

Scenario 1p81

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 2p81

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 3p81

ObjectivesAt the end of this section, you should be able to: define trust moneyexplain how a trust account must be designateddescribe the general rule for depositing trust moniesdescribe options for handling disputed fundsdefine deficit spendingp82

ALL brokers must safeguard the money or property of others

Commingling is ILLEGAL

BIC is responsible for the trust accountLicense Law Key Points

p82

203

What IS Trust Money?Funds belonging to othersReceived by a licenseeActing as an agent in a real estate transaction

p83

204

Examples of Trust Moneyearnest money depositstenant security depositsrent paymentsfinal settlement fundsadvance rental depositssales and use taxesfunds used for maintenance of owners properties

p83

205

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

206

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

207

What IS a Trust Account?Separate, Custodial, Demand

p83

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Proper Account DesignationTrust Account or Escrow Account must appear on ALLBank statementsChecksDeposit tickets

YOUR REALTY COMPANY, INC.TRUST ACCOUNT

DATE _______________________ CURRENCYCOINSCHECKS123TOTAL

YOUR REALTY COMPANY, INC.TRUST ACCOUNTp84

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Insured Deposits$250,000 per individualp84

License Law defines a Bank as:Federally-Insured DepositoryLawfully doing business in NC That agrees to provide its records to NCREC

p84

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Tenant Security Depositsmust be in a Trust Accountin a bank IN NORTH CAROLINA.

p84

When to deposit?Trust Monies must be depositedwithin 3 banking days of receipt

p85

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Exception:EMDs and TSDs may be depositedno later than 3 banking daysof contract acceptanceNO 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

215

May a broker accept a check/instrument payable to someone other than the broker/firm? p85NO, UNLESS

THE CHECK IS PAYABLE TOa seller for a DDF or option feeORa third party escrow agent for an EMD in a sales transaction.p85

Broker must deposit the $$$ in the firms trust accountORdeliver the $$$ to the appropriate payee

NO LATER THAN3 days of contract acceptance.pp85-86If 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 Buyers instructions

even after the parties have entered into a legally binding contract.pp85-86

Example 1Your 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 2Your 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 FundsRetain in trust account untilWritten release signed by all partiesOR Court OrderOR Deposit with Clerk of Court (after 90-day period with notice per G.S. 93A-12)

p87

222

G.S. 93A-12 ProcedureBroker 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

p88Must a Broker obtain parties signatures before releasing funds? Answer: It depends.See discussion on page 88.

Residential Tenant Security DepositsDisputed Funds Rule does NOT applyBroker must disburse within 30 days if residential lease and 45 days if vacation rental

p88

225

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 anInterest Bearing Trust Account? YES IFparties have given CLEAR & CONSPICUOUS written authorization

p89

228

A Broker must depositsecurity deposits and earnest moniesfor his or her own propertiesin a separate trust account.pp89-90

Example: Betty BrokerBetty 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

230

Deficit Spending

p90

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 aboutTrust Account Record-Keeping?Sign up for NCRECs4-hour Basic Trust Account Course.

Also: Visit www.ncrec.gov for videos & resources.p94

233

Section 8:BIC requirementsp?

p97

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

Scenario 2I 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

ObjectivesAt the end of this section, you should be able to: define BIC qualification requirementsexplain the purpose and benefit of BIC Eligible statusexplain how to regain BIC status & eligibilityp97

Broker-In-Charge QualificationsActive StatusFull Broker2 years full-time brokerage experience within previous 5 yearsComplete 12-hour BIC course within 120 days of designation (or within 3 yrs prior)

pp97-98

Becoming BIC and BIC EligibleAchieve required experience AND Broker statusTake 12-hour BIC courseSubmit BIC Declaration form within 3 years of course completion*Now BICAND BIC-Eligible*Achieve required experience AND Broker statusSubmit BIC Declaration form*Now BIC*Take 12-hour BIC course within 120 days of designation*Now BICAND BIC-Eligible*ORpp99-101

239

To Maintain BIC Status-EligibilityRenew your license on time($45 by June 30)ANDTake appropriate CE on time(BICUP and one Elective by June 10).

p101

240

1. Return to Active / Current Status2. Submit Activation Form (REC 2.08)3. Attend 12-hour BIC Course4. 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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