Problem-areas addressed in earlier issues of the Bulletin are revisited.
By Blackwell M. Brogden, Jr., Chief Deputy Legal Counsel
Judging by the number of calls and letters received by the Commission staff, and the complaints which result in disciplinary action by the Commission, certain real estate topics which have been addressed in earlier issues of the Bulletin continue to be problem-areas. Perhaps, therefore, it is time to briefly revisit these topics for the benefit of new licensees who may not have read the earlier articles on the subjects as well as to refresh the memory of experienced real estate agents.
Be aware that all funds of others received by a real estate agent must be deposited and maintained in a designated trust account. This includes, but is not limited to, earnest money deposits, rents, tenant security deposits, homeowner dues, closing expenses, sales tax for short term rentals, and repair costs or reserves.
The Commission has detailed record-keeping requirements which, if followed, ensure proper disposition of trust monies. Rule A.0107 requires brokers-in-charge to maintain trust account ledgers and journals with accurate running balances and to reconcile these records to their bank statements and canceled checks on a monthly basis. If this is done, funds can be expended for the proper reasons, and fraud by others in the firm can be detected quickly.
Failure to comply with the rule can result in the unlawful practices of "deficit spending" (using the money held for one person to pay another person's obligations), commingling (by leaving the broker's funds in the same account with the funds of others), or outright embezzlement of trust monies. The Commission employs Auditor/Investigators to make "spot" inspections and routine audits and to investigate complaints involving trust accounts.
The Commission offers two different trust account courses, one for general brokerage and another focused on issues related to resort rental operations. The "Trust Account Procedures for Resort Property Managers" course is available only during the Spring Trust Account Caravan, but the "Basic Trust Account Procedures" course is also available each month in Raleigh at the McKimmon Center. [Please see the registration forms on pages 2 and 10.] In addition, the Commission offers a broker-in-charge course which focuses on all the duties of a broker-in-charge, including oversight of the trust accounts. The Commission reminds you that four hours of continuing education elective credit are awarded for completion of each course.
Violations of the statutes and rules governing trust accounts remain the principal cause of disciplinary actions. In many instances these actions include sanctions against "ghost brokers" who did not actually take any money for their own use.
In parody of a once popular comedy and its theme song, Commission staff apply the term "ghost brokers" to persons who are designated as "brokers-in-charge" but do not provide the supervision required by Commission rules. In some extreme cases, the "ghost broker" actually holds a job somewhere else and rarely even visits the office for which he or she has assumed broker-in-charge responsibilities. In other cases, the "ghost broker" works as a sales agent with the firm and does not assume the responsibility necessary to perform the necessary broker-in-charge duties. Still other brokers manage to find some mid-point, voluntarily limiting their authority to some part of an operation while allowing another person to exercise control over matters for which the broker-in-charge is responsible. In each of the above cases, the broker has failed to fulfill his/her duties.
Every real estate firm in North Carolina must have a designated broker-in-charge for each office, and that broker is responsible for supervising all salespersons in the office, as well as unlicensed and licensed employees who exercise control over the firm's trust accounts. Personal and adequate supervision is required. Delegation of responsibilities does not relieve the broker-in-charge of his or her duties under the Real Estate License Law. This point has been brought home to an increasing number of brokers who have for years trusted the management of their escrow account to someone else in the office, then later discovered that their escrow funds have been misapplied, embezzled or cannot be found.
Problems resulting from improper management of a real estate office eventually come to the attention of the Commission. And who do we call when it's time to impose a disciplinary sanction? The Ghost Broker!
For example, if a licensee elects to advertise square footage, the size is a material fact that must be accurately disclosed. The responsibility for providing this accurate information is that of the listing agent. [For detailed instructions on calculating and reporting square footage, see the Commission's publication, Residential Square Footage Guidelines.]
Similarly, licensees ordinarily should be able to identify the heating and cooling systems for the property, determine how water and sanitary sewer are provided, and know how to determine the zoning and tax value for the property when it is an issue. Likewise, clearly and correctly identifying personal property which will stay or be conveyed is crucial to a successful transaction.
When it is not possible for a listing agent to personally confirm information about a property, the agent should avoid making any affirmative statements about it and should advise prospective buyers to make their own investigations.
As a competent real estate agent, you must obtain a solid foundation in the basic requirements of the Real Estate License Law and Commission rules. It is your responsibility to evaluate all aspects of your real estate transactions and to ensure the proper application of the duties imposed by law.