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Weekly Q&As

Is a back-up contract a material fact?

Release Date: 03/28/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: My client is under contract to buy a home in a popular neighborhood. During the due diligence period, we submitted a list of proposed repairs to the seller, and the seller refused all of them. My client told me to inform the seller that if he would not perform the repairs, then my client would terminate the contract. The listing agent responded by telling me that the seller had already accepted a back-up contract, and that if my buyer would like to terminate, the seller would just proceed with the back-up contract.

I confronted the listing agent because he never informed me of the back-up contract. The listing agent replied that the back-up contract is not a material fact and that he had no duty to disclose it. Is the listing agent correct?

ANSWER: In our opinion, the listing agent is correct in this situation. Generally speaking, a material fact is any important or relevant fact to the issue at hand. The North Carolina Real Estate Commission has stated that in real estate transactions, material facts fall into several categories: (1) significant facts about the property itself; (2) facts relating directly to the property, such as a pending zoning change; (3) facts concerning a contracting party’s ability to complete the transaction; and (4) facts that are known to be of special importance to a party. If a fact falls into one of these categories, then the fact is a material fact that must be disclosed to any party an agent deals with, even if the party is not represented by the agent.

NC REALTORS®’ Back-Up Contract Addendum (Form 2A1-T) states: “It is a condition of this Back-up Contract that the Primary Contract is terminated as described below before Buyer and Seller shall be obligated to perform under this Back-up Contract.” Accordingly, a back-up contract can only become effective if the primary contract fails to close. Since the back-up contract does not affect the property itself or limit a seller’s ability to complete the transaction, it is not a material fact that would need to be disclosed to a buyer.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Can my buyer-client buy a property listed by one of my provisional brokers?

Release Date: 03/21/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I am the broker-in-charge of a small firm. There are four other brokers in my firm, one of whom is a provisional broker. The provisional broker has a home listed for sale and the seller agreed to dual agency in the listing agreement. I have some buyer clients that are interested in looking at the home. The provisional broker told me that she learned in her post-licensing classes that a broker-in-charge cannot represent a buyer interested in purchasing a home listed by a provisional broker under his or her supervision. Is she correct?

ANSWER:  She is not. We suspect that your provisional broker misunderstood her instructor's discussion of the Real Estate Commission's Agency Agreements and Disclosure Rule (58A.0104). Subsection (j) of that rule deals with designated agency. It authorizes a real estate firm, with the prior express approval of both parties, to designate one or more agents to represent only the interests of the buyer, and one or more agents to represent only the interests of the seller.

There is a caveat to the designated agency rule that is described in the last sentence of subsection (j). It states: "A broker-in-charge shall not act as a designated broker for a party in a real estate sales transaction when a provisional broker under his or her supervision will act as a designated broker for another party with a competing interest." The reason for this exception is that, since the broker-in-charge has a duty to supervise the provisional broker, the BIC must have access to all information in the provisional broker's possession, including any confidential information. The Real Estate Commission has written: "the broker-in-charge's mandatory supervisory obligations of provisional brokers in his or her office defeat the necessary separation required between designated agents."   

What is important to recognize is that the exception here applies only in the context of designated agency. If both parties agree to "regular" dual agency, i.e. they have not exercised the designated agency option,  those parties can be represented by a single agent. Therefore, it is also permissible for one party to be represented by a provisional broker and the other by the provisional broker's broker-in-charge.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Must the seller pay VA loan costs if the contract falls through?

Release Date: 03/14/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: My seller is under contract to sell her property, but the contract unfortunately has fallen through because the buyer was unable to obtain a VA loan to purchase the property.  The contract was written using the Offer to Purchase and Contract (form 2-T) and the FHA/VA Financing Addendum (form 2A4-T).  The buyer agent is telling me that according to the wording of the FHA/VA Financing Addendum, the seller is responsible for paying the cost of a required wood-destroying insect inspection even though the contract has fallen through.  Is he right?

ANSWER: We think not.  It’s true the FHA/VA Financing Addendum states that the seller will agree to pay the cost of well/water, septic/sewer, and/or wood destroying insect inspections that the Department of Veterans Affairs VA may require to be performed at the seller’s expense.  However, the Addendum also specifically provides that the seller’s agreement to pay the cost of any such inspection is “subject to the limit set forth in Paragraph 8(i) of the Contract.”  Paragraph 8(i) is the paragraph where the seller agrees to pay certain buyer expenses.  Paragraph 8(i) begins with the following: “Seller shall pay at Settlement $_________________ toward any of Buyer’s expenses associated with the purchase of the Property…”  The words “At Settlement” are emphasized because we think they make it clear that the seller’s obligations under paragraph 8(i) arise only if there is in fact a Settlement.  Since the contract in question has fallen through, there will be no Settlement, and thus, no obligation on the seller’s part to pay the cost of the termite inspection.

Does our conclusion mean that nobody is obligated to pay the pest inspector?  We don’t think so.  In our view, the VA restriction on the buyer’s ability to pay the cost of the inspection is no longer relevant since the VA financing has fallen through, and thus, the buyer would not be constrained in paying the cost of the inspection, if ordered by the buyer or buyer’s agent.  On the other hand, in the unlikely event the seller or listing agent engaged the pest inspector, the seller would be liable to pay the cost of the inspection.  However, any such obligation would be based on the seller’s contract with the pest inspector rather than the seller’s contract with the buyer.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

In how many counties do I need to file an assumed name certificate?

Release Date: 03/07/2017

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QUESTION: My firm provides brokerage services under an assumed name that is different than the firm’s registered name at the Secretary of State. The register of deeds where my office is located has my firm’s assumed name on file. Next year, my firm is looking to expand to provide brokerage services in two more counties. Do I need to file our assumed name in the other two counties?

ANSWER: Under the current law, every person, partnership, limited partnership, limited liability company, or corporation must file a certificate of assumed name in a county’s register of deeds’ office before engaging in business in such county. N.C.G.S. § 66-68. This rule, however, is about to be replaced.

Subject to funding being provided by the General Assembly, section 66-68 and all related statutes will be repealed effective July 1, 2017. Once the new system is implemented, assumed names will still be filed at the register of deeds, but anyone doing business in multiple counties will only have to file in one county. This is because under the new law, the register of deeds will forward the assumed name certificate to the statewide database. If you want to read the statutes relating to the new system, you can access them here.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Are sellers required to pay all inspection costs that the VA prohibits a buyer from paying?

Release Date: 02/28/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION:  I represent a seller. A buyer submitted an offer that was substantially below the listing price. In paragraph 5(a) of Standard Form 2-T, the buyer represented that she intended to obtain a VA loan. My client eventually agreed to a lower purchase price but he also crossed out buyer's figure in paragraph 8(i) of the contract and inserted a zero to indicate that he would not pay any of the buyer's expenses associated with the purchase of the property. The buyer applied for a VA loan and the lender has required the buyer to obtain several inspections. The lender has said that these inspections must be at the seller's expense. The buyer's agent called and told me it was up to the seller to pay those expenses. Is she correct?

ANSWER:  She is not. The language of the FHA/VA Financing Addendum (Standard Form 2A4-T) expressly states that if the Department of Veterans Affairs requires certain inspections, they may or may not be required to be at Seller's expense. Form 2A4-T then states: "If such inspections are required to be performed and are required to be at Seller's expense, Seller agrees to pay the costs of such inspections, subject to the limit set forth in Paragraph 8(i) of the Contract."

Paragraph 8(i) of the Contract states: "Seller shall pay at Settlement $__________ toward any of Buyer's expenses associated with the purchase of the Property, including any FHA/VA lender and inspection costs that Buyer is not permitted to pay, less any portion disapproved by Buyer's lender." The Guidelines for completing the Contract (Standard Form 2G) instructs, in bold print, that the figure inserted in the blank in paragraph 8(i) include any FHA/VA lender and inspection costs (seller mandated fees) to be paid by Seller.

If the parties ignore this instruction, and the Contract is signed with a zero in paragraph 8(i), the Seller has not agreed to pay any "seller mandated fees". If a buyer's agent allows that to happen, and if the VA lender insists that the inspection costs not be paid by the buyer, then it is likely the buyer's agent who will end up paying those costs in order for the transaction to proceed. For buyers' agents to be safe, if Form 2A4-T is a part of a purchase contract, the amount inserted in paragraph 8(i) should never be zero.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.