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Weekly Q&As

Buyer’s right to EMD refund after end of Due Diligence Period

Release Date: 7/7/2015

QUESTION: I had one of my listings under contract using the Offer to Purchase and Contract (form 2-T), but I’ve been notified by the buyer agent that the buyers have decided they just don’t want the house after all.  The Due Diligence Period is over but the buyers are demanding a refund of their Earnest Money Deposit.  When I told the buyer agent that the buyers will lose their EMD because they terminated after the end of the Due Diligence Period, he challenged me to point out where it says that in the Contract.  The Contract clearly states that the buyer gets a refund of the EMD if he or she terminates prior to the end of the Due Diligence Period.  But where does it say that if the buyer terminates after the end of the Due Diligence Period, the buyer loses the EMD? 

ANSWER: If a buyer terminates the contract prior to the end of the Due Diligence Period, the buyer is always entitled to a refund of the EMD.  On the other hand, although the buyer will generally lose the EMD if he or she terminates after the end of the Due Diligence Period, that is not always the case.  For example, if the seller is unable to deliver good title to the property, the buyer clearly is entitled to a refund of the EMD notwithstanding the fact that the Due Diligence Period may be over.  Because it depends on the circumstances, there is no “black and white” statement in the Contract that the buyer loses the EMD if he or she terminates after the end of the Due Diligence Period.

The answer to the challenge posed to you by the buyer agent is contained in the definition of “Earnest Money Deposit” in paragraph 1(e) of the Contract, where it states that if the buyer breaches the Contract, the EMD is paid to the seller.  In your situation, the buyers are likely in breach of contract because they’ve decided to terminate after the end of the Due Diligence Period without a “good” reason, meaning a reason that would permit them to terminate the contract, such as the seller’s failure to comply with one of the seller’s obligations under paragraph 8 or the non-fulfillment of one of the conditions set forth in paragraphs 11 and 12.

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

What do I do with a tenant's abandoned personal property?

Release Date: 6/30/2015

QUESTION: I am a property manager. From time to time, when we attempt to contact a tenant who has stopped paying rent, we discover that the tenant has moved out. Fairly often, the tenant has left some of their furniture and personal belongings in the premises. I have read the North Carolina General Statutes regarding the proper handling of abandoned personal property but I am not sure if my ability to throw that property away depends on (a) whether I have obtained a writ of possession and/or (b) whether the property is worth more than $750. What are the rules?

ANSWER:  If the tenant who has abandoned personal property is deceased, there is a fairly new statute (NCGS §42-36.3) that authorizes landlords (and their agents) to dispose of the tenant's personal property without filing a summary ejectment action and obtaining a writ of possession. With that limited exception, we strongly encourage property managers to obtain a writ of possession from the court BEFORE disposing of any abandoned property.

NCGS § 42-36.2(b) provides a safe harbor for landlords and their agents. It states (in part) that if, after being placed in possession by the execution of a writ, the landlord has offered to release a tenant’s property and the tenant fails to retrieve such property during landlord’s regular business hours within seven days after execution of the writ, the landlord may throw away, dispose of, or sell the property in accordance with the provisions of G.S. 42-25.9(g). Nothing in NCGS 42-25.9(g) limits the landlord’s right to throw away the tenant’s property based on the value of that property (except in cases involving a mobile home and its contents).

To be protected by the safe harbor, you must first obtain a writ of possession, then offer to release the tenant’s property, and then wait for seven days. We suggest that you make the offer to release in writing and give that notice to the tenant at the time of the sheriff’s lockout. The notice could say: “We hereby offer to release your personal property to you during our normal business hours for the next seven days. Please contact our office to make these arrangements. Thank you.” If the tenant is not home at the time of the lockout, we suggest that you post this written offer on the front door of the leased premises and that you mail another copy to the tenant.

If the property abandoned by the tenant is worth less than $750, there is an alternative to obtaining a writ: the abandoned property may be delivered to a non-profit organization that regularly provides free or nominally-priced clothing to people in need. To use this procedure, personal property is only deemed abandoned if you find evidence that clearly shows the premises has been voluntarily vacated after the paid rental period has expired and you have no notice of a disability that caused the vacancy. 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Can a real estate broker create a lease-purchase or lease-option agreement?

Release Date: 6/23/2015

QUESTION: An agent in the office I manage has a listing with a seller who has been approached by a buyer who wants the seller to enter into an agreement where the buyer would lease the property and then buy it at the end of the lease.  I told him it was my understanding that the parties should go to a lawyer to have something like that drawn up.  But my agent pointed out that it’s okay for him to complete a standard rental contract form and it’s okay for him to complete a standard Offer to Purchase form, so why can’t he create a lease-purchase agreement using those two forms?  I didn’t have a good answer for him.  What do you say?

ANSWER: Real estate agents should never attempt to use NC REALTORS® forms to create a lease-purchase or lease-option agreement.  Such activity would constitute the unauthorized practice of law (“UPL”) and would subject the agent to discipline by the North Carolina Real Estate Commission. UPL is also a crime and any person who claims to be damaged by UPL is entitled to maintain a private cause of action to recover damages and reasonable attorneys' fees.

Boone real property lawyer John Turner wrote an article on the subject of brokering lease-purchase and lease-option transactions that appeared in the July 2013 issue of NC REALTORS®’s Insight magazine. In his article, John states that the “creation of proper lease-purchase or lease-option agreements should be left solely to the drafting expertise of competent counsel.”  You may access the article by clicking here.

In addition, a Real Estate Commission Q&A on Offer and Acceptance addresses this subject. On the last page of the Q&A under the heading of “Lease with Option,” the Commission advises the general public that there are no standard forms available for the purpose of coupling a lease with an option to purchase. The Commission then writes: “Attempting to modify other standard forms for such use may result in a muddled or even unenforceable contract, and constitutes the unauthorized practice of law when performed by real estate brokers. Since these transactions may be riskier than a conventional purchase, you should consult your attorney before entering such agreements.”  You may access the Q&A by clicking here.

Finally, there are numerous instances reported in the Commission’s Real Estate Bulletin where real estate agents have been disciplined for drafting lease-option contracts or attempting to combine a lease with a purchase contract. Simply stated, agents in North Carolina should not engage in that conduct.

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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Sellers' action: a condition not satisfied or a breach of contract?

Release Date: 6/16/2015

QUESTION:   I represent buyers who signed a contract to purchase a residential property. During the due diligence period, the buyers discovered that there was an underground tank on the property that was once used to store heating oil. The tank was located under a relatively new addition to the home. The buyers hired an environmental "expert" who opined that the removal of the tank would adversely affect the property. The existence of the oil tank and the opinion of buyers' expert were disclosed to the sellers. Although we asked the sellers not to remove the tank, the sellers ignored this request and proceeded with removing the tank. Paragraph 11 of Standard Form 2-T states: "Buyer's obligation to complete the transaction... shall be contingent upon the Property being in substantially the same or better condition at Closing as on the date of this offer, reasonable wear and tear excepted." Was the sellers’ removal of the underground tank a breach of contract that would obligate the sellers not only to refund the buyers' earnest money deposit but also pay for other the expenses incurred by the buyers during the due diligence period?

ANSWER:  In our view, the sellers' removal of the underground tank could be considered a breach of contract. A breach of contract would trigger the sellers' obligation to reimburse the reasonable costs incurred by the buyers during the due diligence process.

The language in paragraph 11 of the Offer to Purchase and Contract conditions the buyer’s obligation to complete the transaction on the property being in substantially the same or better condition at Closing as on the date of the offer, reasonable wear and tear excepted.  Under the law of contracts, if a contingency or condition is not fulfilled, the party who is benefited by the condition (the buyers in this case) is excused from performing the contract. 

If the seller is not responsible for the condition being fulfilled (for example, if a tornado damaged the house prior to Closing), the fact that the condition was not fulfilled would give the buyer an “out” from the Contract but would not be considered a breach of contract by the seller. In that circumstance, the buyer would be entitled to a refund of any Earnest Money Deposit under paragraph 1(e) of the Contract but would not be entitled to "breach of contract" damages.

In this case, buyers' expert takes the position that the removal of the underground tank left the property in worse condition than it was on the date the buyers' offer was submitted. Assuming that buyers can establish the diminished condition, it is clear that the sellers were directly responsible for that change in condition. In these circumstances, the fact that a condition to the buyers' performance was not satisfied could also be considered a breach of contract. In such a case, sellers would be at risk for paying damages to buyers over and above the return of buyers' earnest money deposit.

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Rules for sending commercial email

Release Date: 6/9/2015

QUESTION: I was comparing notes with another broker the other day about our marketing programs.  She said you can’t send email to people who’ve said they don’t want to receive it.  Is that right?  I thought the rules for email were different than calling people on the phone.

ANSWER: You’re both right.  The rules for email are different than the rules for phone calls.  Email is covered by a Federal law called the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, more commonly known as the “CAN-SPAM Act of 2003” (the “Act”).  The Act does not ban commercial e-mails but rather outlines a series of practices that must be followed when sending them.

The Act defines a “commercial electronic mail message” as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service.”  Commercial email messages must include several specific items, including but not limited to a clear and conspicuous notice that the message is an advertisement or solicitation (unless the recipient has given prior consent to the sender to receive commercial emails). 

If a recipient makes a request to not receive commercial e-mail messages from you, you have 10 business days to stop sending commercial emails to them.  A recipient who has opted out may thereafter be contacted only if he or she subsequently gives you permission to send commercial e-mails.

The rules for sending commercial email are covered in more detail in a sample “Commercial Email Policy” contained in NC REALTORS®’s Model Office Policy Manual.  The Manual is available on the Legal Department page of the NC REALTORS® website under “Policies and Documents.”  The Manual contains more than 25 sample policies for use in the preparation/revision of your firm’s own policy manual. 

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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.