|North Carolina R E Commission Answers
This is the copy from an email I received from TCI on 8/20/04.
"While not mentioned by name, some of my activities have been commented upon in
"NC AG Troubles" and another thread posted below that. Due to ethical considerations on
commenting about pending litigation and investigations, I am unable to fully respond and address both
the misconceptions and valid concerns expressed in some of the communications posted.
I would welcome a call from Mr. Locke to discuss the legal principles involved, what is
clearly recognized as legitimate activity on one's own account, and how many practitioners of one or
another of the discussed methods take themselves into trouble.
Both the Real Estate Commission and the Attorney General's Office have no problem with
legitimate business persons engaged in the purchase, rental or sale of their own real estate.
B. M. Brogden, Jr.
Chief Deputy Legal Counsel
NC Real Estate Commission"
I emailed Mr. Brogden and requested his phone number so that we could discuss Subject To
investing in North Carolina. He graciously responded with his phone number.
I called Mr. Brogden in the afternoon of August 24, 2004.
Here is a synopsis of our conversation and was reviewed by Mr. Brogden:
North Carolina has no problem with Subject To investing as long as the following guidelines
are adhered to:
The problem with the use of a "Land Trust" as a means of concealing a violation
of the "due-on-sale" (DOS) clause is that even where the designated trustee is a real person
or entity, the identity of the actual beneficiary is concealed or obscured.
This can constitute a deceptive, misleading or unfair trade practice in violation of
Chapter 75, N.C.G.S, and, in the opinion of the Commission legal staff, is a circumstance tending to
show the person actually controlling the trust is attempting to act as a real estate broker without a
Much the same is true for agreements, such as installment land sale contracts or
lease/option or lease/purchase arrangements that are not properly recorded in a timely manner in the
chain of title. No reasonable person or prudent investor would fail to immediately and properly record
a document transferring an interest in title due to the risk of loss associated with the failure to
timely and properly record.
A person or firm truly dealing on their own account would typically obtain a deed, option
or contract, properly notarized and recorded, in order to protect their investment. Failure to do so
is very convincing evidence that there is no real investment and that such person or firm is no more
than an agent without a license.
The Subject To transaction is a matter of public record. The deed between the seller and
buyer must be recorded in a person's name or corporate entity.
As most of you are aware, I have not been a proponent of Land Trusts, however I have not
advised anyone not to use them if they felt they needed to do so. Subject To investors who are under
scrutiny from the Attorney Generals office, as far as I gleaned are those who used Land Trusts or did
not adhere to the following excerpts from:
Deceptive Acts or Practices
Article from Attorney General's Office
Consumer Protection Section
North Carolina law provides that unfair methods of competition and unfair or deceptive
acts or practices in the conduct of any trade or commerce are unlawful and are subject to a civil
injunction by the Attorney General. So that you will have a better understanding of how this law
applies the following is a brief, and by no means conclusive, checklist you should keep in mind.
- Intent to deceive, or the seller's good faith or honest belief is not relevant or material to a
determination of illegality.
- Opinions which are misleading or deceptive are unlawful.
- Any false inducement is a violation if it is likely to mislead a substantial segment of the
purchasing public, or that portion of the public to whom the representations is directed.
- Failure to disclose a material fact is unlawful.
- Advertisements or representations which have a tendency or capacity to mislead are unlawful.
- Misrepresenting the' nature of or the extent of a guarantee or warranty is unlawful.
- Any person who engages in a transaction which in whole or in part is in violation of an already
declared statute may have in fact engaged in an unfair or deceptive act or practice.
Finally, in judging the likelihood that an act or practice is likely to deceive, the
measure is whether it is likely to deceive the unlearned and gullible. In determining this, courts
generally are concerned with the impression a statement or representation is likely to create upon
prospective purchaser, which arises not only from the sum total of what is said but also of all that
is reasonably implied.
If you as an investor make a full disclosure to your seller and buyer in your paperwork
and I am not referring to CYA letters, but paperwork that adheres to the state statutes, this will go
along way in resolving you of any wrong doing should a complaint be filed against you.
We also covered "equity skimming" whereas an investor collects the payments
from the buyer and does not make the payments on the existing loan. This is an excellent reason to
use a licensed and bonded Loan Servicing Company to collect the payments from your buyer and the LSC
makes the payments to the lender.
Sometimes it is too convenient when someone gets into financial problems to
"borrow" from the buyers payment, thinking they can make up the payment at a later time.
This is a federal offense, however a great concern of the Attorney General's office.
Of course, last but not least, the DOS (acceleration clause). As most everyone is aware
this is an option the lender has and is not in the realm of criminal activity, but would leave open
certain civil court liabilities. However, I have found no case law that would suggest the lender
calling the loan due pressing any other issue.
This I consider part of the risk versus reward in doing Subject To deals. My personal
belief is if the loan is kept current, the lender is not out looking to call loans due. They have
enough concerns with the high rate of foreclosures in the United States today.
North Carolina has no problem with anyone purchasing or selling property in their state
and feels strongly that the Constitution allows its citizens to do so. This was emphasized by Mr.
I feel this is an important first step in understanding the concerns from both sides
concerning the creative investing industry. I would personally like to thank Mr. Brogden for taking
the time from his busy schedule to talk with this investor and stating the views of his office.
I also said he should be glad he doesn't handle the complaints regarding used car
John "Cash" Locke
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