(Immediately below is an email sent to John Cash Locke from the NCREC in response to related forum postings on TCI)
“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 advertisement 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 which 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 license.
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.
(1) Intent to deceive, or the seller's good faith or honest belief is not relevant or material to a determination of illegality.
(2) Opinions which are misleading or deceptive are unlawful.
(3) 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.
(4) Failure to disclose a material fact is unlawful.
(5) Advertisements or representations which have a tendency or capacity to mislead are unlawful.
(6) Misrepresenting the' nature of or the extent of a guarantee or warranty is unlawful.
(7) 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 makes 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. Brogden.
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 dealers.