Ch 21 Trust Money NC

The North Carolina Time Share Act

(G.S. § 93A-39 et. seq.) governs the sale of time shares in the state. A times share is the right to occupy a unit or any of several units during five or more separated time periods over a period of at least five years. Interest in a time share is conveyed through a time share instrument. Before marketing a time share, the time share developer must obtain a certificate of registration for the project from the North Carolina Real Estate Commission.

Before marketing a time share

, the time share developer must obtain a certificate of registration for the project from the North Carolina Real Estate Commission.

Demand Deposit Account—

A bank account for which the account holder has instant access to the funds in the account with no advance notice or penalties for withdrawal, such as a checking account.

one or multiple

A broker could choose to maintain ___________ trust accounts. If collecting and holding funds for a property owners' association, the BIC must maintain a separate, exclusive trust account for each association. A trust account could be interest-bearing if the BIC has written authorization from all interested parties that conspicuously sets forth how earned interest is distributed.

conversion

A broker who withdraws monies from an escrow account to pay for brokerage expenses is guilty of .

$100

A broker-in-charge can deposit up to _______ of business funds in his or her trust account to cover service charges imposed by the bank.

Provisional Brokers.

A provisional broker must turn over any trust money to his or her supervising broker-in-charge upon receipt, which, for all intents and purposes, means as soon as reasonably practicable.

Trust Account—

A separate demand deposit bank account used for the safekeeping of funds belonging to parties to a real estate transaction. Also called Escrow Account.

5 days

A time share purchaser can cancel a purchase contract without penalty within ________ after the execution of the contract.

licensed as a real estate broker

A time share salesperson is required to be _______________ unless he or she is an employee of the time share developer whose income is reported on IRS Form W-2, in other words, the salesperson earns a salary as opposed to being paid commission on a transaction basis.

maximum of $100

According to Commission rule A .0117(c)(4)(C), brokers are allowed to maintain a ____________ of company funds in the escrow account to cover any bank fees charged against the account. If the service charges exceed $100 per month, the broker may deposit whatever amount is necessary to cover the service charges each month.

within 3 banking days

According to Commission rules, a time share salesperson must deposit monies from purchaser into the trust account ________ after receipt.

without prior notice

All trust account records must be made available to the Commission—or its authorized representative—for inspection and reproduction _____________ [Rule A. 0117(h)]. The Commission also has the authority to inspect any records that are pertinent to the investigation of a complaint against a licensee.

conversion

Another illegal act that could arise from the mismanagement of a trust account is __________. This occurs if a broker were to use any of the client's money maintained in the trust account for personal or brokerage expenses. Another word for conversion is might simply be "stealing."

10 days.

Assuming that a time share buyer does not cancel the transaction, the deposit she makes when signing the purchase contract must remain in the brokerage escrow account for

public offering statement

Beach Time Development is preparing to market its new time share condominium building on Oak Island. What is the disclosure document that Beach Time must provide to prospective buyers?

company's escrow account

Broker Bob is preparing to purchase a property that is listed by another brokerage company. If he deposits his earnest money deposit for the purchase of that property into his ______________, he could be guilty of commingling.

3 banking days after receiving it

Broker Brad accepts an earnest money deposit in cash when buyer Betty makes an offer to purchase Bill's property. She asks him to hang on to it until their negotiations are complete and Bill signs the contract. What is Brad's deadline for depositing Betty's earnest money into the brokerage trust account?

This is fine, but Andrea is still responsible.

Broker-in-charge Andrea designates Sid, her unlicensed assistant, to make trust fund deposits and handle the bookkeeping. Which statement is TRUE?

conversion.

Broker-in-charge Sue deposits a client's earnest money check into her personal account to cover some short-term expenses. She plans to move the money into the office escrow account when she gets her commission on a deal that's about to close. Her actions could be considered an example of

trust money

Commission rule A .0116(a) defines ___________ as "...all monies received by a broker acting in his or her fiduciary capacity." G.S. § 93A-6(a)(12) extends that definition, indicating that trust money is "...all money received by ... a real estate licensee acting in that capacity, or an escrow agent, or the custodian or manager of the funds of another person or entity which relate to or concern that person's or entity's interest or investment in real property."

trust money

Commission rule A .0116(a) defines _____________ as "...all monies received by a broker acting in his or her fiduciary capacity." The most common examples of trust money are the earnest money deposit a buyer makes to show that he or she is serious and the security deposit that a tenant makes to ensure compliance with the lease. A broker-in-charge who accepts trust money on behalf of others must deposit those funds into a trust account, also called an escrow account.

10-day escrow period

Deposited funds must remain in the developer's escrow account during the ___________ or until cancellation by the purchaser, whichever occurs first. If the purchaser voids the contract before the five-day deadline, the funds must be released back to the purchaser immediately. Next, we'll look at the Commission's disciplinary authority.

public offering statement

Developers must provide the ___________ that conspicuously discloses key facts about the time share project to prospective purchasers before the transfer of the time share and no later than the date of any contract of sale. Failure to provide the public offering statement entitles the purchaser to 10% of the sales price (up to $3,000) from the developer. The purchaser has a right of rescission and may void the contract of sale for five days after execution without penalty. A purchaser may not waive this right of cancellation. Any monies paid by the purchaser must be refunded immediately, which by Commission rule is 30 days after execution of the contact.

Public Offering Statement—

Disclosure of the material characteristics and circumstances affecting a time share project that must be given to each prospective purchaser.

federally-insured depository institution

Earlier, you learned that a brokerage trust account in North Carolina must be in a____________________ that is lawfully doing business in North Carolina. Furthermore, it must be in a demand account such as a checking account or savings account that is clearly designated as a trust or escrow account.

time share registrar

Every developer of a registered project must designate a _________________ to be responsible for recording all time share instruments. Time share instruments must be registered (recorded) with the Register of Deeds Office not less than six days nor more than 45 days following the execution of the contract of sale, or not later than 180 days following the execution of the contract of sale (if the developer places all payments made by the purchaser with an independent escrow agent). If the instrument has not been recorded within 180 days following the execution of the contract of sale, the escrow agent must return the funds to the purchaser.

Trust Money—

Funds received on behalf of another person by a broker in his or her fiduciary capacity.

immediately

G.S. § 93A-45(c) indicates that a time share developer or time share salesperson must ___________ deposit any payments received by a purchaser in connection with the sale of the time share into a trust or escrow account in a federally insured depository institution or a trust institution authorized to do business in North Carolina.

10 days

G.S. § 93A-45(c) indicates that a time share developer or time share salesperson must immediately deposit any payments received by a purchaser in connection with the sale of the time share into a trust or escrow account in a federally insured depository institution or a trust institution authorized to do business in North Carolina. Payments deposited into the trust or escrow account belongs to the purchaser and not the developer. Deposited funds must remain in the escrow account for at least ________ or until cancellation by the purchaser, whichever occurs first.

no later than three banking days

Generally speaking, Commission rule A .0116(a) indicates that all trust monies that a broker receives when acting as a fiduciary shall be deposited in the trust or escrow account _____________ following the broker's receipt of such monies.

the seller

Generally speaking, who is the beneficiary of earnest money deposited in a brokerage's trust account?

no later than three banking days

Generally, trust monies must be deposited ________________ following the broker's receipt. If earnest money accompanies an offer to purchase or lease, the deposit deadline is three days after acceptance. Cash trust monies must always be deposited within three banking days of receipt. Provisional brokers and limited nonresident commercial brokers must turn over trust monies to their broker-in-charge or resident broker upon receipt. When an instrument made out to a third party, such as a check, is given to a broker for safekeeping, the broker must follow the buyer's directions to deliver it to the named payee or return to the buyer within three business days after the acceptance of the option or sales contract.

10%

If a time share developer fails to deliver the public offering statement before a contract is signed, the purchaser may be entitled to ______ of the sales price from the developer.

180 days after the contract is signed

If the developer hands over monies paid by a purchaser to an independent escrow agent, what is the deadline for recording the time share instrument?

Commingling—

Illegally mixing personal funds with money held in trust on behalf of a client.

Project Broker—

In North Carolina, a natural person licensed as a real estate broker and designated by a time share developer to supervise brokers at the time share project.

Time Share Registrar—

In North Carolina, a natural person who is designated by the developer to record or cause time share instruments and lien releases to be recorded and to fulfill the other duties imposed under Article 4 of the Real Estate License Law.

Time Share Salesperson—

In North Carolina, a person who sells or offers to sell on behalf of a developer a time share to a purchaser.

demand deposit account

In North Carolina, a trust account maintained by a broker-in-charge must be in a _____________ located in a federally insured depository institution that is lawfully doing business in North Carolina. The words "trust account" or "escrow account" must appear on all associated documentation or communications, including bank statements, checks, deposit tickets, or signature cards. All trust account records must be available for inspection by representatives of the Real Estate Commission without prior notice.

Time Share Developer—

In North Carolina, any person or entity which creates a time share or a time share project or program, purchases a time share for purpose of resale, or is engaged in the business of selling its own time shares and shall include any person or entity who controls, is controlled by, or is in common control with the developer which is engaged in creating or selling time shares for the developer, but a person who purchases a time share for his or her occupancy, use, and enjoyment shall not be deemed a developer.

Time Share—

In North Carolina, the right to occupy a unit or any of several units during five or more separated time periods over a period of at least five years, including renewal options, whether or not coupled with a freehold estate or an estate for years in a time share project or a specified portion of a time share project. Includes a vacation license, prepaid hotel reservation, club membership, limited partnership, vacation bond, or a plan or system where the right to use a time share unit or units for periods of time is awarded or apportioned on the basis of points, vouchers, split, divided, or floating use, even if on a competitive basis with other purchasers.

The North Carolina Real Estate Commission

Let's start with a quick review question. ___________________ has oversight authority over the time share industry in the state.

Earnest Money—

Money offered as an indication of good faith regarding the future performance of a purchase agreement that is often held in a brokerage trust account.

trust account

Monies paid to a time share developer from a purchaser must be deposited into the ___________ immediately, which by Commission rule means three banking days following receipt. Deposited funds must remain in the escrow account for at least 10 days or until cancellation by the purchaser, whichever occurs first.

which by Commission rule means three banking days following receipt.

Monies paid to a time share developer from a purchaser must be deposited into the trust account immediately,

voidable by the purchaser for five days

North Carolina Time Share Act- To allow purchasers time to review the public offering statement, the contract of sale is ________________ after the execution of the contract without penalty.

30 days

Olive and Paul make a $1,000 deposit to reserve a time share in a new beachfront development. They send written notice to the developer that they have changed their mind. Under Commission rules, the developer must return their full deposit within ________ after the execution of the contract.

$1,400

Someone buys a time share for $14,000, but the developer didn't provide a public offering statement until 10 days after the contract was signed. The developer must pay the purchaser

separate ledger

The BIC must specifically document any company funds being deposited into an escrow account in a s____________ that identifies the date, the amount, and the running balance for each deposit and disbursement.

fiduciary

The North Carolina Real Estate Commissions defines a _________ as a person who "acts for another in a relationship of trust and who is obligated to act in the other's best interests, placing the other's interests before any self-interest."

time share salesperson, developer, or project broker

The Real Estate Commission may investigate the actions of any ______________ of a registered time share project or any other person or entity who assumes to act in such a capacity. The Commission has the power to suspend or revoke a real estate license or a time share certificate of registration; or to reprimand or censure a salesperson, developer, or project broker; or fine a developer ($500 for each violation).

nonrefundable

The buyer may choose to terminate the contract prior to the end of the due diligence period for any reason—or no reason—but would forfeit the due diligence fee, as it is .

Another thing to note about residential security deposits under the Tenant Security Deposit Act:

The landlord—or the landlord's agent—must notify a tenant within 30 days of the beginning of the lease of the name and address of the financial institution where the tenant's security deposit is located, or the name of the insurance company providing the bond. This information is typically included in the lease. If the security deposit funds are transferred to a different financial institution, all affected tenants must be notified.

commingling

The mixing of brokerage operating funds with contract deposit funds is known as

Due Diligence Fee—

The nonrefundable agreed-upon amount that the buyer pays the seller for the right to terminate the contract for any reason or for no reason during the due diligence period; this is not the same as earnest money.

Time Share Unit—

The real property or real property improvement in a project which is divided into time shares and designated for separate occupancy and use.

Right of Rescission—

The right of a purchaser of a North Carolina time share to void the purchase contract within five days of signing without penalty.

interest-bearing.

The trust account may be

FDIC-insured.

The trust account must be

complete records

Time share developers and salespersons must retain ____________ of every time share sale, rental, or exchange transaction made by or on behalf of the developer for three years. Such records shall be made available to the Commission and its representatives upon request.

June 30

Time share project registrations expire annually on _________ and, like a real estate license, must be renewed.

at least five years.

To meet the definition of time share, the arrangement is required to extend over a period of ______________ The situation described would not be a time share.

available for inspection

To meet the requirements of the North Carolina Real Estate License Law, the financial institution must also agree to make the trust account records __________ by representatives of the Real Estate Commission.

5 years.

To qualify as a time share, the owner must acquire the right to occupy a unit during five or more separated time period over a period of at least

Conversion—

To use trust funds for a purpose other than the purpose for which they are held. Conversion is a breach of trust and is a crime as provided by North Carolina law.

at any time

Trust account inspections may be conducted _______________ without the consent of the broker-in-charge.

must be FDIC-insured.

Trust accounts

within 30 days

Under the Tenant Security Deposit Act, the landlord—or the landlord's agent—must notify a tenant ___________ of the beginning of the lease of the name and address of the financial institution where the tenant's security deposit is located.

"trust account" or "escrow account"

When a broker-in-charge opens a trust account, he or she must ensure that the bank properly designates the account so that the words ____________________ appear on all associated documentation or communications, including bank statements, checks, deposit tickets, or signature cards.

no more than 10 days prior to the anticipated settlement date.

When a buyer's earnest money deposit is held in a brokerage trust or escrow account, Commission rule A .0116(e) indicates that the broker-in-charge may transfer those funds to a closing attorney or other settlement agent

in dispute

When the disbursement of trust funds is _____________ , the broker-in-charge can disburse the funds only with a written release from the parties or a court order. The BIC could also deposit disputed funds with the Clerk of Superior Court or disburse money according to a written agreement if it appears that one of the parties has abandoned his or her claim to the funds.

"Exceptional lakefront home for sale. Call Harry Anderson for an appointment today. 555-7890."

Which advertisement placed by a broker at Anderson Realty would violate Commission rules?

commingling.

You collect an earnest money check from your buyer client and give it to the seller's agent along with the offer. The seller's broker deposits the check into his general business account. This is an example of

When trust monies

are held in an interest-bearing account, it's critical that everyone knows and agrees with how to distribute any earned interest.

Only brokers-in-charge who hold trust monies

are required to maintain a trust account. A trust account must be in a demand deposit account located in a federally insured depository institution that is lawfully doing business in North Carolina. The bank does not have to be located in North Carolina.

An interest-bearing account is acceptable

as long as all parties agree in writing as to how the earned interest is distributed.

A time share in North Carolina

could involve either a leasehold estate or a freehold estate.

A person engaged by a time share developer to sell units

in her registered project must be licensed as a real estate broker if his compensation is transaction-based.

A project broker

is a natural person licensed as a real estate broker and designated by the developer to supervise brokers at the time share project [G.S. § 93A-41(7a)]. The role of the project broker is similar to that of a broker-in-charge.

A time share registrar

is a natural person who is designated by the developer to record or cause time share instruments and lien releases to be recorded and to fulfill the other duties imposed under Article 4 of the Real Estate License Law.

due diligence fee

is a separate payment that a buyer may choose to pay directly to the seller to define a specified period of time, called the due diligence period, under the terms of the offer to purchase agreement. During the due diligence period, the buyer has the opportunity to conduct inspections, secure financing, arrange for appraisals, and review homeowners' association CC&Rs, for example.

"Escrow account"

is another acceptable term to describe the account that BICs must maintain to separate money belonging to other people from brokerage funds. From the perspective of the North Carolina Real Estate Commission, the two terms are interchangeable.

An insured depository institution

is any bank or savings institution that is covered by some form of deposit insurance. Of course, virtually all eligible banks and savings institutions carry this protection, as both state and national banks are required by law to have coverage from the Federal Deposit Insurance Corporation (FDIC).

A demand account

is one in which the account holder has instant access to the funds in the account with no advance notice or penalties for withdrawal, such as a checking account.

Broker-in-charge Brittany

is opening a trust account for the new branch office to which she was assigned. She can deposit $100 of brokerage funds into the trust account to maintain the minimum balance necessary and cover any service fees.

Commingling

is the illegal mixing of money that is held in trust on behalf of a client or other party with business or personal funds. A broker-in-charge is allowed, however, to maintain up to $100 of personal or business funds in a trust account to cover any bank services charges. Conversion, which occurs if a broker uses any trust monies for personal or brokerage expenses, is also prohibited.

Commingling

is the illegal mixing of money that is held in trust on behalf of a client or other party with business or personal funds. Commingling is specifically prohibited under North Carolina Real Estate License Law [G.S. § 93A-6(a)(12)]. Trust account funds must always be separate and distinct from the company's general business accounts or the broker's personal accounts.

The time share registrar

is the person who is designated to record or cause time share instruments and lien releases to be recorded.

An escrow account

is the same thing as a trust account.

The broker-in-charge

is ultimately responsible for the care and custody of trust monies but can transfer the handling of the company trust accounts to someone else, such as a bookkeeper or other unlicensed employee. A broker-in-charge can transfer a buyer's earnest money deposit is held the trust account to a closing attorney or other settlement agent no more than 10 days prior to the anticipated settlement date. The BIC cannot disburse any earnest money held for any other purpose without the written consent of the parties.

A time share unit

means the real property or real property improvement in a project which is divided into time shares and designated for separate occupancy and use [G.S. § 93A-41(13)].

The trust account

must be a demand account.

A time share developer

must ensure that any time share project is registered with the Real Estate Commission but is not required to be licensed.

In North Carolina,

someone could be the owner of a room in a high rise beachside resort for one week out of the year.

A broker-in-charge is holding disputed

trust funds. The buyer and seller take the matter to court. The BIC must disburse the funds as directed by a court order.

A landlord or property manager

who collects and maintains security deposits from a tenant in a residential dwelling must have a trust account.

A broker-in-charge

who collects, maintains, disburses, or otherwise controls the funds of a property owners' association, such as an HOA or condominium association, must maintain an exclusive trust account for each association.

A time share salesperson

who offers to sell time shares on the developer's behalf must be licensed as a real estate broker unless he or she is a salaried employee of the time share developer. The developer must designate a licensed project broker for each project subject to the developer's control, including all other locations where time shares are sold or offered for sale.

The Commission

will register a time share project before all amenities and facilities are complete, but the Public Offering Statement must indicate the date of availability of each facility and amenity.