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Governor Cooper Signs HB 422 Officially Outlawing Unfair Real Estate Service Agreements

The real estate industry is ever-evolving, with new trends, opportunities, and challenges emerging regularly.

One such trend that recently caught the attention of many, including the North Carolina Real Estate Commission and the Attorney General's office, is the Homeowner Benefit Program offered by MV Realty. This program, while seemingly beneficial at first glance, has raised concerns due to its long-term implications and potential for homeowners to unknowingly enter into unfavorable contracts.

The Homeowner Benefit Program: A Closer Look

The Homeowner Benefit Program offers homeowners cash amounts ranging from $300 to $5000 in exchange for a forty-year listing contract on their property. This means that if a homeowner decides to sell their property within this period, they are bound to use MV Realty as their listing agent, or they would incur additional fees.

Maria Calder's story is a prime example of the potential pitfalls of this program. After receiving $800 from MV Realty, she found herself in a tight financial situation and decided to sell her home. However, upon selling, she discovered she owed MV Realty over $6,000 due to the memorandum attached to her deed, even though she used a different agent for the sale.

The Legal Implications

The North Carolina Real Estate Commission and the Attorney General's office took note of these practices and initiated investigations. Their primary concern was the potential for such agreements to be seen as predatory lending, especially given that many homeowners might not fully understand the terms they're agreeing to.

Furthermore, the NC Real Estate Commission's Legal Counsel, Janet Thoren, highlighted that these agreements act as a lien on the property, which can complicate the selling process and potentially bind future owners to terms they never agreed to.

The New Law: House Bill 422

In response to these concerns, the General Assembly of North Carolina, with the help of the NC Real Estate Commission, NC Attorney General's Office, and NC REALTORS®, passed House Bill 422, which prohibits unfair real estate service agreements for residential real estate. Here are the key takeaways from this bill:

  1. Definition of Unfair Agreements: The bill defines an unfair real estate service agreement as one that lasts for more than a year and either runs with the land, allows for the assignment of service rights without notice or consent, or creates a lien or encumbrance on the property.

  2. Recording Prohibited: Recording an unfair real estate service agreement is now prohibited. Any such recorded agreement is void and does not operate as a lien or encumbrance.

  3. Deceptive Act: Violating any provision of this new article is considered an unfair or deceptive trade practice. Aggrieved parties can bring a cause of action against the service provider and are entitled to relief as per Chapter 75 of the General Statutes.

  4. Effective Date: This law is effective from August 24, 2023, and applies to all unfair real estate service agreements executed, modified, extended, or amended from that date onwards.

The real estate industry offers numerous opportunities, but it's crucial for agents and homeowners alike to stay informed about the latest trends and legal changes. House Bill 422 serves as a reminder of the importance of understanding contracts and ensuring that all parties are entering into agreements that are fair and transparent.

For real estate agents, this is an opportunity to guide and educate clients, ensuring they make informed decisions.

Did you ever come across a client who had signed one of these agreements? Drop a comment below or share with a colleague in an upcoming CE class!

References NC Real Estate Commission. (2023, September). House Bill 422 Passes. September Ebulletin from the NC Real Estate Commission.

Wilson, D. (2022, November 4). Quick cash with a big catch--a 40 year agreement on your home: ABC11 Troubleshooter Investigation. ABC 11 Eyewitness News.

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