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The Morningstar – March 2024 Edition

March 9, 2024

Featured Article – Exploring North Carolina’s New Protections for Vulnerable Homeowners

In August of 2023, Gov. Roy Cooper signed into law the Unfair Real Estate Agreements Act. Broadly supported by organizations from the North Carolina Real Estate Commission and the North Carolina Land Title Association to the AARP and Zillow, the new law is aimed at curtailing the rise in certain predatory “real estate service agreements” which take advantage elderly and financially distressed property owners.

The Agreements

Under this scheme, companies use high pressure tactics to convince vulnerable property owners to enter into what are called “right to list” service agreements. These companies offer a nominal cash payment upfront for signing the agreement, often less than $1,000. However, unlike a typical listing agreement which might be for a term of six months, these agreements can be for as long as forty years.

Once executed, the company becomes the exclusive listing agent for the property, but takes no steps to actually list or sell it, in some cases, not even placing a For Sale sign in the yard. The companies do, however, immediately record memoranda of the agreements, creating liens against the real estate, usually without the property owner’s knowledge or consent.

According to the Office of the Attorney General of North Carolina, a search of the state’s MLS listings for the last two and a half years shows that more than 2,000 North Carolina homeowners have entered into one of these agreements, but the companies have only listed 86 of the properties for sale.

Once a homeowner becomes dissatisfied with the company’s inability to sell the property, and attempts to list with a different agent, they find that their property is burdened with a lien securing a commission to the original company. Typically, these agreements contain onerous termination provisions.

The Lawsuit

In response to the proliferation of these agreements, in March of 2023, Attorney General Josh Stein brought suit against one such company, MV Realty. According to the Attorney General’s office, since 2020, MV Realty has entered into such agreements with more than 2,100 North Carolina property owners, and more than 32,000 property owners nationwide.

The lawsuit alleges that MV Realty advertises a “Homeowner Benefit Agreement” which offers to pay between $300 and $5000 to homeowners who enter the program. If the homeowner agrees, MV Realty immediately dispatches a notary to the homeowner’s house with the agreement for execution. This is the first opportunity the homeowner has had to read the agreement itself. If the homeowner sells or transfers their house at any time in the following forty years, MV Realty is entitled to a 6% commission on either the sale price or fair market value of the property. If another broker lists the property, MV Realty requires a 3% early termination fee. The agreement provides that it “runs with the land” and if breached it becomes a “lien” against the property. MV Realty has gone so far as to file suit itself against homeowners to enforce its rights under these agreements.

In August, the Attorney General was granted a preliminary injunction against MV Realty, preventing it from entering into any agreements during the pendency of the litigation. On March 7, 2024, the North Carolina Supreme Court granted MV Realty’s motion to stay the injunction.

The Statute.

As a defense against these practices, the General Assembly created the Unfair Real Estate Agreements Act (N.C.G.S. § 93A-85.1 et seq.). The purpose of the Act is to “prohibit the use of real estate service agreements that are unfair to an owner of residential real estate” by forbidding recording of such agreements and limiting their duration.

A real estate service agreement is “unfair, void, and in violation” of the Act if it is for a term longer than one year and does one of the following:

  • Runs with the land or binds future owners of the residential real estate identified in the real estate service agreement.
  • Allows for assignment of the right to provide services without notice or consent of the owner or buyer.
  • Creates a lien, encumbrance, or other real property security interest.

If the service agreement is in violation of the Act, the company has no right to receive a refund of any consideration paid to the property owner. A service agreement may not be recorded in the land records. If it is, it is automatically void, without the necessity for the recording of any further document. The Act further provides that any violation constitutes an unfair and deceptive trade practice. An aggrieved property owner has a private cause of action against the violating service provider and may recover attorney’s fees and damages. The Act also is enforceable by a lawsuit by the Attorney General.

Taken together, the lawsuit and legislation represent a vigorous defense by North Carolina against unscrupulous companies seeking to take advantage of homeowners across the state.

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