ADVICE OF COUNSEL MEMORANDUM ON USE OF STATUTORY LICENSING CATEGORIES IN ADVERTISING

An Advice of Counsel Memorandum has been issued by Commission Counsel Elizabeth H. Trimble regarding the use of statutory license categories in all advertising that involves the sale, rent, or offer to purchase real property.

The Memorandum indicates that the Real Estate Brokers Act does not contain a general mandate that the statutory license categories broker, associate broker, or salesperson must be used in such advertising. Rather, the statute contains a limited requirement that a licensee who offers to buy or sell property for his or her own account must disclose that they are licensed by the Commission in advertising relating to such properties.

While the Opinion leaves licensees free to decide whether or not to include their license category in advertising, the Commission and Counsel advise licensees to avoid using other terms that could mislead or cause consumer confusion. For example, a licensed salesperson should not use the term "sales associate", because there is a statutory licensing category "Associate Broker." The use of the term associate in any context other than Associate Broker could confuse a consumer and therefore should be avoided.

Click here for the full text of the Advice of Counsel Memorandum.

Although most contracts contain a provision governing the disposition of the deposit money if the property does not go to settlement, disputes often arise as to the underlying facts as well as the specific reasons for the cancellation. For this reason, brokers are often unwilling to release the funds on the request of a party claiming the right to them.

The law directs the broker to retain the funds in a trust account until one of the following four circumstances occurs:

1. The transaction for which the money was entrusted is consummated or terminated;
2. The broker receives proper written instructions from both parties directing withdrawal or other disposition of the money;
3. A court orders disposition of the money in an interpleader case filed by the broker; or
4. The broker has followed a specific procedure of notification to both parties giving them an opportunity to contest the broker's good faith determination of proper distribution after one of the parties has failed to complete the transaction.

If the other party will not agree to sign a written release, you may ask the broker to file an interpleader case in court requesting the judge to determine who is entitled to the deposit.

If the other party failed to complete the transaction, you may ask the broker to initiate the notification process provided that the broker agrees with you that you are entitled to the money. If the broker is not willing to pursue either of these options, you may need to file a claim for the funds in court.

You should also be aware that some real estate contracts contain a provision that all disputes between the parties must first be submitted to mediation. You should read this part of your contract carefully, and check with the broker to see if it applies to this situation.

MARYLAND INCOME TAX ALERT
June 2005

The Revenue Administration Division of the Comptroller of Maryland’s office is providing this notice of a recent change in Maryland’s withholding requirements for sales or transfers of real property and associated personal property by Nonresidents under Section 10-912(c)(1) of the Tax - General Article, Annotated Code of Maryland.

This change was made by the Maryland General Assembly during the 2005 Legislative Session (H.B. 147, Chapter 444, Acts of 2005) and is effective on July 1, 2005. It requires a new amount to be withheld from the Total Payment on a sale or transfer of real property and associated personal property in Maryland by a Nonresident Individual. The new withholding amount is equal to the sum of the rate of the tax imposed under Md. Code Ann., Tax-Gen. § 10-106.1 (currently 1.25%) and the top marginal State income tax rate for individuals under Md. Code Ann., Tax-Gen. § 10-105(a) (currently 4.75%). This means that, when applicable, 6 percent of the Total Payment amount must be withheld.

In summary, this change specifically applies to the following:

• A Nonresident Individual (individual is defined to include a natural person or fiduciary);
• Who does not qualify for a full exemption from withholding; and
• Who sells or transfers Maryland real property and associated personal property.

The tax withheld (6 percent of the Total Payment) must be paid to the clerk of the circuit court for the county in which the real property is located in order for the deed or other instrument of transfer to be recorded and must be accompanied by Copies A and B of Form MW506NRS.

The clerks of the circuit court will accept deeds for recordation with tax withheld at the rate of 4.75% until June 30, 2005. Beginning July 1, 2005, the clerks of the circuit court will only accept deeds for recordation if accompanied by tax withheld at the rate of 6%.

Please Note: This change alters the rate of tax that must be paid to the clerk of the circuit court. The payment of the applicable withholding amount is not a separate Maryland tax ­ it is simply a part of the “pay as you go” method of tax collection. However, this payment does not effect the requirement for the Nonresident Individual to timely file the appropriate Maryland income tax return for the year of the sale or transfer.

For additional information please contact taxhelp@comp.state.md.us, or call 410-260-7980 from Central Maryland or 1-800 MD TAXES (1-800-638- 2937) from elsewhere.

For the hearing impaired: TTY users call via Maryland Relay at 711 in Maryland or 1800-735-2258 from anywhere. If you need a reasonable accommodation for a disability, or need the information in this Alert in an alternative format, contact the Comptroller’s Office.

William Donald Schaefer
Comptroller of Maryland
Increase in the Withholding Rate for Sale of Property by a Nonresident

Incentives. Section 17-322(b)(9) provides that a licensee may not offer a prize or conduct a contest in order to influence a party in the sale of real property. This provision has been interpreted by the Attorney General's Office to mean that if a licensee uses inducements to obtain a listing or a buyer/broker agreement, those inducements must be offered to all consumers on the same basis. There cannot be a contest where a seller or buyer is offered a chance to receive a prize or a cash payment. If an offer is made, it must be available to all.

The law would allow the licensee to offer inducements related to price, that is, the offer could be for a rebate/payment as a percentage of price. In this way, the offer would be the same for all those whose purchase or listing price fell within a certain price range.

Rebates/Cash Payments. Section 17-604 provides that a licensee may not pay compensation in any form for the provision of real estate brokerage services to an individual who is not licensed. A person who is simply a party to a real estate transaction is not providing real estate brokerage services within the definitions in Section 17-101, and therefore may receive monies from a licensee. If the monies are used to pay settlement charges, that should be reflected on the HUD-1 form.

The agreement to pay compensation to a buyer in the form of a rebate of commission, or to compensate the seller either through a cash payment or a reduction of the commission rate must be in writing as required by the Code of Ethics, COMAR 09.11.02.01H. The Real Estate Commission has also taken the position that financial payments by a licensee to a party should be disclosed to the other party to the transaction, even if they are not required to be recorded on the HUD-1 form.

Elizabeth H. Trimble
Assistant Attorney General
Counsel to the Commission

MANDATED 3-HOUR ETHICS CONTINUING EDUCATION

House Bill 1249 (2004 Legislative Session) changed continuing education requirements under Title 17-315. One of those changes requires a licensee to complete "at least one 3 clock hour ethics course that includes Maryland Code of Ethics and a discussion of the practices of flipping and predatory lending" every two years.

How does this change apply to you?

If your license expires on or before October 1, 2005, you ARE NOT required to complete this specific ethics course.

If your license expires after October 1, 2005, you ARE required to complete this specific ethics course.

Click here to review the list of education providers

To address confusion that could arise under current regulations which address both opinions of value and competitive market analyses prepared by a real estate licensee, the Commission has repealed those regulations (Code of Ethics 09.11.02.02 F and G) and adopted a new one entitled "Competitive Market Analysis".

The new regulation, which went into effect on July 19, 2004, provides that a licensee may prepare a competitive market analysis of a specific property for a client, prospective client, or customer. The analysis must include the following language printed conspicuously and without change on the first page:

COMPETITIVE MARKET ANALYSIS DISCLOSURE

The new regulation also provides that a licensee must disclose to the client, prospective client, or customer any interest the licensee has in a property included as a comparable in the analysis.

The Maryland Real Estate Commission has recently approved a new regulation which will require associate brokers and salespersons who use an individual telephone number or e-mail address in their advertising to also include in the advertisement the identified telephone number of the broker or branch office manager.

The Commission is concerned that members of the public may be unaware of how to register any questions or concerns that may arise in their dealings with a particular associate broker or salesperson. The Commissioners believe that many issues can be resolved with the assistance of the broker or branch office manger, and that this requirement will make it easier for that assistance to be obtained.

The requirement will go into effect on October 1, 2004, in order to allow time for any necessary changes in advertising materials to be made.

Consumer Advisory Notice - Wet Settlement Procedure Act

The Commissioner of Financial Regulation is becoming aware of a growing trend among mortgage lenders to delay funding of purchase money mortgages beyond the loan closing.

Licensees are reminded that Maryland law requires lenders to disburse the proceeds of purchase money loans on or before the closing date in accordance with the loan documents, to the agent responsible for settlement. This is the basis of a "wet settlement". The practice of requiring a borrower to sign closing documents and actually delay funding the loan is not permitted.

The Annotated Code of Maryland, Real Property Article §7-109(b) specifically states:

Loan proceeds must be disbursed in the form of cash, wired funds, certified check, teller’s check, cashier’s check or a check issued by a political subdivision or on behalf of a governmental entity (refer to the law for permitted forms).

The Office strongly encourages lenders to consult with their legal counsel to confirm that the appropriate departments comply with this law. Any lender failing to comply with the disbursement requirement under the statute may not charge interest on the loan for the first 30 days after the settlement date.

The Real Estate Commission has received several complaints recently about salespersons who attempted to require a buyer to use a specific lender or settlement company. These complaints involved the sale of new homes as well as the sale of existing homes. Section 17-607 of the Maryland Real Estate Brokers Act states that, in a real estate transaction involving a single-family dwelling, a licensee may not require a buyer, as a condition of settlement, to employ a particular title insurance company, settlement company, escrow company, mortgage lender, or title lawyer. The only exception is that a seller may not be prohibited from offering owner financing as a condition of settlement. Violation of this provision of the law is a misdemeanor crime, and could lead to a fine not exceeding $5,000, imprisonment not exceeding one year, or both. Under Section 17-322(b)(29), these actions could also be the basis of a disciplinary action before the Commission which could result in the suspension or revocation of the license and/or a fine of up to $5,000.

ASSOCIATE BROKERS & SALESPERSON’S MAY REGISTER NICKNAMES

As a result of the enactment of House Bill 704 during the 2002 session of the Maryland General Assembly, licensed real estate associate brokers and salespersons are now eligible to register a nickname with Real Estate Commission and thereby hold themselves out to the public by that nickname. 

Accordingly, a licensee named William Salesperson may register the nickname "Bill" with the Commission and trade under the name Bill Salesperson. The licensee will receive a new license with the authorized nickname in parenthesis on the name line of the license:

William F. Salesperson (Bill)

This authorization is limited strictly to the use of nicknames. Consistent with the action of the General Assembly, the Commission will not register the name of a joint venture, partnership, corporation or some other entity under this provision.

How to apply:

1. Internet: Click Here, then click on Name/ Nickname Changes, after entering your registration and PIN number and accessing the name change form, enter your nickname in parenthesis after your legal name as it already appears, make your payment ($5.00) and complete the transaction.

2. Printed form: Click Here to download printed form, which includes a check-off box to register nicknames. The fee is $5.00.

3. Original applicants: first time associate brokers and salespersons who wish to register a nickname should do so at the time they register to take the licensing exam through PSI Examinations. PSI will forward the registered nickname as part of the computer data transmitted for passing examinees. There is no additional fee for nickname registration as part of original licensure.

If there is any question about the acceptability of a particular nickname, please contact the Commission before filing an application.