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DLLR's Division of Occupational and Professional Licensing

 

News and Information - Maryland Real Estate Commission

 

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.

Review for the full text of the Advice of Counsel Memorandum.

RETURN OF DEPOSIT
The Maryland law that regulates real estate brokers, associate brokers, and salespersons requires that trust money be deposited in the broker's trust account promptly after both parties accept the contract of sale.

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.

The Real Estate Commission does not have the authority to order a broker to release trust money. If you are a party to a real estate transaction and believe that you are entitled to deposit monies, you should first contact the broker holding the funds to determine his/her position on the matter.

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.

WITHHOLDING REQUIREMENTS FOR SALES OF REAL PROPERTY BY NONRESIDENTS

If you are a nonresident who owned and sold or transferred real property and associated tangible personal property in Maryland, you must make a tax withholding payment to the local Clerk of the Circuit Court or the Maryland Department of Assessments and Taxation (MDAT). The payment must be made before the deed or other instrument of transfer is recorded with the court clerk or filed with MDAT.

In the case of a nonresident individual, the payment is 7.5 percent of the total property sale payment made to the individual. A nonresident entity must make an 8.25 percent payment.

Under this provision, a nonresident entity is an entity that is:

not formed under the laws of Maryland more than 90 days before the date of the sale of the property, and
not qualified by or registered with MDAT to do business in Maryland more than 90 days before the date of the sale of the property.

In the case of multiple owners, withholding is required from each of the nonresident owners based on the percentage of the total payment that represents each nonresident's ownership percentage.

You must complete Form MW506NRS (PDF document, download Adobe Acrobat for free), Return of Income Tax Withholding for Nonresident Sale of Real Property, and present copies A and B of Form MW506NRS to the clerk or MDAT, along with payment.

In addition to filing Form MW506NRS with a tax withholding payment, you are still required to file an end-of-the-year income tax return with Maryland for the year in which the sale occurred.

For more information, see Maryland's Withholding Requirements for Sales or Transfers of Real Property and Associated Personal Property by Nonresidents (PDF document, download Adobe Acrobat for free).

INCENTIVES AND REBATES
The Real Estate Commission and the Attorney General's Office receive inquiries from time to time about the payment of rebates to a party to a transaction or the use of incentives to induce a consumer or a licensee to deal with a particular real estate agent or broker. There are several provisions of the licensing law that address these issues.

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, or to motivate a buyer to purchase certain property, 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 of inducements 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.

The Commission has also reviewed proposals of licensees who offer a drawing for a prize among attendees at an open house. As long as the only action a consumer has to take is to attend the open house, the Commission does not view this as a contest used to influence a party to purchase property.

There have also been questions about whether unlicensed individuals who refer consumers to a licensee may be compensated in some way or may participate in a drawing. The licensing law considers the act of referral to be the provision of real estate brokerage services, and thus an activity that requires a license if compensation in any form is involved. The Commission views the possibility of winning a prize as a form of compensation. Therefore, under Section 17-604(a), a drawing may not include an individual based on referrals he or she has made to the licensee.

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
12/14/10

COMPETITIVE MARKET ANALYSIS
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
This analysis is not an appraisal. It is intended only for the purpose of assisting buyers or sellers or prospective buyers or sellers in deciding the listing, offering, or sale price of the real property.

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.

TELEPHONE NUMBERS IN ADVERTISING

The Maryland Real Estate Commission requires 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. Consumers must be able to reach your broker or branch office manager directly without going through you or your staff. (Phone menu options are acceptable.)

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.

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:

"In any consumer loan transaction in which the loan is secured by a purchase money mortgage or deed of trust on real property located in this State, on or before the day of settlement, the lender shall disburse the loan proceeds in accordance with the loan documents to the agent responsible for settlement…"

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.

A LICENSEE MAY NOT REQUIRE A BUYER TO USE A SPECIFIC LENDER OR SETTLEMENT COMPANY AS A CONDITION OF SETTLEMENT

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 & SALESPERSONS 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 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 ($25.00) and complete the transaction.
  2. Printed form: Download printed form (Word document, 69KB, download Word viewer for free), which includes a check-off box to register nicknames. The fee is $25.00.

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