OBSERVER INVESTIGATION
Over the past two years, the Observer has reported extensively on the foreclosures afflicting a crescent of new development west, north and east of uptown Charlotte. The reporting has focused on the role of builders and mortgage companies who helped some lower-income families buy homes they could not afford.
Realty Place delivered many of those buyers.
N.C. regulations leave potential homebuyers vulnerable to having their search guided by their real estate agent's financial interests.
Real estate agencies are typically paid commission, or a share of the sales price. Some sellers, particularly home builders, also pay agencies a bonus for finding buyers.
State rules don't require agents to notify customers in writing if a seller offers them a bonus. Agents are only required to tell the customer verbally, making the rule hard to enforce.
Tom Miller, director of legal services for the N.C. Real Estate Commission, said it is hard to punish an agent for breaking the rule when the only evidence is the customer's word.
Now, one member of the commission, which regulates the industry, says the state ought to require a written disclosure of any bonus before the customer signs an agreement to purchase the home.
"I do think that needs to be changed," said commissioner Marsha Jordan, who owns Apple Realty in Lincolnton. "These things need to be tightened up because too many people abuse things."
In the case of Charlotte-area agency Realty Place, one regulator now says the state also may not have enforced the rules that do exist.
The Observer reported Sunday that Realty Place collected millions of dollars in bonuses from home builders in exchange for finding buyers for their homes. In more than 50 interviews with Realty Place customers, the Observer found no one who was aware of the bonuses.
The owners of the company deny wrongdoing, saying they always placed the interests of customers first and foremost.
The Observer found Realty Place and its predecessor Performance Realty were the subject of at least a dozen detailed complaints to the commission between 1998 and 2005. The subjects ranged from the disclosure of bonuses to the company's advertising practices.
The commission never took serious action, choosing instead to write letters of reprimand on several occasions instructing the company to amend its practices.
Miller, the agency's lead investigator, says regulators could have done more. He said at the time they did not recognize the extent of the pattern in the complaints, or they might have investigated further. He said the commission has five attorneys and 12 investigators to police an industry with 120,000 practitioners and can't delve deeply into every complaint. "The limits on our resources drive us to handle cases that way," he said. "Quite frankly, we're overwhelmed."
Most of the complaints to the commission were about aggressive advertising by Realty Place and its predecessor, Performance Realty. The company was accused of advertising homes not available for sale and advertising monthly payments that weren't real. Miller said the pattern of violations was unusual and troubling.
The commission admonished the company on five separate occasions. But the state did not take further action, accepting each time the company's apology and promise to correct what it described as isolated and innocent mistakes.
The commission also received two detailed complaints, both anonymous, that said the company was misleading customers by presenting itself as a buyer's agency while working closely with home building companies.
"The practices are created to take advantage of unsuspecting buyers in order to serve as an undisclosed referral service to national and local builders," said one anonymous complaint received in February 2003, obtained by the Observer through a public records request. "The partnerships have literally married this buyer agency to the builders they partner with."
At the time, the commission responded to the complaint by asking Realty Place for an explanation.
The response, written by Randy Jordan, one of Realty Place's owners, acknowledged the relationships with builders but denied any wrongdoing. "There was no attempt to hide or mislead our clients on how our buyer agents are compensated for our service," he wrote.
The commission did not investigate further and took no action against the company.
An Observer investigation published Sunday documented many of the practices alleged in the complaint.
The company's principal owner, John Heinemann, told the Observer that his employees signed contracts with customers that said they might receive bonuses, and that bonuses were also disclosed on settlement statements given to customers at closing. But he said he didn't know that agents were required to tell customers about specific bonuses on particular homes.
The Observer found that Realty Place sometimes failed to ensure that bonus payments appeared on settlement statements. Federal law requires bonus payments to be recorded.
Only one violation moved state regulators to threaten serious action: The application for Performance Realty University, filed in 2000, listed Kris Boschele as the principal broker. The commission learned after issuing the license that Boschele did not have the proper certification to fill that role.
The commission demanded a correction, threatening to revoke the company's license. Performance Realty responded by naming a new principal broker and apologizing.
Three years later, regulators were still stewing. In 2003, commission employee Stephen Fussell wrote a colleague, "Beware of Mr. Boschele," referencing the principal broker issue -- but not mentioning any of the other complaints against the company.
An attorney for Boschele provided a statement to the Observer that denied any wrongdoing at any time during Boschele's involvement with Performance Realty and Realty Place.
Miller said the commission has received relatively few complaints from customers about bonuses. But he acknowledged that might simply be a product of ignorance that bonuses are being paid.
"It's very hard for people to complain about an injury they don't know they've suffered," he said.
Some buyer's agencies have addressed the issue with policies requiring agents to give any bonus to the customer. Others have removed the temptation to chase bonuses by refraining from accepting any compensation from the seller. Instead, they are paid directly by the buyer.
Jordan, the commission member from Lincolnton, said her firm tells customers about bonuses orally as a matter of policy. She said she is in favor of a written requirement.
Jordan said she plans to raise the issue at the board's October meeting.
The nine-member commission could assign a task force and invite public comment on any proposed change. Or it could send the change directly to the General Assembly, which ultimately votes on any new rule.
