Legal Hotline

This new membership service will provide each Broker/Manager a rapid response to routine questions on issues of the agency, antitrust, license law disclosure, contract law and other real estate issues in the operation of a real estate firm. Local Board Executive Officers may also access the Legal Hotline.

The Hotline is not your lawyer, it is a source of legal information for you. It is for you, not to pass along to clients and customers. No attorney/client relationship is established between you and the law firm retained to respond to your questions. Therefore, there is no right to confidentiality, and a record of your question and its response may be maintained at the office of the North Dakota Association of REALTORS®. We want a stronger, more expert profession; the Hotline is part of the NDAR effort to achieve it.

This service is free to any DR and can be accessed easily. Simply dial the toll free number, state your name and company, and that you have a Legal Hotline question. Casey Chapman, or another assigned attorney from his law firm, will field your question right away (unless they are in court or are involved with another client). If no attorney is available, you may leave your questions with the legal aid and Casey Chapman will return to call to you as soon as possible.  The Legal Hotline will operate from 9:00 a.m. until 12:00 noon and from 1:00 p.m. until 4:00 p.m. Monday through Friday, excluding holidays.

The number of the Legal Hotline is 258-6030 or 888-338-7805 Please keep in mind that the service is provided for YOU as the DR (designated REALTOR®, which is usually the managing Broker), it is not intended for you to seek information to pass along to sales staff, clients or customers.

Please call Claus or Jill at the NDAR office (800-279-2361) if you have questions.

 

LEGAL HOTLINE

Frequently Asked Questions

by categories (Property Law, Agency Law, Contract Law)

PROPERTY LAW:

Shoreland Rights: What are the rights of an adjoining landowner to the shoreline of a river.

Response: Under North Dakota law, a landowner, who adjoins a navigable river, has rights (not absolute ownership) to the river’s low watermark, and has absolute ownership rights from the river’s high watermark and onto the adjoining land.  Likewise, the state has absolute ownership rights from the low watermark and below (basically, the riverbed), but also has rights, held on behalf of the public, to the area between the low watermark and the high watermark.  Basically, this shore area, between the low watermark and the high watermark, is a joint use area.  The adjoining landowner can use the land for access to the water, for docking to the water, and the like, the public also has the right to use this shore area for navigation, boating, and the like.

Mineral Reservation: If a warranty deed does not contain a specific reservation of mineral rights, what happens?

Response: If there is no specific reservation of mineral rights, the mineral rights pass with the surface rights.  If the deed reserves the rights to “all minerals,” then all minerals are in fact reserved to the seller, with the exception of gravel, clay, and scoria, unless specifically named in the reservation clause.  (Section 47-10-25, N.D.C.C.)

Real Estate Fixtures: Broker listed property for sale.  Prior to receipt of any offers, the tenant on the property expressed an intent to sell certain items located upon this rural property, such as a windbreak, a corral, and some feed troughs.  The owner expressed concern about the issue.  A complication in this case was the fact that the owner and the tenant had previously been married, and the current owner/tenant relationship was created under the divorce decree.

Response: Under a lease arrangement, the listed items, such as a corral, a feed trough, and a windbreak, might be identified as trade fixtures, which can be removed by a tenant “if the removal can be effected without injury to the premises, unless the thing has become an integral part of the premises by the manner in which it is affixed.”  There are no easy answers in the area of fixtures, and the result will depend on an individual determination, in each case, by the judge.  However, a permanent windbreak, which assumably is set into the ground, is most probably a fixture.  A corral, which is permanently fixed into the ground, is probably a fixture, while a corral, which is maintained on portable stands, is probably not a fixture.

Homestead Laws: Broker has a pending sale of property involving three lots.  A homestead dwelling sits on one lot, with two adjoining lots, over which the driveway extends.  Several personal judgments have been lodged against the homeowners.  Is there homestead protection under these circumstances?

Response: In North Dakota, the first $80,000 in equity in a homestead dwelling is protected from personal judgments [Note: There is no protection against mortgages on the homestead].  In this particular circumstance, the net sale proceeds, pursuant to the sales contract, would be less than $80,000; therefore, the actual homestead lot is clearly covered by the homestead protection, and the judgment creditors will be entitled to no proceeds from sale and, just as importantly, the sellers will be able to pass good title to the homestead lot to the buyers.  As for the two adjoining lots, it is my opinion that these lots are likewise covered by the homestead protection.  The last sentence of Section 47-18-01, North Dakota Century Code, which defines the homestead, reads as follows: “In no case shall the homestead embrace different lots or tracks of land unless they are contiguous.”  It is an element of legislative interpretation that the legislature does not waste time with extraneous words; in other words, every sentence is assumed to have a specific purpose.  It is difficult to read the designated last sentence, without concluding that, whenever lots adjoin the homestead lot, they are entitled to homestead exemption, subject to the $80,000 dollar limit.  Since the legislature did not provide any distinction for determining when contiguous lots are included, or are excluded, from the homestead exemption, it is my opinion that the homestead exemption extends to the homestead lot, and those “contiguous” (touching) parcels of land, which are selected by the homestead owner, within the dollar limits of the exemption.  The North Dakota courts, including the federal court sitting in North Dakota, have long held that the homestead statutes are to be given a liberal construction, since the loss of a homestead protection is not favored in the law.  See, e.g., in Re Lippert, 113 Bankr. 576 (Bankr. D.N.D. 1990).

Redemption Period for Personal Property: Broker was informed by a client that the client had a period of redemption, following the repossession of personal property, for a period of six months.

Response: While real estate mortgages have determined periods of redemption, varying from sixty days to one year, there is generally no established period of redemption for a personal property repossession.  Therefore, unless a judge specifically ordered a six month period of redemption, for some unusual, it could be expected that the period of redemption on personal property repossession is probably measured in terms of days, rather than months.

 

AGENCY LAW:

Suicide Disclosure:  Broker represents seller with property, upon which suicide occurred.  If broker becomes a dual agent, is disclosure of the suicide required.

Response: Under Section 70-02-01-19, North Dakota Administrative Code, the occurrence of a suicide on property does make the property “psychologically impacted.”  Under the following section, Section 70-02-01-20, North Dakota Administrative Code, the fact that a property is “psychologically impacted,” as defined in the previous section, is “not a material or substantial fact that is required to be disclosed in the sale, lease, exchange, or other transfer of real estate.”  Although this code section was passed in 1992, prior to the statutory changes recognizing buyer agency in 1995, the Real Estate Commission has taken no action to expand the administrative code section, in a way to create a duty of disclosure.  Therefore, under the current administrative code scenario, disclosure is not required.

Buyer Agency Interference:   Broker A submits an offer for Broker A’s buyer client [“Buyer”] on a parcel of property, which is listed by Broker B.  Shortly thereafter, Broker A learns that Broker B sold a different parcel of property to Buyer; Broker B received no communication on the negotiations and/or sale.

Response:   (i) Under Section 70-02-03-11, North Dakota Administrative Code, a broker is prohibited from negotiating a sale “with an owner,” if the broker knows that the owner has a contractual arrangement with another broker.  There is no comparable provision for buyer’s brokers, (ii) Assuming that this was the sale of a residential property, Broker B did have the duty of disclosure under Section 70-02-03-15.1, North Dakota Administrative Code.  Therefore, at the time of “first substantiative contact”, Broker B should have informed the Buyer regarding Broker B’s agency relationship under Section 70-02-03-15.1(2)(c), North Dakota Administrative Code.  Likewise, under Section 70-02-03-15.1(7), Broker B would have been required to offer Buyer the applicable agency disclosure forms, at which time one would suspect that the discussion of agency relationship would have arisen.  Finally, under Section 70-02-03-15.1(7)(e), North Dakota Administrative Code, no broker may deal “unfairly with any party to a real estate transaction, regardless of whether the party is represented by that licensee.” Since Broker B had entertained an offer from the Buyer, through Broker A, Broker B had knowledge of the agency relationship between Broker A and Buyer, and should have clearly explained the agency issues on the applicable disclosure forms, in order to assure informed consent of the Buyer to proceed.  (iii) As a separate issue, there may be questions under Article 16 of the Board of Ethics of the North Dakota Association of Realtors, which is a private organization.  Article 16 prevents any Realtor from taking action “inconsistent with the agency or other exclusive relationship recognized by law that other Realtors have with clients.”  Under Standard of Practice 16-5, Broker B was precluded from soliciting a buyer agreement from the Buyer, assuming that Broker B had knowledge of Broker A’s representation; if Broker A refused, after inquiry, to disclose the expiration date of the buyer agency contract, then Standard of Practice 16-5 does authorize contact between Broker B and the Buyer, regarding a possible buyer agency relationship upon the expiration of the existing buyer agency agreement.  Standard of Practice 16-9 requires a broker, prior to entering an agency relationship, to affirmatively make reasonable efforts to determine the existence of a conflicting agency agreement.  Under Standard of Practice 16-13, all dealings “with buyers/tenants who are subject to an exclusive agreement,” are required to be carried on with the client’s broker, and not with client, “except with the consent of the client’s agent or broker or except where such dealings are initiated by the client.”  As a result, depending on the facts of this situation, Broker B may have violated Article 15 of the Code of Ethics under the North Dakota Association of Realtors.

Appointed Agency: Broker questioned whether appointed agency could be used on an “as need” basis.

Response: Under the provisions of Section 70-02-03-17, North Dakota Administrative Code, a broker is allowed to use the concept of appointed agency, after a broker has adopted an office policy for broker agency.  Suggested policy formats are available through the North Dakota Real Estate Commission.  Once a policy is adopted, it is my opinion that appointed agency could be used on a “case by case” basis.  However, the broker was also advised that, given the purpose of appointed agency, the use of appointed agency, as an alternative to dual agency, should be strongly considered.

Disclosure of Encroachment: After listing property, a broker discovered an encroaching fence.  Seller and buyer were properly advised regarding the fence.  Does the broker have any further obligation to remedy the problem?

Response: In my opinion, the broker’s obligation was satisfied when the broker disclosed the defect in the property boundaries.  At that point, it is the obligation of the parties, by contract provisions, or otherwise, to actually remedy the situation.

Commission Paid to Salesperson: Broker has an agent who may be completing sales for an internet firm, accepting the fee, but not sending the compensation through the broker’s account.

Response: A sales person can only work under the authority of a licensed broker.  Therefor, the licensed broker has the right, pursuant to agreement with the sales person, to control the sales actions, in disposition of funds, in all of the sales person’s real estate transactions.

Agency During Foreclosure: Broker has a listing agreement with a property owner.  Foreclosure proceedings have been instituted, and it appears that the foreclosure is about to be completed.  The lien holder then contacted the broker, asking to list the property.

Response: The broker has a fiduciary duty to the owner, who is the broker’s client.  If the broker “drops” the owner, in favor of the lien holder, while the owner still has rights in the property, there is certainly the appearance of a breach of the fiduciary duty of loyalty between the broker and the owner. I advise waiting until the redemption period expires and then, when the lien holder becomes the owner of the property, and when the owner has lost all rights in the property, there is probably no more potential breach of duty.

Broker as Appointed Agent: Broker asked about appointed agency.  Broker was a practicing broker and was concerned about situations which would arise, when the broker was representing a party to the transaction.

Response: Under Section 70-02-03-17(2)(b), North Dakota Administrative Code, and appointed agent is allowed to reveal confidential information to the designated broker “for seeking advice or assistance for the benefit of the client.”  Where the designated broker is also a practicing broker, this issue can become difficult because the designated broker will also have fiduciary duties to that designated broker’s client.  As a result, it does not appear that a true appointed agency is possible  in those situations where the designated broker is representing one of the firm’s clients in a transaction.  In that case, a dual agency relationship seems to arise; a designated broker could provide advice and assistance to the client of the appointed agent by appointing an additional agent, within the firm, as appointed agent for the client.  Section 70-02-03-17(3)(a)(4), in such event, the designated broker should advise the appointed agent’s client, in writing, of the appointment of the additional agent.

Appointed Agency: Broker questioned the application of dual agency under the concept of appointed agency.  If a broker is a practicing broker, and has a listing agreement with a seller, what is the relationship when an agent, who has been designated to represent a buyer under the appointed agency theory, brings an offer to the broker’s client?

Response: The North Dakota Administrative Code does not deal specifically with this issue.  Under Section 70-02-03-17, N.D.A.C., a designated broker is entitled to receive confidential information from an appointed agent for the purpose of “seeking advice or assistance for the benefit of the client about a possible transaction;” however, once the designated broker receives this information, the broker is required to protect the confidentiality of the information.  [70-02-03-17(2)(b)].  As a result, the designated broker, who is participating in the transaction, will have, under the provisions of this section, access to the confidential information from the broker’s own client, and confidential information from the appointed agent’s client.  First, it appears that a dual agency transaction arises from these facts and that both clients should be advised about the dual agency.  The dual agency is created, it seems, by the designated broker’s access to confidential information from both clients.  Second, there seems to be the possibility, if clearly created by office policy, that a designated broker, prior to the receipt of any confidential information from the appointed agent’s client, could appoint another agent within the office, as an additional appointed agent, to give advice to the original appointed agent. [Section 70-02-03-17(3)(a)(4). . .discussion of appointment of “new or additional” agents].

Dual Agency: In a dual agency situation, seller-client has accepted an offer on the property.  However, seller-client has instructed the broker that, due to contingencies on the purchase agreement, the house should continue to be shown and backup offers will be considered. Broker is concerned about the duty to the buyer-client.

Response: While a broker has modified duties in the case of dual agency, certain client duties continue under that form of representation.  Where the seller-client has specifically directed that the property should continue to be shown, the broker has a duty to follow those instructions.  The buyer-client should be informed of this decision.  Both seller-client and buyer-client should be clearly informed regarding the nature of the contingencies in the contract and regarding the working of a backup offer.

Lender Wants Access: Broker has property listed for a non-resident seller.  A local bank, which has a mortgage on the property, made contact with a broker, asking for the key, so that the lender could enter the home and take certain actions, ostensibly to protect the property.  At the time, broker did not have permission from the seller-client to allow the lender onto the property.

Response: The agency arrangement, under which the broker was marketing the property, does not include the right to allow third persons onto the property, for reasons which do not specifically relate to the agency relationship.   Absent consent from the seller-client, the broker has no right to provide access to the lender.

Disclosure of Registered Sex Offender: Buyer’s agent is representing Buyer in the purchase of an apartment building.  Buyer’s agent received knowledge that a tenant in the apartment building is a sex offender, who is required to be registered.  Does the Buyer’s agent need to inform the Buyer about the presence of the sex offender.

Response: Yes.  When a Buyer’s agent receives knowledge, the Buyer is deemed to have received that knowledge.  As a result, the Buyer’s agent has a duty to inform the Buyer regarding any information, which the Buyer’s agent holds.  Even though the Buyer, on the Purchase Agreement, is advised of the general Megan’s Law requirements, it is my opinion that, where the Buyer’s agent has specific information that a sexual offender is residing on the property which Buyer is purchasing, the Buyer’s agent is better advised to inform the Buyer.  [Caution: This opinion should not be construed to extend to neighboring houses, etc., since this opinion is intended only to deal with the issue of a sexual offender, who is presently living, and will continue to live, on the premises which Buyer is purchasing].

Unpaid Specials: Buyer client asked agent to check on special assessments balance at time of contracting.  Agent reported to buyer client the estimated special assessments, arising from a current project, where the special assessments had not yet been certified.  On the day before closing, the special assessment totals (which were much higher than estimated) were published in the newspaper, but neither agent nor buyer saw the publication.  Buyer wants agent to assume responsibility for the difference.

Response: It appears that the request for information was made at about the time of contracting.  When the agent returned information to the buyer client, and indicated that there were no definite numbers, buyer client made the decision to proceed with the sale, in spite of the uncertainty.

Material Defects Disclosure: Seller was involved in some litigation, perhaps class action litigation, against the house siding manufacturer in the early 1990’s.  As a result of the litigation, Seller received some resolution, but did not replace the siding.  Broker listed the house for sale, the house sold, in 1998.  The settlement was not disclosed to the buyer, and broker had no actual knowledge of the settlement.  The buyer wants the seller and the broker to pay for siding replacement on the house.

Response: Under Section 70-02-03-15.1(6), a North Dakota Real Estate Licensee has an obligation, in spite of the Rules of Confidentiality, to disclose “material defects in the property of which the licensee is aware or which would constitute fraudulent misrepresentation unless disclosed.”  As an addition, in some court cases, courts have held that the duty of a real estate licensee includes the duty of reasonable inquiry which would apprise the real estate licensee, with that licensee’s expertise of potential problems with the house.  In this case, there is no evidence that the broker, even though a dual agency had been created, had any knowledge that the seller had received compensation for the siding, and there does not appear to be any indication that the broker should have known that the seller received compensation for the siding.  Under the circumstances, it does not appear that any duty, running from the broker to the buyer, has been breached.

 

CONTRACT LAW:

Deficiency Judgement: Can a lender obtain a deficiency judgment in North Dakota, following foreclosure of a residential mortgage?  A mortgage company was threatening a deficiency judgment against the seller of a house, where it appeared that the house may have insufficient value to satisfy all existing mortgages.

Response: Under North Dakota law, deficiency judgments on residential mortgages are very difficult to achieve.  I gave the statutory citation to the broker, who had a copy of the century code in his office, and pointed out the detailed procedure which must be followed, prior to the entry of a deficiency judgment on a residential dwelling.

Delivery of Deed: Does delivery of a deed, contrasted with recording of the deed, constitute closing of a transaction?  In this case, a deed had been delivered to the closing agent, which was also the buyer’s bank, but the buyer later instructed the closing agent to halt the recording of the deed.  Buyers claimed that the transaction had never been completed.

Response: In North Dakota, a transfer of title is completed upon delivery of the deed; recording of the deed is not a necessity.  I did suggest that there was an issue here, concerning whether delivery of the deed by sellers to the closing agent (buyer’s bank) was actual delivery of the deed to the buyer.  I suggested that, if the buyer had designated the closing agent as agent for receipt of the deed, it is possible that the transaction was completed at the time of the delivery of the deed to the bank.

Quitclaim Deed for Security: Broker was contacted by an individual who wants to sell a house.  About two years previously, the potential seller had received the house by quit claim deed from the prior owner, who still resides in the house.  Apparently, the quit claim deed was received as security for a loan, which was to be repaid within about 90 days.  The potential seller wants to make sure that the potential seller has authority to sell the house.

Response: A quit claim deed, when intended as security for a debt, can be construed as a mortgage by the courts.  It is generally presumed that a deed, given from one person to another, is an absolute conveyance of title to the property, just as the wording shows. However, the prior owner of the house has an opportunity to convince the judge, by clear and convincing evidence, that the deed, rather than intended as an absolute conveyance, was actually intended as security for a debt, like a mortgage.  In this case, where the potential seller acknowledges that the deed was taken as security for debt, it is probable that the potential seller could not sell the property, without dealing with the rights of the prior owner.  Those rights could include the necessity of public sale and a right of redemption (possibly up to one year).

First Right of Refusal: Broker is confronted with a purchase agreement which offers a “right of first refusal” and questions the meaning of the phrase.

Response: A “right of first refusal” is a generic term which can have several different meanings.  You would be more appropriate that, in addition to the mere use of the phrase, there is a more detailed explanation of the nature of the right, i.e., how it works, the time lines involved, and the like.  In its generic form, a “right of first refusal, is the right of the holder to have the first chance to meet, or accept, an offer to purchase a particular piece of property.  For example, if I have a right of first refusal against parcel A, and if Buyer makes an offer to purchase parcel A, than I have the to meet the exact terms of Buyer’s purchase offer, and to therefore become the purchase in place of the Buyer.

Protection Period on Listings: Under a listing agreement, broker had a protection period, extending for a certain period of time, if the broker sent a list of prospective buyers to the seller, within a stated number of days after the termination of the listing agreement.  Broker had failed to send the required statement, and seller had sold the property to a buyer, who had been shown the property by the broker.  Seller refused to pay a fee to the broker, and broker had started a small claims action.

Response: Listing agreement is an agency agreement and, where the broker has control over the wording on the form, the court is going to interpret any ambiguities most strongly against the broker.  In this case, since the broker did not comply with the terms of the listing agreement, broker will probably not be able to recover under the listing agreement.  However, broker may have a claim for quantum meruit, since the broker actually brought the buyer to the property.  Quantum meruit is based on the theory that, even if there is no actual contract, a person (here, the broker) may be able to recover on an implied contract, since the broker did perform services which were helpful to the seller.

Submitting All Offers: Broker reports that, in dealings with another brokerage, the other brokerage refuses to report any new offers, while that brokerage’s seller-client is considering an offer to purchase.

Response: Under the provisions of Section 43-23-11.1(1)(u), N.D.C.C., it is clear that a licensee is required “to submit all offers to a seller when such offers are received prior to the seller accepting an offer in writing and until the broker has knowledge of such acceptance.”  Until that time, however, it is my opinion that all offers must be presented to the seller for consideration.

Expiration Date on Listings: Broker reports that, upon reviewing another brokerage’s firm listing agreement copy, in the possession of the sellers, there is no ending date provided.

Response:  Under Section 43-l23-11.1(1)(n), N.D.C.C., a licensee is required, at risk of Real Estate Commission discipline, to “include a fixed date of expiration in any written listing agreement.  A copy of such listing agreement, showing the fixed date of expiration, must be left with the principal.

Forfeited Earnest Money: If a seller accepts buyer’s release of earnest money, and cashes the check, does the seller waive the right to bring further legal action against the buyer.

Response: Yes.  The acceptance of the earnest money is most probably an acceptance of the earnest money is liquidated damages for the breach of the agreement.

Three Day Recision: If a Buyer submits an offer, with a $1,000 earnest money payment, and if the seller accepts the offer, does the Buyer have a 3-day period, within which the contract can be rejected and the earnest money returned.

Response: While there are certain types of contracts which, under federal law, or under state law, have 3-day cancellation provisions, there is no such provision for a real estate contract in North Dakota.  Once accepted, the contract is binding on the parties.

Must Seller Accept All Good Offers?: Broker had property listed.  A potential buyer made an offer on the property.  Seller does not want to accept the offer from the buyer, due to a history of personal/family relationships between the seller’s family and the buyer’s family.  Is the seller obligated to accept the offer?

Response: A seller is never required to accept a purchaser offer, unless the rejection is triggered by one of the reasons, such as race, ethnic origin, etc., which are prohibited by the law.  On the facts of this case, it appears that a history of personality is the reason for rejection; such a reason is not illegal.

Back Up Offer: Buyer’s broker submits an offer to seller’s broker.  Seller’s broker says that seller has already verbally accepted another offer on the property; however, to the best of buyer broker’s knowledge, the offer is still in the mail.  Seller’s broker suggests that, when the new offer arrives, it can only be considered as a backup offer.

Response: Under the statute of frauds, a party is not bound to a land contract until that party has signed the agreement.  Here, the seller had not yet signed the agreement and, although the first buyer may be bound under certain circumstances, seller is probably not yet bound.  Under Section 43-23-11(1)(u), N.D.C.C., a broker has an obligation to present all offers to the seller, until there has been acceptance in writing.  Here, since there has been no written acceptance by seller, the new offer should be presented to the seller, so that the seller has the opportunity to make the decision, regarding which offer to accept.

Disputed Earnest Money: Broker has $1,000 of earnest money in trust account.  Both seller and buyer were represented by agents from the firm; seller and buyer cannot agree on resolution of the earnest money.  Broker was seeking suggestions on disposition of the earnest money.

Response: If the parties will not agree to a resolution of the earnest money, it is my opinion that; if the broker returns the earnest money to one of the parties, there is risk that the other party will bring a court action, not only against the recipient party, but also against the broker.  A better resolution, with a small earnest money, is a hearing before the small claims court.  The small claims process is relatively quick and relatively inexpensive.  While the court costs in small claims are probably about $20, usually with no attorney fee involved, a case in district court has a filing fee alone of $80, and generally requires the assistance of attorneys.  Another possible option is Section 32-11-02, North Dakota Century Code, which allows any party [this law was not passed specifically for real estate brokers] to deposit disputed money into court, giving notice to the claimants of the deposit.  Then, the claimants are required to apply to the court for disposition of the money.  The downside of the “deposit” method is that it seems to force the seller and buyer into district court, with its attendant expense.

Undisclosed Contract Addendum: In a sale, which will potentially involve an FHA loan, or other addenda to the contract, which can remain private between the parties, and which are not disclosed to FHA?

Response: Under North Dakota Administrative Code, Section 70-02-03–09, the use of any document, “which is not made known to the prospective lender or the loan guarantor, to enable the purchaser to obtain a larger loan than the true sales price would allow, or to enable the purchaser qualify for a loan which the purchaser could not otherwise obtain,” is an action which could subject the agent to punishment by the North Dakota Real Estate Commission.

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