NEBRASKA REAL ESTATE COMMISSION
November 18, 2004
Fireside Room Days Hotel Carlisle Omaha, Nebraska
Acting Chairperson Moline convened a meeting of the Nebraska Real Estate Commission at 9:00 a.m. on November 18, 2004, in the Fireside Room of the Days Hotel Carlisle, located at 10909 M Street in Omaha, Nebraska. All of the members of the Real Estate Commission were present, with the exception of Chairperson Gale, who was absent and excused. Also present were Director Les Tyrrell, Deputy Director for Education Teresa Hoffman, Deputy Director for Enforcement Terry Mayrose, and Administrative Assistant Heidi Burklund. Abbie Widger, Special Assistant Attorney General and Counsel to the Commission, was present for the Voss and Stovall hearings, the Agency Relationships amendment, and the compensation discussion. Also in attendance was Greg Lemon, Chief Deputy Secretary of State, who assisted with rulings during the hearings.
Notice of Meeting (Adopt Agenda)
Director Tyrrell presented a public notice and proofs of publication thereof relating to this meeting, all of which are attached to and made a part of these minutes. Acting Chairperson Moline reported that all Commissioners had been notified of the meeting simultaneously, in writing, and that a proposed tentative agenda accompanied the notification.
Acting Chairperson Moline pointed out to those in attendance that a public copy of the materials being used during the meeting was available to the public on the counsel table in the meeting room, and that the procedures followed were in accordance with the Open Meetings Law. Acting Chairperson Moline asked that guests sign the guest list.
Director Tyrrell noted that agenda item 15b had been added since the tentative agenda was mailed to the Commissioners.
After review of the final agenda, a motion was made by Poskochil and seconded by Shepard to adopt the final agenda as presented. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Minutes of October 18, 2004
The minutes of the Commission meeting held on October 18, 2004, were considered.
After review, a motion was made by Strand and seconded by Grady to approve the minutes as presented. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Receipts and Expenditures Report
Director Tyrrell presented the Receipts and Expenditures Report for October. A copy of said report is attached to and made a part of these minutes.
Director Tyrrell noted that there was nothing unusual to report in Receipts, except that examination and application fees were still running considerably ahead of what was anticipated. Director Tyrrell noted that there had been a dropoff in applications over the past month. Acting Chairperson Moline said that his sales managers had also noted a dropoff in the past 45 days. Expenditures Category 521500, Publications and Printing, was over for the month but under for year, due to the Commission Comment, license law manuals for application packets, and renewal envelopes; Categories 541500 and 541700, relating to legal services, were over because of the hearings held last month; Category 547100, Educational Services, was up due to more examinations being administered; and Category 573100, State-Owned Transportation, included travel for the trust account examiners in western Nebraska.
The cash fund balance as of October 31, 2004, was $761,965.92, which compared to a cash fund balance of $511,423.40 on October 31, 2003. The difference in the cash fund balance was primarily due to renewal money coming in, because renewals were mailed late last year.
After discussion, a motion was made by Shepard and seconded by Strand to file the October Receipts and Expenditures Report for audit. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Director Tyrrell presented a renewal report, which showed renewals as of November 17, 2004. A copy of said report is attached to and made a part of these minutes.
Director Tyrrell noted that the renewal report compared this year’s renewals to 2002 because there was no November report for 2003, due to mailing the renewals late. Renewals were running ahead of 2002. There had been some confusion among licensees regarding equivalent coverage vs. the state plan.
Acting Chairperson Moline said he had heard there was concern that renewal processing was slowing down the processing of new applications. Deputy Director Hoffman said that was not the case. Acting Chairperson Moline asked what percentage of licensees were participating in the state plan. Director Tyrrell had not tracked participation and did not know for sure, but estimated that participation may be approximately 60%.
No action was necessary on this report.
Amend 2005-2007 Biennium Budget Request
Director Tyrrell presented a letter regarding an amendment to increase the health insurance request in the Biennium Budget Request. A copy of said letter is attached to and made a part of these minutes.
A motion was made by Strand and seconded by Shepard to ratify the amendment to the budget. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
There were no specialized registrations to be presented at the meeting.
Non-Resident Licenses and Resident Licenses Issued to Persons Holding Licenses in Other Jurisdictions Report
Deputy Director Hoffman presented for ratification the Non-Resident Licenses and Resident Licenses Issued to Persons Holding Licenses in Other Jurisdictions Report, a copy of which is attached to and made a part of these minutes.
After review, a motion was made by Grady and seconded by Strand to ratify issuance of the licenses as set forth in the report. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Examination Report - October
Deputy Director Hoffman presented for ratification the October Examination Report, a copy of which is attached to and made a part of these minutes.
After review, a motion was made by Shepard and seconded by Poskochil to ratify the October Examination Report for the purpose of issuing licenses. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Real Estate Education Matters
Continuing Education Activity Approval
Deputy Director Hoffman presented for ratification the Continuing Education Activity Approval Report, a copy of which is attached to and made a part of these minutes.
Continuing Education Instructor Approval
Deputy Director Hoffman presented for ratification the Continuing Education Instructor Approval Report, a copy of which is attached to and made a part of these minutes.
After review and discussion, a motion was made by Poskochil and seconded by Johnson to ratify the reports. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Determining Foreign High School Equivalence
Deputy Director Hoffman presented an exhibit regarding foreign high school determinations of equivalency, a copy of which is attached to and made a part of these minutes.
Deputy Director Hoffman stated that the number of applicants who are graduates of foreign high schools has increased dramatically, and all indications were that the number would continue to increase. The University of Nebraska Admissions Office and Union College had helped Commission staff make determinations of high school equivalence in the past, but the Commission’s needs have increased while their availability has decreased. To meet the state law requiring applicants to have a high school diploma or its equivalent, Deputy Director Hoffman recommended that the Commission accept either a United States college or university transcript indicating that the applicant has had the equivalent of a high school education, or a document-by-document evaluation report conducted through an education credential evaluation service which holds membership in the National Association of Credential Evaluation Services (NACES). Deputy Director Hoffman noted that the credentialing service websites were user-friendly, and the approximate cost for the proposed document evaluation report was $45.00-$70.00.
Acting Chairperson Moline asked if the statute stated that a high school diploma was required. Deputy Director Hoffman said yes. Director Tyrrell clarified that it required a diploma or its equivalent. Acting Chairperson Moline asked if an applicant who had attended a private high school that went bankrupt would have to use a credentialing service. Deputy Director Hoffman said no, there had never been a problem with a domestic high school. The Departments of Education in the various states kept records of all high schools, and could provide duplicate documents if needed. The problem was foreign high schools. It was more difficult to establish high school equivalence in some countries than others. Acting Chairperson Moline asked if the statute required the equivalent of a U.S. high school diploma. Director Tyrrell said that a credentialing service could verify that the applicant had the equivalent of a high school diploma, no matter what it was called in whatever locale. Acting Chairperson Moline clarified that the statute did not require the equivalent of a U.S. high school education. Director Tyrrell said that was correct.
Commissioner Grady asked about home school diplomas. Deputy Director Hoffman said Departments of Education tracked them. Staff were seeing more of those, and they had not posed a problem.
Commissioner Johnson asked who would pay the increased cost. Deputy Director Hoffman said it would be paid by the applicant, who would submit the credential instead of a translated diploma. Typically, for the price indicated, the service would provide an original to the applicant and send a duplicate wherever the applicant directed.
Commissioner Poskochil asked how long the process took. Deputy Director Hoffman said the websites almost all indicated the report would take 10 days. Deputy Director Hoffman had called to ask if that time frame was realistic. The availability of documents and verifying agencies varied a great deal from country to country. The 10-day clock started when the service got all the documentation they needed, and it might take some time to gather that.
Commissioner Poskochil noted that the applicant would be required to provide the certification, and pay for it. Deputy Director Hoffman said that was correct, and the instructions would be in the application packet. Deputy Director Hoffman noted that applicants might have already obtained the certification for other purposes. With 18 NACES members, applicants would have a wide choice of service providers.
Commissioner Grady asked if the Commission could approve the policy today. Deputy Director Hoffman said yes, and the staff would then apply the policy at the application level.
Director Tyrrell clarified that the certification would certify that the foreign school which awarded the diploma was the equivalent of what we consider a high school. Commissioner Poskochil said it was not talking about a degree of knowledge. Director Tyrrell said that was correct.
A motion was made by Grady and seconded by Shepard that the Commission adopt the policy as presented. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Pending Sworn Complaints and Investigative Matters
Director Tyrrell presented a summary report of the pending complaints, which included a list of licensees presently under disciplinary action or on appeal. A copy of said report is attached to and made a part of these minutes.
No action was necessary on this report.
Deputy Director Mayrose asked the Commission if they wanted to continue receiving the complaints and answers with the investigative reports. It was the consensus of the Commission that it was no longer necessary. Deputy Director Mayrose asked if the Commission wanted to continue receiving staff recommendations regarding the investigative reports. It was the consensus of the Commission that they did want to continue to receive staff recommendations.
The following sworn complaints and investigative matters were presented to the Commission. Prior to discussion of items A, B, C, and E, Acting Chairperson Moline recused himself, thereby nullifying any potential conflict of interest, and passed the gavel to Acting Chairperson Johnson to preside on those items.
Presentation of Stipulation and Consent Orders
There were no stipulation and consent orders to be presented at the meeting.
Petition for Review - Darold R. Voss, Salesperson Applicant
A hearing was held on November 18, at 10:30 a.m., in the matter of a petition for review from Darold R. Voss, salesperson applicant. Abbie Widger, Special Assistant Attorney General and Counsel to the Commission, appeared for the Commission. Petitioner Darold R. Voss was present and represented by attorney Mark M. Sipple of Columbus. Greg Lemon, Chief Deputy Secretary of State, was present to assist Acting Chairperson Moline with rulings.
After opening statements, Counsel Widger presented 13 exhibits, all of which were offered and received by Acting Chairperson Moline. Counsel Widger called Director Tyrrell as a witness.
Counsel Sipple presented no additional exhibits. Counsel Sipple called Mr. Voss as a witness.
After closing arguments had been presented, Acting Chairperson Moline declared the hearing concluded.
A motion was made by Strand and seconded by Grady to deny the petition for review.
Commissioner Strand said he looked back at the discussion which led to the Commission’s decision to not allow Mr. Voss to sit for the examination. Commissioner Strand said he had been uncomfortable about Mr. Voss’s status as a sex offender, and that he was required to register as a sex offender for 10 years. The Commission knew about it because of the application and criminal history background check, but the public did not. Commissioner Strand noted that Mr. Voss was classified as a Level 1 offender. Commissioner Strand did not feel it was appropriate to allow Mr. Voss a real estate license. In 2010, or after the sex offender registry reporting requirement was lifted and Mr. Voss’s name was no longer on the registry, Commissioner Strand would have no trouble allowing licensure because of the time which would have transpired since the event, if Mr. Voss had no additional problems with the law.
Commissioner Grady agreed with Commissioner Strand. The sex offender registry had been, and would continue to be, a factor in Mr. Voss’s life. Commissioner Grady said he hoped Mr. Voss would continue to improve his life, and might achieve his goal of licensure when he was no longer required to register as a sex offender.
Commissioner Shepard noted that the Commission had guidelines, and Mr. Voss had met pretty much all but one of them, which was successful completion of the terms of the sentence. The sex offender registry was part of Mr. Voss’s sentence. Commissioner Shepard said the Commission did not arbitrarily say yes or no on an application. Commissioner Shepard commended Mr. Voss’s truthfulness and demeanor, and said Mr. Voss had done great. Because Mr. Voss had not yet completed all the terms of his sentence, Commissioner Shepard said he would also vote against allowing Mr. Voss to be licensed.
Acting Chairperson Moline asked Counsel Widger for clarification regarding the number of votes needed, and the ramifications if the motion failed. Counsel Widger noted that the motion was made to deny Mr. Voss’s petition for review. If the motion received 4 votes, the motion to deny would pass, and the petition would be denied. Acting Chairperson Moline asked what would happen if the motion to deny did not receive 4 votes. Counsel Widger said the motion would not pass, but the Director’s letter rejecting the license application would still be in effect. Acting Chairperson Moline clarified that would result because it was not a positive motion to allow the petition. Counsel Widger said that was correct. Commissioner Strand asked what would happen if it was a tie vote. Counsel Widger said the motion to deny would not pass, but that would not override the Director’s letter, so the Director’s letter rejecting the license application would still be in effect. Commissioner Strand asked for clarification that nothing would change unless there was an affirmative motion which received 4 votes. Counsel Widger said that was correct.
A vote was taken on the pending motion. Motion carried with Grady, Poskochil, Shepard, and Strand voting aye, with Johnson and Moline voting nay, and with Gale not participating or voting, being absent and excused.
Acting Chairperson Moline announced that all exhibits related to this hearing would be retained in the Commission office.
The hearing was adjourned at 11:15 a.m.
Complaint 2004-005, Commission vs. Buree Stovall
A hearing was held on November 18, at 1:30 p.m., in the matter of Complaint 2004-005, Commission vs. Buree Stovall. Abbie Widger, Special Assistant Attorney General and Counsel to the Commission, appeared for the Complainant. Respondent Buree Stovall was present and represented herself. Greg Lemon, Chief Deputy Secretary of State, was present to assist Acting Chairperson Moline with rulings.
After opening statements, Counsel Widger presented 35 exhibits, all of which were offered and received by Acting Chairperson Moline. Counsel Widger called Director Tyrrell, Trust Account Examiner Pat Stehly, and Deputy Director for Enforcement Mayrose as witnesses.
At 3:12 p.m., Acting Chairperson Moline declared a brief recess, and reconvened the hearing at 3:18 p.m.
Ms. Stovall presented one exhibit, which was offered and received by Acting Chairperson Moline. Ms. Stovall called herself and Bridget Simone Taylor as witnesses.
After closing arguments had been waived by both parties, Acting Chairperson Moline declared the hearing concluded.
At 4:10 p.m., Acting Chairperson Moline declared a brief recess, and reconvened the hearing at 4:15 p.m.
A motion was made by Strand and seconded by Grady that Ms. Stovall be found guilty of the violations alleged in the complaint. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Acting Chairperson Moline then opened the disciplinary envelope. Two prior disciplinary actions were on file, which were a stipulation and consent order which specified license suspension for 2 years, with 90 days served on actual suspension and the remainder served on probation, plus 12 additional hours of continuing education, and a censure for failure to comply with the stipulation and consent order.
Commissioner Grady asked if it would be appropriate to put a restriction on Ms. Stovall’s license that would require her to be an associate broker, rather than a self-employed broker. Acting Chairperson Moline referred the question to Counsel Widger. Counsel Widger said that, in the past, stipulation and consent orders have specified that licensees work as associate brokers, so that the licensees had no trust account responsibilities. Counsel Widger asked Director Tyrrell for additional clarification. Director Tyrrell said there had been situations where a person had agreed to exchange a broker license for a salesperson license, and agreed to not ever apply for a broker license again, as negotiated in stipulation and consent orders prior to hearing. There had never been an order of the Commission made to that effect after a hearing was held. Counsel Widger noted that such stipulation and consent orders had been negotiated in two cases.
Acting Chairperson Moline said that, as he read the contents of the disciplinary envelope, he recalled Ms. Stovall’s previous appearances before the Commission. Acting Chairperson Moline noted that he was the only Commissioner who was on the Commission at that time. Acting Chairperson Moline told Ms. Stovall that she had gotten the one chance she asked for today in 1998, and he was troubled that she was being brought before the Commission on the same exact problems for which the Commission had previously suspended her license.
Commissioner Grady agreed with Acting Chairperson Moline. Commissioner Grady questioned whether requiring extensive additional continuing education, in addition to requiring that Ms. Stovall only be an associate broker, was sufficient to protect the public.
A motion was made by Grady and seconded by Strand to revoke Ms. Stovall’s broker license.
Commissioner Shepard said he thought Ms. Stovall’s heart was in the right place, but he counted 40 violations in the trust account. Only one transaction was totally correct, and all the others had errors. Commissioner Shepard said he probably would have allowed leniency until he heard about the previous disciplinary action. Apparently no corrective actions had been taken, since there were 40 violations. Commissioner Shepard said he would vote for revocation of Ms. Stovall’s license.
A roll call vote was taken on the pending motion. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Acting Chairperson Moline notified the Respondent that the costs incurred for the court reporter and any witness fees would be billed to the Respondent, as provided for in 305 NAC Chapter 4, and that the Respondent would have thirty days from the date of the order to reimburse the Commission for said costs.
With the consent of the Respondent, Acting Chairperson Moline directed Counsel Widger to prepare the order. Acting Chairperson Moline announced that all exhibits related to this hearing would be retained in the Commission office.
The hearing was adjourned at 4:29 p.m.
Complaint 2004-053, Commission vs. Steven M. Abboud
The hearing scheduled for Complaint 2004-053, Commission vs. Steven M. Abboud, was continued.
Informal Special Appearances
There were no special appearances scheduled for the meeting.
Director Tyrrell presented an exhibit regarding staff comments on the Nebraska REALTORS® Association’s proposed amendments to the agency relationships statute.
Director Tyrrell noted that, at the September meeting, the Commission voted to go forward with the language on page 4 of the exhibit. The second page contained the additional changes proposed by the Nebraska REALTORS® Association. Staff comments regarding the additional changes were on page 1. Director Tyrrell had not yet contacted a senator, because he was waiting for the outcome of today’s discussion on what changes the Commission chose to propose.
Fred Hoppe represented the Nebraska REALTORS® Association in the discussion. Mr. Hoppe said that, in the practice of real estate, there was not always a match between a piece of real estate and an agency agreement. He understood that the Commission’s proposed changes were precipitated by a situation regarding a long-standing relationship of a builder and a specific agent. Mr. Hoppe wanted to create, in statute, facilitating language for on-going
agency contracts that were not real estate-specific. Whether there were 20 or 50 or 3 properties, he wanted agency that would carry beyond a single transaction. Mr. Hoppe wanted to create a facility for multi-agency transactions which was broader than just for builders. Mr. Hoppe noted that builders and new construction were not defined in the proposed changes. What was proposed only addressed the situation in Omaha. In Lincoln, the issue was not setting forth compensation in the agency agreement, but agreeing to pay whether or not an agent brought forward the clientele for the builder. Mr. Hoppe reviewed the changes proposed in the exhibit.
Doug Ruge represented CBSHOME in the discussion. Mr. Ruge said his main concern was Nebraska Revised Statute 76-2422, and that his plain reading of the statute said he must specify the terms of compensation in agency agreements. Builders would not do it, plus it was not the function of the agency disclosure. His twofold goal was to get around the problem with builders while still meeting agency requirements, and to clarify the statute. Mr. Ruge felt people would misunderstand the statute when reading it. Mr. Ruge had worked with Counsel Widger and Director Tyrrell to accomplish his goal. Mr. Ruge did not have a problem if the language was broader, as long as it solved his problem. Mr. Ruge did have a problem with the language Mr. Hoppe was proposing regarding specifying terms, which could be general. Mr. Ruge did not want any terms of compensation in blanket agency disclosures. Mr. Ruge questioned what it meant to specify a range, and noted that a significant number of builders did not want a range, a percentage, or a fixed dollar amount. Mr. Ruge said he was willing to work on the language with Mr. Hoppe. Mr. Ruge said he understood Mr. Hoppe had taken the language from a Commission Comment article, but it did not solve his problem. Acting Chairperson Moline clarified that Mr. Ruge had no problem with Mr. Hoppe’s goals, just with how he was doing it. Mr. Ruge said that was correct.
Counsel Widger noted that the Nebraska REALTORS® Association changes were not limited in any way, and would affect every transaction in Nebraska. Counsel Widger was concerned with the broadness of the wording. The CBSHOME language was limited to builders of new construction, and solved the specific issue of builders not being willing to sign compensation agreements. The Nebraska REALTORS® Association proposal was not limited to multi-agency situations, and did not solve the problem they wanted to address. Also, since changing fraud statutes was outside the purview of the Commission, other entities such as the Bar Association should be contacted before proposing changes to the fraud provisions. The language proposed for Neb. Rev. Stat. 76-2414 did not seem to cause a problem, and had the same meaning as what was currently in statute. Regarding the proposed change to Neb. Rev. Stat. 76-2422, staff concurred with Mr. Ruge, because it did not solve the problem as discussed and voted on in September. The proposal opened it to every transaction in the state. If the Commission chose to make that shift, that was OK, but it was not the narrow exemption requested and approved in September. The change to Neb. Rev. Stat. 81-885.21 affected not just builders, but all residential sales. With this language, there could be a residential sale where the licensee was paid prior to consummation or termination of the transaction.
Acting Chairperson Moline noted that the attorneys did not agree on the proposed language, and suggested that the Commission come up with goals it wanted to accomplish. With the Commission’s goals clearly stated, the attorneys could come up with proposed language to accomplish those goals, and bring it back for the Commission’s approval.
Acting Chairperson Moline asked for discussion on Neb. Rev. Stat. 81-885.21, regarding paying compensation prior to closing. Mr. Hoppe said that his proposed changes all flowed from a multi-transaction agency context. Mr. Hoppe said that Counsel Widger was right in stating that produced a shift, that the parties could set up by contract when compensation will be paid, rather than only when a transaction closed or terminated. Mr. Hoppe said he thought the overriding question was whether we should be looking at multi-transactional contracts, rather than one-on-one contracts.
Commissioner Grady asked Mr. Hoppe to address the example of an agent entering an agency relationship with a builder who had 3 subdivisions. Commissioner Grady asked if that would mean there was automatic agency on all the property owned by the builder. Mr. Hoppe said that would be determined by the contract. Lincoln was a two-company town, and many builders wanted an agent from each company to cover the market. Perhaps the builder would not even want exclusive agency agreements, and they could be exclusive or not. The builder could use more than one agent. When an agent found a purchaser, the agreement would specify duties to the client and the customer. That would drop away all duties but disclosing adverse material facts to the customer. A broker may have an item-by-item list of customer duties in the company’s agency policy. A builder may be looking at portions of the building contract. This would draw a line of duties done for the purchaser. Mr. Hoppe said he had heard that was one of the original fact patterns of the issue, if an agent was in a show home which was listed with the agent, but the prospective buyers wanted changes to their house and looked at other houses in the subdivision. The subdivision owner might not list each and every house at the time the show home was listed, even though it was clear the agent marketed the subdivision as the builder’s agent, in fact or practice. The agent was making a living by selling those properties.
Acting Chairperson Moline said the current discussion was regarding the compensation issue. Counsel Widger said that the Commission needed to make a policy on whether licensees had a right to be paid prior to consummation, such as when the first lot was sold or when each home was sold. The compensation issue was whether a commission could only be paid when a transaction was consummated or terminated, or at some other point based on some contract. The Nebraska REALTORS® Association language was written very broadly, and would permit all buyer and seller agents to negotiate terms whenever. The Commission could decide to not change the policy, or could decide what changes to make.
Commissioner Poskochil said that allowing a commission to be paid prior to completion of the transaction could potentially harm the consumer. Commissioner Poskochil preferred to have representation through completion of the transaction. Commissioner Grady agreed with Commissioner Poskochil. Acting Chairperson Moline asked for a motion on Nebraska Revised Statute 81-885.21, to change the language or to leave it as is.
A motion was made by Grady and seconded by Shepard to leave the language as is. Motion carried with Grady, Johnson, Poskochil, Shepard, Strand, and Moline voting aye, and with Gale not participating or voting, being absent and excused.
Acting Chairperson Moline noted that the Commission needed to decide how broad it wanted to go. Acting Chairperson Moline asked for comments regarding Nebraska Revised Statute 76-2422. Counsel Widger confirmed that staff had no strong feelings one way or the other. Mr. Ruge said it gave him no strong heartache one way or the other.
Commissioner Poskochil asked if there would be a cost to the Commission to change wording in agency brochures, license manuals, etc. Counsel Widger said it would depend on the change made. Director Tyrrell said there would be a cost to update the license manual. The Commission always updated the manuals at some point, so it would not necessarily be an additional cost. Director Tyrrell did not think this language was in the brochure, so he did not think it would cost the Commission extra for brochures.
Director Tyrrell asked if the Commission was going down the road of developing language, and if so, was it still considering introducing legislation in the January legislative session, or developing language over time for the 2006 legislative session. Acting Chairperson Moline said he did not know if the Commission was headed there, and that he was waiting to see what changes the Commission wanted to make. Acting Chairperson Moline said the Commission needed to do it right. Director Tyrrell agreed, and said it would be good to make sure all the players were on the same side. There was nothing worse than a player coming in and requesting an amendment at the hearing, because it slowed everything down. Director Tyrrell would like to hold off and do it right.
Mr. Hoppe said that none of these changes were very high on the Nebraska REALTORS® Association screen. If builders or new construction were not defined, they could live with it. They had lived with the statute for years, and had also done multi-agency via contract. The Nebraska REALTORS® Association would not be going to the committee hearing in January to propose different language.
Acting Chairperson Moline said that, if there was not a lot of heartache with the language as proposed at the last meeting, the Commission could get that in now. Other issues could be addressed in the next legislative session. The language as previously approved solved Mr. Ruge’s problem. Mr. Hoppe said that would be acceptable.
Commissioner Grady said this seemed to be a Lincoln and Omaha problem, because there was not a volume of new construction in his area. He appreciated what the parties were trying to get done, but the issues were not that clear-cut in the rest of Nebraska. Acting Chairperson Moline asked if a broader discussion would help address issues in western Nebraska. Commissioner Grady said possibly. Acting Chairperson Moline said the Commission could go forward with the language as approved in September, and could continue to work on the other issues with staff for the next legislative session. Commissioner Grady said that, in North Platte, new construction was nearly completed before a listing was done. If someone walked in off the street, the builder did not pay anyone. When it was listed, it was put in the MLS. This seemed like licensees were trying to control the coattails of builders.
Director Tyrrell noted that the Commission was not trying to force or coerce builders into paying anything. That was not the purpose of the proposed language. The Commission agreed by consensus.
Commissioner Poskochil asked about the language approved last time, and whether builders meant any type of construction. Mr. Ruge said yes. Counsel Widger said that, if there was a general term used in an industry, the courts would apply the commonly-utilized definition. Construction would include residential, commercial, aerospace, or whatever.
It was the consensus of the Commission to take no action on the additional changes proposed by the Nebraska REALTORS® Association, and that the parties involved should work with staff if changes were wanted in the future.
HearthStone Homes Compensation/Consideration Payment Issue
Counsel Widger presented an excerpt from the minutes regarding the HearthStone Homes Inc. compensation/consideration payment issue. A copy of said excerpt is attached to and made a part of these minutes. Counsel Widger noted the previous Commission discussion, and the discussion earlier in the day regarding the Commission’s decision to not change its policy that compensation is due when the transaction is consummated or terminated.
Kay Singles, designated broker, and John Smith, President and CEO, represented HearthStone Homes Inc. Kent Geschwender represented First Horizon.
Ms. Singles distributed an exhibit regarding the one-time close program. A copy of said exhibit is attached to and made a part of these minutes, denoted as exhibit 14a. Mr. Geschwender reviewed the exhibit. Mr. Geschwender said that First Horizon is a nationwide company in the Fortune 500. The one-time close program has been around for 7 years. They pay the commission at the one-time close nationwide. All documents are recorded at the closing, and the HUD-1 exists at closing. Construction begins, and the builder draws on the loan as construction progresses. Interest accrues as the money is drawn. When construction is done, there is a modification meeting between First Horizon and the borrower. The loan rate is reviewed, and the borrower can reduce the rate if it has gone down. The loan amount can also be changed, if the borrower wants to reduce the principal at that time, and the escrow account is established. Until then, the builder owns the insurance on the property. Mr. Geschwender said he was aware of other one-time close programs in Nebraska which actually involved a second closing, but that was not how First Horizon did it.
Acting Chairperson Moline asked how it was handled if a buyer wanted extras in the house. Mr. Geschwender said that was negotiated between the builder and the buyer. Acting Chairperson Moline asked if that could be financed at the modification. Mr. Geschwender said no. Ms. Singles said all features were negotiated up front, in the contract. The buyer could not select more after the contract was done.
Acting Chairperson Moline asked in which states First Horizon offered the one-time close. Mr. Geschwender said it was offered in 35 states. Acting Chairperson Moline asked if the program had been challenged by other real estate commissions. Mr. Geschwender said it had not been a problem in any other states. It was a closed loan, not a temporary loan. Acting Chairperson Moline asked if paying the commission up front had been challenged. Mr. Geschwender said not to his knowledge.
Commissioner Shepard asked what would happen if a house burned down when it was two-thirds done. Mr. Geschwender said the insurance money would be paid to the lender, and the lender would give the money to rebuild the house. Buyers could finance up to 100%.
Commissioner Grady asked how the builder would have risk after the title was passed to the buyer. Mr. Geschwender said that, until the home is improved, it is the builder’s responsibility, and the builder handles everything.
Acting Chairperson Moline asked if the commission was advanced on the loan when the one-time closing and the HUD-1 were completed. Mr. Geschwender said yes. Acting Chairperson Moline asked if HearthStone Homes assumed that the buyer agent was out of it at that point, or if the buyer agent still had responsibilities. Mr. Geschwender said that was up to the licensee. Acting Chairperson Moline asked if Mr. Geschwender thought the buyer agent still had responsibilities after the closing. Mr. Geschwender said they might, from the standpoint of whether they wanted additional business from that client in the future. It was important to maintain good rapport with customers. Mr. Smith said the law stated an agent earned a commission when the transaction was done. It was not clearly defined when the agent’s responsibilities were complete, and therefore when the commission was earned. Counsel Widger said there was no case law in Nebraska on a definition of when a real estate transaction was consummated, and no case law on when a commission was earned. It was not addressed in license law . Commissioner Strand said he thought the term "closed" would weigh in pretty heavily. There may be some sentiment about staying involved in the transaction, but with the rigors of loan documents, that would be an ad hoc function.
Counsel Widger noted that a huge concern for her during the initial discussion was that the title transferred at the one-time close, but the agreement had language that HearthStone Homes could still kick out the buyer, who was the owner at that point. If title transfer was considered consummation, Counsel Widger was not sure that was truly completed, according to the language in the purchase agreement. Counsel Widger did not have the opportunity to review that language prior to today’s meeting. At the previous Commission meeting, HearthStone Homes’ attorney had made a representation that they were willing to look at the provisions that seemed to give HearthStone Homes superior rights to the property after the title transfer to the buyer.
Acting Chairperson Moline asked why it made a difference to HearthStone Homes whether they paid the licensee up front or at the end, and asked for an honest answer. Mr. Smith said he did not want to offend the brokers on the Commission. Mr. Smith said he had sold 12,000 houses in his career, and in the real estate community, attention and dollar payment seemed to have a relationship. HearthStone Homes was clear it was a referral fee, for the lead and the interaction. His company believed in due diligence and communication up front, because they did not want problems later. Mr. Smith had found that agents avoided business if it took 8 months to get paid. Most agents did not have interaction with HearthStone Homes clients until the closing, and few were active throughout the process. HearthStone Homes saw it as a referral, not a long-term relationship with the client.
Acting Chairperson Moline noted that he had heard nothing but good things about HearthStone Homes Inc., but a rule change would apply to everyone across the board. Mr. Smith said he understood the magnitude of the decision on that.
Commissioner Strand said that, if the transaction was closed, he would want to make sure the builder did not have a superior right to the property. Commissioner Strand felt a transaction was closed at the title transfer, and did not think the Commission would want to delay payment within the current rules.
Acting Chairperson Moline noted that the builder’s concern was liability during construction for buyers walking around on an unfinished property. Counsel Widger said that, from the builder’s perspective, she could understand the safety concerns. Counsel Widger said the builder should put those restrictions in the builder’s agreement, instead of the purchase agreement, and should clearly identify the safety restrictions. HearthStone Homes’ attorney had said that a writ of restitution, which was a court order regarding ownership that was used by landlords to move a tenant’s belongings out to the street, was not a viable remedy for HearthStone Homes to enforce its contract rights. If an owner said HearthStone Homes could not do any more work, there were other contractual remedies.
Mr. Smith said HearthStone Homes had already agreed to that, and Counsel Widger could look at that. There was no benefit to them to do otherwise. HearthStone Homes was big into disclosure up front, and interaction before the buyer signs a contract. For critical disclosures, buyers were required to initial to show that they knew about it and took appropriate actions, to minimize confusion.
Commissioner Poskochil asked if the agreements were similar whether or not a buyer wanted a one-time close. Mr. Smith said there were two separate agreements. Commissioner Poskochil asked about the provisions regarding the buyer going onto the job site. Ms. Singles said, in that aspect, the agreements were very similar. The financing options and differences were discussed, and buyers were warned about not going onto the property. Mr. Smith said HearthStone Homes controlled access in both cases. Commissioner Strand asked when the commission was paid, if the buyer did not choose the one-time close. Ms. Singles said it was paid at the end of construction.
At 5:00 p.m., Commissioner Strand was excused from the remainder of the meeting.
Commissioner Poskochil said he would prefer that licensees not be paid until the project was completed. That gave the buyer someone to talk to, and to be in touch with during the process. Otherwise, it was just the builder vs. the buyer. It put real estate agents in worse scenarios if they were out of the transaction at the contract. If the agent got paid when the house was completed, the agent would try to guarantee it all went smoothly. Commissioner Poskochil said he would not pay plumber a week ahead of when a water heater was installed. The proposed change would open the door to getting paid at any point in the transaction. Commissioner Poskochil asked if anyone else was doing these successfully. Mr. Geschwender said it was being done successfully all over Omaha. Mr. Geschwender asked when the Commission would want the commission paid, and how would they want it paid. Mr. Geschwender noted the HUD-1 was done at the one-time close.
Commissioner Poskochil said there were typical problems with new construction, maybe not with HearthStone Homes, but with other companies. On the closing date, if things were not done, builders would tell buyers that if they wanted it, they had to close that day. It happened all the time that buyers would close, then not hear from the builder for months regarding the unfinished items. An agent would tell the buyers not to close the transaction if the house was not done, and if they were not happy with it. Otherwise, buyers may not have a clue regarding the standard of completion expected at closing. This was a problem all the time. Builders did not ever finish the house, and the buyers had to take them to court. Mr. Smith said that scenario sounded like the agent was giving legal advice. Commissioner Poskochil said an agent could advise a client to get legal advice if the house was not done, and the builder was insisting on closing. Mr. Smith said an agent might cross the boundary of giving legal advice. HearthStone Homes was professional, and took care of their customers. 96% of their customers would tell others to do business with HearthStone Homes, and most of their business was from referrals. Commissioner Poskochil said that if HearthStone Homes paid the commission at completion, they would not have to worry about it. Mr. Smith questioned the legality of that. He felt closing was when the HUD-1 form was completed, and was trying to get clarification from the Commission. There were many builders paying commissions up front right now, so clarity was important for all.
Counsel Widger noted that a HUD-1 was issued at the one-time close, but not all the money was issued. It was taken out in draws. Counsel Widger proposed that HearthStone Homes shift the commission to the last draw on the loan, rather than the first draw. Commissioner Poskochil noted that being paid up front was a marketing tool to get agents to deposit a buyer at HearthStone Homes’ door, to get paid within 60 days. The Commission wanted the builder to do it correctly, rather than market a quick payday. If the Commission allowed this, there would be other builders doing the same thing soon. Mr. Smith said the program had been out there for a long time, and there was a difference in local and national thinking.
Acting Chairperson Moline said the program enticed licensees to bring buyers to HearthStone Homes in order to get paid earlier. Mr. Smith said that was not entirely the reason, but was part of the program. Acting Chairperson Moline said it was a fairly significant part. If the Commission said it was OK and the court said it was OK, the marketing advantage would be gone very soon, maybe within 30 days. Acting Chairperson Moline said he saw marketing as a major reason for the one-time close program. Mr. Smith said that was a great question, and predicted that this type of program would be the predominant way homes will be built within 5 years or less. From the builder’s standpoint, they did not have to sell a used home before the closing. The buyer could not disappear. A big part of builder risk was the buyer walking out, because it cost them only $3000.00 in earnest money. For buyers, they got tax deductible interest passed through to them. Mr. Geschwender said the program could be a conduit to close a deal with a builder, and buyers could put proceeds from selling their previous house into a paydown at modification. Acting Chairperson Moline said he did not see any difference whether the agent got paid at closing or at the end.
Director Tyrrell noted that HearthStone Homes was asking the Commission to make a determination that "consummated" meant when a final HUD-1 form was issued on any transaction. That determination would apply to any real estate transaction. Director Tyrrell asked if that was a problem at any other time, with any other transaction. Mr. Smith clarified that HearthStone Homes wanted to know how to define "done," i.e. completion of responsibilities for an agent. A stated definition would address their problem. Mr. Smith said he thought the definition was also a bigger issue for the state. Counsel Widger said the Commission would not want to go that broadly, and had no other facts on which to base a decision. The HearthStone Homes issue was whether a transaction was consummated when a final HUD-1 form was completed.
Acting Chairperson Moline noted that, once it was out about this decision, others would be in here asking for similar decisions. To change the statute, the Commission would have to go to the Legislature. Acting Chairperson Moline asked if the Commission could do a rule instead. Counsel Widger said the Commission could do an informal interpretation that a final HUD-1 form meant the transaction was done. That would protect against having two closings, and having the HUD-1 form done at the second closing.
Commissioner Grady asked for clarification on the modification to the one-time close. Mr. Geschwender said the lender re-submitted and re-recorded the note. That was it. The modification was purely between the lender and the buyer.
Commissioner Johnson noted that, for a nice house, the buyers may owe 125% on it, and could sell it for whatever they wanted. Mr. Smith said the buyers would still be qualified for the loan. Commissioner Johnson said it was the same way with builders, that there were some builders a lender would never do this with. Mr. Geschwender said the offer was made to qualified buyers, and the buyers chose the builders. Ms. Singles noted there was an inspection with each draw on the loan, to make sure what the builder said was done had gotten done.
Acting Chairperson Moline said his fear was unintended consequences, and whether the Commission really wanted to allow this. Counsel Widger asked if HearthStone Homes would be willing to pay the commission at the final draw, rather than the first draw. Ms. Singles said there would be no way to track it. Mr. Geschwender maintained that consummation would then be whenever the builder decided to pay the commission.
Acting Chairperson Moline said he appreciated the honesty during the discussion. He questioned why it was important to pay the commission earlier rather than later, since it was not important to the buyer or the seller. Acting Chairperson Moline also asked what language HearthStone Homes would suggest, if it was important to change this, to keep the situation from getting crazy and to benefit them. If the Commission was to go through the whole process and it did not change anything but opening the barn door, Acting Chairperson Moline was not in favor of that. Acting Chairperson Moline asked that HearthStone Homes show him why this change was required, clearly and concisely, and what were the other unintended consequences. Acting Chairperson Moline asked that HearthStone Homes provide the exact wording for the policy, so the Commissioners had something to look at and decide yes or no.
Commissioner Poskochil noted that, once it was done, others would want it broadened for them. Commissioner Poskochil did not know if he was willing to go there at this point. He did not want to create more problems for consumers, and more complaints for staff. The Commission had not had time to think through it.
Acting Chairperson Moline asked what HearthStone Homes was hoping to get today. Mr. Smith said communication, and what they were getting right now. Mr. Smith said the Commission’s first obligation was to the larger whole. HearthStone Homes Inc. was not trying to beat the system, or just benefit themselves. Mr. Smith thought what they were asking for was correct. They wanted to communicate their process, and how it worked. It sounded like the Commission did not want to go that way, but it sounded like defining consummation needed to be addressed.
Counsel Widger noted that Acting Chairperson Moline was asking for HearthStone Homes to define consummation in a broad sense, and bring proposed language to the Commission. Acting Chairperson Moline asked that staff also contact the other states in which the program operated. Director Tyrrell noted that builder agents did not have to be licensed in some jurisdictions.
Acting Chairperson Moline said he appreciated the participants’ candor. HearthStone Homes’ counsel should work with Counsel Widger on the proposed language, and Director Tyrrell should investigate how other states handled it. He hoped to get something workable that would maintain consumer protections. Mr. Smith said he would see the Commissioners in January.
DAS Lease Negotiations with Atrium Completed on Commission Office Space
Director Tyrrell presented a copy of the proposed lease terms for the Commission’s office space. A copy of said terms is attached to and made a part of these minutes.
Director Tyrrell noted that DAS (Department of Administrative Services) negotiated leases for the Commission, by state law. Director Tyrrell noted that the office would be recarpeted and repainted, and a chair rail would be added to the waiting area. DAS was still negotiating with the management company regarding who would pay to move the furniture. Commissioner Poskochil asked what were the annual increases over the past 5 years. Director Tyrrell said he did not have the documentation with him, but the Commission used to have a set rate for the term of the contract, so there were no increases. This was a 10-year lease, but there were provisions to get out of it if needed. DAS decided the lease terms and location for the Commission office.
No action was necessary on this report.
Trust Account Examination Evaluation Report - Third Quarter 2004
Director Tyrrell presented the Trust Account Examination Evaluation Report - Third Quarter 2004. A copy of said report is attached to and made a part of these minutes.
Director Tyrrell reported that comments were again very positive, and the survey return rate was over 50%. Brokers were still asking to have scheduled appointments for examinations. The Commission policy has been to have unannounced examinations, and that policy was up to the Commission. There were very good comments in the report, and brokers appreciated the examinations as an educational tool.
No action was necessary on this report.
Future Meeting Dates
January 12-13, 2005 - Staybridge Suites, Lincoln
February 15-16, 2005 - Staybridge Suites, Lincoln
March 17-18, 2005 - TBA
April 18-19, 2005 - TBA
May 16-17, 2005 - TBA
June 13-14, 2005 - TBA
August 24-25, 2005 - TBA
September 22-23, 2005 - TBA
Recesses and Adjournment
At 9:22 a.m. on November 18, Acting Chairperson Moline declared a brief recess, and reconvened the meeting at 9:30 a.m.
At 10:15 a.m. on November 18, Acting Chairperson Moline declared a brief recess, and reconvened the meeting at 10:28 a.m.
At 11:15 a.m. on November 18, Acting Chairperson Moline declared a brief recess, and reconvened the meeting at 11:22 a.m.
At 11:25 a.m., Acting Chairperson Moline recused himself, and passed gavel to Acting Chairperson Johnson. At 11:35 a.m., Acting Chairperson Moline rejoined the meeting.
At 12:05 p.m. on November 18, Acting Chairperson Moline declared a recess for lunch, and reconvened the meeting at 1:30 p.m.
At 3:12 p.m., Acting Chairperson Moline declared a brief recess, and reconvened the hearing at 3:18 p.m.
At 4:10 p.m., Acting Chairperson Moline declared a brief recess, and reconvened the hearing at 4:15 p.m.
At 5:00 p.m., Commissioner Strand was excused from the remainder of the meeting.
At 5:30 p.m. on November 18, there being no further business to come before the Commission, Acting Chairperson Moline adjourned the meeting.
I, Les Tyrrell, Director of the Nebraska Real Estate Commission, do hereby certify that the foregoing minutes of the November 18, 2004, meeting of the Nebraska Real Estate Commission were available for inspection on December 6, 2004, in compliance with Section 84-1413(5) R.R.S. 1943, of Nebraska.
Guests Signing the Guest List
Perre Neilan, Nebraska REALTORS® Association, Lincoln
Janet Palmtag, Nebraska REALTORS® Association, Nebraska City
W.F. Hoppe, Nebraska REALTORS® Association, Lincoln
Henry Kammandel, Nebraska REALTORS® Association, Omaha
Mark T. Wehner, CBSHOME, Omaha
Darold Voss, Columbus
Mark Sipple, Columbus
Buree Stovall, Omaha
Britta S. Taylor, Omaha
Daphne Holmes, Omaha
Kay Singles, HearthStone Homes Inc., Omaha