You knew it required a real estatelicense to engage in real estatebrokerage. Now it is unlawful to

engage in real estate brokerage without alicense.

I would draw your attention to twonotices within this edition. One is notice ofAct 2006-601 becoming effective October1 and the other is the rule amendment clar-ifying how a real estate company is proper-ly identified as a real estate office.

The primary purpose of the real estatecommission has been to insure that indi-viduals applying for real estate sales andbrokers licenses meet the qualifications as

established by the legislature. And likewisethe Commission’s jurisdiction extendedonly to those individuals who held alicense. With the new Act, the Commissionnow has jurisdiction over individuals whopractice real estate without a real estatelicense. The Act authorizes the Com-mission to issue cease and desist orderswhich would likely be the first step takenupon our learning of the unlawful practiceof real estate. If that is not effective orgiven other circumstances where transac-tions involving consumers have been com-pleted, the Commission may issue formalcomplaints, subpoenas, and hold hearings.

Fines equivalent to those Commissionersmay levy against licensees may be leviedagainst unlicensed individuals and in addi-tion they may impose a fine in the amountof any gain or economic benefit derivedfrom a transaction. Failure to comply canbe enforced by civil court.

This new Act is not to be confused asinterfering in any way with the existing“owners” exemption within license law.Any individual may sale or lease propertyhe or she owns without being required tohave a real estate license. The Act does notchange that. The Act addresses the circum-

We are pleased to announce theappointment of Janet R. Morrisand Dorothy P. Riggins to the

Alabama Real Estate Commission. Thenew Commissioners were appointed byGovernor Bob Riley and confirmed by theAlabama Senate during the 2006 RegularSession.

Representing the Third CongressionalDistrict is Janet R. Morris owner and bro-ker of Morris VIP Realty in Montgomery,Alabama. Commissioner Morris began her

real estate career twenty-seven years agoand since 1989 her company has special-ized in property management and residen-tial sales.

Commissioner Morris’ distinguishedreal estate career includes serving in vari-ous leadership positions in the AlabamaAssociation of REALTORS®, NationalAssociation of REALTORS®, AlabamaCRS Chapter, National Women’s Councilof REALTORS®, Alabama Women’sCouncil of REALTORS® and MontgomeryWomen’s Council of REALTORS®.

In addition to her leadership roles,Commissioner Morris has been the recipi-ent of numerous awards, most notably theNational Association of REALTORS®

Omega Tau Rho Honor Fraternity,Alabama Association of REALTORS®

Robert Jemison, REALTOR® of the Year,Top Forty REALTORS®, Alabama Asso-ciation of REALTORS® Honor Society,

Alabama Association of REALTORS®

Arthur B. Pope Education Achievementand Alabama Association of REALTORS®

Long Serving Committee Member Award.

Sign of the Times and Unlicensed ActivityBy D. Philip Lasater, Executive Director

New Appointments to Nine Member Commission

WINTER 2007

In This IssueAct 2006-601: An Explanation.................. 2

New Rule Changes Effective October 1, 2006 ............................ 3

Briefly Legal: Earnest Money Disputes..... 4

Education Corner: Stress-Free CE ............ 5

Disciplinary Actions Taken........................ 6

Licensing Tidbits....................................... 8It’s Not Too Late; Renewal Problems;Reminder: Commission’s Fund Receipt Policy; Online Transfers

New Employees Join Commission Staff .. 9

Tax Rules for Foreign Investors in U.S. Property .......................................10

Janet R. Morris Dorothy P. Riggins

(Continued on page 5)

(Continued on page 2)

2 WINTER 2007

stances where someone would procureprospects for or list for sale or lease or showproperty on behalf of another he or she doesnot own. In other words, any activityrequiring a real estate license set out inSection 34-27-30 performed by an unli-censed person now becomes subject to theCommission’s enforcement jurisdiction.

There are individuals acting in isolatedinstances that for whatever reason do notunderstand this and generally upon learn-ing will cease and desist and becomelicensed or let their business idea go. Thereare other more deliberate attempts to cir-cumvent by deceit or fraud actual realestate transactions on behalf of otherswithout having met the qualifications forhaving a license issued and the authoriza-tion it allows. Experience from other juris-dictions alerts us particularly to unlicensedindividuals who would link qualificationand approval for consumer financing toproperties they do not own nor may not be

otherwise listed. It will continue to beimportant for anyone who has knowledgeof illegal or unlicensed activity to report tothe Real Estate Commission. Our investi-gators and attorneys need the opportunityto evaluate situations that potentiallyrequire our intervention or action.

Enactment of the authority is the firststep in compliance and enforcement.Education of licensees and the generalconsumer public will be an importantaspect over the coming months.Commissioners are currently evaluatingthe cost feasibility and potential effective-ness of a statewide public informationcampaign. The purpose would be to informthe public that any real estate transaction inwhich they do not own the property forwhich buyers or tenants are being solicitedrequires using a licensed real estate sales-person or broker. How does one determineif an individual is licensed or not? Everycompany and broker are required bylicense law to have the licenses of those forwhich they are responsible for available forpublic viewing. Since Alabama licensees

do not carry pocket cards referral to theAssociation of Real Estate License LawOfficials license/registration search Website www.arello.com would be the fastestand most efficient way for another licenseeor consumer to verify whether an individ-ual is licensed in Alabama or any otherjurisdiction.

The second area to which I draw yourattention relates to the signage of the placeof business. The statute states that a realestate company among other things shallbe properly identified as a real estateoffice. The place of business rule asamended defines the minimum standardfor how compliance with this requirementis met. (See Rule 790-X-2.-07 in therevised insert of the License Law book.)

At least once every five years a brokerand company should incur a random com-pliance audit from the Commission. TheAudit checklist which may be referencedin the back of the license law book on pageA-2 will now contain, along with all theother items on the check list, review of howthe company signage meets the rule. ■

The license law has been amended to include some new provi-sions regarding practicing real estate without a license and theextent of the Commission’s jurisdiction. Some explanation is inorder to help in understanding these provisions, because they aresignificant.

Unlicensed ActivityUntil now the Commission had no jurisdiction over unlicensedactivity. What this means is that the Commission had no authori-ty to deal directly with persons and companies who engaged in thepractice of real estate without being licensed. The new act changesthat and has two key provisions. Now the Commission will be ableto issue cease and desist orders to persons and companies whoare practicing real estate without a license. In addition, theCommission now has authority to hold a hearing, and to imposea fine for these activities. The fine may be calculated as follows:

(1) the same fine as may be imposed upon licensees for violations of the law, and in addition (2) a fine in the amountof any gain or economic benefit derived, and in addition

(3) the amount of the Commission’s costs incurred. These provisions are incorporated into Section 34-27-36 Ala. Code.

JurisdictionUntil now the Commission’s jurisdiction was limited to Alabamareal estate transactions. This meant that only those transactionsthat had the major provisions of the negotiations, etcetera con-ducted in Alabama were subject to the requirements for anAlabama real estate license. This also meant, for example, thatout-of-state companies could list Alabama real estate on theirWeb sites and claim that this activity did not require an Alabamareal estate license, since the listing, selling, etcetera occurred out-side Alabama. The new provisions make it clear that an Alabamareal estate license is required any time one engages in any activ-ity requiring a license concerning real estate situated within thestate of Alabama. In other words the mere fact that Alabama realestate is the subject of the transaction activities will make anAlabama real estate license mandatory, regardless of where thelisting, selling, etcetera occurred. These provisions are incorpo-rated into Section 34-27-30 Ala. Code.

Act 2006-601: An Explanation

Sign of the Times...Continued from page 1

WINTER 2007 3

790-X-3.-03. Deposit of Funds.(1) The deposit and accounting for at all times of all fundsbelonging to or being held for others in a separate federallyinsured account or accounts in a financial institution located inAlabama shall require that the qualifying broker be a customer ofthe financial institution holding all such accounts and the qualify-ing broker shall have full authority to deposit and withdraw fundsand to write or make checks as necessary on all such accounts.

ExplanationIt has come to the attention of commissioners that some compa-nies have qualifying brokers who are not authorized to write checkson the company escrow accounts. The rule change will prevent acompany from engaging the services of a real estate qualifying bro-ker who does not have full authority as a signatory on the compa-ny escrow accounts. It should also insure that the broker hasaccess to the bank statements thereby increasing the broker’saccountability. The rule is not intended to prevent a company orbroker from designating other signatories on the escrow accounts.

790-X-2-.21. License Transfers. Repealed(1) A $25.00 fee shall be required of a licensee when a change ona license certificate necessitates the issuance of a new licensecertificate, i.e., name change, address change, transfer, etc.(2) The qualifying broker is responsible for the immediate returnof any license certificate which is in need of any change.

ExplanationParagraph (1) of this rule was repealed because transfer fees areset out in the law. Paragraph (2) was repealed so that license cer-tificates would not have to be returned to accommodate onlinetransfers. It is important to note that this rule does not change theplaces in the law where license certificates are required to bereturned. Here are the pertinent parts of those two statutes:

34-27-34. Who may serve as qualifying broker; responsibilityof qualifying broker; change of broker; termination of qualify-ing broker’s status.(c) A person who wishes to terminate his or her status as quali-fying broker for a licensee may do so by notifying the licenseeand the commission in writing and sending the licensee’s licensecertificate to the commission or verifying in writing to the com-mission that the certificate has been lost or destroyed.

Section 34-27-35. License certificates generally.(f) The license of a salesperson who is subsequently issued abroker’s license automatically terminates upon the issuance ofhis or her broker’s license certificate. The salesperson’s licensecertificate shall be returned to the commission in order for a bro-

ker’s license to be issued. No refund shall be made of any fee orrecovery fund deposit pertaining to the salesperson’s, broker’s, orcompany’s license.

790-X-2.-07. Place Of Business and SignageA place of business shall be identified by a sign which sets outthe name of the company as licensed with the commission. Inplaces where an exterior sign is permitted a sign shall be postedoutside of the office so that it is plainly and readily visible to thepublic. In places where an exterior sign is not permitted, an inte-rior sign shall be posted. The interior sign shall be in keeping withthe building restrictions, and if permitted, shall be posted in theentry area and on the door of the office or suite of offices.Appropriate files and records shall be maintained in the place ofbusiness.

ExplanationThe place of business requirements of the law set out in Section34-27-2(a)(11) require that a place of business be “properly identified as a real estate office.” This rule says that a sign reflect-ing the company name is required to satisfy the requirement of thelaw. Of course, some building restrictions and some local zoningrestrictions will dictate what exact kind of signage is appropriate.The rule is designed to accommodate those restrictions. If an out-side sign is permitted, one must be posted. If not, an interior signor signs must be posted, consistent with what is allowed locally.

790-X-1-.12. was amended to specify the acceptance of ARELLO-certified distance education courses as reciprocal CE credit. (15) Any licensee who completes a continuing education class-room course or an ARELLO certified distance education course inanother state which is approved by any state may receive creditin Alabama for successful completion of that course by sub-mitting appropriate documentation as prescribed by theCommission. Such courses will count as elective continuing edu-cation credit only. These courses are not subject to renewal pro-cedures, instructor application and fee or the course review fee.

ExplanationTherefore, an Alabama licensee may take either a classroomcourse or an ARELLO certified distance education course while heor she is physically in another state and receive credit for thatcourse by submitting proper documentation. The documentationincludes verification the licensee successfully completed thecourse, verification the course is approved by any real estate com-mission and the number of hours for which the course isapproved. The credit received can be up to 12 elective hours of CE.

New Rule Changes Effective October 1, 2006

We get many, many questionsabout this subject. The answersare found in Alabama Real

Estate Commission Rule 790-X-3-.03(4)and (5.) Here is what the relevant part of therule says with underlining for emphasis:

790-X-3.-03. Deposit of Funds.(4) Each qualifying broker shallpromptly disburse to the appropriateparty or parties any trust funds within7 days of the consummation of thetransaction for which the funds weredeposited. If for any reason the trans-action is not consummated, or if forany reason there is a disagreementinvolving to whom trust funds shouldbe disbursed, the qualifying brokershall not disburse any trust fundsexcept pursuant to a written agreementsigned by all parties or pursuant to acourt order.

(5) This Rule shall not prohibit a bro-ker from depositing with the appropri-ate court any trust funds which are thesubject of disagreement among orbetween parties under the rules ofinterpleader or other lawful procedure.

First, let’s look at how this rule isapplied to security deposits in propertymanagement situations. A lease or rentalagreement is consummated when a tenantenters into a lease agreement or depositagreement with the landlord or its agent.

This means the property managementcompany is free to apply the terms of theagreement, and disburse funds receivedunder the terms of the agreement. Thisincludes forfeiture of the security deposit.The property management company is notrequired under any circumstances to getwritten permission from the tenant to for-feit all or part of a security deposit.

Earnest money under a sales contract isdifferent. A sale is not consummated until itis closed. Pay careful attention to what therule says about a sale that does not close.The reason it does not close does not mat-ter. It does not matter if a financing contin-gency cannot be met, for example. It doesnot matter what the contract says. Even ifthe contract says the earnest money is “non-refundable,” whatever that means, the rulecontrols. If the money is supposedly “non-refundable,” what is it doing in an escrowaccount? If it is truly non-refundable, thenit should be paid directly to the seller undera written, signed addendum to the contractclearly setting out the fact that the broker isrelieved of responsibility for the money.

The rule says flatly that if a sale does notclose, or if there is some dispute about towhom the earnest money should be dis-bursed, the broker shall not disburse themoney without written, signed authoriza-tion from the parties to the contract. Thisauthorization may not be contained in theoriginal contract or addendum to it. I willrepeat: It does not matter what the contractsays. There must be a separate, written andsigned authorization coming after it isestablished that that contract will not close.Notice the rule does not require the partiesto give a full release of all claims. The par-ties usually do want to do this so they canwalk away without any further conse-quences. Brokers typically encourage a fullrelease for this reason.

When the parties just cannot agree, thenthe broker must continue to hold the moneyin the escrow account. Brokers usually donot file an interpleader action, because thatrequires a lawsuit with court costs andattorney’s fees. Some contracts provide thatthe earnest money can be used to pay theseexpenses right out of the earnest money inthe event an interpleader action is filed.Perhaps the best remedy is for one party tofile a civil action against the other for themoney. Small claims courts are appropri-ate, provided the amount in dispute doesnot exceed $3,000. When a judge enters anorder deciding the question, the rule allowsthe broker to disburse the money to the pre-vailing party. Another possible remedy lieswith the State Treasurer’s office. In somecircumstances a broker might be able to paythe money over to the State Treasurer’soffice as unclaimed property, providedthree years have lapsed since the apparentowner last communicated to the broker aninterest in the money. The State Treasurer’sWeb site has information regardingunclaimed property that is easy to access.

If you are waiting for an exception to therule, there is one. It concerns foreclosedupon sellers. Here is the scenario. The seller(owner) has entered into a contract that iswaiting to be closed. During this time theseller is foreclosed upon, and the sale doesnot close. In this case it is not necessary toget authorization from the seller to disbursethe earnest money to the buyer. The law in

4 WINTER 2007

BRIEFLY LEGALEARNEST MONEY DISPUTES

By Charles R. Sowell, General Counsel

BRIEFLY LEGAL

WINTER 2007 5

Alabama is that a foreclosed upon owner of property isessentially stripped of all interest in the property, exceptthe owner’s right to redeem the property within one year.This is commonly referred to as the statutory right ofredemption. Since this is the only right remaining, theseller’s signature on a disbursement authorization isworthless. Our rule does not supersede the law in thisinstance, nor does it require that a worthless signature beobtained.

It is important to understand that this rule governswhat a broker can and cannot do. The language of thecontract is very important to establish the rights andresponsibilities of the buyer and seller. The parties them-selves and the courts will look to the contract to ulti-mately decide who is entitled to earnest money when acontract does not close. Our rule just prevents the brokerfrom being the one who makes the decision. Some otherstates have similar rules, while some do not. The reasonfor the rule is simple. It protects both the buyer and sell-er from arbitrary disbursements by brokers. Judgesstruggle with many contract issues that come beforethem in court. Brokers have no business deciding ontheir own who is entitled to earnest money. ■

Many licensees are convinced that the “CE Year” is always the sec-ond year of a license period. Well, a clarification needs to be made.Every year is a “CE Year!” Let me explain why I say that. Approx-

imately 3,000 licensees were forced inactive on October 1 because of a fail-ure to have the proper education requirements for license renewal on recordwith the Commission. Now, there were many reasons for the absence of edu-cation qualifications on record, all of which can be avoided in the future. Hereare five suggestions to avoid the stress and worry associated with educationrequired for license renewal:

1. Take your CE now! Don’t wait until the second year or, much worse,the last month of the license period. CE is offered throughout the twoyear license period so go ahead and take your 15 hours now and don’tworry about it in September of 2008.

2. Make sure the courses you take are approved. You may veri-fy the approval of courses by using the Real Estate Course Search featureon the Commission’s Web site. All approved course offerings are requiredto be entered into CMap for public viewing prior to their offering. Makeuse of the Real Estate Course Search to verify approval of courses.

3. Provide proper documentation for out-of-state courses. Ifyou take a CE course while in another state and it is approved by any state,you may receive credit in Alabama for successful completion of thatcourse. The Commission will accept up to 12 elective hours of CE creditfor courses taken while physically in another state. The course may be aclassroom course or an ARELLO-certified distance education course.Proper documentation must be provided to the Commission in order toreceive credit.

4. Check your credit online. Always check the Commission’s Web sitetwo weeks after completing a CE course to make sure your credit hasbeen entered. If you do not see the credit, you must contact the providerof the course and let them know that the credit can not be viewed.

5. Reciprocal licensees send documentation prior to therenewal deadline. All reciprocal licensees who hold active licensesin another state at the time of Alabama license renewal may provide acopy of that license or a certification of licensure to satisfy the educationrequirement for renewal. This must be provided when requested by theCommission and prior to the license renewal deadline.

These five suggestions can help licensees avoid trouble during licenserenewal. You are encouraged to keep a record of these suggestions and make license renewal in 2008 a stress-free and even enjoyable experi-ence. Please contact the Education Division at 334.242.5544 if you have any questions. ■

EDUCATION CORNERSTRESS-FREE CE

By Ryan Adair, Education Director

EDUCATION CORNER

Commissioner Morris is an active member ofHeritage Baptist Church. She is married to Wayne andthey have a son and daughter.

Serving in the consumer-at-large commission posi-tion is Dorothy P. Riggins. Commissioner Riggins isemployed full-time as an Education Administrator inthe Federal Programs Section of the AlabamaDepartment of Education. A leader and expert in adultand education administration, Commissioner Rigginsholds B.S., M.Ed., Ed.S. and Ph.D. degrees. She hasheld positions with Trenholm State Technical Collegeand Tuskegee University.

A native Alabamian, Commissioner Riggins isknown in and around Montgomery, for her beautifulsinging voice and is often the featured singer of thenational anthem at local sporting, private and publicevents. She is a member of St. John’s A.M.E. Churchof Montgomery and is a member of Beta Nu OmegaChapter of Alpha Kappa Alpha, Phi Delta Kappa honorsociety, Alabama Education Association, AlabamaState Employees Association, National EducationAssociation and National Association for the Edu-cation of Homeless Children and Youth. ■

New Appointments to Commission...Continued from page 1

DISPOSITIONThe below were found guilty for violationof Section 34-27-36(a)(16) by presentingto the Alabama Real Estate Commission,as payment for a fee or fine, a check whichwas returned unpaid by the bank uponwhich it was drawn.

Jennifer R. CadeSalesperson; Gulf Breeze, FloridaDate of Hearing: June 23, 2006Fined $250

Kerry C. GlennSalesperson; Columbus, GeorgiaDate of Hearing: June 23, 2006Fined $250

Jennifer Eileen MiddletonInactive Salesperson; Bay Minette, AlabamaDate of Hearing: June 23, 2006Fined $250

James Ryan JacksonSalesperson; Jasper, AlabamaDate of Hearing: August 18, 2006Fined $250

Jody Lynn MarshSalesperson; Gulf Shores, AlabamaDate of Hearing: August 18, 2006Fined $250

Jason S. GravietTemporary Salesperson; Ardmore, AlabamaDate of Hearing: September 15, 2006Fined $250

Kim Smalley RobinsonTemporary Salesperson; Clanton, Alabama Date of Hearing: September 15, 2006Fined $250

Karen Shaw-NicholsTemporary Salesperson; Chelsea, AlabamaDate of Hearing: September 15, 2006Fined $250

Valley E. O’NealInactive Salesperson; Mobile, AlabamaDate of Hearing: October 20, 2006Fined $250

Jonathan R. LongSalesperson; Rainbow City, AlabamaDate of Hearing: October 20, 2006Fined $250

Deborah Ann SisleySalesperson; Daphne, AlabamaDate of Hearing: October 20, 2006Fined $250

Randy S. MorrisQualifying Broker; Mobile, AlabamaDate of Hearing: October 20, 2006Fined $250

DISPOSITIONThe below were found guilty for violationof Section 34-27-36(a)(19) by failing tocomply with Rule 790-X-1-.12(8) andRule 790-X-1-.12(9) by failing to provideto the Commission, upon request, originalcertificates of completion of all therequested hours of approved continuingeducation courses.

Rodney E. BarsteinInactive Broker; Birmingham, AlabamaDate of Hearing: June 23, 2006Fined $1000 and license suspended for 30 days.

Kevin M. KendallSalesperson; Alexander City, AlabamaDate of Hearing: June 23, 2006Fined $1000 and license suspended for 30 days.

Carol A. LerschAssociate Broker; Mobile, AlabamaDate of Hearing: August 18, 2006Reprimanded

Dorothy M. WaltherInactive Salesperson; Mobile, AlabamaDate of Hearing: August 18, 2006License Revoked

Jeffrey L. StinsonInactive Salesperson; Pawley’s Island, South CarolinaDate of Hearing: September 15, 2006License Revoked

Sara B. BatsonSalesperson; Huntsville, AlabamaDate of Hearing: October 20, 2006Fined $1000 and license suspended for 30 days.

Eunice Y. BakerAssociate Broker; Daleville, AlabamaDate of Hearing: October 20, 2006Reprimanded

Jimmy A. DichiaraQualifying Broker; Gulf Shores, AlabamaDate of Hearing: October 20, 2006Fined $1000 and reprimanded

Kenneth E. HarveSalesperson; Bessemer, AlabamaDate of Hearing: October 20, 2006Fined $250

Anne S. DeakleInactive Salesperson; Mobile, AlabamaDate of Hearing: October 20, 2006Fined $1000 and license suspended for 30 days.

DISCIPLINARY ACTIONS TAKENJune through October 2006

DISCIPLINARY ACTIONS TAKEN

6 WINTER 2007

DISPOSITIONThe below were found guilty for violationof Section 34-27-36(a)(19) for a realestate licensee to violate or disregard aCommission order by failing to pay anordered fine.

Christopher Allen CummingsQualifying Broker; Orange Beach, AlabamaDate of Hearing: June 23, 2006Fined $500

Linda M. BartlettInactive Salesperson; Birmingham, Alabama Date of Hearing: September 15, 2006License is suspended for one year.

Marie KnightTemporary Salesperson; Orange Beach, AlabamaDate of Hearing: September 15, 2006License is suspended for 60 days.

DISPOSITIONThe below was found guilty for violation ofSection 34-27-36(a)(1) by procuring alicense by fraud, misrepresentation, or deceit,or by making a material misstatement of factin an application for license and Section 34-27-32(a)(5) that states the Commission maydeny a license for having been convicted ofor plead guilt to a crime of moral turpitude.

William Clarence Scruggs, Jr.Inactive Temporary Salesperson; Mobile, AlabamaDate of Hearing: June 23, 2006Licensed Revoked

DISPOSITIONThe below was found guilty for violationof Section 34-27-36(a)(19) by failing tocomply with Section 34-27-30(10) to pres-ent to the public a company as being ableto perform an act for which a real estatelicense is required while not actually beinglicensed as a real estate company.

Sonya Bovee-PartridgeQualifying Broker; Enterprise, AlabamaDate of Hearing: August 18, 2006Reprimanded

DISPOSITIONThe below were found guilty for violationof Section 34-27-36(a)(8)a. and Section34-27-36(a)(8)b. for failure to deposit andaccount for at all times all funds beingheld for others by having a shortage fundsin this account.

Clarence P. Evans, Jr. and

Bo Evans Realty and Auction Company LLC DBA Bo Evans RealtyQualifying Broker; Prattville, AlabamaDate of Hearing: August 18, 2006Fined $1,000

Sunset Properties and John BobeQualifying Broker; Gulf Shores, AlabamaDate of Hearing: August 18, 2006

Fined $1,500, license suspendedfor 90 days, suspension stayed pending completion of three hour continuing education course containinginformation on trust or escrowaccounting.

DISPOSITIONThe respondent Martin was found guilty of violating Section 34-27-36(a)(3) by making a material misrepresentation to the buyer concerning the lot that was for sale by his company and respondent Fedder was found guilty ofviolating of Section 34-27-36(a)(2) for failing to see that the actions of Martincomplied with the provisions of the citedCode of Alabama.

Robert J. Fedder, Qualifying Broker and

Donald W. Martin, Salesperson;Daphne, AlabamaDate of Hearing: July 14, 2006

Mr. Fedder fined $500 and Mr. Martin fined $1,000

DISPOSITIONThe below was found guilty for violationof Section 34-27-2(a)(11)b. via Section34-27-36(a)(19) to operate within the citylimits of a municipality without having an office place of business that meets the requirements of the aforementionedsection.

Lorraine S. NicholsQualifying Broker; Gulf Shores, AlabamaDate of Hearing: June 23, 2006Fined $1,000

DISPOSITIONThe below was found guilty of Count #1for violation of Section 34-27-36(a)(19)to fail to comply with Section 34-27-31(j)in the failure of real estate licensee to notify the Commission within 10 daysof the institution of criminal prosecutionagainst him and subsequent arrest; Count#2 for violation of Section 34-27-36(a)(23)a. for having entered a pleaof guilty or nolo contendere to, or having been found guilty of or convictedof a felony or a crime involving moralturpitude.

Richard E. HilleySalesperson; Gulf Shores, Alabama Date of Hearing: June 23, 2006License revoked; appeal pending.

DISPOSITIONThe below were found guilty of Count #1for violation of Section 34-27-36(a)(19)to fail to comply with Rule 790-X-3-.01for moving his place of business and failure to notify the commission within 30 days of the change; Count #2Section 34-27-2(a)(11)b. for failure toestablish a place of business; Count #3Section 34-27-36(a)(8)a. and Section 34-27-36(a)(8)b. for failure to properlyaccount for or remit money coming intohis possession which belongs to others;and Count #4 Section 34-27-36(a)(28) for failure or refuse to produce a record

WINTER 2007 7

(Continued on page 9)

8 WINTER 2007

LICENSING TIDBITSBy Annie Hall, Licensing Supervisor

LICENSING TIDBITS

It’s Not Too LateThe biggest part of the 2006 license

renewal process has come and gone.Hopefully, everyone has received their2007-2008 real estate licenses.Licenses not renewed by October 1,2006 have expired. Real EstateLicense Law allows an expired licenseto be renewed during the 12-monthperiod following the license renewalfor which the license was current. Anexpired license can be renewed bypaying the license renewal fees plus$150.00 penalty fee. These fees must be received in our office or post-marked by the US Postal Service bySeptember 30, 2007. Failure to renewa license by that date will result in alapsed license and shall be subject toall requirements applicable to personswho have never been licensed.Individuals may renew their license

online at www.arec.alabama.gov. Aninactive company cannot be renewedonline. The fees must be mailed to theCommission office.

Please remember that when yourenew your license, that license isrenewed on inactive status. To activatethe license, individuals must first com-plete the required continuing educationcourses. You must then complete anApplication for License Activation andsubmit it with the required activationfee(s). The application can be obtainedfrom our Web site at www.arec.alabama.gov. Once there, click on“Forms and Applications” and down-load the application. For faster serv-ice, you may also activate yourlicense online at the above Web site.From our homepage, click on “OnlineServices” and follow the prompts.Company and qualifying broker

licenses cannot be activated online.Those activations must be mailed tothe Commission office. If the activa-tion forms are mailed by Certified orRegistered mail, you may resumeyour real estate activities. Activationforms are processed in the order inwhich they are received.

Renewal ProblemsWe have some licensees who are

performing activities that require anactive real estate license, but eitherthe company or qualifying broker (orboth) have not met all renewalrequirements, and therefore does nothold an active real estate license. Both the company and qualifying broker must hold an active real estatelicense in order for them or agentsregistered to that company to engagein real estate transactions. Qualifyingbrokers must make sure that theirlicense and their company licensehave met all renewal requirementsand the licenses are active. Failure to do so will result in the company,qualifying broker and all agents registered to that company beingplaced on inactive status.

Online TransfersQualifying brokers are notified by

email immediately after an agent completes an online transfer ofhis/her license from that company followed by written notification. Thelaw requires that licenses be returnedin cases where the qualifying broker has terminated his/her status as thequalifying broker. Otherwise, licensesfor transfers do not have to bereturned to the Commission office asprovided by the recent repeal of Rule790-X-2-.21. ■

REMINDER:Commission’s Fund Receipt Policy

In accordance with the Alabama Real Estate License Law Rule 790-X-1-.01(2), the Commission adopted the following policy that became effectiveNovember 21, 2003:

“It shall be the policy that all fees must be accompanied by the appro-priate corresponding application or form for which the fees are beingsubmitted. The amount of the fees must be exact as set out in the statuteand as reflected on the most recently revised prescribed application orinvoice form. Failure to comply in either case will result in the checkor application/form being returned. The return will contain informationregarding the specific nature of the deficiency and provide 10 businessdays from the date of return for receipt of the transaction to accommo-date any crossed deadline.”

Please be sure to submit appropriate fees, forms and licenses (if applica-ble) for all transactions. Failure to follow the above policy will result in thedelay of processing your requests.

WINTER 2007 9

Connie Rembert joined the Education Division in the posi-tion of Education Assistant. Connie is relatively new to stateservice, having spent her career in the non-profit sector in theBlood Services Unit of the American Red Cross inMontgomery. Connie is a graduate of Auburn University ofMontgomery where she received a Bachelor’s in BusinessAdministration. Connie has one son, Joseph, III.

Jamyla Genous recently joined the staff as the ExecutiveAssistant to the Executive Director, Philip Lasater. Jamylahas six years public service with the state of Alabama and comes to the Real Estate Commission from the Depart-ment of Rehabilitation Services. Additionally, Jamyla hasworked in the Department of Public Health and the AlabamaOffice of the Attorney General. Jamyla is married to MinisterKevin Genous and they are the proud parents of four year old Kevin, II.

Pam Oates has joined the Education Division in the role ofEducation Specialist. Pam holds a Bachelor’s degree inEducation from Troy University and a Master’s degree inEducation from Troy University in Montgomery. Whileassisting in all areas of education, Pam’s primary duties areto audit real estate schools, courses and instructors through-out the state. Pam began her teaching career in Alabama’spublic schools in 1987 and has taught at all grade levels.

Matt Davis, a graduate of Gadsden State Community Collegehas joined the Information Technology Division in the position of computer programmer. Matt holds an associatedegree in Computer Information Systems and an associatedegree in Telecommunications. He has completed additionalcourse work at Jacksonville State University. Matt and his wifeCara just celebrated their first wedding anniversary.

Molli Jones has been appointed staff accountant in theAccounting Division to assist with accounting and businessadministration duties of the Commission. Molli has a total oftwenty-one years of public service starting with the AlabamaDepartment of Education. A graduate of Auburn UniversityMontgomery, Molli holds a bachelor’s degree in businessadministration. Molli who enjoys reading, camping and ismarried to Doug Jones. They are the parents of eleven yearold Adam. ■

New Employees Join Commission StaffWe are pleased to announce and welcome the following people

to the staff of the Alabama Real Estate Commission.

Connie Rembert

Jamyla Genous

Pam Oates

Matt Davis

Molli Jones

in his possession for inspection by thecommission.

Corey Demetruis Springs and Springs RealtyQualifying Broker; Montgomery, AlabamaDate of Hearing: October 20, 2006Fined $500 each for Counts 1 and 2; Licenses revoked onCount 3 and Fined $2,500 onCount 4.

DISPOSITIONThe below were found guilty for viola-tion of Rule 790-X-3-.01 via Section 34-27-36(a)(19) for a real estate licensee tochange their place of business as set outon their numbered license certificate, andto fail to notify the commission in writ-ing within 30 days after the change.

Peter B. JonesQualifying Broker; Dauphin Island, Alabama Date of Hearing: September 15, 2006Reprimanded

Wayne SturgisQualifying Broker; Marietta, GeorgiaDate of Hearing: September 15, 2006Fined $250

William T. McLemoreQualifying Broker; Lebanon, TennesseeDate of Hearing: September 15, 2006Fined $250

OTHER ADMINISTRATIVE ACTIONSDetermination for LicensureApproved . . . . . . . . . . . . . . . . . . . . . . 21Denied . . . . . . . . . . . . . . . . . . . . . . . . . 6

Determination of EligibilityApproved . . . . . . . . . . . . . . . . . . . . . . 11Denied . . . . . . . . . . . . . . . . . . . . . . . . . 6

COMPLAINTS AND INQUIRIES HANDLED BY LEGAL AND INVESTIGATIVE STAFFFrom Licensees . . . . . . . . . . . . . . .2342From Public . . . . . . . . . . . . . . . . . . 1237Anonymous . . . . . . . . . . . . . . . . . . . 13

Disciplinary Actions...Continued from page 7

10 WINTER 2007

NOTE: This headliner is current throughthe publication date. Since changes mayhave occurred after the publication datethat would affect the accuracy of this doc-ument, no guarantees are made concern-ing the technical accuracy after the publi-cation date.

Headliner Volume 162, May 11, 2006

U.S.real estate licensees andrental agents/propertymanagers are encounter-

ing an increasing number of situationsthat involve foreign persons, defined aspersons other than U.S. persons, acquir-ing U.S. real property. The tax rules gov-erning disposition of any U.S. real proper-ty interest by foreign persons vary inmany ways from those that apply to U.S.persons. Understanding the tax laws iscritical for real estate professionals toavoid personal liability for improper U.S.federal income tax compliance.

The disposition of a U.S. real propertyinterest by a foreign person (transferor) issubject to the Foreign Investment in RealProperty Tax Act of 1980 (FIRPTA)income tax withholding. FIRPTA author-ized the United States for the first time totax foreign persons on disposition of U.S.Real Property Interests (USRPI).

A USRPI includes any sale of an interestin parcels of real property, as well as saleof any shares in certain U.S. corporationsthat are considered U.S. real property hold-ing corporations. Any purchaser (transfer-ee) of a USRPI from a transferor mustwithhold ten percent (10%) of the amountrealized and remit such amount to the IRSwithin 20 days of the date of transfer, usingForm 8288, and Form 8288-A.

The transferee of the property mustdetermine if the transferor is a foreign per-son. If the transferor is a foreign personand withholding does not take place inaccordance with the law, the transferee andthe agent may be held liable for the tax.

There are exemptions to the withholdingrequirements of Internal Revenue Codesection 1445. One of the most commonexemptions to FIRPTA withholding is thatthe transferee does not have to withhold ina situation where the real property is pur-chased for use as a residence and the pur-chase price is not more than $300,000. Alisting of the exemptions from FIRPTAwithholding is in IRS Publication 515,Withholding of Tax on Nonresident Aliensand Foreign Entities, and at IRS.gov, using“FIRPTA” as a key search word.

In certain situations, such as when thetax due on the transferor’s gain from thesale is less than the withholding, the for-eign transferor (or the transferee) canrequest from the IRS a reduction or elimi-nation of withholding. The FIRPTAWithholding section on IRS.gov has moreinformation about reducing the withhold-ing rate.

Withholding on Rental IncomePaid to a Foreign Person

If a foreign person owns U.S. rentalproperty and receives rental/investmentincome not connected with a U.S. busi-ness, the renter must withhold a flat rate of30% (without deductions) of the rents,unless a tax treaty provides a lower rate oran exemption. Here are some basic rulesregarding withholding on rent:• IRC section 1441 provides for the with-

holding of tax paid by a withholdingagent to a nonresident alien on variousitems of income, including rentalincome. The person paying rent, as wellas the real property manager who col-lects rent on behalf of a foreign owner,are considered withholding agents.

• The person making payment of U.S.source rents to a foreign person mustwithhold 30% unless the foreign personclaims reduced withholding based on atax treaty (W-8BEN) or makes an irrev-ocable election with the IRS to treat the

income as effectively connected to aU.S. trade or business (W-8EIC).

• Withholding agents must use Form 1042and 1042S to report the tax withheld.

• The requirement to withhold 30%extends to the manager of the rentalproperty if the tenant has not met the30% withholding. Property managerswho do not comply with these rules willbe held liable for 30% of gross rent, pluspenalties and interest.

Withholding Required on Certain U.S. Real PropertyTransactions Involving ForeignPersons, IRS WarnsFS-2005-16, September 2005

The IRS today reminds all real estateand tax professionals of the withholdingtax and the filing obligations with respectto two transactions in which a foreign per-son disposes of a U.S. real property inter-est. The transactions involve the disposi-tion by a foreign person of an option orcontract to acquire a U.S. real propertyinterest, and the disposition by a foreigncorporation of a U.S. real property interestby way of a transfer to a shareholder.

Disposition of an Option or Contract to Acquire a United StatesReal Property Interest

Under U.S. tax law, a foreign person thatsells or exchanges a U.S. real propertyinterest must report the gain on a U.S. taxreturn, and the buyer of the U.S. real prop-erty interest must withhold and pay to theIRS 10 percent of the gross amount paid tothe foreign person. A U.S. real propertyinterest includes options or contracts toacquire land or land improvements andleaseholds of land or land improvements.The disposition of such an option or con-tract by a foreign seller is reportable on theforeign seller’s U.S. tax return and is sub-ject to a 10 percent withholding tax

Tax Rules for Foreign Investors in U.S. Real PropertyBy Nora S. Gunn, Senior Stakeholder Liaison, Internal Revenue Service

WINTER 2007 11

payable by the buyer to the IRS. UnderU.S. tax law, the buyer must determine ifthe seller is a foreign person. If the seller isa foreign person and the buyer fails towithhold, the buyer can be held liable forthe withholding tax.

The IRS has become aware of instancesin which foreign persons have acquiredoptions or entered into contracts to pur-chase U.S. real property interests and soldthe options or assigned the contracts beforesuch instruments are exercised or executedand title to the underlying property istaken. Buyers of the options or contractsare failing to withhold and remit to the IRSthe required 10 percent from the proceedsof the sale.

Transfer to a Shareholder The IRS is also aware of potentially abu-

sive transactions where a foreign corpora-tion arranges a sale of its U.S. real propertyinterest to a buyer and then transfers itsU.S. real property interest to its foreignindividual shareholder. The corporationoften uses a quitclaim deed for the transfer,which conveys to the shareholder only thecorporation’s interest in the property anddoes not warrant good title, but other deedtransfers may present similar issues. Theforeign shareholder then sells the U.S. realproperty interest to the buyer. The foreignshareholder takes the position that, becausehe or she, rather than the corporation, isselling the property, some or all of the gaininherent in the foreign corporation’s U.S.real property interest is subject to a maxi-mum capital gains rate of 15 percent. Thatis, the foreign shareholder claims that thetransfer of the U.S. real property interest bythe foreign corporation to the shareholderdoes not result in a corporate level tax. Ifthe foreign corporation had directly sold theU.S. real property interest, it could be sub-ject to tax at a rate as high as 35 percent.

The shareholder’s position is incorrect.Generally, the foreign corporation (and notthe foreign individual shareholder) is taxedon all of the gain inherent in the U.S. realproperty interest. The transaction is treatedas a taxable sale of the U.S. real propertyinterest by the corporation, either becausethe corporation is making a distribution tothe foreign shareholder of the U.S. realproperty interest (which would constitute adeemed sale of such interest at the corpo-

rate level) or because the corporation isviewed as selling the entire U.S. real prop-erty interest directly to the buyer. In caseswhere the foreign corporation is treated asmaking a distribution of the U.S. real prop-erty interest, the foreign corporation is alsosubject to a withholding tax of 35 percenton the gain in the property, unless it quali-fies for reduced withholding.

Taxpayers may find the following publi-cation, forms, IRS guidance and regula-tions helpful:

• Publication 515

• Form 8288

• Form 8288-A

• Form 8288-B

• Form W-7

• Form SS-4

• Form 1099-S

• Form 1120F

• Rev. Proc. 2000-35

• IRC Section 1445(a) and (e)

• Treasury Regulation Section 1.1445-1(b)(3)

Exceptions from FIRPTA Withholding You do not have to withhold or file if any ofthe following apply. 1. You (the transferee) acquire the property

for use as a home and the amount real-ized (sales price) is not more than$300,000. You or a member of your fam-ily must have definite plans to reside atthe property for at least 50% of the num-ber of days the property is used by anyperson during each of the first two 12-month periods following the date oftransfer. When counting the number ofdays the property is used, do not countthe days the property will be vacant.

2. The property disposed of (other than cer-tain dispositions of nonpublicly tradedinterests) is an interest in a domestic cor-poration if any class of stock of the cor-poration is regularly traded on an estab-lished securities market. However, if theclass of stock had been held by a foreignperson who beneficially owned morethan 5% of the fair market value of thatclass at any time during the previous 5-year period, then that interest is a U.S.real property interest if the corporationqualifies as a United States RealProperty Holding Corporation (USR-PHC), and you must withhold on it.

3. The disposition is of an interest in adomestic corporation and that corpora-tion furnishes you a certification stating,under penalties of perjury, that the inter-est is not a U.S. real property interest.

Generally, the corporation can makethis certification only if the corporationwas not a USRPHC during the previ-ous 5 years (or, if shorter, the periodthe interest was held by its presentowner), or as of the date of disposition,the interest in the corporation is not aU.S. real property interest by reason ofsection 897(c)(1)(B) of the InternalRevenue Code. The certification mustbe dated not more than 30 days beforethe date of transfer.

4. The transferor gives you a certificationstating, under penalties of perjury, thatthe transferor is not a foreign personand containing the transferor’s name,U.S. taxpayer identification number,and home address (or office address, inthe case of an entity).

5. You receive a withholding certificatefrom the Internal Revenue Service that excuses withholding. Refer toWithholding Certificates.

6. The transferor gives you written noticethat no recognition of any gain or losson the transfer is required because of anonrecognition provision in theInternal Revenue Code or a provisionin a U.S. tax treaty. You must file acopy of the notice by the 20th day afterthe date of transfer with the InternalRevenue Service Center, P.O. Box21086, Drop Point N-423 FIRPTAUnit, Philadelphia, PA 19114-0586. In2007, you must file a copy of the noticeby the 20th day after the date of trans-fer with the Internal Revenue ServiceCenter, P.O. Box 409101, Ogden, UT84409.

7. The amount the transferor realizes onthe transfer of a U.S. real propertyinterest is zero.

8. The property is acquired by the UnitedStates, a U.S. state or possession, apolitical subdivision thereof, or theDistrict of Columbia.

9. The grantor realizes an amount on thegrant or lapse of an option to acquire aU.S. real property interest. However,

(Continued on back page)

Presort StandardU.S. Postage

PAIDMontgomery, AL

Permit 2861201 Carmichael Way

Montgomery, Alabama 36106

Our MissionTo protect the public through the

licensing and regulating of Real Estate licensees.(Code 34-27-

Article 1, General Provisions)

CommissionersBill E. Poole

Chairman, HuntsvilleRoy F. Bragg, BirminghamJewel Buford, Tuscaloosa

Gordon Henderson, AlbertvilleRobert S. Hewes, Dothan

Sheila S. Hodges, Gulf ShoresChester Mallory, MontgomeryJanet R. Morris, Montgomery

Dorothy P. Riggins, Montgomery

D. Philip Lasater, Executive Director

Pat Anderson, Asst. Executive Director

Vernita Oliver-Lane, Editor

The Alabama Real Estate Commission UPDATE

is published for the benefit of the Alabama Real Estate Industry

by the Alabama Real Estate Commission.

Phone: 334.242.5544Fax: 334.270.9118

www.arec.alabama.govarec@arec.alabama.gov

Commission Meetings Open to the Public

All Commission meetings are open to thepublic and that includes real estate

licensees. Commissioners welcome andencourage attendance and observation

by any licensee in any location.Locations, dates and times can be found

on the Commission’s Web site atwww.arec.alabama.gov

License Renewal DatesReal Estate licenses expire

September 30, 2008. Remember torenew all broker, salesperson and

company licenses in every even year.

you must withhold on the sale,exchange, or exercise of that option.

10. The disposition (other than certain dis-positions of nonpublicly traded inter-ests) is of publicly traded partnershipsor trusts. However, if an interest in apublicly traded partnership or trust wasowned by a foreign person with agreater than 5% interest at any time dur-ing the previous 5-year period, then thatinterest is a U.S. real property interest ifthe partnership or trust would otherwisequalify as a USRPHC if it were a corpo-ration, and you must withhold on it.

Certifications The certifications in items (3) and (4) are

not effective if you have actual knowledge,or receive a notice from an agent, that theyare false. If you are required by regulationsto furnish a copy of the certification to theIRS and you fail to do so in the time andmanner prescribed, the certifications are noteffective.

Liability of agents If you receive either of the certifications

discussed in item (3) or (4) and the transfer-or’s agent or your agent (the transferee’sagent) has actual knowledge that the certifi-cation is false, or in the case of (3), that thecorporation is a foreign corporation, the

agent must notify you, or the agent will beheld liable for the tax. The agent’s liabilityis limited to the amount of pay the agentgets from the transaction.

An agent is any person who representsthe transferor or transferee in any negotia-tion with another person (or another per-son’s agent) relating to the transaction, or insettling the transaction. A person is nottreated as an agent if the person only per-forms one or more of the following actsrelated to the transaction:• Receipt and disbursement of any part of

the consideration, • Recording of any document, • Typing, copying, and other clerical tasks, • Obtaining title Insurance reports and

reports concerning the condition of theproperty, or

• Transmitting documents between the par-ties. A Withholding Agent is personally liable

for the full amount of FIRPTA withholdingrequired to be withheld, plus penalties andinterest. A Withholding Agent is any personhaving the control, receipt, custody, dispos-al or payment of income that is subject towithholding. Generally, the person whopays an amount to the foreign person sub-ject to withholding, must do FIRPTA with-holding.

For additional information about TaxRules for Foreign Investors, please contactthe Internal Revenue Service. ■

Tax Rules for Foreign Investors...Continued from page 11