By Thomas R. Miller, Legal Counsel

John was feeling pretty good about himself. He had a signed contract in his pocket; the ink on the seller's signature was barely dry. In all his years as a real estate broker at the beach, he had seldom sold one of his listings so quickly or so easily.

The property was a nice oceanfront duplex. When it was built in 1995 the structure was originally a single-family house on pilings. Two years after it was finished, however, the owners enclosed the area underneath into another, entirely separate dwelling unit containing two bedrooms, a living room, kitchen and bath. Although the owners had done the work themselves, it looked really good and the income from summer rentals for the two units combined would make a significant contribution toward the buyer's mortgage payments. The property had practically sold itself.

Little does John know that his self-congratulations are premature. The deal he thought was so easy is, in fact, a potential disaster.

First, the property is in a single-family home zone under the local zoning ordinance. Under the ordinance, it was unlawful for the owners to add the second unit and operate the property as a duplex. John had ignored the clear "red flags" warning of the problem. He should have noticed that this was the only duplex in the area and that all of the nearby houses were single-family dwellings. He should have been concerned when he learned that the owners had built the downstairs unit themselves.

Second, because the property is right on the ocean, it is located in the "V Zone" or highest risk area on the flood map promulgated by the Federal Emergency Management Administration or FEMA. Under FEMA's rules and the local flood plain ordinance, it is usually impermissible to enclose the ground-level space under buildings in the highest risk zone unless the enclosure is for storage, parking, or access only. Space enclosed in violation of applicable flood hazard laws is uninsurable. John did not consult the FEMA map. Again, John should have been worried about the potential flood hazard when he learned that his seller-clients had enclosed living space in the area below their oceanfront property.

Third, because the house is located only 30 feet behind the vegetation along the beach, it does not conform with the current ocean setback requirements established under the North Carolina Coastal Area Management Act. This setback line is at least 60 feet behind the first line of stable, natural vegetation in all ocean front areas and in some areas along the North Carolina coast, the minimum setback may be even greater. When John's seller-clients enclosed the lower unit, they neglected to apply for and obtain the required CAMA permit. John paid no attention to the proximity of the house to the vegetation line when he listed it.

Because John failed to heed the clear warning signals, he disclosed no problems to the buyers. His sellers checked only the "no representation" boxes on the Residential Property Disclosure Form.

If John's unsuspecting buyers close the deal without discovering the substantial code violations affecting the property, they may face some very unpleasant and expensive surprises. State and local enforcement officials could require them to pay fines and bring the property into compliance by eliminating the lower level living space. Not only would this be costly in terms of labor and materials, the buyers would lose the rental income from the unit as well.

Even if the violations slipped the attention of enforcement officials, the buyers would not be able to col- lect on insurance or obtain permits to restore the lower unit if it were significantly damaged by a storm, fire, or other calamity. When these problems finally surface, the buyers will surely blame John for failing to disclose them.

What should John have done differently? As a real estate professional active in a coastal community, John should have been more aware of the serious risks that erosion, flooding, and storms pose for nearly all man-made structures on the beach. And while the Real Estate Commission does not expect all real estate agents to become master builders or environmental experts, the Commission does expect its licensees to be generally familiar with the regulatory requirements which govern the homes and other properties they sell in their market areas.

John should have noticed that the subject property was the only duplex in a neighborhood of single-family houses. When his seller-clients informed him that they had added the second unit themselves, he should have thought to inquire about building and zoning code compliance. After years of selling homes at the beach, John should have been aware of the strict building setback rules imposed under CAMA and he should have known that houses separated from the sandy beach by little or no vegetation may have problems.

Had John paid attention to these warning signals, he could have easily discovered the zoning, flood hazard, and CAMA violations simply by contacting the local government inspections office with jurisdiction over the property. Not only does that office issue building permits and enforce the local zoning ordinance, it also acts as the permitting authority for the state under CAMA.

With the information he obtained from the building inspector, John could have discharged his duty under the Real Estate License Law by counseling his seller-clients about the violations and disclosing the problems to the buyers. Unfortunately, John failed to anticipate the problems. He did not call the building inspector and now the buyers and sellers are headed for trouble - trouble that could involve the courts, the Real Estate Commission, and maybe John's real estate license.

Licensees working at the beach should be especially sensitive to potential zoning, flood hazard, insurance, and CAMA setback issues. Whenever the property in question is in close proximity to the shoreline or includes ground level living space, it is reasonable to be concerned about possible ordinance violations, insurance coverage, and the ability to repair or rebuild the property if it should suffer significant damage.

Agents dealing with such properties would always be wise to consult with local building inspections officials when listing or selling such properties. Agents working with coastal real estate should be familiar with the Commission's publication, Questions and Answers on: Purchasing Coastal Real Estate in North Carolina and should distribute copies to their buyer and seller clients. This brochure may be ordered using the publications order form on page 5 of the Bulletin.