Attorney Review Helps Buyers & Sellers

I am proud to have been part of the court process that helps make sure buyers and sellers of homes in New Jersey have the opportunity to have New Jersey lawyers help them in the process of their buying and selling homes. Here is the story of how that happened and my role in the process.

A decision of the New Jersey Supreme Court in 1983 allowed real estate brokers to violate the prohibition against practicing law without an appropriate law license, by allowing brokers to write contracts under defined circumstances.

A broker, prior to 1970, had been charged with, and convicted of a crime by writing a contract that his customer and a buyer signed. The practice of law in New Jersey is controlled by the New Jersey Supreme Court. Only with court approval is one allowed to perform any service the Court considers to be the practice of law.

The brokers, and their salespeople, wanted signed documents immediately after a price for a property sale was agreed to. There was, and perhaps still is, a psychological feeling that an agreement has been reached when buyer and seller say they have a deal and that must be reduced to writing immediately. But when a broker is involved there is no contract to buy or sell a residence until attorney review has been completed, or three business days have passed. How did that come about?

The idea behind allowing brokers to draw up contracts was to address the problem of brokers who were experiencing delays in getting agreements signed in special circumstances. For example, a buyer might have to fly home some distance away after selecting a house on the weekend.

The real estate brokers trade association, the Realtors, sought approval of an exception allowing licensed brokers and salespeople to write contracts in relation to sales they brought about with people buying residences to live in. The Court at the time suggested the Bar Association and the Realtors get together and work out a proposal for the Court to consider. The two groups spent about 18 years kicking the issue back and forth, and down the road, into the future. They had been in the court system for more than 13 of those years. When concluded, it was the oldest case pending.

Finally the Court scheduled a hearing to be held before Justice Sullivan a retired Supreme Court Justice. The directive was to come up with a proposal the Court could consider that might satisfy both sides, the lawyers and the brokers, and would protect the public.

I was one of the youngest lawyers, by about 20 years, on the board of the real property section of the state bar association. I had given lectures for the Institute for Continuing Legal Education, a joint venture of Rutgers and Seaton Hall law schools and the State Bar Association, on the subject of representing clients buying and selling real estate. A senior real estate lawyer from Newark and I were asked to prepare a trial lawyer who was to represent the bar association in the hearings. We were also asked to testify as expert witnesses as part of the hearing.

During breaks in the proceeding, I read a computer handbook about how to calculate “wrap around” mortgage rates. At one break, after the other bar witness testified, Justice Sullivan asked me what I had been reading in a prior break. It turns out he had an issue to deal with on the exact subject. He invited me into his chamber to discuss the formula while the lawyers in the case discussed, at the other end of his chambers, testimony just heard to see if it had helped get closer to settlement. There were four lawyers, two for each side.

They said they were close. They were considering allowing brokers to fill in the blanks of what was known as the Princeton Form, a form that was being use by the Mercer County Bar Association lawyers. The Court had recently allowed CPAs to fill in estate tax returns, which had previously been thought to be the practice of law. The four lawyers felt they were being consistent with that decision.

The Justice asked me what I thought. I told him, and the group, that I was familiar with the Princeton Form. I thought it was too long, too complicated, and likely not to be understood by the average person I represented. I knew, respected, and thought the lawyer for the brokers could come up with a much better form. I suggested that be the result of what we had been hearing in prior testimony and what I would be saying in my testimony. I added the public would be better protected if after the agreement was signed there was a “time out” during which lawyers for both buyer and seller could adjust the agreement from the customized view of their clients.

The Justice sent the five of us lawyers to have lunch together and to work it out. We did. You now have the attorney review process with New Jersey lawyers remaining part of the residential real estate process and practice.

The rules of attorney review must be followed carefully and technically. There have been many cases confirming what courts thought we intended, or what the Court intended. The contract written by a real estate broker must contain very specific and detailed language required by the court. If the agreement doesn't, the broker who wrote the agreement has committed an illegal act and may not be able to collect his commission.

The Supreme Court decision provides that fully signed agreements must be delivered to the parties. When the last delivery is made, a three business-day review period starts. During that time, any New Jersey lawyer can serve notice on the broker, and the party the lawyer does not represent, cancelling the agreement. The lawyer need not express a reason. The notice had to be served on the broker by certified mail, or hand delivery, or be in the form of a telegram. That provision has since been brought up to date by new case law to allow fax and email delivery.

There are just two choices and only two: the agreement can be accepted as written, or it can be cancelled. If cancelled, the parties are free to make modifications in the original agreement and thus produce a new agreement. Or, they are free to walk away from the transaction.

Time for review can be extended beyond the three days by oral or written agreement between lawyers. The extended time is usually used for investigation or negotiation.

The risk in accepting the agreement as written is that the party may be bound to terms that are not satisfactory. Thus, there is a tendency to seek changes to improve the agreement. But there is a further risk because during that time the other party is also free to change his mind. The seller can sell to another party, or the buyer can buy a different house, before a new agreement has been produced and signed.

In my experience it is highly unlikely that a contract will not be cancelled and adjusted. I think I have seen three since 1983 that were not cancelled and only about three times have people walked away from their deal after changes have been proposed. Usually, it happens not because lawyers cancelled the agreement, but because a buyer or seller have had what we call “Buyer or Seller Remorse” and want out of the deal.