NY High Court: Attorney may Disapprove Real Estate Contracts for Any Reason
New York’s Court of Appeals, the highest appellate court in the state, recently issued a decision that is incredibly simple on the surface but requires a bit of background to be appreciated by non-lawyers.
The case is Moran v. Erk, November 25, 2008. It was brought to my attention by ABAJournal.com which relied on a Newsday report.
The ruling was that a lawyer may disapprove a contract for the purchase of real estate for any reason because attorney-client confidentiality would be destroyed if the attorney had to testify about the reason for disapproval. The decision is logical and simple. But there are broader issues involved. First, why is an attorney approving or disapproving a contract?
You need to be aware that “customs and practices” that govern real estate transactions vary not only by state but within the states. Both in New York and Connecticut there are variations within the states. Our firm is most familiar with procedures in downstate New York and Fairfield County, Connecticut - - and there are significant differences.
The Moran case was from upstate New York. There, it is apparently common for contracts to be signed without the advice of an attorney. But, the contracts commonly include an “attorney contingency” clause giving the buyer three days to review the contract with an attorney and, within that time, giving the attorney the option to disapprove of the contract. In this case, the attorney disapproved for the simple reason that the clients changed their minds. The property that was to be sold to the defendants for $505,000 was ultimately resold for $385,000.
The broader issue in both states, regardless of area or county, is whether brokers should be permitted to supervise the execution of contracts for the purchase of real estate before the parties have had the opportunity to consult their respective attorneys. I understand that in some areas/counties it is now common practice to do so - - areas where we don’t practice and so can not comment specifically. Where we practice, the custom is to negotiate the final contract with the assistance of an attorney- - before it is signed.
There are good arguments on both sides on the issue of whether brokers should or should not be permitted to supervise the execution of contracts. And, the attorneys lobbies and the brokers lobbies are articulate in making their case for either practice. To review all the arguments here would extend this blog post to infinity.
Note, however, that area custom can create a necessity. It is a very bad idea in areas, like downstate New York and Fairfield County, Connecticut, where the common expectation is that you will have the assistance of an attorney, to try to do without one.
