A majority of residential transactions start with the buyer and seller signing a form contract prepared by a real estate brokerage. Some brokerages use their own approved form, and some employ a New Jersey Board of Realtors-approved form. Understand that any contract prepared by a realtor concerning residential property containing up to four family dwelling units, or a vacant one-family lot, must contain an attorney review clause. The clause requires that both the buying and selling parties have three business days in which to cancel the written agreement or serve a disapproval letter containing requests for revisions. This clause is mandated by State regulation. (N.J.A.C. 11:5-6.2)
The Back Story
What is the back story over the attorney review clause? In 1981, the New Jersey Bar Association sued the New Jersey Board of Realtors asserting that brokers were engaging in the unlawful practice of law by preparing real estate contracts. The matter was settled in the midst of a trial and the settlement terms later approved by the New Jersey Supreme Court, followed by the institution of the noted regulation. The Bar’s position was to the point: residential home purchases are complicated transactions, which should not become binding upon the parties without encouraging them to first discuss the terms of the contract with an attorney. (Note: each party to the transaction must seek representation from different attorneys. Joint representation is unethical as it represents a conflict of interest.)
Should you speak to an attorney before you sign a contract? Yes, provided the contract was prepared by an attorney or layperson using an internet-found form, rather than a realtor. Although many attorney-drafted real estate contracts contain review clauses, they are not legally required to do so, so take care in what you sign. You may also wish to contact an attorney before signing as a matter of due diligence should the property present challenging issues.
Beginning the Attorney Review
When does the attorney review period begin? It begins the first business day following the delivery of the fully signed contract to both the buyer and seller. This period of time does not include weekends or holidays. If a letter disapproving or terminating the contract is not served on the other party and realtor by the close of the third day, then the contract in its original form becomes binding.
How are termination or disapproval letters (a/k/a “attorney review letters”) to be served? The regulation requires that the letters be served by certified mail, by telegram, or by delivering it personally. (Yes, by telegram! Please note, Western Union no longer provides this service.) Although many attorneys follow the letter of the regulation by sending letters via certified mail, it has become a common practice to send letters by facsimile and/or email, and sometimes even by regular mail.
Is this practice permitted? One Appellate Court panel ruled in early 2014 that providing service by fax and/or email was acceptable under the circumstances of that dispute, because the purpose of the regulation had been fulfilled – the protection of the real estate consumer. The Court’s primary concerns were that the parties signed contracts bearing the attorney review clause, and whether the other party and realtor received “actual notice” of termination. This appellate panel also suggested that it was time to revisit the attorney review regulation and revise the notice provisions to better serve contemporary society, where the means of communication, both business and personal, have changed dramatically since the 1980’s. For more on this decision, see, Conley v. Guerrero, 2014 N.J. Super. Unpub. LEXIS 709 (Ch. Div., Somerset County).
In the end, consumers must be aware of their rights and contract deadlines, especially in real estate transactions. So, take the time to consider whom you will chose as your attorney before you sign the contract – and call them to ensure he or she will be available to review the contract in the review period.
We understand that your home is unique, and our years of experience give us the tools to make sure your purchase or sale transaction goes smoothly. Please consider retaining Kilcommons Law to represent you in the sale or purchase of your home.
BE ADVISED that these comments are not legal opinions and are not to be relied upon as legal advice. If you need legal advice, please contact us to discuss the specifics of your transaction.
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©KilcommonsLaw, P.C. 2014