The Town Broker

Buying or Selling A NJ Home? The Basics of Attorney Review (Part 2)

As a practicing broker, I find that one of the most misunderstood aspects of the real estate transaction is what’s know as the ”attorney review clause”. Is it a requirement to have an attorney review the sales contract? What’s all this about the attorney review lasting for 3-days?

In Part 1 of this series, I reviewed WHY we have an Attorney Review process in New Jersey. Today I want to briefly explain how it works.

Attorney Review Is Like Opening and Closing a Window.

I once heard the attorney review clause described this way, and the analogy made sense to me. When a buyer and seller enter into a properly executed contract, it becomes legally binding upon all the parties. It’s like closing and locking a window. But an attorney is allowed to unlock the window for you. S/he does this by canceling the contract as written, and proposing changes. Once this is done, the window is open again…and the contract is no longer binding.

All kinds of things can happen if you leave your window open all week…so it’s generally not a good idea to do that. The same holds true with the attorney review period.

Once the contract has been cancelled under the attorney review clause, it’s really cancelled!  Either party can change their mind and walk away, and they don’t need to give a reason. But in most instances, the buyer and seller want the deal to happen, so their lawyers make whatever changes they see fit, and then everyone agrees to make the contract binding again. The process of re-closing and locking the window is known as closing attorney review.

Attorney Review Does NOT Last 3 Days!

This is the most common misconception that I come across. Remember…the attorney review clause exists so that you have enough time to get a proper legal review of an agent-prepared contract. You are given 3 business days to retain an attorney and make any changes…or the contract stands as written. (Yes…this also applies if you’re buying a short sale and need to wait for bank approval. Get the review done within 3 days…or trust me, you’ll have problems!!) But once the attorney “unlocks the window”, it stays “unlocked” until all the parties agree to close it. I’ve seen attorney review periods that have lasted hours, and others that have lasted weeks. In some rare instances, the deal goes all the way to closing without EVER formally ending the review period! Which brings me to my last point…

Use A Real Estate Attorney!

Please understand…retaining legal counsel is optional in New Jersey. But if you do decide to get counsel, PLEASE use an attorney who specializes in real estate law!! I KNOW that everyone has a cousin or neighbor who is a lawyer that will handle the closing on the cheap. But they usually mess things up (IMHO). Would you go to a dermatologist for cardiac surgery? How about letting the anesthesiologist handle the plastic surgery? Probably not, right?

Real estate law is a specialty. Fail to recognize this fact at your own peril. Feel free to contact me if you want the names of some excellent local real estate attorneys!

Tags: attrorney review, real estate transaction, sales contract

Buying or Selling A NJ Home? The Basics of Attorney Review (Part 1)

As a practicing broker, I find that one of the most misunderstood aspects of the real estate transaction is what’s know as the ”attorney review clause”. Is it a requirement to have an attorney review the sales contract? What’s all this about the attorney review lasting for 3-days?

In this 2-part series, I’ll briefly review the basics of NJ’s attorney review process – why it exists, and how it works.

Selling A Home And The Unauthorized Practice Of Law

Historically, preparing contracts has been considered the practice of law, and has been the responsibility of attorneys. When real estate brokers and their agents began preparing real estate contracts for their clients, the NJ Bar Association cried foul. After many years of litigation, the Bar Association and the NJ Association of Realtors reached a settlement.

The settlement allowed brokers and their agents to fill in the blanks on an approved, standard contract for the following types of transactions:

• Contracts for the sale of 1 to 4 – family homes,
• Contracts for the sale of vacant, 1-family lots,
• Lease contracts for residential dwelling for terms of 1 year or more.

(Brokers and their agents can represent clients in other types of transactions…multi-parcel lots, apartment buildings, commercial property, etc., but they cannot prepare the contract of sale.)

One of the purposes of the attorney review clause is to allow agents to expedite the preparation and signing of the contract and avoid any delays which might occur if an attorney was not available. Consumers would be given an opportunity to retain an attorney “after the fact”.  The brokerage community in the state was generally happy with this compromise.

In 1995 however, the NJ Supreme Court rendered a decision which held that several of the services being performed by brokers and their agents DID constitute the unauthorized practice of law. In their ruling they stated that consumers would be well served to retain an attorney and obtain proper legal advice. But they also ruled that it was it was in the consumers interest to have the right to decide whether or not to retain an attorney.

The outcome of this decision is that all contracts prepared by a broker or agent MUST include a notice to buyers and sellers. This document commonly referred to as the “Opinion 26 Notice” (named after the court case which addressed the unauthorized practice of law by brokers/agents), MUST be signed BEFORE signing the contract of sale. It explains the following:

• Who the broker is representing in the transaction,
• The fact that only an attorney can provide legal counsel. No legal advice will be provided by brokers, their agents or representatives of title companies,
• The importance of the contract in the transaction, the important services that can ONLY be provided by an attorney, and the risks associated with buying or selling a home without legal representation,

The Opinion 26 Notice also states that there will be a 3-day “cooling off period” in which buyers and sellers have the right to hire an attorney to review and edit the agent-prepared contract. The contract becomes binding as written if no changes are made during this time.

Interestingly, there is still a geographic divide in New Jersey, with most transactions involving attorneys in the northern part of the state, and far fewer in the southern part.

So that answers the question “why is there an attorney review clause”. In Part-2 of this series, I’ll get into the “nitty-gritty” of how the attorney review process actually works.

Tags: attorney review, real estate transaction, sales contract