Downstate NY not ready for fill-in-the-blank agreements.

Upstate real estate brokers, as well as brokers in parts of New Jersey and Connecticut, have for a long time had much greater involvement in the preparation of real estate agreements. Brokers in the metropolitan area and surrounding counties have generally had minimal involvement in these contracts and have been subject to greater scrutiny by local bar associations.

For example, last year the Westchester Bar Association went to court to stop Coldwell Banker from providing contracts of sale for clients.

In a 1978 state appellate division decision, and in a 1996 formal opinion of the New York State Attorney General, it was made clear that brokers are generally permitted to prepare purchase and sale contracts for buyers and sellers, as long as the broker does not offer legal advice to the parties and the document expressly states that it is subject to review by the parties' lawyers.

In the oft-cited 1978 Duncan & Hill Realty case, the Secretary of State suspended a real estate broker's license because the fill-in-the-blank contract did not contain a clause alerting the buyer to see his attorney before signing it. The sanction of suspension was upheld, even though the damage to the buyer who complained was only $200.

The 1996 Attorney General's opinion made the obvious point that the broker, like an attorney, is not a neutral party, but rather represents either the buyer or the seller. This interest will have obvious impact on the broker's conduct. Since the purchase of a home is most likely to be the most important legal transaction that the average person undertakes, it ought to be done with fairness to all parties' interests. The Attorney General proposed two ways to promote this interest. First, a brokers' or realtors' association may itself prepare a simple fill-in-the-blanks contract, provided that the contract is conditioned upon approval of each party's attorney.

Alternatively, brokers can use a fill-in-the-blanks form that has been approved by a bar association in conjunction with the realtors' association, which would require only that the broker fill in the names of the parties, the date and location of the closing, a description of the property, the sale price and other relevant facts. In this latter case, although the contract must clearly recommend that the parties seek advice from a lawyer prior to signing, it can also indicate that it is a legally binding document.

However, even with these fill-in-the-blank contracts, the broker must be careful not to give legal advice. Reported cases reveal that one area where brokers have run afoul of this warning is in mortgage contingency clauses, since a surprising number of buyers will not understand the difficulty of obtaining a mortgage, or that they may suffer the loss of a contract deposit if they fail to get one.

Paul Prinzivalli, vice president and chief underwriting counsel of Stewart Title Insurance Company in New York State, reports that brokers in Westchester County have given up trying to emulate their upstate colleagues in submitting fill-in-the-blank contracts to purchasers and sellers. He noted flint despite practices in downstate New York counties, lawyers in 37 states have largely been eliminated from simple residential sales contracts in cases where there is a broker, a lender and a title company involved. Since the lender and title company have an obvious institutional interest in insuring that the transfer of property interests are secure and certain, it is assumed that the parties to the transactions will also be protected.

Although the elimination of the lawyer may be seen as a cost-effective measure in those areas in which title is closed through the good offices of lenders and title companies, the legal fees for some residential closings may actually be less than title company fees. It is interesting that in upstate counties, where the attorney is not involved in the initial preparation of the contract of sale, the title companies may have less involvement because an abstract of title is prepared by the seller's attorney, and sellers typically give full warranty deeds. Of course, in the downstate area, it is almost unheard of to close without title insurance, or for the seller to give more than a deed of covenants against grantor's acts.

The goal of broker-friendly contracts was to shorten the time from the initiation of a sale to its consummation. In practice, however, these fill-in-the-blank contracts may be subject to the same delays after attorneys get involved and seek to tailor the agreements with their own favorite riders and conditions. However, many routine contracts can be concluded within the general bounds of available forms prepared by the Real Property Committee of the Association of the Bar or the City of New York, and bankers should satisfy themselves that the attorneys they use will not unnecessarily complicate a run-of-the-mill transaction. While every real estate form agreement has to be compared to the realities of each individual transaction, unnecessary obstacles can and should be avoided.

If the lawyer is seen as just another impediment to closing a deal, the best solution would be to seek the services of an attorney who will turn around a contract within 24 hours. This can be facilitated by contacting the attorney once the property is put on the market so that a form contract can be given to the prospective buyer almost immediately upon the buyer's showing real interest in the property.