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Multi-state deals: when an NY license is not enough.

Multi-state deals: When an NY license is not enough

Brokers frequently deal in real estate transactions in the metropolitan area where the buyer, seller, lender and the property are located in different states. In such situations, an issue often arises as to whether the broker is required to be licensed in each state in which he had even the most minimal contact.

This issue arose in a recent case involving a New York mortgage broker, who procured a mortgage commitment on a New Jersey property for a New Jersey resident. The facts indicated that the broker, who was not licensed in New Jersey, had complied with his obligations under the brokerage agreement and was entitled to a commission.

The extent of the broker's activity in New Jersey was limited to one site inspection of the property with the mortgage lender and one phone solicitation to a New Jersey bank.

The broker's activities conducted in New York, however, were extensive: his office was located in New York where he met with his client on a number of occasions; his search for a mortgage was conducted from his New York office and the commitment was eventually issued by a New York lender with whom the broker had several meetings in New York.

When the client failed to pay the commission, the broker, rather than commencing an action in New York, brought suit in New Jersey. The New Jersey Court dismissed the action and held that under New Jersey law, if an unlicensed broker engages in a single act of unlicensed brokerage activity, that broker is barred from commencing an action in New Jersey to recover a commission.

The New Jersey court specifically stated, however, that the law was unsettled as to whether the New Jersey statute merely "closed the doors" of the New Jersey courts to such unlicensed brokers, or whether the statute effectively extinguished the broker's claim altogether, thereby preventing the broker from commencing an action in any other jurisdiction.

The court, in refusing to resolve the issue, held that:

"In view of our decision that the New Jersey courts are closed to plaintiff, we need not advance an opinion whether plaintiff's remedies are foreclosed in other forums."

After the dismissal of the case in New Jersey, the broker instituted the action in New York. Despite the fact that the New Jersey court refused to interpret its own statute as foreclosing the plaintiff from bringing suit in another state, the New York court dismissed the case based on the New Jersey decision.

This result is indeed troubling. It appears manifestly unfair for a New York court to interpret the law of New Jersey as extinguishing the broker's claim forever when the New Jersey courts have not yet resolved the issue itself.

Moreover, despite all of the legal issues discussed above, it should not be overlooked that the broker was denied a substantial and duly earned commission due to a mere licensing technicality. It seems truly inequitable for a New York broker to be denied the opportunity to seek redress in a court of law merely because of the failure to obtain a New Jersey license which only requires the completion of an application and payment of a nominal fee.

It is very likely that cases will arise where the other states with which the broker has contact, do not have reciprocal licensing arrangements with New York and may even require a course of study and an examination. Considering the present state of the law, it is virtually impossible to even speculate as to how the New York courts would resolve such an issue.

Although we anticipate further guidance on this issue from either the Appellate Courts or the legislature, the lesson to be heeded at the moment is clear: all New York brokers should take the time to obtain a New Jersey Reciprocal Brokers & Salespersons license in order to avoid the loss of a duly earned commission.

Gurfein is senior partner of Gurfein & Graubard. He is a frequent lecturer at brokerage seminars and is on the faculty of New York University School of Continuing Education.

Panero is an associate at Gurfein & Graubard.
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Title Annotation:Brokerage Law
Author:Panero, James G.
Publication:Real Estate Weekly
Article Type:column
Date:Oct 16, 1991
Words:691
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