The truth, the whole truth--or you could end up in court.

There has been a gradual shift in the obligations of New York brokers relating to whether they should disclose unfavorable information about their clients or the property in question.

The previous standard was governed, historically, by the maxim caveat emptor. A seller's broker had no affirmative duty to disclose negative information about the property and, indeed, as a fiduciary of the seller, may have been barred from disclosing such information.

As long as there was no affirmative misrepresentation, the broker remained silent.

Likewise, a buyer's broker was under no obligation to disclose that his client did not have the financial capacity to conclude a deal, although cases involving this scenario were rare, as no broker wanted to waste time on a buyer who could not complete a transaction.

In recent years, together with the growth of consumer protection litigation and the increase of legislation regulating brokers, a broker's duty and, conversely, potential liability requires disclosure of any condition or set of facts which are known to the broker or are public record that could have been known to the broker which are not disclosed.

Courts have taken the position that when the State requires licensing of brokers and salespersons, they have taken the position that as licensed professionals, brokers and salespersons have a duty of fair dealing with everyone involved in the transaction.

This is true regardless of whether it is in their own pecuniary interest or the interest of their client to make such a disclosure.

The Courts seem to be adapting this higher standard as a recognition of the growth of consumer protection laws and the increase of legislation regulating brokers.

It is critical for professionals in real estate sales to understand that they are considered a part of the protection of the public from fraud and misrepresentation and must meet certain standards, have certain skills and must treat parties fairly. The failure to abide by this standard exposes real estate professionals to liability in law suits by parties or other brokers in which fraud claims have be made.

The passage in New York of amendments to the Real Property Law [section] 443 in 1993 and 2007 which governs real estate professionals and codifies the fiduciary duties of brokers and salespersons requires them to adhere to a policy of full disclosure at the risk of being a party to a lawsuit.

While this is a developing area of the law, Judge Philip S. Straniere, who is known for both his well-reasoned decisions and interesting prose, was faced with deciding whether a broker's obligation of disclosure extends to requiring brokers to make an affirmative search of public records to ensure that all representations are correct.

In the case of Olukotun v. Reiff, Judge Straniere expanded the obligations of real estate professionals to not only include the duty to disclose facts known but also facts that are public record that could have been known.

Judge Straniere in his own inimitable style expanded the language of the statute by finding as follows:

Since the statute requires that the broker only disclose facts the agent knows, it can be argued that ignorance is bliss and if the broker does not know the true occupancy status, there is no duty to inquire. 'I know nothing' may have worked for Sgt. Schultz in Hogan's Heroes, however, it will not work in this case. The broker and salespersons are licensed by the state. They are charged with knowledge of what is legal or illegal transaction concerning the sale of property.

If the position of Judge Straniere is widely accepted, (to date it has not been the subject to review by higher courts) brokers would be well-served when they accept listings to search public records to ensure that the information given to them by their clients is accurate. This is a significant departure from the previous standard which allowed a broker to rely, in good faith, on the representations of his client.

Real estate professionals face the challenge of meeting these new demands. On the one hand, a broker has a fiduciary duty to serve the interest of his client but on the other hand, a broker has a duty by statute and court interpretation to disclose to the other side factors which would not necessarily be in the interest of its clients to disclose. This does not just affect disclosures to the buyers and their agents.

It would also cover situations where a broker has knowledge that the buyer does not have the financial means or intent to close a transaction or is not acting in good faith in the transaction. In such a situation, I could see no reason why the buyer's broker would not be held to the same standards of disclosure as the seller's broker.

The relationship between brokers and their clients is in a period of evolution. The key word in that evolution is disclosure. As recognized licensed professionals, brokers are now held to a higher standard such as lawyers, accountants and architects.

It seems that parties to a transaction are not only entitled to know where a broker's fiduciary loyalties lie but also to recognize that a broker has a higher duty of good faith and fair dealing to all parties in a transaction that supersedes, in most instances, the obligations of the broker to the client.

BY HOWARD RUBIN, PARTNER, GOETZ FITZPATRICK LLP