Capitol Report

Capitol Report

March 16, 2020

NJSBA urges appellate courts to preserve consumer protections in residential auctions

The New Jersey State Bar Association (NJSBA) once again seeks to protect consumers in residential real estate transactions by ensuring that the language mandated in all realtor-prepared residential real estate contracts is also mandated in real estate auctions. In the matter of Sullivan v. Max Spann Real Estate & Auction Co., Docket No. A-005327-18, the Appellate Division is asked to consider whether a real estate auction sales contract was required to contain a three-day attorney review clause found in residential real estate contracts. The NJSBA participated as amicus curiae in the matter, submitting a brief authored by F. Bradford Batcha, Alexander Fineberg, Martin Liberman and Lee B. Roth.

In Sullivan, the trial court ruled that such a clause was not mandated where such information was available to potential parties in advance. In its amicus brief, the NJSBA urged the Appellate Division to reverse the trial court decision, relying on its consumer protection arguments that resulted in the settlement following a Supreme Court matter that mandates the three-day attorney review clause in residential real estate contracts, in New Jersey State Bar Ass’n v. New Jersey Ass’n of Realtor Boards, 93 N.J. 470, modified, 94 N.J. 449 (1983); In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law, 139 N.J. 323 (1995).

“The need for protection is just as great in an auction setting as in any other real estate transaction,” wrote the NJSBA in its brief. It further argued that even if the trial court is correct in its ruling, any changes to the Supreme Court-mandated notice provisions can only be made by the Supreme Court itself, under its constitutional authority to exclusively regulate the practice of law. Therefore, any attempt by the trial court to abrogate the mandate is invalid.

The bidder registration form in the Sullivan transaction stated that the auction sale was “not subject to an attorney review period,” and that the prospective bidder agreed to “review the contract of the sale prepared by the seller’s counsel prior to the auction.” The bidder was a person who spoke limited English and claimed to be pressured into bidding on the property. The contract for sale was apparently prepared by a salesperson on a pre-printed template, which the bidder completed. The bidder was ultimately unable to obtain a mortgage and was declared in breach of the contract.

The NJSBA noted to the Appellate Division that the Supreme Court approved the settlement agreement that led to the mandated attorney review clause “because it resolved the question of realtors’ unauthorized practice of law, and most importantly it served to protect the public interest by making the contract subject to prompt attorney review if either buyer or seller so desires.” As such, the NJSBA argued that the need for protection is just as great in a residential real estate auction as in any other real estate proceeding.

Furthering its argument, the NJSBA pointed out that 12 years after the settlement, in NJ State Bar Ass’n, the Supreme Court mandated additional protections to ensure that parties are informed of the risks of proceeding without an attorney through the issuance of In re Opinion 26. In the opinion, the Court sanctioned certain common activities of title companies and realtors in the closing process provided the consumer is provided a specific notice so they can make an informed decision about whether to obtain counsel.

The matter is not yet scheduled for oral argument. The NJSBA continues to monitor this matter.

This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters. 

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