The real estate contract is a hot topic today. In declining housing markets, it is not uncommon for a buyer to have second thoughts, rational or not. I heard of an example recently where an exasperated buyer called the broker with a solid contract to exclaim (paraphrasing): “Dammit, the co-op board approved my purchase!”

When the deal is signed, both parties are bound in good faith to see the transaction all the way through.

The implied covenant of good faith and fair dealing between parties to a contract embraces a pledge that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract”

In New York State, that’s now become a matter of semantics.

The New York Court of Appeals ruled today that lawyers can disapprove of a client’s real estate contract for any reason within the three-day attorney review period.

And the court ruled that it’s not bad faith, even if the lawyer simply nixes the deal because a client wanted to back out, Newsday reports.

Here’s the wording in the ruling:

We therefore hold that where a real estate contract contains an attorney approval contingency providing that the contract is “subject to” or “contingent upon” attorney approval within a specified time period and no further limitations on approval appear in the contract’s language, an attorney for either party may timely disapprove the contract for any reason or for no stated reason.

I always thought that the attorneys were involved to advise on legal aspects of the deal, not to provide a way to circumvent good faith intentions established at the time of signing. I think this actually places the attorneys in an awkward position.

Apparently, I have a lot to learn.

This Just In: Thanksgiving is tomorrow. Happiness will ensue.

4 Responses to “[Under Contract] But I’m Not Buyin’ It”

  1. Edd Gillespie says:

    Attorneys are actually hired to be advocates for their clients as well as to advise. Frankly, under the circumstances reported and from a legal perspective, the ruling makes sense. If the agents want contracts that cannot be avoided by “buyer remorse” then that comment should be included or the attorney approval section should be removed entirely. Apparently it has been taken for granted that the clause is “window dressing” or contains some assumption that isn’t in the contract.
    The only thing that would make more sense, given the legendary persuasive enthusiasm of some agents, is to require the buyers to consult an attorney before they sign the contract. Any other ruling would render the clause alluding to attorney approval absolutely meaningless. As long as agents continue to leave the buyers on their own, which is the recent ruling in a well publicised case from San Diego, the concept of “good faith” makes the attorney avoidance clause essential. Question. Why is it so critical that the sellers can’t allow the buyers three days to change their minds for any reason whatsoever?

  2. ARDELL says:

    The 72 hour attorney review period was an unrestricted out for as long as I can remember. I’m going back to the early 90s when New Yorkers brought the clause over to Bucks Count, PA.

    When a buyer makes an offer, things often go sideways quickly. They may make an offer of $400,000 with all kinds of requests and get caught up in getting the house. 48 hours later they find out they can have the house for $450,000 without the washer, dryer and refrigerator. The 72 hour “attorney review” gives them 3 days to look at what just happened in the heat of negotiation and decide if they want the house on those modified terms.

    To answer Edd, there is always a stigma associated with a property “falling out of contract”. Consequently better for the seller not to sign anything during the attorney review period. Go back and forth. Pin downthe price and terms. Tell the buyer to go get his 72 hour attorney review before the seller puts his final initials on the contract.

    In a buyer’s market, the buyer will win out on not spending money on an attorney review without the seller’s final approval on the contract. In a seller’s market, the seller will say go away until you have the attorney review. Come back when you’re ready to buy my house.

    Maybe this is the first buyer’s market since all this was well known and very common back in the early to mid nineties. Seems it’s all just back where it was.

  3. Interesting. Thanks Ardell. Yeah, I suppose we have been in an upswing for so long, even long timers forget what it was like before.

  4. Larry Lang says:

    My problem has been with the sellers backing out. The most recent one refused to sign te promisory note th bank wanted on a short sale. He was filing bankruptcy after. Instead of being smart, he filed it with a foreclosure on it, instead of the note.