Real Estate Brokerage Disputes– New York Law Amended.

When commission disputes arise, how do you handle them in New York?

Real Estate brokers, realtors, and other real estate professionals who depend upon a commission to be paid will now have a clearer path to address their commission disputes. Under the recently amended NY Real Property Law (“RPL”), Section 294-b, (“Recording brokers affidavit of entitlement to commission for completed brokerage services”), a duly licensed real estate broker may undertake a special procedure to protect their right to an earned real estate commission. (Effective January 1, 2009).

Under the “Commission Escrow Act,” a licensed real estate professional may claim entitlement to a brokerage commission for sales and leaseholds by filing an affidavit stating the right to such commission with the recording officer of the county in which the real property is located.

While the filing of the affidavit does not invalidate the transfer or lease of real property, and does not create a lien, it requires the Seller to establish an escrow of monies to “protect” the brokerage commission.

Under the amendment, the so called “Notice of Entitlement” to the commission has been expanded to include claims for transfers of cooperative units; and will be now be recorded upon the “lien docket.”

If the property is a one-to-four family dwelling, condominium unit or cooperative apartment, used as a residence and there is a brokerage dispute where the Notice of Entitlement has been filed; the seller shall establish an escrow fund, as follows,

“the lesser of the net proceeds of the sale or the amount of the unpaid portion of the compensation agreed to in such written contract [the brokerage agreement] shall be deposited by the seller… with the recording officer in whose office the affidavit was recorded…until the rights of the seller and broker to such monies has been determined by order of a court of competent jurisdiction…”,

Real estate professionals should understand that there are very specific procedures that must be provided, including (i) the brokerage contract includes a notice, as required by the law, (ii) the Notice of Entitlement and affidavit has been recorded, and (iii) the broker serves a copy of the affidavit on the seller prior to closing.

Because the law is still new, it is unclear what will occur if the seller fails to deposit monies into the escrow account since the law does not “create a lien or encumbrance against any real property” and does not invalidate “any transfer of real property”.

The term escrow generally means a pool of money held by a third party until the matter can be adjudged by some court or other tribunal. Here, the idea is that buyers and sellers of real estate can deposit the money into a fund and fight over it knowing that there is a pool of money at the end of the dispute. The measure does not pre-judge who is guilty and who is innocent, but provides the outline of a process for keeping the funds available in New York State.

The bottom line– how often does your attorney tell you,”the cost of fighting is going to be more than the cost of recovery, just settle or give up?” Now, the money will be tied up, offering more of an incentive to capture that money. Call your new york state real estate litigation lawyer if you are uncertain.