“You want me to sign a contract to buy a house before my lawyer has a chance to read it!? That’s crazy!”

But that’s how we roll here in New Jersey.

In 1995, the New Jersey Supreme Court decided In Re Opinion 26 , settling a long dispute between the New Jersey Bar Association and the New Jersey Association of Realtors. You see, some Realtors regularly drafted contracts for real estate transactions, as is common practice in many states. The Bar contended that by drafting such contracts and providing associated advice and assistance, Realtors were engaging in the unauthorized practice of law. The Realtors countered that their customers had a right to choose whether or not they wanted to hire an attorney for such a transaction, but the Bar didn’t want to hear it. In response to the Bar’s outrage, the Committee on the Unauthorized Practice of Law eventually issued Opinion 26, declaring that by drafting contracts and providing such advice and assistance, Realtors were, in fact, engaging in the unauthorized practice of law. The New Jersey Association of Realtors filed papers asking the Supreme Court to put Opinion 26 on hold, and a long trial followed.

The Supreme Court ultimately decided that it would allow Realtors to draft contracts and provide other advice and assistance, but only under certain conditions:

1. A Realtor’s client must be provided with and sign what has come to be known as an Opinion 26 disclosure. This document informs the client of their right to hire an attorney, and must be attached as the cover page to any contract drafted.

2. Every contract drafted by a Realtor must contain an “Attorney Review” clause, stating that either party has the right to consult with an attorney, who can cancel the contract for any reason or no reason on behalf of the client, as long as a cancellation notice is transmitted no later than three days following the delivery of a fully executed contract to all parties.

It has become common practice for Realtors to draft most contracts, have them signed by both parties, and only afterwards are they sent to the parties’ respective attorneys. In accordance with the Supreme Court’s decision, each attorney has three days to consult with his or her client, and then disapprove of the contract if the client so wishes. If an attorney issues a notice of disapproval, the contract is null and void, and of no legal effect, and the buyer is refunded whatever deposit was left with the Realtor.

A couple of rules about Attorney Review:

1. As stated, a notice of disapproval must be delivered to both Realtors involved in the transaction within three days of the delivery of a fully executed contract to all parties. The day of delivery, weekends and holidays do not count- so if the contract is delivered to the buyer and the seller on Thursday, then day 1 is Friday, and attorney review ends on the following Tuesday.

2. For the notice to be effective, the attorney must use the specific wording, “I disapprove of the contract as written.”

3. As of this writing, notices of disapproval must be delivered to the Realtors by personal service, or by certified mail, return receipt requested. It is virtually universally thought that fax or email transmissions are acceptable means of disapproval, but under current law, that is simply not the case. Note that the New Jersey Superior Court has decided that fax or email notice is acceptable, but the question is still winding its way through the higher courts.

4. If no notice of disapproval is properly issued by the end Attorney Review, the contract becomes firm, and the parties will be bound to the terms contained therein.

Next Blog: “But I want this house and I didn’t want to cancel! Why did my attorney issue a notice of disapproval?!”

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