One of the perks of passing the New York State Bar Examination and subsequently being admitted to the bar as an attorney is
the ability to obtain a real estate brokers’ license by merely filling out a
form and paying a fee. As a matter of fact, an attorney can actually act as a
real estate broker, without obtaining a formal license, in certain situations. Until
recently however, I have not encountered many attorneys acting as a real estate
broker in a transaction. Perhaps it is a phenomenon being driven by current market
conditions – real estate attorneys fighting to survive in the post subprime
meltdown market. But it is a troubling
new issue that I am experiencing as of late, especially in the short sale arena.

 n a typical short sale, the shorted Lender is presented
with a preliminary HUD-1 settlement statement which itemizes all of the closing
costs that the distressed seller must pay as well as the remaining monies
available for loan payoff. The shorted
lender must approve these closing costs and typically will allow the payment of
a real estate commission of 3 to 6% where attorney fees are often limited to $1000-$1500. So, many attorneys who are negotiating short
sale on behalf of the distressed seller are opting to collect a real estate
commission instead of legal fee. The
troubling aspect is the attorney who wishes to act as both the real estate
broker and the attorney for the distressed seller, which is a clear violation
of the New York State Attorney Ethical Code.

 The Nassau County Bar Association committee on professional
ethics has held, unequivocally, that it is an unwaiveable conflict of interest
for an attorney to act as a real estate broker and represent any of the parties
to the transaction. Opinion No.: 07-01(Inquiry No.): 745. Nassau County’s ethics committee “is consistent with N.Y.
State Bar Op. 752 (2002), as well as other opinions pre-dating DR 1-106(A),
which conclude that an attorney’s business interest in a real estate
transaction prevent the attorney from representing the legal interests of a
party to the transaction. (See, N.Y. State Bar Op. 753 (2002))”.

 While it is sorely tempting to act as real estate broker and
seller’s attorney in the transaction as it would appear, at first blush, that both
roles share common goals and fiduciary duties and the novice attorney may not
realize that such is impermissible. Should you encounter this situation, you might gently point out that the
attorney must make a choice and abide by it. Chances are, the attorney will choose the role of real estate broker in
these difficult times. Make sure,
however, they limit themselves to that role.

Related posts:

1. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. Buyer $5,000 Short – How to Close the Gap…from a NY Point of View