Are you entering into a contract to buy or sell real estate with an agent in New Jersey? If so, you’ve likely been presented a standard Realtor® purchase and sale contract and must now navigate the “attorney review” process. Attorney review in New Jersey provides an opportunity to consult with a real estate attorney to ensure your legal rights are understood and safeguarded.

This “Guide to Attorney Review in New Jersey” will demystify what attorney review means, how long it takes, what happens during and after attorney review, and other legal and cost considerations. Read on to learn how attorney review works. Call us at 201-389-8275 or visit the Contact Us page for assistance with attorney review.

What is Attorney Review?

Attorney review in New Jersey is a three-business day period  for real estate buyers and sellers to hire an attorney to study, review, and modify a purchase and sale agreement. Sale contracts prepared by a Realtor® must state at the top of the first page: “This is a legally binding contract that will become final within three business days. During this period you may choose to consultant an attorney who can review and cancel the the contract.” N.J. Admin. Code § 11:5-6.2(g)(1).

The contract becomes fully binding at the end of three business days unless an attorney disapproves it. Attorney review applies to one-to-four family properties and vacant one-family lots. The attorney review clause is required in New Jersey – a party can choose not to consult an attorney but the provision cannot be waived.

Buyers and sellers may instruct their lawyer cancel the the contract for any reason during attorney review, including for a buyer to purchase a different property or a seller to accept a higher offer. Denesevich v. Moran, 512 A.2d 505, 506 (Super. Ct. App. Div. 1986) (“The attorney review clause provides each party a three work-day escape period during which the contract may be disapproved at the unfettered discretion of that party’s attorney.”)

Attorney review protections exist not only for the initial purchase and sale contract, but to any document prepared by an agent that materially modifies the contract. Calvert v. K. Hovnanian at Galloway IV, Inc., 589 A.2d 1049, 1054 (Super. Ct. App. Div. 1991) (“Material modification of the terms of the contract stands on no different footing from the contract itself.”)

The Supreme Court of New Jersey established attorney review by approving the settlement of N.J. State Bar Asso. v. N.J. Asso. of Realtor Bds., 93 N.J. 470 (1983). The issue in that case was whether drafting a real estate contract was considered the practice of law, given most contracts are originally written by agents.  New Jersey’s highest court held it “serves to protect the public interest by making the contract subject to prompt attorney review if either buyer or seller so desires.” Id. at 474.The following is the full attorney review clause approved by the Supreme Court:

How Long Does Attorney Review Take?

Attorney review in New Jersey is three business days long. Saturdays, Sundays, or legal holidays do not count towards the three day period. The three day period begins the day following when both buyer and seller received the fully signed contract. Fully signed contracts that are sent after 5:00 p.m. EST via e-mail and fax are deemed received on the next business day.  If an attorney is disapproving a contract, that must be completed by midnight the day attorney review expires.

Attorney review frequently lasts longer than three business days. Contract negotiations, unavailability of the parties, and technical issues can delay concluding attorney review.

Christmas 2020 Example. Seller first signs the contract on December 23 (Wednesday), and the Buyer fully executes and sends it to the Seller on December 24, 2020 (Thursday). December 25, 2020 (holiday), December 26 (Saturday), and December 27 (Sunday) are not counted. Attorney review concludes on Wednesday, December 30 (6 calendar days later).

To ensure the attorney review period in New Jersey does not inadvertently lapse, attorneys often submit a “Notice of Disapproval” formally voiding the initial contract. If an attorney for either party reviews and disapproves of the contract, the attorney must notify the agents and the other party named in the contract. The notice of disapproval may be sent by fax, e-mail, personal delivery, or overnight mail with proof of delivery. Conley v. Guerrero, 228 N.J. 339 (2017).  Attorneys typically propose revisions that would make the contract satisfactory.

What Happens During Attorney Review?

During attorney review in New Jersey, attorneys for the buyer and seller draft an addendum (called a “rider”) that supplements the realtor prepared contract. The rider will delete, modify, and add new legal provisions to the sale. Attorney review concludes upon the riders being accepted by each party.

The buyer’s attorney may seek add some of the following protections that are not covered in the standard Realtor contract:

• An appraisal contingency to allow for price negotiation if the property appraises for lower than expected;
• The right to cancel the contract without being in breach if the lender withdraws an already issued mortgage commitment;
• Receipt of documents, such as permits, tenant leases, warranties, homeowner association records, and back title (i.e. prior surveys, deeds, title policies);
• Clarification on the transfer of the security deposit in the event of a dispute;
• The process for post-closing adjustments to sale proceeds;
• Obtaining representations from the seller on issues relating to property condition, ownership issues, easements and encroachments, lawsuits and legal actions,  code compliance, property sale contingencies, and other tenancies or agreements of sale with third parties.

The seller’s attorney may address the following in their rider:

• Limit the buyer’s “inspection” rights to actual functional defects, as opposed to cosmetic items or systems that “function but are beyond their useful life”;
• Representation that buyer is in possession of the downpayment;
• Ensure a denial letter is produced prior to exercising the mortgage contingnecy;
• Reserving the right – but not the obligation – to make repairs prior to a buyer’s right of cancellation;
• The buyer maintaing full responsibility for title company costs;
• The legal terms for any property sale contingencies or use and occupancy agreements;
• Limit required out-of-pocket costs for certificates of occupancy.

Although the pattern described above generally outlines how attorney review works in New Jersey, each client and property is unique. An effective rider is tailored to the client’s circumstances, but is balanced to be acceptable to both parties otherwise the sale cannot move forward. I recommend consulting an experienced real estate attorney. Visit our blog “Is a Real Estate Attorney Required in New Jersey?” for discussion on hiring an attorney for purchase and sale transactions.

What Happens After Attorney Review?

The purchase and sale agreement becomes fully binding on the parties after attorney review in New Jersey. The buyer and seller may only cancel the transaction without being in breach if permitted under the contract or by law. Inspection, financing, clearing title, and closing follow once attorney review concludes.

Inspection. Real estate transactions normally allow the buyer a period of time to inspect the property (14-days by default in the standard Realtor® contract). Buyers hire a licensed inspector to physically examine the premises, and produce a written report identifying defects in condition. Depending on the inspection report, the buyers may request repairs or financial credits. Sellers normally maintain the option to make the repairs or cancel the sale. The buyer’s due diligence may also include a survey to identify the property borders and any encroachments.

Financing. Residential mortgages are the most common form of financing real etate sales. The buyer presents financials and employment verification, and the lender will have the property appraised and run credit checks. The lender issues a “mortgage commitment” once the loan is fully approved.

Clear Title. Title companies examine the “chain of title” by reviewing county records to identify potential defects in the buyer’s future ownership. A search is also conducted for any court judgments against the seller that must be paid off. Once title is cleared, the title company issues “title insurance” (a lender policy and optionally an owner’s policy) to compensate under defined circumstances where ownership rights are challenged.

Closing. “Closing disclosures” and “settlement statements” that detail the financial transactions must be approved prior to closing. At closing, sellers execute a deed, affidavit of title, and a series of other tax related documents. Buyers normally execute their mortgage, promissory note, and documents requested by their lender. The title company typically makes the disbursements and records the new deed, mortgage, and promissory note.

How Much Does Attorney Review Cost?

The cost of attorney review in New Jersey depends on the lawyer. Attorneys normally represent the buyer or seller until closing  – not solely the attorney review period. Attorneys fees vary based on the type of property, complexity, geographic area, and quality of service. Flat fee arrangements are more common than hourly. In north and central New Jersey, flat legal fees average $1,300 to $1,700.

A real estate lawyer can pay for itself and save thousands of dollars in the long run. Lawyers negotiate price reductions, credits, or repairs due to unanticipated property defects, and keep a sale on time to avoid fees due to a lost mortgage rate lock. Attorneys can ensure you receive applicable reductions in real estate transfer tax, and an on-schedule closing can reduce on-going costs of taxes, insurance, mortgage payments, and utilities.

Attorneys can reduce costs due to an incorrectly filed deed, or fines for non-compliance with regulations. You save time and energy in drafting contracts, addendums, forms, and researching state, federal, and local law. An ounce of prevention is worth a pound of cure. Call us at 201-389-8275 or visit the Contact Us page for assistance with any real estate purchase and sales.

Note: The information provided in this article is for informational purposes only and does not constitute legal advice. Readers should contact an attorney for advice on any particular legal matter.

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