I’ve written about this before but it continues to be a subject of much misunderstanding so here is a refresher on Attorney Review.
When you buy real estate in Hoboken, be it a condo or a house, there is a particular order of events that typically take place. Basically, you get your pre-qualification letter from a mortgage broker or bank, find your dream home, make an offer in contract form if you have a decent realtor (not just a term sheet) and, after negotiation (or more likely, these days, a final and best scenario) the seller accepts your offer. Wait! Agents aren’t lawyers! (well, I am but I think I’m the only one in Hoboken). True – but the NJ Association of Realtors (NJAR) provides a standard-form sales contract that realtors routinely use as the starting point for your deal. As part of a settlement agreement in the NJ courts, in order to avoid the unlicensed practice of law by real estate agents, the NJAR agreed to use this standard contract along with the “Attorney Review” language that must be included in all contracts. The realtors can start the contract process but the lawyers must do the real legal work. There is much confusion and misinformation around attorney review and how it works. I hear realtors and even brokers (they run the real estate offices) explaining it incorrectly all the time!
Attorney review is a ‘time-out’ period of a minimum 3 business days required by New Jersey law. During this time your lawyer performs “due diligence”. The 3 day clock begins ticking when the buyer and seller have both signed the contracts but remember, weekends and holidays don’t count. The respective attorneys will then review the contract. Either lawyer can, and usually should, “disprove” the contract. That stops the clock from ticking. They can then make changes to it by sending riders back and forth. It’s very important for you and your realtor to be copied on these riders so everyone knows what is going on. Once everyone agrees to all the changes, you will “sign off” on attorney review and the contract becomes binding. If the attorney fails to disprove the contract as required by the real estate commission rules, attorney review ends at the end of the 3 business days and the contract automatically becomes binding.
Sometimes, there are no issues and not much due diligence is needed. Or a buyer may wish to avoid other competing offers from coming in and bouncing him or her out of the deal. The attorneys can mutually agree to shorten review.
The attorney review period gives you (and the seller) a chance to “sleep” on your decision. If at any time during attorney review you change your mind you can simply walk away. No reason or explanation necessary. Assuming you paid one, you get your $1,000 good faith deposit back – no questions asked. It’s similar to when you join a health club and the papers say that you have 24 hours to change your mind and can get your money back.
Remember, though, that the seller can also change his or her mind during attorney review. In our current market, many buyers go into attorney review thinking they’d bought a new condo. In the meantime, the seller receives a higher offer and cancels the contract with the first buyer. So buyer beware – until attorney review is over, the sales contract is not legally binding. Both parties should be prepared for the worst, even if it means 3 (or more) sleepless nights while waiting for attorney review to end.
When hiring a real estate lawyer, you would be wise to ask about schedule and availability. It would be a shame to lose the condo of your dreams because your attorney was too busy to get to your sales contract before the seller changed his mind.
So find a lawyer who has the time to focus on your deal. Don’t make any irrevocable plans until attorney review ends. And most importantly, insist that your lawyer keep you and your realtor informed of what is taking place during the attorney review period.