Welcome to Procuring Cause for Earning Real Estate Brokerage Commissions. Wow. I'm pumped to do this course for you guys. You know, as an attorney, a lot of attorneys actually play broker on TV once in a while, because they go to the real estate closing and they go, "How come they get this check? How come this check's so big for the broker?" And they go, "I don't understand." So a lot of us moonlight as real estate brokers. Depending on your jurisdiction, it's really easy. In New York, for example, there's actually a savings clause, Real Property Law 442-F, which says that you don't even need to have a brokerage license to do brokerage if you're an attorney. Now the question becomes, why would you get a brokerage license? Which by the way, you don't have to take the education, you don't have to take the test. All you have to do to get a brokerage license in the state of New York if you're a licensed attorney, is pay a fee. Why would you pay the fee, though? If you don't need it to do the brokerage in the first place? Well, you'd pay the fee because if you wanna supervise real estate salespersons or associate real estate brokers, you need to have a licensed real estate brokerage... License, a real estate broker license. It's not for you, it's for them. They need to be supervised by a real estate broker. You have the savings clause again. The secondary reason though, is that mostly is, MLS is multiple listing services, or in New York City they call it the RLS, if you wanna be a member of their little co-Brokerage Agreement where you split commissions between the people that represent the seller and the buyer, if you wanna do that, most of these clubs are required to have a brokerage license. Forgetting the fact that sounds a little like anti-competitive practices, we could talk Sherman Act another day, or New York State law, there's own. Anyway, interestingly enough though, on that split of commission, there's multitude of lawsuits going on that you may want to track where they are alleging that it's anti-competitive practices that the person who brings the seller, that's called the listing agent when it comes to commission. And the person who brings the buyer, that's called the selling agent when it comes to commissions. When they share commissions, they say that's anti-competitive, because no one who brought a buyer would get that type of commission on the open market. And there's ongoing class actions throughout the United States on that. So we'll see where that goes in the future. Today's course though, is not gonna get into the nuance of who's right, who's wrong or otherwise when it comes to anti-competitive practices. We're just gonna talk about straight procurement. When does your commission trigger, how does commission work? Where- How do people get paid? And setting aside the fact that you all might be moonlighting, it's important if you're a transactional attorney to understand how the commissions work. And more so for someone like myself, my name is Andrew Lieb, who represents real estate brokerage firms, national ones, I represent big real estate brokerage firms, the big ones. I need to know when people don't pay the commission, how we get the money. And exceptions to rules. And if someone who doesn't wanna pay, if they do a counterclaim or their own lawsuit, how that affects it. And we're gonna get into all of that. Like I said, my name is Andrew Lieb, I'm the managing attorney of Lieb At Law. We're located in the New York metro area. Give you my phone number, 216-8009, if you have questions. You can check me out, 'I'm all over TV, as you see from my bio, and I do all sorts of different courses with this wonderful provider. But this one is the one that really is my... Thing I do in my sleep. Why? Because I actually own a New York State licensed real estate brokerage school. It's licensed to teach real estate brokers and salespersons just like you're taking continuing ed. Lieb School does this for the real estate brokers. So Lieb School does digital on demand just like this, and I'm gonna show you a little from their world. Anyway, why did we do this course now? Why is this the course that we wanna put together and put out for attorneys like yourself? I don't know if you've noticed the market, the market is a shifting. There was a time right after we were in the pandemic, there was a time right after the pandemic, where everything was selling like hotcakes. If you got a listing, it was like winning the lottery as a real estate broker. But that's changing. That's changing fast, interest rates went from in the twos to the low sevens, now they're back in the sixes. But even at the sixes, even the fives, the house you could buy yesterday is not the house you could buy today, which means that people wanting to buy property, people putting in money to buy property, people... The demand isn't there the same way it was before. And I don't know if you've seen the tech world, and what's going on with the tech world, but the tech world is having layoffs, layoffs, layoffs, layoffs, layoffs. Forgetting even that for a second, have you seen what's going on with things like ChatGPT? Have you seen what's going on with AI? AI is coming my friends. AI, artificial intelligence is coming, and many jobs are being replaced. And so I'll tell you what I learned when the economy is not good, home buyers and sellers are suing real estate agents. Claiming they were misled about the value of their homes. Was a headline from Insider formally. Business Insider, "Lawsuits against real estate professionals increased 9% from 2021 to 2022 because home prices declined." So as the market gets worse, there's more friction, and when there's more friction, there's more litigation. And when there's more litigation, lawyers like you and I need to understand the topic. So what are we gonna talk about today in procuring? Let's first start off with when real estate brokerage commission vests by default. What is the default rules? When do you earn your commission if there isn't an agreement? In the state of New York, we have the statute of fraud. You might have heard of the statute of frauds. Contract's gotta be in writing, that's the simplistic way of understanding it. However, did you know that a real estate brokerage commission is an exception to the statute of frauds? It does not need to be in writing? So what are the default rules for vesting a commission? I will give you the caveat that the regulations in the state of New York at 175 of New York code of rules and regulations, require specific language to be in a listing, a written listing, to get an exclusive right to sell or exclusive agency. So there is that, even though I told you about the statute of frauds, but you can earn a commission without it being an exclusive. And we're gonna talk about the first topic. When real estate brokerage commissions vest by default. Then we're gonna talk in the second topic, the impact of wrongful acts by sellers, brokers on commission. When we're talking about sellers, when they try and circumvent the broker, they try and cut them out. When we talk about brokers. When they don't follow their duties. Article 12-A of the Real Property Law in New York, but there's comparable ones. I never said I'm licensed in Connecticut and Colorado too. And I'll tell you, I do this stuff in multiple places. And the agency stuff and all that stuff is a little different. I'm using New York as our basis here because, you know, it is the Empire State, and usually in Law School, you teach Texas, Florida, New York, or California. So we're gonna pick New York for today, and you could use that as a springboard for your own research on Westlaw or Lexus or Bloomberg or whatever search engine you all use. But I will give you a caveat, because I did say something before and I don't want people to tune out and think, "Lieb doesn't know what he's talking about." I used the word listing agent and selling agent. When it comes to agency, we're really talking about sellers agents and buyers agents. But you could be the selling agent, the person who procures the buyer, without being a buyer's agent. Think about it like this. You go to Macy's after the Thanksgiving Day parade. And you go, "I'd like to buy those jeans." The person that's selling you the jeans has a little pin. It says, "Macy's." That means they're the seller's agent, when it comes to agency fiduciary duties, they owe confidentiality, obedience, loyalty, accountability, full disclosure and reasonable care pursuant to Real Property Law 443, to Macy's. But didn't they also procure you to buy those jeans? And I'll bet you they don't represent you. They told you they look good, but your butt looks fat in that. They are a hundred percent on the seller's side. And people misconstrue that a real estate broker, a real estate salesperson, associate real estate broker, a licensee of the government, not a realtor foresight, because a realtor means a trade name held by NAR, National Association of Realtors, which is a club not necessarily someone who- It's a broader term to be a real estate broker, that's a licensed term by the government, and NAR doesn't control licenses. But going back, you could be a seller's agent with a self-represented buyer, but still be the listing agent and the selling agent. My point being to you, that it's not necessarily wrongful to not represent a buyer while procuring a buyer. There's different terms for commissions and fiduciary duties. We're gonna get into that. Number three. We're gonna talk about optional triggers to commission and listing agreement. Freedom of contract, the Peppercorn Theory. What types of rules can we make? Is it just when you're the procuring cause of the transaction? You should be able to extrapolate from my prior little conversation with you, about exclusive right to sell, exclusive agency, that clearly it's not. There's times when a written contract can provide different triggers to commission besides proctoring costs. Then we end the course by talking about license law. Yes, yes, yes, yes, yes, attorneys, real estate brokers, associate real estate brokers, and real estate salespersons, and there are different names in different states, just so we're clear, those are the New York license terms. You gotta look up your license law wherever you go. In Connecticut, I think they got it in the practice book. You gotta go check out the practice book. And they go through this stuff. But... When you're a licensee of the state, you have to do what the state says in order to be able to get your money. We'll talk about that. When real estate brokerage commissions vests by default, is our first conversation. We start off the course by talking about if you just go up to Sally, "Sally, I'll list your house." Sally says, "Sure." When you earn your money? When does the commission happen? Whether you're moonlighting, whether you are a transactional attorney and you have brokers ask you a million questions every day and think that you're their free therapy line slash free attorney that they're not willing to pay whatsoever, but won't give you any more referrals unless you answer their question? By the way, I do zero transactions. That's just me feeling bad for you. I know where- It's polite, they should pay you for that. It's not free advice. They won't, but they should. I know a lot of real estate brokers. We need to understand the answers to these questions. Or if you're doing litigation like me, what are the rules? We start off with the meeting of the minds. You might have heard of this before. To earn a commission to be the procuring cause, you have to create a meeting of the minds on essentially all of the terms of the transaction. I created a meeting of the mines that's on the brokerage test to get a license. Meeting of the minds, meeting of the minds, meeting of the minds. But I wanna point out the second part of the conversation. It's not a meeting of the minds on them linking. It's not a meeting of the minds... I'm thinking about Star Trek right now, where they put their hand on the other hand, and make my mind, your mind or whatever they say in that thing. Been watching Picard, it's a pretty good show if you haven't seen it. And it's a meeting mind on the essential terms of the transaction. It's not based on the execution of a illegal enforceable sales contract. It's whether there's a meaning of the minds of the essential terms of the transaction. But what are the essential terms of the transaction? See, that's the difference between the lawyer and the broker. The broker goes, "It's a meeting of the minds." The lawyer goes, "On what?" And that's the essential terms of the transaction. And we know what the essential terms are. I give you the cases at the bottom, just so you can go check 'em yourself. They're different in every state, but again, New York is the generalized rule. So we start off with purchase price. Did you agree on the purchase price? What about the time in terms of payment? What are the time in terms of payment? Is there money due on contract? What about before contract to reserve it? What about to extend a closing date? What about at the closing? When's it due? How much is due? Is there a refundable? What makes it refundable? For example, just to give you an illustration, I'm not a transactional attorney, but you'll appreciate this if you are one. Is it that the buyer has to do good faith efforts, subjective, or diligent efforts to obtain a mortgage? What are these terms? The more detail, the more likely it sounds like the broker got their money. The less detail, uh-oh. SpaghettiO's. Required financing. Is that required financing subject like a mortgage commitment? Is it subject to condition subsequent? Is it a conditional contract? You do know that you can offer cash to buy a property, get a mortgage? Just means there is no term. If you don't get the mortgage, and you default, and they can go after you. What about the closing date? When is it? Is it an our about date? On our before date? On date? Or is it a time of the essence law day? Where is a on or about on? On or before, or all subject to a reasonable adjournment, which we don't know what that means, because it's based on the facts and circumstances of each individual case. It's not necessarily 30 days. Is it based on a law date, though, a time of essence where you're in default if you don't show? What about the quality of title to be conveyed? Is this a condo? Is it a fee simple absolute in a free standing property? Is it tenants in common? Are you only selling one tenant's share? Or are you selling it by the membership interest in LLC? Through individuals. Are there any CCRs? Covenants, conditions? What's going on with the property? Are there, like I said, easements? Are there limitations? What about risk of loss? In the due diligence period in between contract and closing, closing meaning when you transfer the keys, and transfer the deed, and transfer the money, in between contract and closing, what happens if the property is destroyed? Partially destroyed? Is it material or immaterial? What happens? Adjustments. Who's paying for the amount of wheel in the tank? How does that work? What about taxes? What about water bills? Those are your essential terms of the transaction. The more detailed they get, the more likely it is that the broker who got the listing who procured the buyer has earned their commission. As you can tell, it sounds like a question of fact of the exact timing when commission vests under the procuring cause of a transaction. So you can get money as a real estate broker, commissions as a real estate broker, on a listing that's not in writing if you create a meeting in the minds and substantially all of the central terms of the transaction. Again, a contract's not required. At the juncture that the broker produces an acceptable buyer, he has fully performed his part of the agreement. With the vendor that's the seller. And his right to commission becomes enforceable. This is the important part, though. The broker's ultimate right to compensation has never been held to be dependent on the performance of the realty contract. The realty contract, just so we're clear, is between the seller and the buyer. Or the receipt by the seller of the selling price. Unless the Brokerage Agreement with the vendor specifically so conditioned payment. Whoa. So it's possible that the seller owes their broker commission without closing the deal? In fact, a closing's not required. As the listing agreement. What's the listing agreement? The listing agreement is the contract between the broker and the seller. Ironically, these contracts while being worth a fortune, almost never negotiate by attorneys. I can't fathom why you'd sell a house in the millions of dollars, maybe 10 million or more, and hire a real estate broker without negotiating their listing agreement. Who are they gonna advertise it? Where are you gonna advertise it? When are you gonna advertise it? How frequently are you gonna advertise it? Are you selling? Are you gonna be having lobster tail at my open house? When are these open houses? Are we doing a 3D tour? By the way, I don't want to pay you unless it's closed. The fact that a closing did not occur is irrelevant to the issue of plaintiff's entitled to its commission, unless it says that in the contract. From a brokerage perspective, and I write listing agreements for brokerage companies throughout the US, I promise you the default is to try and give them the greatest right possible to earn a commission. Now, are they subject to negotiation? Sure, depending on how expensive your house is, and how much the brokerage wants the listing, I will tell you that when we deal with new development, that's dealing with someone who's building buildings, like condos and when we deal with those people, they're much more negotiated, because there's much more leverage if the broker has less friction costs to do multitude of deals and make an abundance of money. Anyway. Let's assume that the closing's not required. Is anything required? There is something required. Plaintiff maintains that all it need to do to earn a commission is produce a purchaser who executes a contract of sale. However, the law says otherwise and requires more. So not only do you need to create a meeting of the minds of substantially all the central terms of the transaction, went through the essential terms, but also the burden lines with the broker to establish that its prospective purchaser was financially able to meet the purchase price. What does that mean? If they offer money, and they don't have it, that doesn't mean the seller owes you a commission. You can't just have your friend Larry say, "I'll make an offer," and then you get paid. That's not how it works. Let's talk about a summary on the default rules of vesting. And I want you to know it's way beyond what I'm showing you here. This could be an entire- It's a college major, but it could be an entire Law School course, and we're just doing an hour. So this is like a survey course. Summary on vesting. Meeting of the minds, but it needs to be on what? Those are the essential terms of the transaction. Essential terms of transaction are what? Remember, price, time, and term of payment. Required financing. Closing date, risk of loss, quality of title, adjustments. The contract's not required, closing's not required, but you do need to prove the ability to perform. If you don't prove the ability to perform, you could just speak in bad faith negotiating with a seller. Speaking of bad faith, how does bad faith work? The impact of wrongful acts by both the seller and the broker, sellers and brokers on commission. Let's start off by talking about the seller's wrongs. What are good faith and diligent efforts required? What happens if the seller hires you and then changes their mind? They say, "Hey, get me a listing. Here's the terms I'll agree to." Get it in writing, because they're liar, liar, pants on fire, but they say to you, "Here's the terms I'll agree to," the price, time and terms of payment, quality, title, closing date, risk of loss. Adjustments. They give it all to you. Then you bring a buyer who offers all that jazz. What happens if the seller is not proceeding properly? Even where the broker and seller expressly provide that there shall be no right to commission unless some condition is fulfilled, and the condition is not performed, the seller will nevertheless be liable if he is responsible for the failure to perform the condition. Seller doesn't show up in the commit closing. Seller doesn't clear a title defect, and they said in their contract that they're gonna provide marketable title, or insurable title as the case may be. The seller can't escape that way. But I have to give you a warning if you're a litigator, this is not for the non-litigators, because you learn the hard way sometimes, certain states don't allow a breach of contract lawsuit to cover this. In those situations, you need to have a separate clause of action for the implied covenant of good faith and fair dealing. So when we plead on these, we put in both; breach of contract and breach of implied covenant of good faith and fair dealing. And you not doing that might end up with a dismissal when you're saying, "Hey, it's based on their breach." Going back a second, I said to you as an illustration, I said, "The seller was supposed to deliver clear and marketable title or insurable title, as the case may be." Hope you know the distinction there. Just so you know, marketable title is a question for the courts. Insurable title is a question, but for the insurance company. Title defects are the seller's problem. That's what New York's court highest- New York's highest court said. If from a defect in the title of the vendor, or refusal to consummate the contract on the part of the purchaser, in any we reason, in no way attributable to the broker the sale falls through, nevertheless, the broker is entitled to his commission. If he negotiates a contract different from that prescribed by his employer. And the employer subsequently ratifies it, and thus a contract is finally made which is satisfactory to him, then the broker's earned his commission. I want to separate both parts of this. The first one is the part that I already told you. How is the broker supposed to clear a title issue? The broker can't clear a title issue. The broker has no say in that. That's just not how it goes. The broker's not clearing title, they're not a party to the contract of sale. So the seller has to operate in good faith, implied covenant of good faith and fair dealing in pursuing the contract once they hire the broker. For the second part about ratification, also interesting for a different part. I told you before you get a listing, the seller says to you, if you're a listing agent. You get the listing agreement, you represent the broker. Just like the seller should negotiate the contract, the broker should negotiate the contract. The broker should get the seller to pony up. What sale price will you agree to? What time and term of payment will you agree to? What commission will you agree to? What required financing will you agree to? What quality of title, risk of loss, adjustments will you agree to? What essential terms of the transaction will you agree to? Because if I procure on that, I want to know I'm gonna get paid. I told you this may not be subject to a written listing agreement, because the statute of frauds is expressly in inapplicable. Nonetheless, the brokers should memorialize and write it to the seller to have a paper trail, and then be able to admit it through their business records so that they keep in their regular routine, habitual practice of business. You better read that exception to hearsay. Each state has a little different. But what happens if the buyer offers a different essential terms of a transaction? Well, guess what? You might know the doctrine of ratification. At that situation, if the seller agrees to it, it's been ratified. You can look at that as ratification, or you could look at that as just offering counter offer and basic contract rules. You accept a counter offer, you're also in contract. I know it's not in contract of sale because of the statute of frauds, which is applicable to those people. But it is relevant to the real estate brokerage commission as evidence. Setting that all aside for a second, better memorialize that ratification as well. But what happens? What happens? What happens? What happens? It's not that the seller doesn't clear title. It's not that the seller didn't give the central terms of the transaction. It's not that the seller cut out the broker, or did not- Oh, yes it is. You know about these people, and this is happening more and more. This is the most interesting of the lawsuits these days. It's happening more and more in this market. The seller and the buyer get cute. They go, "We're gonna make a deal ourselves. Let's not tell the broker." The question becomes, did the broker earn the money if they didn't create the meeting of the minds? What happens if they got cut out before they could create the meeting of the minds? What happens if they cut out before an amicable atmosphere was created? What happens if they got cut out before they were the proximate cost of the transaction? What happens if the seller and buyer, in bad faith, do their own deal so they don't have to pay a brokerage commission? I will posit to you that outside the appellate courts, it's hard to win on this one. So you gotta be prepared to appeal. These trial courts are, I don't know, challenging when it comes to cutting out. But brokerage doctrine provides a secondary, a alternative, a route to go for, when the parties cut the broker out of the deal. Now, I will say when I said appellate courts, even in New York, there's different rules depending on which intermediate appellate court you're in. To give you an illustration, you've heard of New York City, I'm sure. Did you know that there's a different rule if you're in Brooklyn than if you're in Manhattan? We have different appellate divisions, one being Manhattan in the Bronx, which is the first department. One being Brooklyn, Queens, Staten Island and Long Island and Westchester, the second department. Different rules. And I used both of the trigger terms before quickly, but let's get into it. According to the second department, and this is just something you should extrapolate out and see what the rules in your jurisdiction, but realize that even a broker who doesn't create the meeting of the minds and substantially all of the essential terms of the transaction, may have vested their commission. Why have they may have vested their commission? Because of the wrongful acts of the seller and the buyer, and cutting them out may have created the vesting at an earlier moment. Were the brokers not involved in the negotiations leading up to completion of the deal? The broker must establish they created an amicable atmosphere in which negotiations proceeded. or that he generated a chain of circumstances that proximately led to the sale. Is not enough to call the property to the attention of potential buyer or seller. That last sentence is kind of interesting too. That last sentence is very interesting. Why is it interesting? It's interesting because they're saying, while we're gonna make the vesting sooner, it's not enough to just say, "Here's a listing, check it out." You have to do something more. But did you create the amicable atmosphere? Did you generate the chain of circumstances? So we're evaluating brokerage lawsuits. We always start off if there's no written contract that prescribes otherwise would- And even if there is, if this is the way we're going, if we're going with procuring cause, we figure out what the essential terms of the transaction were. We figure out what they ultimately closed on, we figure out where the broker left off, and we say, "How close was that to the finalized deal?" The closer it is, did they close a month after the broker got cut out? Did they close a year? Was the final deal at 550, when the broker left it was 540? Or was the final deal at 600 where the broker left? The final number was 540. You gotta see how close they are in time. The closer they are in time, the more likely is the broker procured when you're dealing with an amicable atmosphere doctrine. The further, the more difficult. But we always say that, just saying I sent them the listing, that's not enough. Either way, I told you about what happens in Brooklyn. But in Manhattan, they say, "No." Amicable atmosphere generating the chain of circumstances is just not enough. Instead, you have to be the direct and proximate link, thinking Paul's graph right now can't be too attenuated. You know, proximate causation just means a substantial factor, as opposed to just a fact. Substantial factor. I don't know why we use the word proximate. Substantial is better. The direct and proximate link standard governs determinations of circumstances. Under which a broker constitutes a procuring cause within the first department. What's the difference? Well, direct and proximate requires something beyond a broker's mere creation of the amicable atmosphere. Or amicable frame of mind that might have led to the ultimate transaction. At the same time, a broker need not negotiate the terms, transactions, final terms, or be present at the closing. So what do we learn here? We learn when a seller does wrong, if the broker had nothing to do with it, guess what? Seller can't escape the deal. However, it doesn't necessarily also matter if the broker created the meeting of the mind on the central terms of the transaction by bringing a buyer, as long as the seller ratifies it. However, we also learned, even if the broker doesn't create the meeting of the minds of the central terms of the transaction, even if there is no ratification, if the seller and the buyer leave, get cut out the broker, there's still two avenues to go, and it depends where you are. And I imagine in Idaho it's also different. The question becomes... I don't practice in Idaho, by the way. Although, I do hear that it's a nice place to go skiing. That's what I hear. It's what I hear. Or get potatoes. You got the amicable atmosphere doctrine. Which includes generating, creating the chain of circumstances, which ultimately led to the meeting of the minds. We also have, if you're in the first department direct and proximate link. Which is something harder than amicable atmosphere, but you don't have to go to the closing, you don't have to negotiate the final terms. Setting aside from the seller's wrongs, what about when the broker does something wrong? Just to give you an illustration, in New York state in Real Property Law 442-E, it says this, "Penalty recoverable by person aggrieved. In case the offender shall have received any sum of money as commission, compensation or profit by or in consequence of his violation of any provision of this article, he shall also be liable to a penalty of not less than the amount of the sum of money received by him as such commission, compensation or profit." Whoa. "And not more than four times the sum so received by him." That means you could have kinda like up to four times the commission. "As may be determined by the court, which penalty may be sued for, and recovered by any person aggrieved and for his use and benefit in any court of competent jurisdiction." Is that saying that if a broker does wrong, not only can they lose their commission, but they can owe four times their commission? I think that's what I just read on that page. It says they can lose four times of their commission. Real Property Law 442-E, that can't be right. And it's not. Gotta read that case law. We have this rule in my law firm, that's no case, no statute, no talk. And that means you always gotta check the case law. Ladies and gentlemen, boys and girls, it's these and thats. According to the highest court in New York, subdivision three of section 442-E, that's what I just read you, is limited to suits against those that are not licensed under Article 12-A. You know what that means? If someone is a real estate broker, real estate salesperson, or associate real estate broker, the exclusive vessel to complain of their technical license law violations is to the administrative governing agency, the Department of State and the state of New York. Kind of like grievance for attorneys.z You could go to deals and make a license law violation, but you can't sue 'em, there's no private right of action in the state of New York for violations of Article 12-A according to New York's highest court. Does that mean you can't sue a broker for wrongs? Not necessarily. You could sue for breach of fiduciary duties. Breach of fiduciary relationships. You can sue under common law, and say you breached your fiduciary duty. You are a seller's agent. You owe me fiduciary duties, I'm the seller. You help the buyer. I will tell you that the overlay is that in New York state, it says in the license law what the fiduciary duty means, but then it says, "Nothing in here shall expand the common law understanding of fiduciary duties in the state of New York." So really again, the technical violations are irrelevant. The relevancy is if is there a common law claim? Think about it like this, if you do new development, you can't sue in New York state under a technical violation of the modern act, but you can sue in New York state. You can sue in New York state for a common law fraud. Anyway. Can I sue as a seller, my seller's agent, the broker, for helping the buyer? No. Why? They need actual damages. You need more than a technical violation of the rules. The proponent of a claim for a breach of fiduciary duty must add a minimum or establish that the defending party's actions were a substantial factor in causing, here's the keywords, an identifiable loss. It's not enough to have speculation, that's what the case law says everywhere. Speculative damages are unrecoverable damages. Stop telling me you think you believe, prove it. How are they gonna prove it? It would be really hard to have direct evidence on that and circumstantial is really sounding very speculative. I know circumstantial may not be, but it's getting there. So what happens? What happens? We talked about fraud a second, I said breach of fiduciary duties. Let's talk about fraud. What happens if they fraudulently deceive? They say, "This property has a doorman." I litigate this law, no doorman. This property's quite- ATVs next door. This property's 55 condo units- Only 37, they skip floors. This is the most common type of lawsuit I find myself in when it comes to brokerage law. They go after the broker and they say, you said it had boating access, but it's only one inch. What type of boat could go on that bulkheading? You said the property... Said the property doesn't leak, but it has a history of leaking. What happens if there's a failure to disclose? Mere silence, without more, does not usually amount to a concealment that is actionable as a fraud. Unless there is a confidential or fiduciary relationship between the parties. Further, a party cannot claim fraud if the party could have, with due diligence, discovered a defect. You know how we defend those lawsuits? They say, "It was loud." We say, "You had ears." They say, "It wasn't that tall." You had eyes. One of the keys to the lawsuit is that when you are a buyer in real estate, on arm's length transaction particularly, what do you think the whole contract period is? The due diligence period. You can't complain to the seller, or the seller's agent for a fraud if you could have discovered it and you just neglected to do it, you can't shift your burden to someone else. These cases, I've got sanctions against people in these cases. Don't bring these cases unless you have a basis to do it. You can't sue for fraud. Well, please bring the cases I need to make a living. You know, the mortgage is high, and I have kids. But at the end of the day, you can't bring these cases unless you can show, unless you can show that even with due diligence, you wouldn't discover it through active concealment. That's the concept of caveat emptor. Let's go over the summary of wrongs. Sellers can't benefit from their own action. Whether in not closing a deal, or cutting the broker out of the transaction. Albeit, I will tell you, that a seller that doesn't go through with the deal because the buyer didn't have the money, wouldn't be through their own actions, and cutting the broker out depends on how close they were at the point that you cut 'em out and where you are that you're suing. Technical violations of the license law don't escape commissions, so don't play technical games. You violated blah, blah, blah, blah, blah, of the advertising regulations. That's 19-NYCR 175.25 in New York. It's not gonna get you out, especially if you didn't do due diligence. Breach of fiduciary requires proof of cause damages. Speculative is not enough, identifiable damages. Failure to disclose, you need to do due diligence, people. So far in this class we talked about vesting, we talked about sellers wrongs, so we talked about brokers wrongs. Let's talk about the Peppercorn Theory, freedom of contract. What are optional triggers to commission that can be in a listing agreement? Well, first of all, let's establish that a real estate broker would be deemed to have earned his commission when he produces a buyer who is ready, willing, and able to purchase at the term set by the seller. So you can change the essential terms of the transaction to whichever essential terms you want. There's lots of freedom of contract. The parties are free to provide otherwise by agreement. For example, they can condition the seller's ability on the closing of title. Sellers. You don't wanna pay unless there's a closing. Write that. Will require the broker to supply a buyer to purchase the property at a specified price with terms to be arranged. Normally that would be an agreement to agree. But in this situation, it would say, "We don't have the essential terms and nothing's triggered until there's an agreement. So we gotta wait." In the former case, the broker would not earn a commission if the deal was not consummated. That was the one where the closing of title didn't happen. In the latter situation, there would be no commission if terms were not arranged. If they didn't agree on the central terms of the transaction. But let's get back to essential terms one more time. Where an owner merely specifies the purchase price of property. We never get to essential terms. Without fixing the other terms of sale. They say, "Sell my house, million bucks." Commissions are not earned until and unless the person produced by the broker reaches an agreement with the owner. Remember that, ratification. Not only as to the price though, but also as the terms upon which the sale is to be made. So if you wanna make a trigger that's not a closing, not a contract, you just wanna make it based on terms, the price isn't a loan to loop back. I told you that's why we need to get the essential terms locked down at the beginning. And to remind you the essential terms. We have the purchase price, the time and term of payments, required financing, closing day, quality of title, risk of loss and adjustments. And just to be clear, it could be as simple as writing, "Purchase price million bucks. Time of terms of payment, 10% down remainder of closing. Required financing, not subject to conditions. Closing date on or about 30 day adjournment. Quality of title, fee simple absolute. Risk of loss, default. Immaterial only gets adjustment, material is the only way to cancel a contract. Adjustments, standard." Done. It's not rocket science. What are we saying, though? When people are writing contracts of sale? What are we saying? We're seeing all those terms in there. So it really only matters if you're trying to argue the broker vest their commission prior to contract of sale. Let's flip the coin. Let's assume for argument's sake, the broker is not the procuring cause. Forgetting getting cut out. Broker has nothing to do with it. Is there a way that a broker can earn commission if they have nothing to do with the transaction? Yeah, that's called an exclusive right to sell. There's two different rules. One's called an exclusive right to sell, and one's called an exclusive agency. Exclusive right to sell means that if the broker had nothing to do with the deal, or they did, they earn commission as long as the deal happened during the listing period. I'm not gonna invest in advertising your property, showing your property if you could sell it, someone else could sell it. Exclusive agency is a little different. Exclusive agency says, "During this listing period, six months, year, three months, whatever it is, seller, you could try and sell it yourself and I won't own commission, I don't get commission." But any other brokers, I earn commission. In New York, did you know that a seller that signs two exclusive right to sells or exclusive agencies could owe two commissions? We litigate this often. Sellers seem to think that they can make it not the case, we win. You can get two commissions. It actually says it in the real estate license law. It's part of the warning in New York state. Anyway, how do you get an exclusive right to sell? Assuming the seller agrees to it, the broker agrees to it? Plaintiff relies upon the heading and preamble of the listing agreement, exclusive right to sell, as entitling it to a commission. Even when the sale has been affected by the owner themselves. Remember, that's not part of exclusive agency, but exclusive right to sell, the broker would've got their money. However, no such unequivocal expression of intent can be found in the listing room. The phrase, "Exclusive right to sell," is undefined in the contract. The license law at 175 of the regs actually says that you have to expressly define it, and there's a quote which you have to define to be able to get it. And the provision that a commission is earned if consultant delivers a ready, willing, enabled buyer. Remember that's procuring cause on a meeting of the minds and central terms of the transaction. Is clearly inconsistent with any entitlement to commission upon an independent sale by the owner when they don't deliver a ready, willing, enabled buyer. So brokers that want to have exclusive rights to sell. They sold it during the period, not cutting out, they just sold it, nothing to do with me, no amicable atmosphere, just sold it. Better have the required language in the listing. Tell you another interesting one that we see often. I function in the Hamptons a lot. And those are investment properties. And investment properties are generally owned in entities. LLCs to be specific, limited liability company. Don't call it a limited liability corporation, you sound stupid, it's a limited liability company. What happens if you have a cute seller, and the deal says that they have to transfer title for you to get a commission? Transfer of title. But they sell the membership interest in the LLC that owns the title rather than the title. Plaintiffs have failed to adequately plead that a triggering event occurred under the Brokerage Agreement. Which requires as a condition precedent to payment of the commission, that a settlement, the closing of escrow or the recording of deed has taken place. Plaintiff's argument, that their entitlement to the commission was triggered by the sale of membership interest, and not by the transfer of deed of the property, must be rejected as it directly contradicts the Brokerage Agreement. You're gonna write an agreement, better be very specific about what you want. I write 'em very expansively, as I said, because when you represent the brokerage company, gotta go as expansive as you can. We just talked about triggering events. I'm gonna show you a sample from what's called the Long Island Board of Realtors. In their sample, exclusive right to sell agreement. Just how they give you triggers. Because there's a multitude of triggers that could happen to get commission. Number one, A. If the broker or cooperating broker produces a buyer ready, willing and able to purchase the property on the terms and conditions set forth in the PDS, remember I told you if they just write price, that's not enough, need the essential terms of a transaction. What's the PDS? Property data section. That's so they can put it all on there, multiple listing services. Ironically though, and I'm gonna jump ahead and come back, the PDS only has the listing price, the finance restrictions, owner financing, occupancy, items excluded in sale, and remarks. Aren't they missing essential terms of the transaction? If I was someone who was getting a listing, I'd make sure all the essential terms of the transactions are listed in the PDS. Anyway. Second type. If through the broker or cooperating broker's efforts, a buyer and its owner reached an agreement upon all the central terms of a transaction. That's like the ratification one. C. If the property is sold or rented during the term of this agreement, whether or not the sale or rental is a result of the broker's efforts, and even if the broker sold as a result of the efforts of the owner, or any other broker, or agent not acting under this agreement. Remember that one? That's the exclusive right to sell. Although in New York you better have the required regulatory language as well, that's not enough, although it's a good way to get there. If the broker or cooperating broker is the procuring cause of the transaction, which we already taught you that notion. So if you notice, there's more than one trigger to earn commission- We're gonna skip PDS, as we just did that. But you need to know the terms you all agree to. Let's talk about exclusives for a second. Exclusive right to sell. I mentioned it might be three months, it might be six months. What happens if it's a six-month exclusive? And then we're on month five, day 30, one more day left and the deal is not closed yet. What happens then? They're not in contract yet. What happens then? There's a concept called a tail. It means an extension clause. And so what you could do is you can have this extender that says, "There's people that are already part of this exclusive, that extend out." Intention of this provision was to foreclose the seller from receiving the benefit of the broker's services. And then after a buyer had been found during the period, the agreement was enforced avoiding the commission, through the simple device of waiting until the brokerage contract had expired. So you can have his tail agreement in there too. I show you the LIBOR one. The above compensation shall be paid to the broker in the event that the owner enters into a contract of sale to sell the property or actually sells the property within a period of blank days. 30 days, 60 days, 90 days. After the termination of the agreement to any person who has been shown the property during the term of this agreement. That sounds great. So then LIBOR contradicts itself. The paragraph shall not apply if the owner has in good faith re-listed the property with another broker after the expiration of this agreement, and owner affirms there are no current negotiations on the property. So what's the point of the tail? Then you're litigating whether it was good faith, that the owner's lying, I don't like that one. REBNY, Real Estate Board of New York and Manhattan does it differently. But they're stricter. Instead of unlimited names, they only allow six names. Instead of delivering the list, it's gotta be within seven days. Instead of any amount of time the tail happens, it's only good for 90 days. However, I wanna read you the last part. Owner represents and warrants that if a new exclusive listing agreement is executed with another exclusive broker, owner will notify the new exclusive broker of this provision, and then the exclusive broker may negotiate directly with the owner with respect to the persons on the list during the 90-day protected period. I like that one. Well, that last sentence, the rest of it, I like the LIBOR one. That's why the big brokerage companies have us tailor these agreements. Interestingly enough, interestingly enough, in REBNY it says that you have to use this paragraph, but I don't care. Because that's called anti-competitive practices and we do whatever we want. Can't require language in a contract with a third party, REBNY. Sounds that way to me. Summary of wrongs. Lots of freedom of contract exists in the state of New York. But sometimes even when you want to have freedom, you have to comply with the license law. Certain terms required by law in certain ways. Exclusive right to sell, exclusive agency. Now, if you don't use the licensed law terms, just to be clear, didn't I show you through the two-part case that that doesn't provide for a private right of action? So you'd earn your commission, but you'd still be subject to a licensed law violation from Department of State. You don't wanna earn your commission and then have the DOS come after you. Be careful on who is buying and selling. It may be a friend, a sister, a member of an LLC, expansive words matter. Tail matters. But that's not for procuring cause, that's for an extender of the exclusive. Let's loop it together to remind you all that everyone's licensed as a real estate broker. The brokers, they're licensed. And there's an impact of licensed law on litigation. No, no, no. We showed you from that two-part case that there's no private right of action in 442-E from violating subsection three, from violating the license law. But guess what? You have to be able to do certain things about being licensed in order to get commission in the first place. The fact that it can't negate a commission, create a lawsuit against you, doesn't mean that it's irrelevant. I said a second ago, and I wanna reiterate one more time, there's two tracks; one is the lawsuit, the second one is you can get a license law violation just like a grievance in real estate brokerage. But there are relevancy to the license law. What is the relevancy to the license law? Well, let's start off with a license is required if you wanna sue for commission. Where the dominant feature of the transaction issue is the transfer of real property. Let's stop there for one second. What they're talking about is business brokerage. There's times when real estate moves incidentally to a business brokerage deal, and then you don't need a real estate brokerage license. I told you, this is a 101 course and it would be much more expansive. There's a whole treatise of law on what happens when it's a mixed transaction of business brokerage and real estate brokerage and whether a license is required. But let's assume for arguments stake right now, that the dominant feature is real property. One who does not have a real estate broker's license is barred from collecting a fee. For endeavors in the nature of brokerage services. So we just told you, in order to sue for your commission if people don't pay, you gotta have a brokerage license. But I mentioned to you before, it's not realtors. Realtors are like that club. Remember I told you about the club? It's a good club. No one's got a problem with the club. REBNY is a different club than New York. Clubs are good. It's like the Boy Scouts, the Girl Scouts. Certain clubs are bad. You might have litigation with those types of clubs. Anyway, it's about whether you're a licensed. And what I just told you a second ago, is that you need a real estate broker's license. Let's get away from the word realtor. Let's understand that these big companies are brokerage firms, real estate brokerage firms. Actually in the license law in New York State, it's an advertising violation to use the word broker without the words real estate in front of it. May not matter to you, but it is. I think it's 175.25 C-4, but I can be wrong about that right now. Anyway. We have three licenses in New York. You might have different- Some will have two; real estate broker, real estate salesperson, associate real estate broker. But my question is what we colloquially call as agents. In the license law, we call 'em associated real estate licensees. What happens for the salesperson? The associate real estate broker? Mind you, in New York, the associate real estate broker is considered a salesperson on the license law. Real Property Law 442-A says, "No real estate salesperson," including expansively, an associate real estate broker, "in any place in which this article is applicable, shall receive or demand compensation of any kind from any person other than a duly licensed real estate broker with whom he associated, for any services rendered or worked done by such salesperson." Why do I bring that up? I bring that up because I started off this course. I told you, a lot of you are gonna be transactional attorneys, I imagine. And you get these questions every day and if you don't answer them for the referral sources, mind you, that may be a quid pro quo, and might violate both Regulation X, and also us as attorneys. I don't know about that, I'm not going to the ethics, and I know everyone does it, so who cares? I'm not your priest or rabbi or imam right now, I'm just letting you know. They said to you, "Answer those question for free, or I'm not giving you referrals." They don't say that, that's why we don't know if it is, but they imply that. And they say to you, "I want my commission. How do I get paid? I want my commission. How do I get paid?" They come to you. That's what happens. The odds that most of you actually represent the brokerage firm are slim to none. I meet so many people that tell me, "I represent X, Y, Z broker." "I represent A, B, C broker." No you don't. You do their closing. Because they refer you a lot. You buy them donuts, no offense. It's just what I see most of the time. The people that represent the real estate brokerage firms know this. A salesperson does not have standing. Associate real estate broker does not have standing to bring a lawsuit for a real estate brokerage commission against any seller or buyer. Mind you, if you bring a buyer, you procure the buyer, and you are a real estate broker, you don't have standing to sue the seller, unless you're an expressed third party beneficiary of the listing agreement in the first place. You can only go after your own buyer, which probably you can't go, because you probably didn't get a buyer's Brokerage Agreement, 'cause you probably thought that you were getting commission on the split from the seller, which is the subject of what I originally spoke about in this course, to class actions where they're saying that that was anti-competitive practice in the first place. You should stay tuned to that one. Go back to the beginning. If you represent a salesperson or broker, you can't sue a seller, buyer, anyone else for commission. You know who you can sue? There's only one person a salesperson can sue. Their real estate broker. And the default rule in the state of New York is that you can only sue them- Well, you can sue them, if they don't procure your commission. That was the wrong word. If they don't pursue, not procure. I've been saying procure a lot. Your commission from the seller. Then you have a right to say, "You can't waive this, you gotta pursue this." Except if your independent contract agreement, your employment agreement, or your policies and procedures manuals assigns that right to the real estate broker in the first instance, which is 99.999999% the way that it's gonna be. So if you're a salesperson, you shouldn't be going after your broker unless you read your ICA, your employment agreement, which you generally don't have, and your incorporated by reference policies and procedures manual. Summary. Only licensees can go after the money from the seller. But it's going to have to be a real estate broker. And as a salesperson, you gotta work under them. Salespersons aren't brokers, people. This is complicated. I'm here to help you, guys. If you need any help with real estate brokerage litigation, we do, if you've taken our other courses, tons of discrimination, that's one of the things we represent, housing discrimination. And I got into that whole field based on representing brokers and housing discrimination. We do plaintiff's work on that too. But procuring cause, breach of fiduciary duty, fraud, you name it, 216-8009, that's my number. [email protected]. Be happy to help you and your clients. Thank you for listening, hope you learned something.