Bringing First Case Under New York State Disclosure Form for Buyer and Seller, Adam Leitman Bailey, P.C. Records Creative and Favorable Settlement for Purchaser

By Adam Leitman Bailey

Before engaging Adam Leitman Bailey, P.C., the client had entered into a contract to purchase a luxury penthouse condominium apartment for $13 Million dollars. The client had not engaged a broker as his own “buyer’s agent” and had dealt only with the Seller’s broker. New York State law requires all real estate brokers and sales agents to give both buyers and sellers an agency disclosure form (ADF), at the broker’s “first substantive contact” with either the seller or the buyer. The ADF specifies whether the broker represents the interests of the seller or of the purchaser, or whether the broker is a “dual agent” who represents both the buyer and the seller but who cannot give either party his or her undivided loyalty.

In this case, although the Seller’s broker had several meetings and conversations with the client, which eventually induced the client to sign a contract to purchase the apartment, the broker did not give an ADF to the client advising that, as the Seller’s agent, he owed his undivided loyalty to the Seller and did not represent the client’s interests in the deal.

Following execution of the contract, the client learned that the broker’s marketing information had misrepresented the apartment’s total square footage and both the amounts of the apartment’s common charges and real estate taxes. Justifiably upset at the additional monthly expenses he was going to incur after closing and at the lesser square footage, the client came to Adam Leitman Bailey, P.C. to see what remedies he had for the broker’s duplicity.

As the client had not engaged his own broker, Adam Leitman Bailey, P.C. soon determined that the Seller’s broker had actually operated in a dual agency capacity, for which the client had not given his required written informed consent in an ADF wherein the client would have acknowledged that the broker did not owe him undivided loyalty in the transaction. Adam Leitman Bailey, P.C. advised the broker that he had violated the brokerage law by failing to give the client a dual agency ADF. However, the broker claimed that he had presented an ADF to the client, but that the client had refused to sign it, and the broker produced a copy of the ADF he claimed to have presented to the client and a witnessed affidavit purportedly made at or around the same time attesting to the client’s refusal to sign the proffered ADF. ALBPC’s client denied that he had ever seen the ADF the broker produced and claimed that it was a total fabrication.

ALBPC brought suit charging the broker with fraud and seeking to enjoin the Escrow Agent, who held the client’s down payment in escrow, from disbursing the real estate commission that would otherwise be paid to the broker at the closing. Because the client would be entitled to a money judgment if he proved the case against the broker, the court did not grant the injunction. Nevertheless, to avoid litigating the ADF’s authenticity and the other fraud issues, the broker soon agreed to settle with ALBPC’s client by making a payment to the client from the real estate commission disbursed at the closing. This had the effect of reducing the client’s total payment for the apartment. The client was pleased that ALBPC’s strategy had induced the broker to settle.

The ALBPC attorneys who handled this matter were Adam Leitman Bailey and John M. Desiderio, the Chair of Adam Leitman Bailey, P.C.’s Real Estate Litigation Group.

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