Highlights of THE COMMISSION ESCROW ACT What every REALTOR® needs to know

The law will take effect on January 1, 2009 - See Section 294-b of Real Property Law for complete details.

Act applies only to the sale of residential real property, a condominium or an interest in a cooperative apartment.

It does NOT apply to vacant, commercial or leased property, nor does it create a lien on the seller's property.

Seller is required to deposit ONLY disputed commission into escrow if there was a closing.

Only duly licensed broker who is licensed to do business as an individual, partnership, corporation, LLC, LLP, or trade name by DOS may sign the affidavit, but any indvidual or entity can physically file the affidavit on behalf of the broker at the county clerk's office.

Law only applies to listing agreements executed after January 1, 2009 which include the following language in clear and conspicuous bold face type:

"At the time of closing, you may be required to deposit the broker''s commission with the county clerk in the event that you do not pay the broker his or her commission as set forth herein. Your obligation to deposit the broker's commission with the county clerk may be waived by the broker."

Once the broker and seller execute an agreement that contains the aforementioned disclosure, the broker then may file the affidavit of entitlement with the county clerk, provided that it contains the following language: the name and license number of the broker claiming the commission, the name of the seller or person responsible for comission, the name of the person authorizing the sale on behalf of the seller, if any, and the date of the authorization; a copy of the written agreement; a description of real property involved; the amount of the commission claimed; a description of the brokerage services performed; and dates thereof.

Although not required, it may be a good idea to include language that will warn the seller that failure to make the required commission deposit may result in additional fees including legal costs and reasonable attorney fees if a court determines that the broker is entitled to the commission.

The broker is required to file the affivadvit of entitlement in the county clerk's office of the county in which the property is located. Be sure to bring at least three copies of the affidavit for filing.

Within 5 days of filing the affidavit, the broker must serve the affidavit upon the seller along with the $25 fee made payable to the recording office in such form of payment that is accepted by the recording officer. Service must be made by registered or certified mail, return receipt requested or by personal delivery to the seller's address set forth in the agreement.

In the event that the broker has knowledge that the closing will take place less that 5 days after the filing of the affidavit, the broker must personally serve the seller. If there are multiple sellers, service on one will satisfy the requirement. If the broker fails to serve the seller, the broker forfeits the rights provided by the statute.

If the broker has knowledge of the seller's attorney, the broker shall provide a copy to the attorney via regular first class mail, fax, email, personal delivery, or any  other agreed upon means within 5 days. Failure to deliver a copy to the attorney does NOT forfeit the broker's right under the statute.

At the closing, if the broker is not paid the amount agreed to, then the seller must deposit the amount called for or the net proceeds of the sale, whichever is less, with the county clerk where the affidavit was filed. If multiple affidavits have been filed, the seller will be required to deposit the lesser of the net proceeds or the greater of the two unpaid commissions. If the seller fails to deposit the monies pursuant to the statute, the seller must return the fee provided by the broker and now subject to paying the broker's cost and reasonable attorney fees for the action.

Once the disputed commission is deposited with the county clerk, two clocks start running.

The first is a 60 day period where if neither party commences an action, the seller can petition the court for an order returning the money to the seller. This time period can NOT be extended for any reason, even if broker and seller are negotiating.

The second is a 6 month period for the broker to commence a suit for the commission.Under the statute of limitations, brokers who do NOT file the affidavit of entitlement have 6 years to commence suit.

If the broker has done what is required under the act, and the seller has deposited the disputed commission with the county clerk, the broker must initiate a legal proceeding to have the broker's right to the commission decided by a court of competent jurisdiction. The court then would decide the disposition of the escrow monies. In the event the broker and the seller  come to some agreement as to the disposition of the escrowed monies, the court can accept a stipulation signed by the broker and the seller.

Any broker who files an affidavit requiring the seller to deposit the disputed commission, and then fails to initiate a legal action within 6 months after the deposit, may be subject to disciplinary action by the Department of State.

Information taken from LEGALLINES, a September 2008 Special Edition publication of the NYS Association of REALTORS®, authored by Anthony Gatto, Esq. NYSAR Legal Counsel.