The Attorney Review Clock and $25,000 in Escrow
On Friday, March 7, the Harts sign a New Jersey Realtors standard form contract to buy a Hoboken condominium for $640,000; the seller signs the same day, and the fully signed contract is delivered to both sides Friday evening. The contract contains the standard attorney review clause. The Harts deliver a $25,000 deposit, which the listing broker places in the brokerage's escrow account. On Thursday, March 13, the buyers' attorney faxes a written disapproval that states no reason. The seller insists the deadline has passed and refuses to authorize return of the deposit. The broker asks the salesperson, Ellen, what to do, and the seller asks Ellen to confirm in writing that the contract is "dead."
1. Compute the attorney review deadline and determine whether the disapproval was timely.
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Counting rule: the three business days run from delivery of the fully signed contract; the day of delivery is not counted, and weekends and legal holidays are excluded from the count.
Delivery: Friday, March 7 - counted as day 0.
- Saturday 3/8 and Sunday 3/9: not business days.
- Monday 3/10 = business day 1
- Tuesday 3/11 = business day 2
- Wednesday 3/12 = business day 3 → deadline expires at the end of Wednesday, March 12
The disapproval arrived Thursday, March 13 - one day late. Unless the attorneys had agreed in writing to extend review, the disapproval is ineffective and the contract stands as written.
Two refinements: a disapproval must come from a party's attorney and be in writing, and under the standard clause the attorney need not give a reason - but timeliness is not optional. The reason-free letter is fine; the timing is what defeats it.
2. What may the broker do with the $25,000, and what should Ellen tell the parties?
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Nothing unilateral. Escrowed deposit funds are not the broker's money. The broker may not release the deposit to the seller on the strength of a late disapproval, and may not return it to the buyer simply because the buyer asked. Release requires either:
- a written agreement signed by both parties directing disbursement, or
- a court order (or an arbitration/mediation result the parties have agreed to accept).
So the safe instruction is: hold the funds in escrow, advise both sides in writing that the brokerage is neutral and will not disburse without mutual written direction, and refer the dispute to the parties' attorneys.
Ellen should also correct a likely misconception: because the disapproval was untimely, the contract is very much alive, and the deposit is not automatically the seller's. The seller cannot "keep" it merely by declaring the deal dead.
3. The seller asks Ellen to put in writing that the contract is "dead." How should Ellen respond?
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Ellen must decline to give that characterization. Under New Jersey law, a real estate licensee may not practice law or give legal advice, and telling a party that a contract is void - or, conversely, that it is enforceable - is exactly that.
What Ellen can and should do:
- State facts only: the dates, the time of delivery, the date the disapproval letter was received, and the fact that the deposit is held in the brokerage's escrow account.
- Point out that the deadline computation is a legal question for the attorneys, and recommend that the seller consult her own attorney immediately.
- Confirm the brokerage's neutral escrow position in writing.
Ellen's own interests are also at stake: her commission is contingent on the transaction, so advising either side on the legal effect of the clause creates a conflict and an unauthorized-practice risk. Referral to counsel is the whole answer.