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NO UNLICENSED "FINDER" FEE

REBNY_logo_nyreblog_com_.gifTo:         Members of REBNY
From:     Neil B. Garfinkel, REBNY Residential Counsel
Date:      June 17, 2011

REBNY and Abrams Garfinkel Margolis Bergson, LLP Successfully Submit Amicus Brief in Important New YorkAppellate Court Case

Summary

A New York Appellate Court recently reaffirmed the law prohibiting a party that does not have a real estate broker license from maintaining a lawsuit to recover commissions on real estate transactions.


Background

In Futersak v. Perl, the plaintiff, Futersak, facilitated a real estate transaction. However, Futersak did not have a real estate broker's license.  When the defendant, Perl, failed to pay Futersak a fee for facilitating the transaction, Futersak sued Perl.  The key issue addressed by the trial court was the interpretation and applicability of Section 442-d of the Real Property Law, which precludes those who are not licensed as real estate brokers from suing to collect a commission involving a transaction where the dominant feature of such transaction involves real property.

The trial court held that, although the dominant feature of the underlying transaction was the purchase and sale of real property, Section 442-d did not apply because Futersak, who was not a licensed real estate broker, acted as a "finder" as opposed to a "broker," and, therefore, was entitled to recover a commission for introducing the purchaser to the seller.  According to the trial court's analysis, the standard for determining the applicability of Section 442-d was whether the person seeking compensation for facilitating the purchase or sale of real property "negotiated" the transaction or owed a "fiduciary-like" duty to the party from whom compensation is sought.  If the person seeking compensation did not negotiate the real estate transaction or owe a "fiduciary-like" duty, then Section 442-d, according to the trial court, does not apply.

Perl appealed this decision. 

REBNY's Analysis and Position

REBNY supported the position that the finding of the trial court was contrary to New York law, which long held that Section 442-d applies where, as in the Futersak v. Perl case, the dominant feature of the transaction for which compensation is sought is the transfer of real property. All New York courts addressing this issue prior to the Futersak v. Perl case have held that, once it has been determined that the dominant feature of the underlying transaction is the purchase or sale of real property, Section 442-d applies.  Once this threshold determination has been made, whether the unlicensed individual claiming compensation as a "finder" or under any other name has acted with fiduciary-like duties or has negotiated the transaction is utterly irrelevant.

Because the trial court's deviation from the established standard for determining the applicability of Section 442-d, if affirmed, would have had a severely negative impact on New York State's real estate industry, REBNY sought and obtained  leave of the Appellate Court to submit a brief as an amicus curiae or "friend of the Court."  In its brief, REBNY argued, among other things, that permitting unlicensed and unregulated individuals to recover compensation for facilitating real estate transactions would wreak havoc on the real estate industry.  If the trial court's ruling were to stand, anyone claiming to have had a hand in the culmination of a real estate transfer would have been free to file suit for compensation.  REBNY feared that such a precedent would threaten to turn every real estate transaction into a lawsuit and provide little incentive to individuals to comply with the real estate broker licensing laws established to protect the public and help safeguard New York's real estate economy. 

The Appellate Court's Ruling

The Appellate Court agreed with REBNY's analysis and reversed the trial court's decision.  In doing so, the Appellate Court repeated Section 442-d, which provides, in pertinent part, that:  "No person . . . shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered . . . in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the cause of action arose."  "Contrary to the [trial] Court's conclusion," the Appellate Court wrote, "this prohibition applies even if the services rendered are characterized as those of a 'finder.'" 

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