Frequently Asked Questions About the New Commission Escrow Act

Feb 19, 2014

What You Need to Know About the Commission Escrow Act and how to Comply with its Requirements

  1. What is the Commission Escrow Act?

    The Commission Escrow Act (CEA) deals with the situation where an owner does not pay a broker their full agreed upon commission at the closing. It requires the owner to deposit any amount not paid the broker (or the net proceeds of the transaction, whichever is less) with the County Clerk of the County in which the property is located.

  2. When does the law go into effect?

    January 1, 2009

  3. What type of transactions does the Commission Escrow Act apply to?

    The Commission Escrow Act only applies to residential transactions. That is 1-4 family dwellings and individual condominium units and individual cooperative apartments. The Act does not apply to vacant, commercial, or leased property. It does not apply to a sponsor or owner who has listed with you more than 4 units in a building.

  4. What is the first thing a broker must do to be in compliance with this new law?

    Brokers must make sure that their listing agreements satisfy the following requirements: (1) The listing agreement, whether an exclusive or an open listing, must be in writing and signed by the owner. Brokers who enter into oral agreements with their clients cannot qualify for escrow protection under this law. (2) The listing agreement must contain the following disclosure 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. (3) The listing agreement should clearly state the address of the owner. The address for the property to be sold should be set forth separately even if that address is the same address as the owner’s address. It is important that the address at which the owner resides is clearly identifiable simply by looking at the listing agreement.

  5. Will the MLS provide new listing agreements which contain the necessary requirements of the Act?

    Yes, the new listing agreements will be available by the time the law goes into effect.

  6. What if the listing agreement does not contain the disclosure language?

    If the executed listing agreement does not contain this disclosure, the seller is not required to escrow the amount in dispute.

  7. Can the broker waive the seller’s obligations under the Act?

    Yes. As can be seen from the language of the disclosure, the broker can waive the seller’s obligations under the Act. However, brokers should not waive their rights under this law without careful consideration.

  8. Can the commission be renegotiated during the term of a listing agreement that was signed pursuant to the Commission Escrow Act?

    Yes. However, it is recommended that either the original listing agreement be amended in writing to reflect the change in commission or an all new listing agreement be entered into with the owner setting forth the renegotiated commission. At present many brokers use a commission agreement when they renegotiate a commission. The CEA has no provision for changing the rate of commission in this manner. Therefore, it is strongly recommended that if you renegotiate a commission you either enter into a new listing agreement or amend the original listing agreement.

  9. What is the next step a broker must take to get the benefits of the Commission Escrow Act?

    Once the broker has earned their commission by procuring a buyer, the broker must file an Affidavit of Entitlement and serve a copy of that Affidavit upon the homeowner within 5 days after such filing. The Affidavit must be filed after the contract is signed and before the closing. The Affidavit is valid for one year after filing. In order to avoid it expiring before the closing it is recommended that the Affidavit be filed after any financing condition to the contract of sale has been satisfied.

  10. What is an Affidavit of Entitlement for Commission?

    This is a sworn statement by the real estate broker asserting that he or she is entitled to the commission as set forth in the listing agreement due to the fact that the broker produced a person ready, willing and able to purchase the residential dwelling or cooperative or condominium. A copy of the Affidavit form can be found on the “Documents on Demand” section of

  11. What information must the Affidavit of Entitlement for Commission include?

    The Affidavit must include the following information: (1) the name and license number of the broker claiming the commission; (2) the name of the seller or person responsible for commission; (3) the name of the person authorizing the sale on behalf of the seller, if any, and the date of such authorization; (4) a copy of the written listing agreement; (5) a description of the real property involved; (6) the amount of the commission claimed; (7) a description of the brokerage services performed; (8) the dates that the brokerage services were performed.

  12. What type of information would satisfy the requirement that there must be a description of the property?

    The full street address including house number, street name, town or village, the county and state and section, lot, and block. For a condo or coop include the unit number.

  13. What type of information would satisfy the requirement that the Affidavit must include the dates and description of the brokerage services performed?

    The Affidavit must include all of the services that the broker agreed to perform in the listing contract. This would include any service the broker agreed to perform in any promotion or sales literature such as a marketing guaranty. Where the broker has not agreed to perform any specified service it is sufficient to just record the fact of the agreement between the buyer and seller and the date thereof with the statement that the agreement was procured by the broker.

  14. Who must sign the Affidavit?

    The individual who is licensed as the representative broker of the business by the Department of State, Division of Licensing Services. No other licensee can sign the affidavit.

  15. What should a broker do after preparing an Affidavit of Entitlement for Commission?

    The Affidavit must be filed in the county clerk’s office of the county where the real property is located. The broker should bring at least four copies of the Affidavit and attached listing agreement, one for the county clerk to file, a copy for the seller, a copy for the seller’s attorney if applicable, and a copy for the broker. The broker should ask the clerk to stamp all four copies as proof of filing.

  16. Does the broker need to attach anything to the Affidavit of Entitlement for Commission when filing it at the county clerk’s office?

    Yes. The written listing agreement must be attached to the Affidavit.

  17. Who can file the Affidavit?

    Any individual or entity can physically file the Affidavit on behalf of the broker.

  18. Is there a cost to file the Affidavit?

    Yes. The fees are as follows:
    - Nassau County: $40.00 recording fee, $10.00 block fee, $5.00 per page fee;
    - Suffolk County: $45.00 fee for the first page; $5.00 fee each additional page;
    - Queens County: $42.00 recording fee; $5.00 fee per additional page

  19. Once the broker files the Affidavit of Entitlement for Commission, must the broker do anything further?

    Yes. Within 5 business days (excluding Saturday, Sunday and public holidays) of filing the Affidavit, the broker must serve a copy of that document on the owner by registered or certified mail, return receipt requested, or by personal delivery. The service must be made to the owner’s address as set forth in the written listing agreement. If the closing will occur in 5 business days or less from the filing of the Affidavit, then the broker must personally serve the seller.

  20. What if there are multiple sellers?

    If there are multiple sellers, service upon any one will satisfy the requirements of the Act.

  21. What if the broker fails to serve the seller within the specified time requirements?

    The seller does not have to deposit the disputed money in escrow.

  22. Is there a need to notify the seller’s attorney of the broker’s filing the Affidavit of Entitlement?

    If the seller is represented by an attorney, and the broker has been given contact information for that attorney prior to the time that the broker files the Affidavit of Entitlement for Commission, the broker must also send a copy of the Affidavit of Entitlement to the attorney. This can be done by ordinary mail, fax, e-mail attachment, or by personal delivery. This must be done within 5 business days of filing of the Affidavit of Entitlement. The broker must also serve the owner as set forth in the answer to question 19.

  23. Must the broker provide anything to the seller at the time the Affidavit of Entitlement for Commission is served upon the seller?

    Yes. Along with the Affidavit of Entitlement, the broker must mail or deliver to the seller a check in the amount of $25.00 payable to the clerk of the county in which the property is located. The broker should make sure his or her file contains both a copy of the Affidavit of Entitlement and the check that was mailed to the owner. The broker should also make sure he or she has a record of the date the documents were mailed and the address to which it was mailed. Photocopying the Affidavit, the check and the fully addressed envelope with the postage affixed to keep for the file is a good idea.

  24. What happens if the broker is not paid their full commission at closing?

    If the broker is not paid the commission called for under the listing agreement at the closing, and the broker has complied with the requirements of the Act, the seller is obligated to deposit the unpaid amount of the commission or the net proceeds of the sale, whichever is less, with the county clerk’s office where the Affidavit of Entitlement was filed.

  25. What if the seller fails to deposit the monies with the county clerk’s office?

    If the seller fails to deposit the monies, the seller must immediately return the $25.00 fee provided by the broker. More importantly, if the broker is determined to be entitled to their commission in a lawsuit, the broker can recover all costs and reasonable attorney’s fees.

  26. What is the result of the seller depositing the monies in dispute with the county clerk’s office?

    Once the disputed commission is deposited with the county clerk, two clocks start running. One is a 60-day time period and the other is a 6 month time period.

  27. What is the 60-day time limit?

    If neither the seller nor the broker commences a lawsuit within 60 days from the date the seller deposits the money in the county clerk’s office, the seller can get a court order returning the money to the seller. The broker’s right to sue continues until the expiration of the 6 month period

  28. Can the 60-day time limit be extended?

    No. This time period cannot be extended for any reason. Brokers must keep this in mind if they are in long negotiations.

  29. What is the 6 month time limit?

    Where the seller has deposited monies pursuant to this law the time within which the broker may bring a lawsuit for its brokerage commission is reduced to 6 months. If the broker does not commence the lawsuit within 6 months, the broker loses their right to be paid. The commission is lost. .

  30. Must a broker file suit or can the seller and broker enter into settlement negotiations for the commission?

    The broker and seller can always enter into settlement negotiations. However, such discussion does not stop the time limits discussed in questions 26 through 29. Settlement discussion is not an excuse for failure to comply with the time requirements of the Act. If the parties come to a settlement agreement after suit is filed, the county clerk can pay out the escrow money pursuant to a written stipulation signed by the broker and seller for distribution of the commission monies.

  31. Does the Act create any kind of expedited hearing or presumption of entitlement to the disputed commission?

    No. The Act still requires the broker to initiate a formal legal action against the seller in order to recover unpaid commissions.

  32. Does the Act create a lien on the seller’s property?

    No. The Act does not invalidate the transfer of real property, nor does it create a lien on the seller’s property.

  33. If there was no closing, is the seller required to deposit the disputed commission money into escrow?

    No. The seller is only required to deposit the disputed money into escrow if there was a closing (passage of title, stock certificates and/or proprietary lease).

LIBOR Government Affairs Department
300 Sunrise Highway
West Babylon, NY 11704
(631) 661-4800 Ext. 354