Date: July 8, 2022Attorney: Lawrence C. Weiner

I know you have faced this situation. The closing is scheduled, and you are expecting to be paid your full commission at closing. Then shortly before the closing, the seller contacts you advising that s/he does not think you are entitled to a commission or is demanding that you agree to discount your commission. Since New Jersey is not a broker lien law state, what rights do you have to protect payment of your full commission?

There is a trial level reported decision from approximately 35 years ago, Cohen v. The Estate of Sheridan, which holds that a broker has an equitable lien on the sale proceeds to protect its commission. In Cohen, there were liens on the property that exceeded the purchase price. The buyer in the transaction petitioned the Court to rule that the commissions due the brokers were not a lien on the property to be satisfied in order for the buyer to receive clear title to the property. The Court ruled in favor of the brokers, finding that “the inchoate right of a broker to a commission to be paid at closing is entitled to the protection of an equitable lien on the property of the seller until closing (to protect against any unscrupulous activity on the part of the seller…) and, at closing, to an equitable lien on the fund due to the seller.” The case can be viewed here. Please note that you would have to take immediate action to enforce your equitable lien.

More recently, the appellate division, in an unreported case – Recon Realty, LLC v. Marjac LLC – addressed whether the broker has an equitable lien on the sale proceeds to be paid at closing. Similarly to Cohen, the property in question had more liens against it than the amount of the purchase price. Despite the clear holding in Cohen, the appellate division ruled against the broker, finding that it did not have an equitable lien against the sale proceeds. In its ruling, the appellate division never referenced Cohen v. The Estate of Sheridan. Instead, it focused on the broker’s commission agreement and highlighted that it made no reference requiring the commission to be paid directly from sale proceeds. The case can be viewed here.

Accordingly, in an abundance of caution, I suggest that your listing agreements and commission agreements have sufficient language to strengthen your argument that you have an equitable lien on sale proceeds for your commission to be paid.

If you need any assistance with such language to amend your agreements, please do not hesitate to contact me.