Navigating Residential Attorney Approvals: Finding a Better Judicial North Star
60 Pages Posted: 23 Mar 2010
Date Written: 2006
The article traces the development of attorney approval clauses and describes the court rulings on the unauthorized practice of law that led to the development of these clauses. The article describes how a well-trained attorney can protect home buyers and sellers at the contract formation stage and thereafter far better than a broker, a title company, or a lender. Understanding what a well-trained attorney would ordinarily do when representing a party contemplating entering into a purchase and sales contract is fundamental to analyzing whether attorney approval clauses are serving their intended function.
The author argues that, to the extent that attorney approval clauses were intended to provide buyers and sellers with the means to be competently and legitimately represented by an attorney, the typical wording of many attorney approval clauses and certain court interpretations of the clauses have greatly impeded this goal. The article critiques the different wording contained in attorney approval clauses and then identifies instances of judicial misapplication of contract principles when interpreting attorney approval clauses (mischaracterizing the clauses as conditional acceptances and any proposed modifications to the contract as counteroffers). The author argues that such mischaracterizations have opened the door to bad faith rejections of a contract, and have impeded an attorney’s ability to competently and legitimately represent their client.
In addition, the article contends that, although courts require that attorneys act in good faith when exercising the attorney approval clause, courts’ failure to require that attorneys state the reason(s) for their disapproval of the contract or to provide proposed changes to the contract weakens the effectiveness of such a requirement and forces attorneys into real dilemmas when their clients pressure them to improperly disapprove a contract. The article asserts that courts’ failure to adequately define the “good faith-bad faith” dichotomy forces many attorneys to make shot-in-the dark type judgments on how to zealously represent their client while properly exercising the attorney approval clause.
The article concludes by recommending that courts interpret these attorney approval clauses in a fashion that better comports with the public interest. It also recommends to associations of brokers and bar associations of lawyers how to draft attorney clauses for residential purchase agreements to better serve the purpose of such clauses. The author advises attorneys on how to fulfill their duty of zealous representation and, at the same time, satisfy the good faith requirement when exercising an attorney approval clause under current case law.
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