What To Do When Your Seller Won’t Pay Your Commission

Your Seller Won’t Pay Your Commission — Now What?  

“Whoever has the gold makes the rules” is a familiar saying with particular relevance to real estate transactions. With hundreds of thousands—or even millions—of dollars flying across the closing table, the best time to be paid is at the closing, not after. But what can a real estate broker do when a seller flexes their muscles and tells the broker that they will not pay their commission at closing?

One answer may be filing an RPL §294-b affidavit of entitlement to commission for completed brokerage services. 

What Is It? 

An RPL §294-b affidavit of entitlement to commission for completed brokerage services (often shortened to “affidavit of entitlement”) is a filing recorded in the lien docket against the property subject to a written brokerage agreement. In the affidavit, a broker asserts entitlement to commission from the owner of the property on the basis of procuring the purchaser pursuant to a brokerage agreement with the seller. If filed timely and correctly, the affidavit can significantly increase the seller’s exposure and potentially push them off their strong-arm position of refusing to pay the commission at closing.

The rub is straightforward — a seller who fails to pay the claimed commission at or before closing must instead deposit the disputed commission “with the recording officer in whose office such affidavit of entitlement had been recorded” before or simultaneously with the transfer of title (i.e., not after). RPL §294-b(5)(a). Failing to timely make the deposit will result in an award of attorneys’ fees in favor of the broker in a subsequent action to enforce the underlying brokerage agreement. RPL §294-b(5)(h).

As an added bonus, undiscerning attorneys may believe that the affidavit—recorded and filed on the lien docket—is a cloud on title preventing the closing of title. It, of course, is not, as stated directly in RPL §294-b(2): “Recording such affidavit shall not invalidate any transfer of real property or lease there. Such affidavit shall not be deemed to create a lien and shall be discharged one year after filing”. Nevertheless, the reality is most attorneys involved in transactions are unfamiliar with the statute, and the recording, usually completed within days of closing when title has already been cleared and scheduled for closing, is just the type of sabotage that grinds a transaction to a halt until the “lien” is dealt with. 

Technically Demanding

To ensure the benefit of attorneys’ fees in a subsequent enforcement action, a broker’s filing must comply with the demanding technicalities outlined in the statute:

1. The contents of the affidavit must conform exactly to the requirements of RPL §294-b(2).
2. Personal service of the filed affidavit upon the seller is required before the closing occurs, either by certified mail or personal delivery depending on timing. RPL §294-b(4).
3. The broker’s underlying brokerage agreement must contain the disclosure required by RPL §294-b(5)(j). 
4. The broker must deliver, with service of the filed affidavit upon the seller, a $25.00 fee to cover the costs of depositing the disputed commission with the recording officer. RPL §294-b(5)(c).
5. An action for recovery of the commission must be commenced within 60 days from the deposit of the disputed commission with the recording officer — “which time limit shall not be extended”. RPL §294-b(5)(e). 

Given the fact that brokers usually don’t learn that the seller is going to stiff them until the last minute, hiring an attorney who will get the filing right the first time is critical. A rejected filing may mean the difference between properly serving the affidavit prior to closing and not. 

Limitations

While the affidavit of entitlement is a powerful tool, it does have limitations. 

1. Although the statute permits the filing of an affidavit of entitlement in commercial transactions, attorneys’ fees are not available in a subsequent action to enforce the brokerage agreement should the seller fail to deposit the disputed commission with the recording officer. This essentially renders the affidavit of entitlement toothless. RPL §294-b(5)(k).
2. Even though the statute mentions lease transactions, it is really only talking about the sale of co-ops. The statute requires service of the filed affidavit upon the seller prior to “delivery of the stock certificate and/or proprietary lease in connection with the sale of a cooperative apartment”. RPL §294-b(b)(a). For enforcement of a brokerage agreement relating to a traditional landlord-tenant relationship, a mechanic’s lien is the only recourse available (and only for commercial leases, not residential). Lien Law §10. 
3. If the seller does timely deposit the disputed commission with the recording officer, attorneys’ fees are unavailable in the subsequent commission lawsuit (unless already provided in your brokerage agreement). 
4. If the seller does not deposit the disputed commission with the recording officer, you may be compelled to undertake enforcement proceedings to satisfy your judgment. 

Is It Worth It? 

The filing of an affidavit of entitlement to commission for completed brokerage services is potentially a powerful tool, particularly in cases where the availability of attorneys’ fees transforms an otherwise financially unviable commission lawsuit into one that will result in a net positive to the broker. 

In an industry that increasingly favors the consumers over the broker, broker’s would be remiss to ignore one of the few arrows in their quiver. When a seller thinks he makes the rules because he has the gold, the broker should fire back.