When a New York real estate closing collapses at the last minute, buyers and sellers usually expect the cause to be a lien, a title defect, or a financing problem. Alexander Paykin, Esq., founder of Paykin Law, says one of the more common causes is much simpler: the person at the table does not have the legal authority to sign.
It can involve an estate, an LLC, or a nonprofit, and on either side of the deal. Paykin says it happens more often than people think, and when it surfaces late, it can delay a closing for months.
An Estate Sale That Took Nine Months To Close
Paykin’s clearest example came from an estate sale that fell apart in the last five minutes of what was supposed to be a simple closing. A married couple had bought the property about 50 years earlier. The husband died roughly 20 years ago, and the wife died recently. Their son was appointed executor of his mother’s estate.
Everyone in the transaction assumed the couple had held the property as tenants by the entirety, which would have made the wife the sole owner after her husband’s death. Under that assumption, the son, as his mother’s executor, could sell the whole property.
Then the property’s managing agent pointed out that, according to the original papers, the couple had bought as tenants in common. That meant the husband still owned 50 percent, and his share had to be conveyed separately. Because his estate had never been probated and he died without a will, the son had to petition the court to be named administrator of his father’s estate for the sole purpose of conveying that share.
The certified checks were already on the table, and the documents were signed. The closing was adjourned for about nine months. The son was the sole beneficiary of both estates, and nobody could have objected to the sale. Even so, title companies, managing agents, and county clerks require each ownership interest to be conveyed properly. The deal only survived because the buyer planned to redevelop the property and was willing to wait.
Estates, LLCs, And Nonprofits Each Carry Their Own Risks
Estates create other authority problems too. An executor may be named by the court but still need separate approval for larger transactions. Paykin gave the example of a court order requiring supplemental letters for any sale over $500,000. If the executor does not know that, a $550,000 closing stops because he has no authority to sign.
LLCs cause trouble on the buying side. Sometimes a buyer announces at the last minute that the purchase will be made through an LLC. Every document has to be redone, the tax ID changes, and nobody has searched the LLC for judgments or liens.
In another case, an LLC sent its manager to a closing without a resolution from the members authorizing him to sign. The operating agreement required unanimous member consent for any transaction above a set amount. The manager could handle day-to-day operations, Paykin said, but “he couldn’t go ahead and buy a million-dollar property.” A controlling member was traveling abroad and could not be reached, so the closing was adjourned.
Nonprofits face a different requirement. Paykin says that, depending on the type of organization, most New York nonprofits need the Attorney General’s consent to sell major assets. If that is identified early, it is routine: the proposed contract and supporting papers go to the AG, who confirms the deal is fair to the organization. But the process can take 60 days or longer, and discovering the requirement two days before closing is a serious problem.
Why Your Attorney Should Check The Other Side Too
Paykin’s main point is that confirming authority is one of the most important things a transaction lawyer does, and it cannot stop with their own client. Before closing, he asks opposing counsel who will be signing, what their title is, whether a resolution or letter of authority is required, and whether the operating agreement or bylaws have been reviewed.
That matters because the other side’s problem quickly becomes your problem. If a seller cannot close on time, a buyer’s rate lock may expire. “My client’s not really going to care that it’s the other side’s fault,” Paykin said.
He contrasts this with litigation, where an attorney may not want to point out the other side’s missing evidence until trial. In a transaction, both lawyers want the same outcome: a completed closing. So when he sees that a seller is a nonprofit while the contract is being drafted, he reminds the seller’s attorney to order the AG’s letter right away.
For buyers and sellers, the practical takeaway is to tell your attorney early exactly how title is held and who will be signing, including any estate, trust, LLC, power of attorney, or nonprofit involved. You can learn more about Alexander Paykin’s background and practice on the firm’s website.
Alexander Paykin, Esq. is the founder of Paykin Law, a New York real estate and commercial litigation firm based at 45 Rockefeller Plaza in Manhattan. The firm represents clients in real estate transactions, real estate and commercial litigation, foreclosure defense, landlord-tenant matters, and co-op and condo issues across New York City, Long Island, and Westchester.
Disclaimer: This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
