New York Real Estate Broker Exam — All Questions

A New York broker manages a rental building and holds tenants' security deposits. 19 NYCRR § 175.3(b) requires the broker to:

• a.deposit the money in the brokerage's own operating account monthly
• b.remit the money to the Department of State within three business days
• c.handle the money in compliance with General Obligations Law § 7-103✓
• d.pay the money to the owner and take a receipt for each tenant's deposit

The rule reaches a broker “having on deposit or otherwise in custody or control any money furnished as security by a tenant of real property” and requires that the money, including any required interest, be treated, handled and disposed of in compliance with General Obligations Law § 7-103; failure, “including failure to pay, apply or credit any required interest, shall constitute grounds for disciplinary or other appropriate action by the Secretary of State.” Section 7-103(1) makes the deposit the tenant's money, held in trust and not to be mingled with the holder's own funds. Section 7-103(2-a) requires an interest-bearing account for buildings of six or more family dwelling units, and § 7-103(2) lets the holder keep one percent a year as administration expenses, the balance of the interest belonging to the tenant. Handing the money to the owner does not discharge the broker's own obligation while the broker has custody of it.

When managing property for a client, 19 NYCRR § 175.3(a) forbids a New York broker from:

• a.taking a commission or rebate on client expenditures without consent✓
• b.collecting rent for a building the broker does not also have listed
• c.hiring a contractor the client has not personally interviewed first
• d.signing a lease on the client's behalf without a written power of attorney

The operative sentence is short: “When acting as an agent in the management of property a real estate broker shall not accept any commission, rebate or profit on expenditures made for his client without his full knowledge and consent.” The vice is the undisclosed benefit, not the spending itself, so a management fee or a supplier discount is permissible once the owner knows about it and agrees. The wrong options describe ordinary management activity that the rule does not touch: engaging trades is what a manager does, leasing authority comes from the management agreement, and collecting rent for others is licensed activity in its own right under § 440(1). The same disclosure principle runs through §§ 175.4, 175.5 and 175.6, which require a broker to disclose an interest before buying property listed with the broker, before buying for a client property in which the broker has an interest, and before selling property the broker owns.

A purchaser of a New York cooperative apartment acquires:

• a.a recurring right to occupy the apartment for a fixed period each year
• b.shares in the corporation and a proprietary lease for one apartment✓
• c.fee title to the apartment and a share of the common elements
• d.a life estate in the apartment and a seat on the board of directors

A cooperative corporation owns the building, and a purchaser buys shares allocated to a particular unit together with a proprietary lease giving the right to occupy it. The interest is therefore personal property rather than real property, which is why a co-op transfer is a stock and lease assignment rather than a deed, why the buyer's loan is a share loan secured under the Uniform Commercial Code rather than a mortgage, and why financing, board review and closing all work differently. Fee title to the unit plus an interest in the common elements describes a condominium. A life estate measured by a life and a board seat is not how shares work. A recurring right to occupy for a fixed period each year describes a time share.

A New York cooperative board reviewing a purchase application may:

• a.approve every applicant who satisfies the building's financial tests
• b.decline the applicant for any reason at all, including a protected basis
• c.decline the applicant without a reason, but not on a protected basis✓
• d.decline the applicant only after a written hearing on the application

Board approval is real discretion, and a board is generally not obliged to explain a rejection, which is why an experienced broker treats board review as a genuine contingency rather than a formality. The discretion is not unlimited. Executive Law § 296(5) reaches “any person having the right to sell” a housing accommodation and the agents of such a person, so a rejection resting on race, creed, color, national origin, citizenship or immigration status, sexual orientation, gender identity or expression, military status, sex, age, disability, marital status, status as a victim of domestic violence, lawful source of income or familial status is unlawful whether or not a reason is stated. There is no statutory right to a hearing, and no rule that forces approval of anyone who clears the building's financial tests.

Real Property Law § 339-z gives a New York condominium board a lien for unpaid common charges that ranks ahead of everything except:

• a.tax liens and sums unpaid on any mortgage of record
• b.mechanic's liens and sums unpaid on a home equity credit line
• c.tax liens and sums unpaid on a first mortgage of record✓
• d.judgment liens and sums unpaid on a recorded second mortgage

The section gives the board of managers, on behalf of the unit owners, “a lien on each unit for the unpaid common charges thereof, together with interest thereon, prior to all other liens except only (i) liens for taxes on the unit in favor of any assessing unit, school district, special district, county or other taxing unit, (ii) all sums unpaid on a first mortgage of record,” and (iii) sums unpaid on certain subordinate mortgages held by named public agencies. So a second mortgage, a judgment and a mechanic's lien all rank behind the common charge lien, and only the first mortgage among ordinary private lenders outranks it. The same section says unpaid common charges are paid out of the sale proceeds or by the grantee on a conveyance, and entitles either party to a statement of the arrears from the board before closing.