New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

Most transfers of title to real estate are made subject to "easement and restrictions of record, if any." Easements may be varied, but usually involve access rights for utilities, or perhaps a driveway easement to share a driveway with a neighbor. But what about those restrictions? What are they?

Most restrictions can be found as covenants contained in a deed, in a declaration of restrictions or on a legend on a filed map. Restrictions generally limit or otherwise affect how a property owner can use their lands. Perhaps they involve the distance a structure must be set back from a property line or other structure (unrelated to zoning setback requirements). Or, maybe they involve how a structure may be used (unrelated to land use ordinances). Or, they might even limit who can use the property. Some restrictions are referred to as nuisance restrictions because they prohibit the use of the property conveyed for any noxious or offensive purpose. Restrictions against public policy, such as those restricting use due to race, national origin, etc., are not enforceable.

Restrictions set forth in a deed transferring title, or those appearing in earlier deeds in the chain of title, are binding on a property owner. This is one of many reasons to perform a title search when buying a property - to determine if there are any recorded restrictions which will affect an owner's use of the property.

Some of the more common restrictions involve a neighborhood plan which may impose limitations on the size and dimensions of lots, the location of structures on a lot or how the structures may be used. Many of these types of restrictions were originally imposed prior to the existence of local zoning ordinances. Thus, a land owner could impose his/her own restrictions on a tract which was to be developed. Sometimes, associations were created with authority to approve or disapprove new structures on the lots. In more recent times, developers impose restrictions on subdivisions which are meant to supplement existing zoning requirements, often imposing more extensive restrictions in an effort to preserve a particular neighborhood scheme as envisioned by the developer.

Restrictions can also be imposed by property owners conveying only a portion of their property who want to benefit or protect the remaining portion they are retaining. For example, a property owner who subdivides off part of his/her property may want to prevent anyone owning the newly created lot from building within a certain distance (which may exceed the local zoning requirements) from their remaining lot. The subdividing property owner may also want to impose a restriction to retain the right to approve any new structure on the new lot.

Unless a restriction is deemed to be personal to the grantor imposing it, or there is a specified termination date, the passage of time alone will not serve to terminate a restriction.

As a result of the binding characteristics of restrictions, it is important to review the back title to a property being purchased to ascertain what, if any, restrictions may affect ownership rights to the property.

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Timothy P. Duggan, Shareholder of Stark & Stark’s Condemnation group, was quoted in the June 16, 2009 NJ Biz article, Senators announce amendments to eminent domain legislation. The article discusses the recent amendments to State Senate majority leader Steve Sweeney (D-West Deptford) and State Senator Ronald Rice’s (D-Newark) previously proposed eminent domain legislation, which would allow  redevelopment in the state while still providing protection and fair compensation to property owners if eminent domain is required.

Mr. Duggan states that you need a good compromise by making certain that redevelopment is allowed to go forward in some areas, such as inner cities, while curbing abuses in areas that are truly not blighted. Mr. Duggan also comments on effects the recent economy has had on several redevelopment plans in the area.

You can read the full article online here.

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Selling a home and wondering what physical conditions at the premises need to be disclosed to a potential new buyer?  Everyone wants to present a positive picture of their home, especially during a slow real estate market.  But it is usually in a seller’s best interest to thoroughly disclose any defects which are not readily observable.

Most residential resale properties are sold in “as is” condition.  This is usually intended to mean that the buyers have a right to make whatever inspections they seek and the sellers are not responsible after closing for any conditions later discovered by the buyers.

However, selling a home “as is” does not mean that a seller can deliberately misrepresent the condition of the property.  Sellers may be liable for common law fraud if they make a material misrepresentation of any present or past fact which they know or believe to be false, they intend the buyer to rely on, the buyer does rely on it and damages result.  The Jewish Center of Sussex Cty. v. Whale 86 N.J. 619, 624-25 (1981).  In such instances, a buyer may be entitled to rescind or terminate their contract with the seller, or may seek damages from the seller.

Our New Jersey courts have defined misrepresentation to include the failure to disclose certain conditions.  In Weintraub v. Krobatsch 64 N.J. 445 (1974) the buyers inspected a home during the day and found it acceptable.  Prior to closing, however, the buyers visited the property when it was dark and were astonished to discover that the house was heavily infested with crawling insects.  The buyer refused to close.  When the litigation which later ensued reached the New Jersey Supreme Court, the Court held that a seller is not only liable to a buyer for affirmative and intentional material misrepresentations, but also for non-disclosure of defects known to a seller, unobservable by buyers, and where the facts not disclosed would be of significant materiality to the buyers’ decision to purchase.  In such situations, a buyer would be entitled to rescind their contract.

Thus, our courts have indicated that sellers risk a contract being rescinded, or incurring liability for damages, if sellers do not disclose a defective condition which is 1) latent, 2) not reasonably observable to the buyer and 3) significant to the buyer’s decision to purchase Correa v. Maggiore 196 N.J. Super. 273 (App. Div. 1984).

Real estate brokers have similar responsibilities concerning disclosure issues. In addition to possible claims of common law fraud, realtors may also be subject to the New Jersey Consumer Fraud Act N.J.S.A. 56:8-1 et seq.  Under the New Jersey Consumer Fraud Act, a real estate broker representing a seller of a home previously occupied may be liable (in addition to affirmative acts of misrepresentation) for acts of non-disclosure of a defective condition if the condition was known to the broker, but not readily observable to the buyer.  Strawn v. Canuso 140 N.J. 43, 58-59, 65 (1995). (Subsequent to this decision, a statute was passed to address disclosure obligations for newly constructed residential real estate.  N.J.S.A. 46:3C-1 et seq.)  In instances of non-disclosure, it must be shown that the broker knowingly concealed a material fact about the premises with the intention that the buyers would rely on the concealment.  N.J.S.A. 56:8-2, Leon v. Rite Aid Corp. 340 N.J. Super. 462, 469 (App. Div. 2001).

Other examples of failure to disclose conditions which created liability for sellers or realtors and which have been addressed in New Jersey court cases include:

• Failing to disclose that a tennis court would be constructed on an adjoining property.  Tobin v. Paparone Construction Co. 137 N.J. Super. 518 (Law Div. 1975).
• Concealment of a defective septic system.  DiBernardo v. Mosley 206 N.J. Super. 371 (App. Div. 1986) cert. denied 103 N.J. 503 (1986).

In response to the potential pitfalls involving disclosure issues, most real estate brokers now provide sellers with an extensive disclosure form to complete and sign.  This form is then provided to potential buyers.  Completing this form accurately and thoroughly helps to protect the seller (and the realtor) from claims of misrepresentation or non-disclosure.

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Ever wonder who first held official title to what is now known as New Jersey? Although Native Americans were living here at the time, the British Crown originally laid claim to the lands in this state in 1663.  In June 1664, King Charles II made a land grant to his brother, James, Duke of York, which included the lands in New Jersey.  Three months later, the Duke of York conveyed his interest in these lands to his two friends and supporters, John, Lord Berkeley and Sir George Carteret.  These gentlemen became the original proprietors of New Jersey. 

Berkeley later sold his share of the lands to others.  In 1676, the successors to Berkeley’s interests and Carteret signed an Agreement dividing the colony into East and West Jersey.  The portion originally owned by Carteret became East Jersey and the portion originally owned by Berkeley became West Jersey.  These two provinces each came to be ruled by a Board of Proprietors who represented owners of fractional shares of each province.  Subsequent transfers of title to these lands were made by the Board of Proprietors and then subsequently by those who had been granted title and their successors in interest.

As recently as 1998, certain remaining lands in East Jersey were purchased by the New Jersey Department of Environmental Protection.  However, no such agreement was entered into for any remaining West Jersey lands.  As a result, it is possible that when researching title to property once located in West Jersey that the research may lead to the West Jersey Board of Proprietors as owners. 

Some lands in New Jersey were also acquired from Native Americans.  For example, the Newark area was purchased from Native Americans in 1667.  In 1669, Carteret purchased some lands from Native Americans as well.  However, by 1758, any remaining land or claims to lands by Native Americans were extinguished by a treaty between the Native American tribal chiefs and then Governor Bernard on behalf of the British Crown and the colonists. 

There has been some controversy as to the actual location of the Division Line between East and West Jersey.  This resulted in three separate dividing lines - each originating near Little Egg Harbor and traversing the State on a diagonal, ending at varying points in northwest New Jersey depending on which line is followed.  One of the lines, known as the Keith Line, has been perpetuated by parts of Province Line Road here in Mercer County.

After the division of the New Jersey lands into the provinces of East and West Jersey, the provinces were later subdivided over time into counties.  There were only eight original counties; four in East Jersey and four in West Jersey.  The original counties of East Jersey were:  Bergen; Essex; Middlesex; and Monmouth.  Out of these counties came Hudson (from Bergen), Passaic (from parts of Bergen and Essex), Union (from Essex), Ocean (from Monmouth), Somerset (from parts of Middlesex and Essex) and Mercer (from parts of Burlington, Middlesex and Somerset).

West Jersey’s original counties were: Burlington; Cape May; Gloucester; and Salem.  Out of these counties came Atlantic (from Gloucester), Camden (from Gloucester), Cumberland (from Salem), Hunterdon (Burlington), Morris County (from Hunterdon), Sussex (from Morris) and Warren (from Sussex).   

As a result of the emergence of newer counties from the older ones, when researching a title to a property, it is sometimes necessary to search title records from a predecessor county from which the newer county originated.  So for example, if one goes back far enough in the title of a Mercer County property, one may have to visit the County Clerk’s office for Burlington, Middlesex, or even Essex counties.

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To resolve certain disputes which can arise over title to real estate, the New Jersey legislature has provided a process by which a party in possession of the real estate can protect or clear up the title to his property.  If another person or entity raises a claim, or disputes the title to the property in some way, then the party in possession of the property may wish to commence a lawsuit to "quiet title" and thus resolve any outstanding issues relating to the title. 

While quiet title actions have historical roots, the remedy available today  in New Jersey is a statutory one pursuant to N.J.S.A. 2A:62-1 et seq..  It is a remedy which permits a person who is in peaceable possession of lands in New Jersey to settle disputes over the title to his land. A person in "peaceable possession" may, when title to his lands or any part of them is denied or disputed, or when a lien or encumbrance is asserted against his lands, use this process  "to settle the title to such lands and to clear up all doubts or disputes" concerning the land.   N.J.S.A. 2A:62-1.

Such an action would be commenced in the Superior Court of New Jersey, Chancery Division.  In order to commence such an action, the party seeking relief must allege that he is in "peaceable possession" and that no action is pending to enforce or test the validity of the defendant's claim to title or an encumbrance.  After proving this, the burden then falls on the defendant to prove his claims.

Sometimes a plaintiff is not able to be in "peaceable possession".  If the lands involved are "wild, wood, waste, uninclosed or unimproved," and if no other person is in actual possession of the lands,  there will be a presumption that plaintiff is in "peaceable possession" if the plaintiff can claim ownership pursuant to a duly recorded deed in New Jersey and that, as owner under the deed, he (or his grantors) has been assessed and  paid taxes for the five (5) years preceding the commencement of the quiet title action.  N.J.S.A. 2A:62-2.

Actions to quiet title may be tried by a jury, upon the application of either party. N.J.S.A. 2A:62-4.

A plaintiff may use a quiet title action to remove any claims created through adverse possession.  Other examples of quiet title actions include removing claims of any heirs, devisees and personal representatives of a long deceased past owner of an interest in the property; or claims of those alleging a lien or encumbrance against the property. 

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Loss of a job, unexpected medical bills, divorce, or other difficult circumstances can cause a homeowner to fall behind in his/her mortgage payments.  Many lending institutions are offering assistance and payment alternatives to delinquent homeowners.

Falling behind but not in default yet?  Look first for other available sources of funds.  This may include funds withdrawn from a retirement account or cash value taken from a life insurance policy.  Check with a tax adviser however, about the tax consequences of a retirement withdrawal and whether a hardship exception applies.  The Office of Housing and Urban Development (HUD) also has interest-free loans available to qualified homeowners to pay past due interest and escrows.

Try to work out a repayment plan with the lending institution.  Especially in these difficult economic times, lenders are open to working out a plan to pay any arrearage.  If the borrower can provide an explanation as to why the cause is a temporary one, the lender may be willing to spread the arrearage out over an extended time period to allow the borrower time to catch up.

Seek a mortgage modification.  The lender may be willing to voluntarily change the terms of the loan which may include a change in the interest rate, principal balance or time period for repayment.

Many homeowners may qualify for the recently enacted stimulus programs.  As details are provided, these programs should be investigated.

Consider a short sale.  A short sale involves the sale of a property for a sum which is not sufficient to pay the costs of closing and the outstanding loans against the property.  Lenders must approve the short sale which may take 20-40 business days, so a flexible buyer is essential.  Because a short sale does not generate sufficient funds to pay off the mortgage in full, there will remain a balance due under the note unless the lender agrees to discharge any balance due on the underlying debt, so that no balance remains due and owing after the short sale.

Finally, a homeowner in default on their mortgage may want to consider a deed in lieu of foreclosure.  In such instances the lender agrees to accept a deed transferring title to the lender to avoid the cost of a foreclosure sale.  Check with the lender to find out if they have any time restrictions on when they will accept a deed in lieu.  As with a short sale, the borrower would also want to make sure that the underlying debt is discharged as well.  If there is a second mortgage on the property, this would have to be addressed as well.

The worst course of action for a homeowners in default is to ignore the situation.  Given the newly enacted stimulus bills and the efforts of banks and the government to address the high default rate, many lenders have loss mitigation, or homeowners assistance departments to help such homeowners find the best solution for their individual circumstances.

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In addition to physically visiting a property before a purchase, it is a good idea, as well as a requirement of most lending institutions, to obtain a survey of the property.  Surveys are made by licensed surveyors who are subject to certain regulations imposed by the State of New Jersey.  A survey will locate any structures and other above ground improvements on the premises, including fences, identify easements the property is subject to and provide the purchaser with the property's dimensions.

There are numerous reasons for obtaining a survey prior to closing.  One is to determine if there are any encroachments onto the property in question by any structures from a neighboring property, e.g., fences, sheds, driveways, etc. Or, on the flip side, whether there are any encroachments by structures on the property in question onto neighboring properties.  Depending on the type and/or severity of an encroachment, a prospective buyer may seek to have the encroachment corrected before purchasing the property.  In the situation where the property being purchased has a structure encroaching onto a neighboring property, the prospective buyer may be able to obtain title insurance to insure against a forced removal of the structure by a court of law. 

Other information a survey can disclose may be rights of others to the property reflected by recorded easements (such as utility or drainage easements) or by use rather than a recorded document. For example, there may be a dirt roadway or path that has been used by others for a sufficient period of years to create a right to continue to have ingress and egress across the property.

Yet another potential disclosure might be an overlap of a property, based on its deed description, onto adjoining property.  This may raise the potential for a dispute between the owners of these neighboring properties over who actually owns the overlapped area.

In reviewing the survey, the prospective buyer may also be alerted to the true dimensions of the property which may or may not be in conformity with the buyers expectation of what he or she was purchasing.  The actual location of the structures on the lot may also alert a buyer to possible violations of any setback requirements affecting the property which are contained in a  recorded instrument or filed map.

Most contracts for the sale of property require the seller to provide marketable title.  To the extent there are encroachments or overlaps or easements not specifically accepted in the contract, these items may create defects in the title which may need to be addressed prior to closing.

While most prospective buyers obtain a new survey, in certain instances a lender and/or a title company may accept a pre-existing survey provided it is less than 10 years old and there have been no significant changes to the property.  In these instances a seller can provide the buyer with a certification to this effect with the survey.

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Princeton Borough and Princeton Township are about to undergo a revaluation of the real estate within their municipalities.  Such a revaluation is a mass appraisal of all real property within their borders.  It is performed by an independent professional appraisal or revaluation firm.   The properties will be revalued at their "current" value.  In the Princetons, this will be as of October 1, 2009 and those values, once confirmed, will become effective in 2010.  By doing this, the municipalities seek to cause the tax burden to be fairly shared by the properties, based on new tax assessments resulting from the current true values.

 

Frequently, a municipality makes a determination to undergo a revaluation of the real estate within its borders when the individual assessment - sales ratios vary widely within the municipality.  This ratio is determined by dividing the assessed value of a property by an accurate sales price, with the result being a percentage.  For example, if a property is assessed at $100,000 and sold for $200,000, the assessment sales ratio is 50%.  If these percentages vary widely within a municipality, the municipality may determine it is time for a revaluation of all its properties.

 

Revaluation firms used for this process must meet certain qualification requirements of the New Jersey Division of Taxation in order to be approved by a municipality.  In the Princetons' case, both municipalities have selected Appraisal Systems, Inc.

 

The valuations of properties must be done in accordance with state law - N.J.S.A. 54:4-1 et seq.  If property is under construction (either new construction, or additions or remodeling) then the selected appraiser must determine the extent of completion as well as the value .  If the land is assessed as farmland, a valuation will be made based on its value as farmland and then a separate one based on the highest and best use to which the land may be used.  Revaluation firms will also value exempt properties as if they were fully taxable.

 

For every property, the revaluation appraiser will create a property record card which contains specific information about the physical attributes of the property (e.g. dimensions, age, condition of any buildings, etc.) and other information which may be of assistance to the appraiser (existing appraisals, recent sales, rent amounts, etc.).  The card is created with information obtained based on an actual inspection of the individual premises.  If entry into the premises is not possible, the valuation will be an estimated one.  Once the valuations are made and the proposed valuation supplied to the taxpayer, each taxpayer will be provided with an opportunity to attend an individual informal review of the value proposed with representatives of the company performing the revaluation.  At that time, the revaluation firm may consider revisions to their proposed valuation based on input from the taxpayer.

 

Once the revaluation is completed and new property assessments are made by the tax assessor, a new municipal tax rate will be determined and taxpayers will then know to what extent, if any, their taxes will adjust as a result of their new assessment.

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Real Estate Tax Appeal Shareholder, Timothy P. Duggan, was quoted in the November 22, 2008 Star Ledger and Trenton Times article Reducing property taxes is possible, but not likely. The article discusses the recent rise in the number of homeowners filing for property tax appeals in New Jersey in the wake of the declining housing market and recent economic downturn. Mr. Duggan advises homeowners to take the necessary preliminary steps in understanding the tax appeal process in order to increase the chances that their appeal is heard and granted.

You can read the full article here. (PDF)

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It is hard to know when the proverbial “next shoe” will drop in the current economic crisis but recently credit lenders in my practice have experienced attempted policy rescissions for their mortgage insured accounts where suddenly and without any notice the private mortgage insurer  (the “Company”) has attempted to rescind its insurance policy on specific accounts. This is especially true for policies issued on mortgage accounts closed during 2005-2006, the peak years of residential real estate values. Their letter often contains language to the effect that the application’s underlying appraisal was “false, incorrect or incomplete” and was “material to the decision to insure” or something similar thereto. The reality is that private mortgage insurers now realize that they are likely to be hit with a rash of claims on loans they have underwritten since the real estate bubble has burst and home values in many geographic regions have declined precipitously. Rather than brave the tempest and honor their policies they have elected to get in front of the wave through this novel rescission approach.

Attempted private mortgage recessions such as these, need to be handled promptly by qualified counsel. The credit lender’s appraiser should be put on notice and invited to put his carrier on notice of the pending claim. The appraiser should also be requested to review the appraisal used for the original underwriting to make certain that the facts contained therein are accurate and to verify the comps used. There should simultaneously be a demand for the insurance company’s new appraisal. Payments should be made to the Company in the regular fashion even if they are returned initially. Counsel should review the Company’s Master Policy and any exclusions and give the Company any required notice pursuant thereto in anticipation of the pending litigation.

While this recommended course of action often puts credit lenders and their appraisers (often with mutual business interests and longstanding relationships) at odds, New Jersey’s Entire Controversy Doctrine makes a second lawsuit against the appraiser itself impossible. Counsel, experienced and sensitive to these relationships, can normally soften the prospects of the pending suit by a telephone call explaining the circumstances and promising full cooperation in the litigation prior to issuing his written demand.

If litigation is commenced it is imperative to ascertain if the financial institution has other insured loans with the Company and it is normally advisable to seek declaratory relief in the Complaint seeking to maintain coverage on all those other  loans where policies exist. Additionally, it may be time to take stock and ascertain the possible exposure of those other loans since the Company’s intentions to “rescind” its policies may signify well-founded concerns for its adequate capitalization. Prudence would suggest that a lender at least recognize the additional risks such mortgage insured loans may poise to a lender’s portfolio. Certain or all of these loans may well be singled out for “special handling”.

If the lender has any concern about the appraisal questioned or any other appraisals insured by the Company then it should hire an independent review appraiser to offer an independent view on the appraisal or appraisals. If there are any weaknesses in the case it is better to know up front. This may well affect the negotiation strategy with both the Company and the appraiser’s insurance company.

In these “recession” situations, it’s a simple “shoe-in” to seek guidance and move swiftly in order to preserve the credit lender’s rights. Normally the bank’s counsel will need a copy of the notifying letter, a copy of the appraisal used by the Company to determine that the underlying appraisal was “false”, a copy of the original appraisal and a copy of the Company’s Master Policy currently in effect with the credit lender.

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