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

New legislation has recently been enacted which exempts sales of certain residential dwellings and seasonal rentals from Bulk Sales notification requirements. According to A-2748, which was signed into law on September 14, 2011, sales of a “simple dwelling house” when the seller is an “individual”, “estate” or “trust” (as those terms are used for purposes of the New Jersey Gross Income Tax Act N.J.S.54A:1-1 et seq.) are exempt from the Bulk Sales notification requirements (N.J.S 54:50-38). A “simple dwelling house” under the new law is a dwelling unit including but not limited to a one-family or two-family building or structure, or a unit in a condominium or a cooperative. 

This exemption does not include structures containing more than two units of dwelling space or commercial property even if it includes units of dwelling space. 

The new law also exempts seasonal rental units from the Bulk Sales notification requirements when the seller is an “individual”, “estate” or “trust” (as those terms are used for purposes of the New Jersey Gross Income Tax Act N.J.S.54A:1-1 et seq.). A “seasonal rental unit” under the new law includes “a dwelling unit rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere” or a “timeshare estate.” 

These new exemptions do not include sales where the seller is a business entity, including but not limited to a corporation or a partnership (which would also include limited liability companies). 

The new law took effect September 14,2011 and applies retroactively to sales and transfers on or after August 1, 2007. If you have questions regarding this new law and would like to discuss how it could potentially impact you, please feel free to contact me in my firm’s Lawrenceville, New Jersey office to discuss this matter in more detail.
 

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With the increase in foreclosures against residential properties and homeowners facing financial difficulties, the number of severely neglected and abandoned homes is on the rise.  While such situations are unfortunate for the owner of the deteriorating property, the condition of the property can also have a significant impact on neighboring property owners.  In addition to being a neighborhood eyesore, the consequences can range anywhere from a higher risk of insects, rodents or other pests, to lower property values and vandalism.  This can adversely affect the ability to sell a property in the area or even to refinance it if there are too many abandoned properties in the area.
                                   

Most municipalities have nuisance abatement and health ordinances which empower the municipality to take action to force a homeowner to correct a property condition which threatens the public health or safety.  Contacting the municipal building code official or health officer is often the first line of defense.
 

However, in some situations,  homeowners abandon their property upon the commencement of foreclosure litigation.  Since they will be losing the property through foreclosure, they vacate the property and then fail to maintain it.  New Jersey is in the forefront of addressing this issue.  Under the New Jersey Foreclosure Fairness Act” (the “Act”) passed in January 2010, lenders serving foreclosure summons and complaints on residential properties must, within ten (10) days of service, notify the municipal clerk where the property is located.  The notice must contain the name and contact information for the representative of the foreclosing lender who is responsible for receiving complaints of property maintenance and code violations. 
 

The Act also imposes upon the lender the responsibility for notifying the municipality if the owner of the residential property vacates or abandons the property after a foreclosure action has been started.   

 

If the owner of a residential property vacates or abandons any property on which a foreclosure proceeding has been commenced or if the residential property becomes vacant at any point subsequent to the lender’s filing the summons and complaint to foreclose on a mortgage, but prior to title vesting in the lender or another third party, and if the property is found to be a nuisance or in violation of any applicable State or local code, the appropriate municipal official shall notify the lender, which shall have the responsibility to abate the nuisance or correct the violation in the same manner and to the same extent as the title owner of the property.  Thus, the municipality can require the foreclosing lender to clean up an abandoned property.  If the municipality has to perform the clean up itself, thereby expending public funds to abate the nuisance or correct a violation on a residential property, then the municipality may take action against the foreclosing lender in the same manner as it could against the owner of the property.   
 

Performing any maintenance yourself on a neighboring property should not be done without express permission from the property owner and, if applicable, the foreclosing lender.  Otherwise, one could be subject to trespass charges and other potential liability.

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The completion of the Seller’s Disclosure Statement is a task that is often taken lightly by a Seller of residential real estate when they are preparing to sell their house.  In fact, many individuals when faced with completing this task give it little thought and complete it in a cursory fashion. What a Seller should be aware of, however, is that any misstatement of fact, whether intentional or not may subject a Seller to liability post-closing.  In the State of New Jersey a Seller of residential real estate has a duty to disclose any and all latent defects with regard to the condition of their property.  A latent condition is a condition that is not otherwise observable, or in essence, hidden.  Examples of latent conditions are radon contamination, underground oil tank leaks, or a history of water problems.  If a Seller fails to disclose the existence of a latent defect of which they have knowledge, this party may be subject legal claims post closing for failure to disclose the defect(s).  The Claims that may be filed against a Seller would be claims of fraudulent concealment or fraudulent misrepresentation.

In order for a Plaintiff to prevail on a claim of fraudulent concealment or fraudulent misrepresentation, the plaintiff must first establish that the Seller had actual knowledge of the defect and that the Seller either fraudulently misrepresented the condition or failed to disclose same to the Buyers.  Thereafter, the Plaintiff must demonstrate that the defect was material to the real estate transaction.  It is for this reason that the careful completion of a Seller’s Disclosure Statement is extremely important when a party is selling their real estate.

In order to avoid being subjected to a lawsuit post-closing, a seller should make sure that the Seller’s Disclosure Statement is accurate and inclusive.  If it is completed in this fashion, it is far less likely that a party could be subjected to claims for fraudulent concealment or fraudulent misrepresentation.  Obviously, in this harsh economic climate it is better to put yourself in a position where you are far less likely to be sued rather than in a position where you might be sued due to a simple lack of diligence in completing the Seller’s Disclosure Statement. 

If you feel you are the victim of fraudulent misrepresentations or omissions, you should be aware that prosecuting this type of claim is challenging.  You must first establish that the party had actual or constructive knowledge of the defect and that they either misrepresented the condition or failed to disclose same.  As such, you must present evidence which demonstrates that the condition existed and that the purchaser either had actual knowledge or constructive knowledge of same.  Although a party may believe that the Seller had actual knowledge of a defect, it nonetheless carries the burden of proof.  Thereafter, you must demonstrate that the defect was material to the real estate transaction.

As such, the simple a task of completing the Seller’s Disclosure Statement may seem, it is important that it be taken seriously, as it may expose a Seller of residential real estate to lawsuits post-closing should this document not be properly completed. 

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Originally created by the Energy Policy Act of 2005, the Residential Energy Efficient Property Tax Credit provides a tax credit for the taxable year in an amount equal to the sum of 30% of qualifying expenditures made by the taxpayer during such year for solar electric or solar water heating systems, fuel cell property, wind energy systems or a geothermal heat pump. See 26 U.S.C. § 25D.  All qualifying expenditures must be for property used as a residential dwelling by the taxpayer located in the United States, but only qualified fuel cell property must be installed at the taxpayer’s principal residence.  This credit is applicable to qualifying property and expenditures placed in service before January 1, 2017.

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Selling a home which you recently rented out because of the difficult real estate market? Well, you may discover that at closing, the state of New Jersey may want to escrow part of your closing proceeds to cover any existing tax debt or estimated taxes on any gain from the sale. 
 

Due to recent changes in the New Jersey Bulk Sale Law (N.J.S.A. 54:50-38), transfers of income producing real estate are likely to generate a notification by the buyer to the Division of Taxation of the transfer, thereby providing the State with the opportunity to inquire into possible tax debts of the transferor, and perhaps requiring a possible escrow of sale proceeds at closing.
 

Bulk Sale notification previously pertained to the sale of assets of a business which were not sold in the ordinary course of that business. Now, as a result of a change in the law, and a recent interpretation of the amended Bulk Sale notice law, the State of New Jersey is applying the Bulk Sale Law to transfers of income producing real estate.
 

Effective August 1, 2007, the Bulk Sale law in New Jersey was modified to provide, among other things, that whenever a person, subject to any state tax, shall make a sale or transfer of any part of his business assets, otherwise than in the ordinary course of business, the person taking title shall notify the Division of Taxation of the proposed acquisition at least 10 days prior to taking possession. According to the statute, failure to comply with the notice requirement will cause the purchaser to be personally liable for the payment of any State taxes due from the seller.  This would include taxes, fees, interest and penalties imposed by any State tax law. To protect himself from this potential liability, the person taking title will want to file a bulk sale notice.
 

Technical Bulletin TB-60, issued by the Division of Taxation on July 3, 2008, defined a “bulk sale” to mean any sale or transfer of a person’s business assets, not made in the ordinary course of business. “Business assets” include “realty if the primary use of the realty is to support a business on its premises.” “Business” means any endeavor from which revenue is realized for the purpose of generating a profit or loss.
 

According to TB-60, for a bulk sale notice to be effective, it must be filed by the purchaser/transferee, on the appropriate Division of Taxation form, include a signed agreement between the parties setting forth the terms of the transaction and be received by the Division at least 10 days before the proposed transfer. The Division will review the transferor’s account to identify outstanding liabilities.  Within 10 days, the Division will forward a notice to the attorney or designee for the transferee of the amount, if any, to be held in escrow at closing. The amount to be escrowed will include existing tax debts, delinquencies, assessments and importantly, tax on the gain from the transfer of the property. The transferor may file an Asset Transfer Tax Declaration form to assist the Division on calculating the estimated tax on the gain. This may cause the escrow amount to be adjusted. Payment of the taxes identified as due, would then be made from the escrow.
 

Thus, if a rental property, even though residential in nature, is sold, the Division of Taxation seeks to be notified 10 days in advance, and if a buyer does not, the buyer risks becoming liable for the tax debt of the seller.

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People commonly think of home ownership in the form of owning a single family house situated on its own parcel of land.  However, increasingly, condominiums, and to a lesser extent, co-operatives, are providing  alternative forms of home ownership.  What are these forms of ownership and what is the difference between them?

In New Jersey, condominium ownership is no longer unusual.  It is a form of common ownership in which title to individual units vests in each unit’s owner.  In addition, each unit owner also owns a percentage interest in the common areas which are shared by the unit owners, e.g.,  the land, building exteriors and any facilities for the unit owners’ common use.  Descriptions of both the individual units as well as the common areas are set forth in a Master Deed which is recorded in the County Clerk’s Office in the county where the condominium is situated.  Thus, condo owners own their unit plus a percentage interest in the condominium’s common areas. 

Co-operatives appear  more prevalent in New York City and North Jersey than Central Jersey. In this form of common ownership, the owner’s interest in an individual unit is held in the form of a leasehold interest.  The individual owner acquires a proprietary lease to his/her unit.  In addition, each unit “owner” owns shares of stock in the co-operative corporation which owns the underlying land and improvements on the land as well as those facilities intended for the common use of the owners of the co-operatives.  Co-op owners have a leasehold interest in their unit and their only ownership rights to the common areas are through ownership of  shares of stock in the co-op corporation which owns the common areas.

Condos  are managed  by  unit owners associations which manage the improvements for which they are responsible, i.e.,  the land and the common purpose facilities. Some co-ops are similarly  managed by associations.  In others, the co-operative corporation itself manages the land, and improvements it owns.  Both condo and co-op forms of ownership generally charge the owners of their units a monthly maintenance fee.   In condominiums, real estate taxes are assessed against the individual owners.  In co-operatives, however, real estate  taxes are assessed against the co-operative corporation, not the individual owners. 

Financing a condominium can be accomplished in the same manner as any other fee simple purchase, by mortgaging the unit owner’s interest in the unit.  However, since a co-op owner has a leasehold interest in his unit, lending institutions generally  require a pledge of the unit owner’s stock and an assignment of the leasehold interest as collateral.  Some lenders, however, now provide a leasehold mortgage.  For certain co-operatives created prior to 1988, financing may be difficult to obtain.

Condominium ownership is a form of ownership created by statute, and did not exist before 1970 when the Condominium Act, N.J.S.A. 46: 8B-1 et seq. was enacted in New Jersey.   Co-operative ownership was originally created in New Jersey under common law.  However, the Co-Operative Recording Act of New Jersey, N.J.S.A. 46:8D-1 et. seq. effective May 9, 1988 provided a statutory basis for the creation of co-operatives.  Pursuant to the 1988 law, a Master Declaration and Master Register of Units is recorded in the County Clerk’s Office to create the co-operative.  Unit transfers are accomplished by recording the proprietary lease or assignment of the lease.  Co-operatives in existence prior to the effective date of the Co-Operative Recording Act are not subject to these statutory provisions. 

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As residents of  Princeton Borough and Princeton Township are well aware, their municipalities  have undertaken a revaluation of the real estate within their boundaries for tax assessment purposes.   The last revaluation performed in Princeton Borough and Township was in 1996.  Recently, each municipality notified property owners by first class mail of their preliminary assessments.  The preliminary values were established by Appraisal Systems, Inc., an independent professional appraisal firm hired by the Princetons to perform their revaluations.  The date of the property revaluation is as of October 1, 2009.  These new values, once confirmed, will become a property’s new assessment, effective with the 2010 tax year. 

 

The purpose of the revaluation is to cause the tax burden to be more fairly shared by the properties, based on new tax assessments resulting from current true values of properties.

 

The Mercer County Board of Taxation ordered the Princetons to undergo a revaluation of the real estate within their borders when the individual assessment - sales ratios varied too widely within each 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%.  By 2008, these percentages were 40% in the Borough and 47% in the Township. 

 

The valuation of properties must be performed in accordance with state law as set forth in N.J.S.A. 54:4-1 et seq.  For every property, the revaluation appraiser creates 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 onto the premises is not possible, the valuation will be an estimated one. 

 

In the Princetons, the preliminary valuations have now been established and letters notifying taxpayers recently mailed.  Each taxpayer will be provided with an opportunity to attend an individual informal review of the value proposed with a representative of Appraisal Systems, Inc.  At such time, Appraisal Systems, Inc. may consider revisions to its proposed valuation which may increase or decrease (or result in no change to) the proposed assessment, based on additional input from the taxpayer.

 

Taxpayers will have until May 1, 2010 to file an appeal with the Mercer County Board of Taxation if they are not satisfied with their new assessment.  Thereafter, an appeal can be taken to the State Tax Court within 45 days, with further appeals possible. 

 

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

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Our recording system, having its roots in England, is basically a system for determining priority of legal claims against real estate. Thus, when one acquires title to real estate, or mortgages property, those instruments affecting title are usually recorded in the county clerk’s office. 

N.J.S.A. 46:21-1 entitled, “Recorded deeds or instruments as notice to subsequent judgment creditors, purchasers and mortgagees,”  makes clear the purpose of our recording statutes.  It states:

Except as otherwise provided herein, whenever any deed or instrument of the nature or description set forth in section 46:16-1 of this title, which shall have been or shall be duly acknowledged or proved and certified, shall have been or shall be duly recorded or lodged for record with the county recording officer of the county in which the real estate or other property affected thereby is situated or located such record shall, from time to time, be notice to all subsequent judgment creditors, purchasers and mortgagees of the execution of the deed or instrument so recorded or of the contents thereof.

N.J.S.A. 46:16-1 sets forth a non-exclusive list of instruments entitled to be recorded.  While, the recording of a document does not affect it’s validity as between the parties to the document, the consequences of not recording is set forth in N.J.S.A. 46:22-1:

Every deed or instrument of the nature or description set forth in section 46:16-1 of this title shall, until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate or other property is situate, be void and of no effect against subsequent judgment creditors without notice, and against all subsequent bona fide purchasers and mortgagees for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded or whose mortgage shall have been first duly recorded or registered; but any such deed or instrument shall be valid and operative, although not recorded, except as against such subsequent judgment creditors, purchasers and mortgagees.

Thus, the principal purpose of New Jersey’s Recording Act is to protect subsequent judgment creditors, bona fide purchasers, and bona fide mortgagees against assertion of prior claims to land based upon unrecorded instruments.

This statutory scheme, is referred to as a “race-notice” system.  A party who is a bona fide purchaser, mortgage holder, etc., for value and without any actual or constructive notice of adverse interests, is entitled to the protection of this statute.

 
The requirements for recording an instrument affecting title or an interest in real estate are not onerous; the instrument needs only to:   

• be in English or accompanied by an English translation;
• bear a signature;
• be acknowledged or proved as required by statute;
• have the names appear typed, printed or stamped beneath the signatures of any parties to the instrument and the officer before whom it was acknowledged or proved;
• have the required recording fee paid;
• include the name and signature of its preparer on the first page and the tax block and lot number if the instrument is a deed conveying real property   

If the instrument meets all the requirements for recording, the county recording officer will then copy it into the record and return the original document to the person submitting it for recording.
   
 

It becomes important to record all instruments affecting title to real estate to protect the recording party, as it will be generally presumed that all persons who deal with the property after that will do so with knowledge of the recorded instrument.

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As we all know, New Jersey continues to be plagued by both a troubled real estate market and economy.  Our real estate market remains awash in homes either in foreclosure, or having gone through a foreclosure and subsequent sheriff's sale.   It also remains awash in unsold new construction, and an essentially non-existent new construction pipeline.  October's figures show a "mixed bag" as they say.  First, construction of new homes in the New Jersey region fell 18.8%.  This included a nearly 10% decline in the construction of single family homes.

 

Second, and on the other hand, for the first time in 2009, the number of residential foreclosure filings was lower than it was over the same period in October 2008.  Lenders started 4,991 foreclosures against New Jersey homeowners in October 2009, down from 5,262 during October 2008.  The October 2009 figures were also less than a height of 6,138 filings, from June 2009.   These two relate via home builders' likely reluctance to erect new homes in the face of the existing inventory of homes, much of which stemming from the availability of foreclosed homes.

 

The extent and progress of these foreclosures appears to be slowing as well via the numerous state and federal programs designed to help owners avoid foreclosure.  More than 2,600 New Jerseyans have received counseling through New Jersey's foreclosure mediation program.  Of the 2,600 that received counseling, about 1,450 cases have been completed and roughly half of those were able to remain in their homes.  The federal government reported recently that approximately 22,100 New Jersey homeowners have reworked their mortgages through the federal loan modification program.

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The popular federal tax credit of up to $8,000 provided to first-time home buyers who purchase a home in 2009 due to expire November 30th has been extended until April 30, 2010.  In addition, a new tax credit up to $6,500 will be available to certain "step-up" (or downsizing) homebuyers who are current homeowners who have resided in their homes for at least five years.

The original 2009 tax credit was part of the American Recovery and Reinvestment Act of 2009.  On November 6, 2009, President Obama signed the "Worker, Homeownership and Business Assistance Act of 2009" into law.  The first-time homebuyer tax credit is equal to 10% of the purchase price of a home, up to a maximum credit of $8,000.  It is available to certain first-time home buyers who purchase a main residence on or after January 1 and before December 1, 2009.   This tax credit has now been extended to April 30, 2010.  Closing must occur by April 30th, or a binding contract must be entered into by that date with closing to occur within 60 days.  First-time home buyers who purchased their main home in 2008 are entitled to a credit of up to $7,500. The new credit for step-up homebuyers starts on December 1, 2009.  This article is limited to a discussion of the tax credit available for 2009 purchases, including the recent extension and expansion of that credit.

There are some limitations on the available credit as extended.  First, the credit is only available for homes costing up to $800,000.  Homes costing in excess of $800,000 are not eligible.  Purchasers under the age of 18 cannot claim the credits.

There are income limits as well.  Under the original provisions, you were  allowed the full amount of the credit, i.e., $8,000,  if your modified adjusted gross income was $75,000 or less, if single, and $150,000 or less, if married filing jointly.  These income levels have been increased by the recent legislation so that you are allowed the full credit with an income up to $125,000 for single filers and $225,000 for married filers.  The credit is not available to taxpayers with incomes greater than $145,000 for single filers and $245,000 for married filers.  Between these two income levels for each type of filer, the credit is gradually phased out.  

The credit is available to first-time home buyers who are purchasing a main home, i.e., principal residence, whether it is a house - new or resale - mobile home, condominium, cooperative apartment, etc.  The purchase must occur by April 30, 2010, or the purchaser must have entered into a  binding contract by midnight April 30, 2010 with closing to occur within 60 days.   The purchase date is the closing date, when title transfers to the buyer.  For someone who is constructing their main home (not buying it from a home builder), the purchase date is the date you first occupy it.

If the home ceases to be your main home within three years of the closing date, it is possible that the credit will be recouped by the government.

A first-time home buyer is someone over age 18, who has not owned another main home during the 3-year period immediately preceding the closing date of the qualifying purchase.  If you or your spouse owned a main home during the three preceding years, then neither will qualify for the credit. 

The new tax credit of 10% of the purchase price of a home, up to $6,500, is available starting December 1st to homeowners (and their spouses) who have lived in their current home for five consecutive years out of the eight years preceding the closing on their new home.

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