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In re Asta Realty, Inc.

OAL Docket No. CAF 1173-97 (Department of Community Affairs 1998)

MULTIPLE DWELLINGS; PENALTIES—In assessing penalties against an owner, the Department of Community Affairs is entitled to rely on record ownership of a building and need not investigate who is the owner of the property.

A property owner entered into a contract to sell property. In the contract, the buyer acknowledged that it was aware of all open violations and that it was taking title to the property “as is” and that it would be responsible for abating any and all violations at its sole cost and expense. This provision was an integral part of the contract and the buyer’s obligation to correct all existing violations was factored into the purchase price. An agreement was reached to allow the buyer to enter into the property before closing in order to correct the violations. Closing of title took place, but the deed was not delivered because the buyer did not have all of the funds required to close and did not have the required certificate of insurance at closing. Therefore, on the date of closing, the parties entered into a supplemental agreement providing for a later closing date. The agreement did not state that the closing was postponed, but rather that title was being closed with the additional money to be paid by the buyer to be added to the amount of the purchase money mortgage being retained by the seller. In order to facilitate the transaction, the seller agreed to maintain the existing insurance coverage, but the deed was to be held in escrow until the buyer provided the seller with proof of insurance coverage. The insurance was never obtained and the deed was never transferred because the buyer was unable to make certain required payments to the seller. Eventually, the seller demanded return of the unrecorded deed and the buyer agreed to resolve the matter in that fashion. From the time of closing until the time that the documents were returned, the buyer operated the property, collected the rent, and paid the expenses. The property was subsequently sold to another buyer.

During the period of time between the original closing and the return of the unrecorded deed and mortgage, the Department of Community Affairs conducted some building inspections. Penalties were imposed against the original property owner as a result of those inspections. The original property owner argued that it was not liable for the penalties because it was not the owner of the property at the time of the two inspections. The administrative law judge disagreed with the owner’s contention that although an unrecorded deed might be void against subsequent buyers, encumbrances, and judgment creditors, the lack of recordation does not affect its validity or operation. Therefore, the original owner argued that title had passed to its buyer. In addition, the original owner argued that the New Jersey Administrative Code defines an owner as “any person who owns, purports to own, or exercises control of any hotel, multiple dwelling or retreat lodging facility” or as one “who owns, purports to own, manages, rents, leases or exercises control over a building, structure, premises or use, or a portion thereof.” Since the transferee was operating the property at the time of the violations, the original owner believed that the transferee was the “owner.” The administrative law judge countered with a belief that delivery and acceptance are essential requirements for transfer, and here, where the deed was delivered to a third party who was not permitted to deliver the deed until fulfillment of certain conditions, there had been no acceptance by the grantee and title had not been conveyed. In support of that contention, the administrative law judge pointed out that had title passed, the matter could not have been concluded by merely returning the deed because some form of conveyance back would have been required. The property owner’s reliance upon the definition of “owner” contained in the Administrative Code was also unavailing because the administrative law judge felt that the Bureau of Housing Inspection was entitled to rely on the record and reasonably look to the owner of record, and that if there were legal relationships between the parties relating to the ownership, and its responsibilities, those equities should have been resolved between the parties. In summary, the administrative law judge opined that “the Bureau of Housing Inspection properly looks to the owner of record and it need not look further.”


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