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B & F Properties, L.L.C. v. Two Bits Properties, L.L.C.

A-5045-05T5 (N.J. Super. App. Div. 2007) (Unpublished)

CONTRACTS; ATTORNEYS; DEEDS — If a property buyer’s attorney has actual knowledge of a reversionary and condition in a prior deed, then, according to a long-held principle, such knowledge in a real estate transaction is assumed to be held by an attorney’s client, and the client, once accepting a deed to the property, assumes responsibility for conditions in the title history.

A contract for sale of property was executed. At the time, the seller was not the actual owner of the property. The seller planned on purchasing the property and then re-selling it to its buyer on the same day, a process known as flipping the property. The actual owners had purchased the property from the municipality roughly one year earlier. Their deed contained conditions that prevented them from selling the property within two years of the purchase unless a new structure had been built on the property and a certificate of occupancy had been issued for the property following rehabilitation. According to the deed, if those provisions were not met, the property’s ownership would revert to the municipality. Neither of those conditions were met when the owner sold the property to the “flippor.” The property was then conveyed to the “flipee.”

The buyer claimed not to know that the property was not owned by its seller when the agreement for purchase was made and also claimed not to know of the conditions in the deed calling for reversion of the property to the municipality. Evidence showed that the buyer’s attorney was aware that the seller did not own the property before the day of sale, that the conditions governing reversion were contained in the deed, and that the conditions had not been met by the property owner. The attorney, in his deposition, testified that he made his client aware of the conditions and of the municipality’s right of reversion. Roughly one year following the two conveyances, the municipality brought an action against the owner, the seller, and the ultimate buyer seeking reversion of title on the grounds that the conditions in the deed had not been met. The ultimate buyer subsequently sued its attorney, the municipality, the seller, and the two title insurance companies involved with the transactions. The buyer sought a declaration that it alone held title to the property. The buyer also sought damages for losses incurred by not being allowed to rehabilitate the property since the municipality refused to issue construction permits.

On motion, the lower court granted summary judgment on the buyer’s claim that it owned the property and dismissed the municipality’s reversionary claim to the property. The lower court also dismissed the claims against the title agencies. The buyer settled its claims with its attorney. The lower court later granted summary judgment to the seller and dismissed the remaining complaints against it. The lower court found that the seller had made misrepresentations regarding the property’s title, but that the right of municipal reversion was a matter of public record and that the buyer either knew, or should have known of the conditions governing reversion in the deed. The court also found that based on such knowledge, the buyer could have stopped the sale and could have claimed damages against its seller but instead went ahead with the purchase and assumed responsibility for the conditions in the deed.

On appeal the buyer argued that the misrepresentations made by the seller in the sale of the property were a matter of factual dispute and that summary judgment was inappropriately granted by the lower court. The buyer also argued that the member of its limited liability company who assumed title on behalf of the company never knew about the municipality’s reversionary interest or that the reversionary conditions were a matter of public record. The Court noted that the limited liability company’s member who took title acknowledged, in a deposition, that the company’s attorney told him about the reversionary condition, but that he did not understand its implications. The Court, however, held that even if there was a factual question about his knowledge or his understanding of the reversionary clause, the company’s attorney did have actual knowledge and according to a long held principle, such knowledge in a real estate transaction is assumed to he held by an attorney’s client. Since the attorney for the buyer knew and understood the conditions, the Court found no factual dispute that would have overcome a motion for summary judgment. The Court also agreed with the lower court that since knowledge of the reversionary condition existed and the buyer still went ahead with the purchase, the buyer could not later successfully bring an action based on damages that occurred as a result of it acceptance of the deed.

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