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Casino Reinvestment Development Authority v. Angueira

A-4619-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

RECORDATION — So long as a title searcher complies with standard practices in searching title, a bona fide purchaser is chargeable only with what appears on the record and, according to the Court, it is not standard practice that an abbreviated name search for conducting title searches should be conducted.

A son conveyed property to his mother. The mother took out a purchase money mortgage to finance the property. The bank, at the time it gave the mortgage, mistakenly appraised the house next door to the subject property. It was valued at a much higher amount than the mortgaged property. The deed and the mortgage were recorded, but, because the buyer/mortgagee’s name was misspelled in the deed, both the mortgage and the deed were mis-indexed. The clerk’s office mis-indexed the deed using a third spelling of the grantee’s last name.

As part of a redevelopment project, a municipal agency sought to acquire all of the property on the block where this property was located, by condemnation if necessary. The agency undertook a title search of the property. While the property was still owned by the son, the agency sent him, by both regular and certified mail, an offer to purchase the property. The offer was for substantially less than the amount his mother would eventually receive from the bank when she took out a mortgage to purchase the property three months later. The letter sent by certified mail was returned as unclaimed, but the letter sent by regular mail was not. More than a year later, after receiving no response from the son, the agency instituted a condemnation action. It incorrectly identified the son as the owner of the property even though he had sold the property to his mother a year earlier. The agency conducted no additional title searches prior to filing its condemnation complaint and neither the bank nor the current owner of the property (i.e. the mother) were named as defendants in the complaint. The agency then recorded a declaration of taking and deposited the estimated fair market value of the property with the Clerk of the Superior Court. The declaration contained the incorrect owner’s name.

The complaint set a return date for an order to show cause. The agency conducted a second title search four days before that return date. Because the deed was mis-indexed, the search still showed that the son owned the property. Although the son was served with notice of the hearing, he failed to appear and failed to notify the agency that he no longer owned the property. Thus, on the hearing date, the matter was uncontested. The agency acquired the property and demolished the boarded-up home on it. The agency sent a letter to the son advising him that it was conducting a fair value hearing. The letter stated that if he did not appear at the hearing, he would be foreclosed from appealing the Condemnation Commissioners’ fair value determination. After receiving the letter, the son contacted the agency for the first time to advise it that he had sold the property to his mother approximately two years earlier. After investigating the matter, the agency sent a letter to the son that the sale to his mother was of no effect against it because it was a bona fide purchaser without notice of the previous conveyance. The agency informed the son that it was going to file a quiet title action in the Chancery Division to remove any cloud on the agency’s title.

When the action was filed in the Chancery Division, the mother, son, and bank alleged that the agency’s acquisition was flawed because it failed to engage in the good faith negotiations with the owner as required by law. They asserted that if the agency had simply contacted the municipality’s tax assessor’s office, it would have discovered that the mother was the true owner. They also alleged that, as a result of the current technology in conducting title searches and because deeds are regularly mis-indexed, it is the practice of most title searchers to input the least amount of information as possible in the search engine when searching an index. Had a title searcher performed a diligent search, they argued, the results would have revealed that the mother owned the property.

The Chancery Division dismissed the condemnation complaint. It ruled that the agency was free to file a new condemnation complaint against the mother. It also vacated any other condemnation orders previously filed against the property. The Court held that, instead of attempting to amicably resolve the matter with the mother and the bank, or simply dismissing the condemnation complaint, the agency opposed the bank’s attempt to protect its interests. It also held that reliance on the Recording Act in the context of the unique facts involved here was misplaced. Finally, the Court noted that the agency had failed to comply with the statutory requirement of engaging in bona fide negotiations with the proper owner prior to filing its condemnation complaint and held that additional attempts should have been made to ensure that the proper owner had notice of its offer to purchase. The Court also granted the motion for attorney’s fees made by the bank, the son, and the mother and awarded an additional sum as damages. The agency appealed.

The Appellate Division held that so long as a title searcher complies with standard practices in searching title, a bona fide purchaser is chargeable only with what appears in the record. Applying a totality of circumstances test, the Court was satisfied that no special equities warranted a result that would undermine the integrity of the recording system. It noted that the instrument in question was not recorded properly and the son permitted the deed to be filed without correcting the misspelling of his name (notwithstanding that the title company told him not to worry about the misspelling). The Court concluded that these errors prevented the agency from learning of the mother’s ownership despite the title search. In addition, it believed that vacating the taking would impose a significant hurdle to the agency’s efforts to redevelop this area and would be a disservice to the public interest. It opined that the agency justifiably relied on its title search. The Court ruled that it was unaware of any treatise or other authoritative source saying that, as a standard, an abbreviated name search for conducting title searches should be conducted. Thus, it had no reason to fault the agency’s methodology. Consequently, it rejected the lower court’s conclusion that the agency was not entitled to the protections under the Recording Act. It found nothing so special or unique here to warrant departure from the longstanding rule that courts must disregard deeds that are not properly recorded. It also disagreed with the lower court’s determination that the agency was obligated to request the court to vacate the declaration of taking once it learned that the property was actually owned by the mother because the agency’s prior actions were undertaken with justifiable reliance on earlier title searches. It also disagreed with the lower court that the agency had an additional duty to investigate further once the certified mail came back unclaimed. In this regard, the Court noted that neither the mother nor the son ever claimed that they had not received the offer to purchase sent to the son by regular mail. Accordingly, it reversed the lower court’s order that vacated the taking and dismissed the complaint. It remanded the matter for a fair market hearing at which the bank and the mother would be entitled to participate, and vacated the award of counsel fees and damages to the bank, the son, and the mother.

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