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Four Winds Plaza Corporation v. Son Valley Developers, LLC

A-1977-06T2 (N.J. Super. App. Div. 2008) (Unpublished)

CONTRACTS; OPTIONS — If an option agreement requires a party to exercise the option within eighteen months after receiving a sheriff’s deed, it must do so within that time period even if there are irregularities in the foreclosure proceeding that led to the sheriff’s deed.

Two companies entered into an agreement wherein one of them agreed to bid on a tax sale certificate. Their agreement provided that if the bidder successfully purchased and foreclosed on the tax lien and then obtained fee title to the property, it would grant the other company an eighteen-month option to buy the property. The agreement provided that the option period was to commence on the date the sheriff’s deed was recorded. About five months after the sheriff’s deed was recorded, the buyer alerted the seller about certain irregularities in the foreclosure action that might prevent the buyer’s title company from insuring title to the property. About one year after the buyer gave this notice, the buyer wrote to the seller expressing its intent to exercise the purchase option if it received certain information which it required to have its mortgage commitment reinstated. The seller obtained a corrected foreclosure judgment correcting the irregularities, but did not request or receive an amended sheriff’s deed. The seller then sent a time-of-essence letter to the buyer setting a closing date.

When the buyer did not close, the seller filed a complaint seeking a declaratory judgment that the buyer had failed to exercise the option. The buyer claimed that the terms of the option agreement were ambiguous because the agreement did not clearly set forth the triggering date for starting the eighteen-month option period. It argued that due to the irregularities in the foreclosure process, the eighteen-month option period did not start until the seller received the corrected foreclosure judgment. In addition, the buyer argued that the seller did not satisfy certain pre-closing obligations. In response, the seller claimed that the eighteen-month option period began on the date it received the original sheriff’s deed to the property. It also argued that its pre-closing obligations, along with its requirement to deliver clear title, were prerequisites for closing but did not affect the triggering date for the start of the option period.

The lower court found that the seller had not exercised the option within the option period, and the Appellate Division affirmed, finding that there was no ambiguity with respect to the trigger for the option, which was eighteen months after the seller received a sheriff’s deed. The Court found that any title defects or other pre-closing obligations may have excused the buyer from closing title but they did not extend the time within which the buyer was required to exercise its option to purchase the property. The Court noted that while the buyer sent a letter to the seller signaling its intention to exercise the option, the buyer conceded that it had never exercised the option. Further, the option clearly had an eighteen-month window and the buyer could not exercise the option to purchase the property four-years after the triggering event. Therefore, the buyer no longer had a right to buy the property.

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