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Mazel & Mumford at Wall, Inc. v. Ramshorn Builders, Inc.

A-4043-97T2 (N.J. Super. App. Div. 1999) (Unpublished)

DEEDS; MERGER; CONTRACTS—Absent a clear indication to the contrary, a real estate contract might well include the seller’s obligation to discharge improvement assessments, but as a matter connected with title, the obligation is extinguished under the merger by deed doctrine.

A property owner obtained preliminary subdivision approval to permit its property to be divided into twenty-three separate lots. The approval included permission for installation of a sanitary sewer line. Five years later, the municipality approved an assessment to cover the cost of sanitary sewer installation. At about the same time, negotiations for sale of the property began. Initially, the buyer’s attorneys prepared and submitted a twenty-five page, detailed contract to the seller, which required the seller to pay any special assessment for public improvements which were payable before closing. The seller refused to sign the contract and, in testimony before the lower court, said that it rejected the contract both because it was “too long” and because the seller was not willing to “pay for assessments to the property that would ultimately benefit” the buyer. The seller’s attorney prepared a much simpler, four page contract of sale. Among other items, that contract, which was signed, lacked the language specifically dealing with assessments and provided that: “[t]his transfer of ownership will be free of all claims and rights of others except as provided in other parts of this contract.” It also contained a paragraph captioned “Adjustment of Property and Expenses” which said, “[t]he parties shall apportion the following expenses relating to the Property as of the closing date according to the period of their ownership: a) municipal real estate taxes, b) water and sewer charges.” It further provided that “[t]he seller agrees to convey good and marketable fee simple title to the Property to the Buyer at closing” subject only to some restrictions not relevant to the dispute. The seller was required to deliver a Bargain and Sale Deed with Covenants Against Grantors Acts. Prior to closing, the buyer performed customary searches, which showed the sewer assessments. At closing, the buyer made no demand for any price adjustment to cover the sewer assessments. About five months later, the buyer’s attorney, saying he had “neglected to take an adjustment at closing for outstanding assessments against the properties for the sewer lines,” requested a post-closing adjustment. The seller denied responsibility and suit followed. The lower court concluded that the contract did not require the seller to discharge the assessments in question. Further, it found that such an obligation would have merged into the deed. The Appellate Division agreed. The Court recognized that, “[a]bsent any indication to the contrary, a standard real estate contract calling for a conveyance free of all claims and rights of others, by which the sellers agree to convey good and marketable title, might well include the seller’s obligation to pay off assessments.” Such assessments constitute liens on the property and thus general language might obligate a seller to discharge the liens before closing. However the facts of this case dictated a contrary conclusion to the Court. It was convinced that the record clearly showed that the seller never had any intention to pay for the sewer assessments and that the contract that was signed intentionally omitted all language calling for the seller to discharge assessments for public improvements prior to closing. It rejected the buyer’s argument that the apportionment clause required that the sewer assessment be treated as an adjustment. In response to that assertion, the Court said “[t]he paragraph entitled ‘adjustment of property expenses’ covers just that: a division of ‘expenses’ by which the contract clearly refers to such items as ‘municipal real estate taxes’ as well as ‘water and sewer charges.’ There is no rational basis by which the term ‘sewer charges’ could be construed to refer to an assessment for the cost of installing sewer lines.”

The Appellate Division also held that the “well established doctrine of merger” applied to the situation. Questions about allocation of sewer assessments were clearly “connected with the title of the property because the question dealt with the discharge of a lien and, therefore, constitutes a title question. It is precisely the type of obligation covered by the doctrine of merger.” If this matter is to be raised as an alleged obligation of the grantor, it must be raised at or before closing. The Court did not believe that the issue could in any sense be deemed an obligation “collateral” to the deed which would continue after closing. Lastly, the Court was unpersuaded by the buyer’s argument based on the “covenant as to grantor’s acts” contained in the deed. The buyer argued that, by applying for sewer permits, the seller “allowed someone else ‘to obtain legal rights which affected the property.’” The Court ruled that it was the municipality that created the assessment and the lien by adopting an ordinance and imposing an assessment on the property in the same way that it would have set taxes on the property. Consequently, it rejected the buyer’s argument that the seller was in some way in complicity with the municipality in creating the lien. The assessment for the sanitary sewer line was inherent in the subdivision approval. The buyer was aware of the assessment and had the opportunity to object to the assessment during its “due diligence” period.


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