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Nix v. Verp

A-3179-09T2 (N.J. Super. App. Div. 2011) (Unpublished)

ATTORNEYS; MALPRACTICE — An attorney’s failure to conduct a proper title search on a property his or her client intends to buy at a foreclosure sale, merely relying on an oral report from the municipality as to unpaid taxes, may be liable for the entire amount of an undiscovered tax lien.

An investor was interested in purchasing a property and hired an attorney to represent him. The attorney understood that the investor would purchase the property by taking an assignment of a lender’s mortgage, note, and existing foreclosure judgment, and then bidding at a sheriff’s sale. The attorney told his client that he would proceed with everything necessary to ensure clean title. He also asked for specific payment to cover costs to perfect title in the investor’s name. The investor successfully bid at the sheriff’s sale and received title to the property. Three days later, his attorney informed him of an unpaid municipal tax amount for two tax quarters totaling $8,984.10. When the investor appeared at the tax collector’s office to pay, he was advised for the first time that approximately $176,000 was due and owing for past municipal taxes. He immediately contacted the attorney, who was unaware of the additional amounts. The investor was subsequently notified by the municipality of a planned assignment of the tax sale certificate. Then, a tax sale certificate foreclosure action was filed. The investor ultimately redeemed the tax sale certificate for $214,977.49.

The investor then sued his attorney for professional negligence in failing to obtain a proper title search which would have revealed the existence of the tax lien. On motion, the lower court limited the investor’s damages to the purchase price of the property at issue (almost a nominal amount), as well as any reasonable attorneys’ fees or costs the court saw fit to award. The court reduced the ruling to monetary damages, and the investor appealed.

The Appellate Division reversed and remanded the matter for further proceedings. The Court held the attorney had breached his professional duty of care by first assuring the investor that he would proceed with everything necessary to ensure clear title, and then relying upon the word of mouth of the municipality’s revenue collection division rather than conduct a proper title search on the property. The Court said the critical event in the matter was the transfer of title to the property by the delivery of the sheriff’s deed. At that time, the attorney was not aware of the $176,000 municipal lien, but because of his professional undertaking he should have been. The Court noted that the investor did not learn of this encumbrance until after he closed title. At that point, his options were either to satisfy the lien or sacrifice the property to a tax sale foreclosure. The Court said the lien operated to deprive the investor of at least $176,000 in equity, and so he did not receive what he had retained the attorney to protect against, that is, a reduction in the property’s equity. Therefore, the Court reversed the limitation of damages ordered by the lower court.

The Court also reversed the lower court’s ruling that the investor should have mitigated his damages because the Court did not find the investor’s actions unreasonable under the circumstances. Once title passed, the investor’s option was to pay the municipal tax lien in full or lose the property to a tax sale certificate foreclosure action. Lastly, the Court said that even if the investor could have mitigated his damages by taking alternative steps, such a determination was best suited for a jury, and not by a court as a matter of law.

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