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Sam Young Corp. v. Lyndhurst General Services, LLC

C-184-10 (N.J. Super. Ch. Div. 2011) (Unpublished)

CONTRACTS — Where a contract of sale for real estate imposes a material post-closing obligation on the seller, if that obligation is not satisfied before a corresponding seller’s take-back mortgage becomes due, the due date of the mortgage may be extended by a court.

A property was bought for $8,600,000, of which the buyer paid an initial deposit of $430,000 and paid an additional $3,570,000 at closing. The remaining $4,600,000 was paid to the seller in the form of a take-back mortgage. The note was for a term of two years, with monthly payments representing interest only. The contract required the seller to obtain a No Further Action (NFA) letter from the New Jersey Department of Environmental Protection (DEP). It had one year from the closing date to provide it, however there would be no default if the seller was still diligently seeking to obtain it.

A dispute arose over the seller’s failure to obtain the NFA letter, and over the buyer’s purported breaches of the loan documents. The seller filed a complaint to foreclose the purchase money mortgage. The buyer contested the complaint, and then sued for breach of contract and fraud. At this point, the seller still had not produced the NFA letter. Also, the buyer had made no payments on the note and had stopped paying real estate taxes.

The Court found that the seller was continuing to diligently obtaining DEP approval, and also concluded that the seller had neither breached the contract nor committed fraud. Even though there was a period of inactivity following the closing as to pursuing the DEP approval, the Court attributed this to a misunderstanding or lack of effective communication between the seller and buyer. The seller initially believed that the buyer had taken responsibility for obtaining the NFA, but when the buyer notified it that it wasn’t taking responsibility, the seller immediately resumed efforts to obtain the NFA letter. Since the seller was still diligently pursuing the letter, it did not breach the contract.

The Court further concluded that the buyer was not entitled to rescind the contract, nor was it entitled to an award of damages. Additionally, the Court ruled that, provided the buyer otherwise fulfilled its obligations under the loan documents, including paying the monthly interest and the real estate taxes, the seller could not call the loan or foreclose upon the property until the NFA letter was obtained. The Court allowed the buyer to catch up on the monthly payments and real estate taxes, but if it did not, then the seller could foreclose.

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