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Stephen N. Frankel Real Estate, Inc. v. Merrett

A-1547-09T2 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; LIS PENDENS — Where the actions of a buyer result in the filing of a lis pendens against the property to be acquired, even if wrongfully filed, the buyer cannot successfully claim breach of contract or seek specific performance against the seller based upon the seller’s inability to refuse or remove the lis pendens.

A developer intended to build a multi-story residential condominium on a series of lots it intended to buy. The developer’s managing member signed a commission agreement with a real estate broker. It called for a 5% commission if and when any condominium units were built by it and then were sold by the broker. A later commission agreement called for the developer to pay $25,000 upon execution of purchase contracts with the sellers, and an additional $75,000 when certain municipal approvals were issued.

The developer entered into contracts of sale with each of the owners for their respective properties, and the sellers were prepared to close. However, the broker sued the developer, alleging it was due a percentage commission pursuant to the first commission agreement. The sellers were named in the lawsuit, though no allegations were raised against them. The broker requested that an equitable lien be placed upon the sales proceeds. It also filed a lis pendens against the properties. Pursuant to a case management order, the developer was to set up an escrow fund at closing on the properties, and the lis pendens would be discharged on that basis. The parties could not agree on an escrow and did not contact the lower court for resolution. As a result, the two lis pendens were not discharged and the closings did not occur. The contracts were terminated.

The developer, alleging breach of contract, then sued the sellers. It sought return of all deposit monies, other monetary damages, and specific performance. The sellers moved for summary judgment against both the developer and broker. The lower court ultimately dismissed the claims for breach of contract and for specific performance against the sellers. The developer appealed, arguing that the properties were not free and clear of all liens at time of closing because of the lis pendens and, for that reason, the sellers had breached their respective contracts. The developer also asserted that the responsibility to discharge the two improperly filed lis pendens rested solely with the sellers.

The Appellate Division disagreed and affirmed the lower court’s ruling, saying that once the parties could not agree on an escrow amount, the developer could have proceeded to closing by returning to the lower court to resolve the dispute, or by moving to discharge the lis pendens on the sellers’ properties. At the time the contracts were executed, the sellers had marketable title and were able to fully comply with the contracts of sale. It was only the developer’s inability to reach an agreement with the broker that resulted in an improper claim against the properties. The sellers did nothing to cause the lis pendens.

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