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Wilkerson v. D&D Developer, Inc.

A-5253-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

DEEDS—An unrecorded deed is valid in passing title to the grantee except with respect to subsequent purchasers, encumbrancers, and judgment creditors.

A church conveyed a piece of property to a seller. The seller thereafter contracted to sell the property. A contract dispute arose, and the seller sued the buyer, claiming that it “had breached [the] contract of sale by failing to obtain the required municipal development approvals and permits within eighteen months and failing to remit the $25,000 required to obtain a six-month extension of that period.” The buyer contended that its delay was caused by the fact that the deed to the property was unrecorded at the time of contract and that there appeared to be “a lien for unpaid franchise taxes against” the seller’s predecessor in title. After the contract was signed, the Division of Taxation notified the seller that “it had determined that the [c]hurch ... [was] a nonprofit corporation that” New Jersey law exempted from paying franchise taxes. The title company told the buyer of this determination. Nonetheless, the buyer argued that because of the title issues and the fact that the seller did not record its deed to the property until after the contract had been signed, “the eighteen months” period in which to obtain the permits and approvals should have begun running from the date on which the property’s title problems had been resolved. The lower court, based on that history, reformed the contract by giving the buyer more time.

According to the Appellate Division, New Jersey law provides that “an unrecorded deed is valid in passing title to the grantee except with respect to ‘subsequent purchasers, encumbrances, and judgment creditors.’” Thus, since there was no “indication of any subsequent recorded liens or purchases of the property prior to the seller’s” belated “recording of the deed from the [c]hurch,” the seller “had title to the ... property when she entered into the contract of sale” with the buyer. The Court held that the seller maintained title to the property even though it contained clouds “that took a year to resolve[;]” thus, according to the Appellate Division, the lower court erroneously concluded “that the parties entered into the contract under a mutual mistake of fact” and, as a consequence, incorrectly reformed the contract deadlines.

The Court likewise rejected the lower court’s ruling that the seller lacked title to the property “when she entered into the contract because of the absence of a declaration of the exempt status of her predecessor in title.” It held that the failure of the seller’s predecessor—the church—“to obtain a declaration of exemption from liability for franchise taxes” neither caused its corporate charter to be voided nor did it “prevent [the church] from conveying title” to the seller. The Court also held that the buyer’s “failure to avail itself of its right to terminate the contract based on a defect in title” underscored the improperness of the lower court’s order to extend the deadline as a result of the seller’s “delay in resolving those title defects.” For the foregoing reasons, the Court reversed the lower court’s dismissal of the seller’s claim.

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