Opinion
DOCKET NO. A-0732-14T4
06-28-2016
PHH MORTGAGE CORPORATION, Plaintiff-Respondent, v. JENNIFER ALLEYNE, MR. ALLEYNE, husband of Jennifer Alleyne, and BELCOURT AT HIDDEN LAKE CONDOMINIUM ASSOCIATION, INC., Defendants.
Ragan & Ragan, P.C., attorneys for appellant NJHR1, L.L.C. (W. Peter Ragan, Sr., on the brief). Phelan Hallinan Diamond & Jones, P.C., attorneys for respondent (Brian J. Yoder, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fasciale and Higbee. On appeal from Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. F-38645-08. Ragan & Ragan, P.C., attorneys for appellant NJHR1, L.L.C. (W. Peter Ragan, Sr., on the brief). Phelan Hallinan Diamond & Jones, P.C., attorneys for respondent (Brian J. Yoder, on the brief). PER CURIAM
NJHR1, L.L.C. (NJHR1) appeals from a September 5, 2014 order denying its motion to set aside its successful bid at a sheriff's foreclosure sale and refund the amount tendered to the Monmouth County Sheriff. We affirm.
In July 2006, defendant Jennifer Alleyne executed a note and mortgage to PHH Mortgage Corporation (PHH) as security for a loan. Alleyne defaulted, and in October 2008, PHH filed a foreclosure complaint against Alleyne, her husband, and Belcourt at Hidden Lake Condominium Association, Inc. (collectively defendants). The foreclosure was uncontested, and a final judgment of foreclosure ordered the property to be sold at a sheriff's sale. PHH published a notice of sheriff's sale to be held in June 2014. PHH contends it provided its agent with instructions, which included conditions of sale that its agent was to read aloud prior to any bidding taking place, including that the sale was "[s]ubject to rights of tenants and occupants, if any."
NJHR1 was the successful bidder at the sale. However, it later moved to vacate the sale when it discovered an individual on the property asserting rights as a tenant. The judge denied NJHR1's motion.
On appeal, NJHR1 argues that the judge erred in concluding that the presence of a tenant is not a cloud on title under N.J.S.A. 2A:61-16, such that notice is required, and that a potential bidder has an independent duty to inspect for tenants on the property.
N.J.S.A. 2A:61-16 states:
Any purchaser of real estate at any public sale, held by any officer or person mentioned in [N. J.S.A.] 2A:61-1. . . shall be entitled to be relieved from his bid if, before delivery of the deed, he shall satisfy the court by whose authority such sale was made of the existence of any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable, or of the existence of any lien or encumbrance thereon, unless a reasonable description of the estate or interest to be sold, and of the defects in title and liens or encumbrances thereon, with the approximate amount of such liens and encumbrances, if any, be inserted in the notices and advertisements required by law, and in the conditions of sale; but, if the court shall direct any lien or encumbrance not described, and which is due and payable, to be paid out of the proceeds of sale, the purchaser shall not then be relieved by reason of such lien or encumbrance.The statute allows "a court to relieve a purchaser at public sale from his bid upon equitable grounds." Powell v. Giddens, 231 N.J. Super. 49, 53 (App. Div. 1989).
[(Emphasis added).]
It must be observed at the outset that the statutory relief is provided when there has been a failure to disclose a defect, lien or encumbrance in the notices and advertisements required by law, or in the conditions of sale. That failure would have to be the result of either an intentional failure or a negligent failure to make the disclosure.
[Smith v. Boyd, 272 N.J. Super. 186, 190 (Law. Div. 1993).]
Here, NJHR1 alleges that its employee, Joseph Fox, attended the Middlesex County Sheriff's sale and was the successful bidder, and that nothing was included in the notice or in the announcements made that the sale was subject to the rights of individuals in possession of the property, specifically tenants. Fox certified that he undertook a visual inspection of the property and encountered an "occupant . . . who, upon inquire, refused to give his name but asserted rights to possession of [the property] as a tenant or otherwise emanating from the foreclosed property owners." He further certified that he does "not know nor do[es he] have the ability to ascertain the exact legal rights asserted by the person in possession of the [property] but [he] do[es] know from [his] conversation with him that he intends to assert his rights." NJHR1 contends this assertion of rights constitutes a cloud on title such that notice should have be given.
The term "cloud on title" is somewhat ambiguous and escapes clear definition.
To be clear, although what constitutes a cloud on title has always been broadly interpreted, we do not suggest every perceived or imagined cloud on title is entitled to adjudication. Courts need not entertain doubts about title that are trifling or suggest only immaterial damage. Each case must be assessed in view of its particular facts and the magnitude of the
threat to the plaintiff's title and use of the property.
[Suser v. Wachovia Mortg., FSB, 433 N.J. Super. 317, 326 n.4 (App. Div. 2013) (citations omitted).]
A cloud on title is not created by an individual claiming to be a tenant occupying real property purchased at a sheriff's sale. The statute states that the alleged deficiency in title must render it unmarketable. The presence of a tenant, assuming arguendo that this individual is actually a tenant, does not affect NJHR1's ownership or title to the property.
NJHR1 relies on I.E.'s, L.L.C. v. Simmons, 392 N.J. Super. 520, 523-24 (Law Div. 2006), in which the judge vacated a judgment of foreclosure on a tax sale because only one of the four defendant owners received personal service. The case required the judge to weigh the equities given that a bona fide purchaser for value had purchased the land, and noted that when the claimant is in possession of the land, as the family in Simmons was, the equities weigh against the bona fide purchaser because the purchaser had a duty to investigate the rights of the party in possession. Id. at 534-35. NJHR1 argues from this that alleged possession by a tenant can upset the sale of property at a sheriff's sale because it creates a cloud on title. This argument is misplaced for various reasons.
Simmons does not involve setting aside a sheriff's sale and does not apply the pertinent provisions of N.J.S.A. 2A:61-16. Instead, it deals with the judge weighing countervailing considerations, namely former owners who were not served with the notice of tax sale, which raises due process concerns, versus a bona fide purchaser who later acquired ownership of the property. The judge concluded that because the bona fide purchaser knew that the former owners possessed the land, equitable considerations cut against the purchaser.
Here, by contrast, there is no allegation that the foreclosure complaint was not properly served; the foreclosure was uncontested. This case involves an alleged tenant who may seek to assert his rights, not a previous owner alleging improper service. Therefore, Simmons is inapposite.
Next, NJHR1 relies on Summit Bank v. Thiel, 325 N.J. Super. 532 (App. Div. 1998), aff'd as modified, 162 N.J. 51 (1999), in which we interpreted N.J.S.A. 2A:61-16, and concluded that a successful bidder at a foreclosure sale could set aside the sale where the amount of unpaid taxes was not actually announced or stated in the notices or advertisements for the sale. We explained that prior to N.J.S.A. 2A:61-16, "a foreclosure sale, like any other judicial and execution sale, was subject to the doctrine of caveat emptor, and a successful bidder was bound by his purchase irrespective of the condition of the title of the premises purchased." Id. at 538 (citations omitted). The statute served to remediate the rule of caveat emptor in three circumscribed areas, namely where there is a cloud on title or defect affecting marketability, a lien, or an encumbrance. NJHR1 argues that the judge improperly shifted the burden onto the bidder to discover the cloud on title. However, the real issue is whether this individual alleging rights as a tenant creates a cloud on title in the first instance. We conclude it does not.
A cloud on title arises when an individual purchases land and his or her fee interest or ownership is either limited, questioned, or subject to an interest that will otherwise invalidate or limit his or her ownership or interest in the property. See, e.g., Secaucus v. Damsil, Inc., 120 N.J. Super. 470, 472 (App. Div.) (finding that tidelands or riparian rights that could be claimed by the State created a cloud on title), certif. denied, 62 N.J. 90 (1972); Hyland v. Kirkman, 204 N.J. Super. 345, 368 (Law Div. 1985) (finding that a recorded wild deed creates a cloud on title). Situations such as future interests, an adverse possessor, covenants, easements, or other scenarios where another party may divest the owner of his title or estate creates a cloud on title sufficient to require notice. See Kelley v. CitiFinancial Servs., 696 S.E.2d 775, 779 (N.C. App. 2010) (explaining a cloud on title arises when an adverse party asserts "some claim in the land which is adverse to plaintiff's title, estate or interest").
Here, the individual on the land claiming to be a tenant cannot challenge the owner's title. See Nelson v. Burns, 255 Ill. App. 314, 320 (1930) (explaining "[a] tenant cannot dispute his landlord's title. The lease, itself, is not a cloud."). A landlord-tenant relationship is contractual, WG Assocs. v. Estate of Roman, 332 N.J. Super. 555, 560 (App. Div. 2000), and is not a threat to the owner's title.
In sum, the statute seeks to guard against omission of liens or encumbrances such as mortgages and tax liens, as they will affect bidding at the sale, and against deficiencies or potential threats to the owner's title, such as those mentioned above. Outside of the three delineated exceptions, a buyer at a sheriff's sale is subject to caveat emptor. See Smith, supra, 272 N.J. Super. at 194 (explaining "a sheriff's sale has been interpreted as creating a caveat emptor situation" (citations omitted)). A tenancy is not a cloud on the owner's title, it is a contractual relationship that can be remedied by an action for ejectment. The bidder at a sheriff's sale bears the risk that a tenant may be on the property.
An additional flaw exists in NJHR1's argument, namely that it must establish the failure to disclose the alleged cloud on title was "the result of either an intentional failure or a negligent failure to make the disclosure." Id. at 190. NJHR1 has not provided any evidence that PHH knew about this alleged tenant or in any way was negligent in failing to discover the tenant. There is no indication in the facts that this person is actually a tenant, and no evidence of any lease agreement or any agreement whatsoever with the former owner. We know only that when NJHR1's employee inspected the property, an individual was there who claimed to be a tenant; there is no further proof of his status and no indication that PHH intentionally or negligently failed to make the disclosure. Thus, NJHR1's argument also fails for this reason.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION