Princeton S. Investors, LLC v. First Am. Title Ins. Co.

• Citation: 437 N.J.Super. 283,97 A.3d 1190
• Parties: PRINCETON SOUTH INVESTORS, LLC, Plaintiff–Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant–Respondent.
• Decision Date: 08 September 2014
• Court: New Jersey Superior Court

437 N.J.Super. 283

97 A.3d 1190

PRINCETON SOUTH INVESTORS, LLC, Plaintiff–Appellant,

v.FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant–Respondent.

Superior Court of New Jersey,

Appellate Division.

Argued Jan. 22, 2014.

Decided Sept. 8, 2014.

Brian P. Flaherty of the Pennsylvania Bar, admitted pro hac vice, argued the cause for appellant (Cozen O'Connor, PC, attorneys; Mr. Flaherty and Diana J. Lin, on the brief).

Robert L. Grundlock, Jr., Princeton, argued the cause for respondent (Rubin, Ehrlich & Buckley, PC, attorneys; Mr. Grundlock, on the brief).

Before Judges REISNER, OSTRER and CARROLL.

The opinion of the court was delivered by

REISNER, P.J.A.D.

In this insurance coverage dispute, plaintiff Princeton South Investors (Princeton South or plaintiff) appeals from a trial court order dated September 28, 2012, granting summary judgment in favor of defendant First American Title Insurance Company (First American). The case presents two issues: in the context of a title insurance claim, whether a pending but as-yet-undecided tax appeal by a municipality, asserting that a property has been under-assessed, creates a defect in or an encumbrance on the property owner's title, or renders the title unmarketable; and, based on the policy language, whether the First American policy covered plaintiff's claim. We answer both questions in the negative and, therefore, affirm the order on appeal.

I

To summarize, plaintiff bought foreclosed commercial property at a sheriff's sale.¹ The conditions of sale included a provision that the property was being sold “subject to ... unpaid taxes or assessments.” There were no delinquent taxes outstanding at the time of the sale or on the effective date of the First American title policy. However, plaintiff contends that municipal tax appeals covering several prior tax years, which were pending at the time it bought the property, constituted a title defect covered by the policy. ² Plaintiff cites no cases from this State or from any other jurisdictions that so hold.

On the other hand, defendant cites case law from other jurisdictions that is both on point and persuasive. Defendant further relies on language in the title policy, both in terms of what is covered and what is excluded, that, read together, convinces us that the policy does not insure against the imposition of taxes assessed after the date the policy was issued.

II

We review an order granting summary judgment de novo, using the same legal standard employed by the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330, 9 A.3d 882 (2010). Likewise, we owe no deference to the trial court's legal interpretations, including its construction of an insurance policy or other contract. Ibid.

A title insurance policy is a “ ‘contract that protects a landowner against loss caused by defective title to the land.’ ” N.J. Lawyers' Fund for Client Prot. v. Stewart Title Guar. Co., 203 N.J. 208, 217, 1 A.3d 632 (2010) (quoting Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72, 82, 948 A.2d 600 (2008)). Title insurance protects a buyer against the risk of defects that exist at the time the policy is purchased, but not against the risk of defects that may arise in the future. Shotmeyer, supra, 195 N.J. at 82, 948 A.2d 600. “In that sense, title insurance covers ‘a state of ownership at a specific point in time.’ ” Ibid. (quoting 11 Couch on Insurance § 159:5 (3d ed. 1998)).

Like other types of insurance, a title insurance policy should be “ ‘liberally construed in favor of the insured and strictly construed against the insurer.’ ” Ibid. (quoting Sandler v. N.J. Realty Title Ins. Co., 36 N.J. 471, 478–79, 178 A.2d 1 (1962)). However, courts will enforce the title insurance policy as written and will not rewrite a more favorable policy for the insured than the one purchased. See ibid.; Amidano v. Donnelly, 260 N.J.Super. 148, 154, 615 A.2d 654 (App.Div.1992), certif. denied,133 N.J. 435, 627 A.2d 1141 (1993).

A.

Before focusing on the title policy at issue in this case, it is helpful to consider the way annual property taxes are assessed in New Jersey. First, the municipal tax assessor must assess all property as of October 1 of the pretax year. N.J.S.A. 54:4–23. After completing the preparation of the municipal tax assessment list, the assessor files the list with the County Board of Taxation (Board), which may examine, revise and correct the proposed assessments. N.J.S.A. 54:4–35. The annual taxes on a particular property are set by multiplying the municipal tax rate—previously set by the Board—by the property's assessed value. See East Orange v. Palmer, 47 N.J. 307, 317, 220 A.2d 679 (1966). The annual tax then “becomes due in four installments on February 1, May 1, August 1 and November 1.” Id. at 318, 220 A.2d 679.

Once taxes are assessed, they give rise to a lien on the property which continues unless they are paid. See N.J.S.A. 54:5–6 (“Taxes on lands shall be a continuous lien on the land on which they are assessed....” (emphasis added)). “A lien arises against the real estate on which the taxes are assessed in the event of non-payment.” S & R Assocs. v. Lynn Realty Corp., 338 N.J.Super. 350, 360, 769 A.2d 413 (App.Div.2001). In Princeton Office Park v. Plymouth Park Tax Services, LLC, 218 N.J. 52, 61, 93 A.3d 332 (2014), the Court recently observed that N.J.S.A. 54:5–6 “confers on a municipality ... ‘a continuous lien on the land’ ” for delinquent taxes, and provides that any subsequent delinquent taxes are added to the lien. Id. at 61, 93 A.3d 332 (quoting Simon v. Cronecker, 189 N.J. 304, 318, 915 A.2d 489 (2007)). Here, there were no delinquent taxes at the time First American issued the policy, and any potential taxes that might have arisen in the future, following a successful tax appeal, had not yet been “assessed.” N.J.S.A. 54:5–6.

If a taxpayer wishes to challenge the assessed valuation of the taxpayer's property, or if a taxing district “feel[s] discriminated against by the assessed valuation of property in the taxing district,” the taxpayer or taxing district may file an appeal with the Board. N.J.S.A. 54:3–21(a)(1). If the assessed valuation of the property is in excess of $1,000,000, the complaint can be filed directly in the Tax Court, provided it is filed “on or before April 1, or 45 days from the date the bulk mailing of notification of assessment is completed in the taxing district....” N.J.S.A. 54:3–21(a)(1). Here, the municipality filed its appeals for this property for tax years 2009, 2010, and 2011, directly with the Tax Court. See N.J.S.A. 54:51A–2. If the municipality prevails on its appeal, the Tax Court will “enter judgment revising the taxable value of the property.” N.J.S.A. 54:51A–6(a). Based on that revised taxable value, additional taxes may be assessed which, if not paid, will give rise to a lien. See S & R Assocs., supra, 338 N.J.Super. at 360, 769 A.2d 413.

In addition to the regular annual tax assessments, the tax statutes make provisions for omitted or added assessments. The term “omitted assessment” refers to a situation where properties have been inadvertently, or intentionally but incorrectly, omitted from an annual assessment.

In any year or in the next succeeding year, the county board of taxation may, in accordance with the provisions of this act, assess any taxable property omitted from the assessment for the particular year.

[N.J.S.A. 54:4–63.12.]

An “added assessment” taxes improvements to real estate that are substantially ready for their intended use after the assessor has completed the annual October 1 assessment.

[W]hen any parcel of real property contains any building or other structure which has been erected, added to or improved after October 1 in any year and completed before January 1 following, the assessor shall, after examination and inquiry, determine the taxable value of such parcel of real property as of the first day of the month following completion ... and ... if such value so determined exceeds the assessment made as of October 1 preceding, the assessor, shall enter the amount of ... such excess, as an assessment or an added assessment against such parcel of real property, for the subsequent tax year in a list to be known as the “Added Assessment List, 19 ...” (inserting the name of the year in which the assessment is made);.... In addition, the assessor shall enter in such added assessment list an assessment for that portion of the pretax year between the first day of the month following completion ... and December 31 to be determined by multiplying the amount of such assessment or such excess by the number of whole months remaining in the pretax year after the completion ... of said property, and by dividing the result by 12.

[N.J.S.A. 54:4–63.2.]

The tax statutes give prospective purchasers of real property a means of protecting themselves against unanticipated assessments or outstanding taxes at the time of purchase. By statute, ordering a municipal tax lien search protects a prospective buyer against assessments not disclosed in the search. Within fifteen days after receiving a search request and the required fee, the tax official must issue a certificate certifying the taxes, assessments or other municipal liens or charges, levied or assessed against the property described in the application, which are liens thereon at the date of the certificate. He shall include therein all unpaid installments of assessments theretofore levied and in force, whether due or not....

[N.J.S.A. 54:5–12.]

The purchaser is thereafter protected against municipal liens not disclosed on the certificate:

A bona fide purchaser, lessee or mortgagee who shall acquire for a valuable consideration an interest in lands covered by an official tax search and in reliance on said search shall hold such interest free from any municipal lien ... not shown on that search.

[N.J.S.A. 54:5–17.]

At least one case also holds that a municipality's failure to disclose its...