Opinion
DOCKET NO. A-4426-13T4
12-10-2015
LAKE COMMUNITY PROPERTY OWNERS ASSOCIATION, INC., Plaintiff-Appellant/Cross-Respondent, v. MICHAEL F. ZEUGIN and KATHRYN ZEUGIN, Defendants-Respondents/Cross-Appellants.
Oller & Luzzi, L.L.C., attorneys for appellant/cross-respondent (Richard T. Luzzi, on the brief). Linda Auger Peoples, attorney for respondents/cross-appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Ostrer and Sumners. On appeal from the Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-774-12. Oller & Luzzi, L.L.C., attorneys for appellant/cross-respondent (Richard T. Luzzi, on the brief). Linda Auger Peoples, attorney for respondents/cross-appellants. The opinion of the court was delivered by OSTRER, J.A.D.
This appeal involves the claim of a homeowners association, plaintiff Lake Community Property Owners Association (Association), for unpaid dues and assessments charged to two property owners in the community, defendants Michael F. Zeugin (Michael) and Kathryn Zeugin (Kathryn). After a bench trial, the trial court held that defendants were liable for $60 in annual dues for the six-year period preceding the filing of the Association's complaint. The court relied on a provision in the 1968 deed between Blue Ridge Lakes, Inc. (Blue Ridge), the original developer of the community, and a predecessor in title. The court rejected the Association's claim for additional dues and assessments, which the Association asserted it was entitled to impose based on a 1979 order, settling a class action law suit, establishing the Association as a common interest community. The court also rejected the Association's claim for late fees, and substantially reduced its claim for attorney's fees. The Association appeals, and defendants cross-appeal. Having reviewed the parties' respective arguments in light of the record and applicable principles of law, we affirm in part, reverse in part, and remand for further proceedings.
For convenience, we will use defendants' first names. We mean no disrespect in doing so.
I.
A.
To understand the basis of the parties' dispute, we must first review the history of what is sometimes referred to as the Barry Lakes Community. In the mid 1960's, Blue Ridge created a subdivision of 1200 lots to form a lake community. Blue Ridge also formed Barry Lakes Country Club, Inc. (the Club), to which initial property owners were obliged to pay dues. The relevant provisions of the deed between Blue Ridge and initial property owners required "future owners" to qualify for membership, but stated that all "property owners" were liable for dues, irrespective of their use of the Club's facilities:
12. Club dues in the sum of $60 shall be paid to Barry Lakes Country Club, Inc. on January 1st of each year in advance. The sums so collected can be co-mingled with its general funds and disbursed by it in its absolute discretion. Grantee hereby applies for membership therein which includes the members of his immediate family. Grantee's membership shall expire with the conveyance of his property. Future owners of these premises must qualify for membership in the club and must pay membership dues. Such payments shall be a debt due the club and may be collected by legal action. Dues in arrears shall constitute a lien upon the premises. Failure to abide by the club's rules and regulations will suspend the Grantee and prevent the use of the club and beaches by Grantee, his guests, his family and invitees. All property owners will be liable for the payment of the club dues, irrespective of the use of the club, lakes or beaches.A separate provision required future owners to secure prior approval of their purchase:
[(Emphasis added).]
17. No sale of any plot, improved or unimproved shall be made unless prior thereto the then owner shall by registered mail offer the premises to the Grantor upon the same terms as the proposed sale, and the Grantor shall have 30 days after such notice to purchase the same. No sale or transfer shall be made unless the prospective purchaser or lessee shall prior thereto have been approved in writing by the club.
[(Emphasis added).]
The record reflects that there was at least one other form of deed, which differed in some minor respects from the one we quote. However, we reference the language utilized in the deed found in defendants' chain of title.
In the 1970s, there was widespread dissatisfaction among property owners with the manner in which Blue Ridge maintained the private roads, beaches and other community facilities. The Association brought suit against Blue Ridge in 1975. The suit was consolidated with a 1978 class action that involved virtually all of the property owners. Ten property owners opted out of the class. They were known as the "Coppolla Group," so named after the first of the ten owners named in a complaint against the Club.
In setting forth this history, we also rely on our prior opinion in Pesce v. Lake Community Prop. Owners Ass'n, No. A-1408-83 (App. Div. March 13, 1985).
The 1970s litigation was resolved by a settlement incorporated in an order for judgment entered by Judge Bertram Polow on March 7, 1979 (1979 Order). Pursuant to the 1979 Order, the Association obtained ownership of the club house, lakes, beaches and roads. The Association was also granted "the power and authority to make assessments for road maintenance, improvements and other related essential services together with the costs of operating the clubhouse, beaches and recreational facilities." The Association's power was "binding upon all other members of the class who have not submitted written requests for exclusion, all of said class members having been subject to notice issued by this Court."
Neither the terms of the settlement nor a stipulation of facts, both of which were incorporated by reference in the 1979 Order, are in the record before us.
The 1979 Order declared that the settlement created a "neighborhood scheme or plan" and the Association was empowered to impose assessments for costs associated with common facilities:
4. The Court finds and determines that the deed restrictions contained in all deeds from Blue Ridge Lakes, Inc. to the initial purchasers of lots at Barry Lakes, and the terms and provisions of the settlement herein approved, shall be and [are] a neighborhood scheme or plan, and said restrictions shall constitute equitable
servitudes on all properties in said neighborhood.
5. The power and authority of the Lake Community Property Owner's Association, or such other club association which undertakes the operation of the club and recreational facilities and the assessment of costs of road maintenance, improvements and other essential services, shall distribute said costs pursuant to a method of calculation which constitutes a reasonable and proportionate distribution of the respective shares of said costs based upon actual costs or reasonably foreseeable expenses set forth in a budget determined by the Board of Directors, Trustees or other governing body of said organization.
The order provided that such restrictions also applied to all unimproved but subdivided lots.
Additionally, the 1979 Order specified the rights of the Coppolla Group members. They and their successors were granted the power "to elect whether or not they wish to participate in the club and recreation activities conducted in the Barry Lakes community under the supervision and jurisdiction of the Lake Community Property Owner's Association." If they elected not to participate, they would not "be charged for any of the expenses of operating such activities, but shall only be subject to the proportionate charge and assessment for actual road maintenance and improvement costs incurred during the year." The settlement also provided: "In the event that the municipality accepts and undertakes the maintenance and improvement of any roads on which any of the Coppolla Group properties is located, then such property will not be subject to any charges hereunder."
In the early 1980s, members or successors of the Coppolla Group, led by named-plaintiff Robert Pesce, sued the Association, seeking a declaratory judgment "that the club cannot make claims against their real property for dues," a "judgment that they are responsible only for that portion of club assessments relating to road maintenance," and a declaration "that the covenants and restrictions in [their] chain of title [were] unenforceable." As we recounted in Pesce, supra, the trial court "upheld the validity of the covenant in plaintiffs' deed requiring payment of $60 annual club dues." The trial court did so, notwithstanding the express language in the 1979 Order providing that Coppolla Group members could decide for themselves whether they wished to "participate in the club." The trial court gave the plaintiffs the choice of: "paying the full amount of club dues as set each year and enjoying the club privileges," which amount had increased beyond the $60 set forth in the original deeds; or, electing to pay "only the $60 dues established by deed, without club privileges, plus the actual cost of road maintenance and improvements and garbage collection, but never less than $60."
The Association appealed. The plaintiffs did not, nor did they appear in opposition to the Association's appeal. In Pesce, we limited our consideration "solely to the propriety of the court's limiting payment of dues to the sum of $60 plus an assessment for road and garbage service to exclude administrative costs." We affirmed, reasoning "[t]he grantee and his successors are bound by the covenant to pay $60 club dues, but the covenant does not mandate that they pay any increase in dues which may be required by the club." We noted that, under the covenant, failure to pay the $60 resulted in a lien on the premises, whereas failure to pay additional dues under "club rules and regulations," only resulted in "suspension of membership and loss of the right to use the club and its beaches." As such, the Court could only compel the plaintiffs to pay the mandated $60 club dues. We added, "strict construction of the covenant does not compel a grantee or his successor to be a member."
B.
In February 1986, defendants purchased a house at 3 Callan Court from Dennis and Diane Zawadski, who had purchased it in 1979 from Arthur Coppolla. The property was therefore a Coppolla Group property, and was subject to the exemptions under the 1979 Order. Defendants did not pay any dues in connection with 3 Callan Court.
The address was originally known as 20 Callan Court, but was renumbered at some point. We refer to it by its last known address. Also, the deed referred to the Zawadskis' grantor as Arthur Coppola. However, we utilize the spelling in the 1979 Order — Coppolla. We also note that the street name is sometimes referred to as "Callen Court." However, we adopt the spelling used in the deed.
On October 1, 1987, defendants purchased an undeveloped wooded lot across the street, known as 4 Callan Court. That lot was not among the properties owned by Coppolla Group members. Defendants eventually constructed a house at 4 Callan Court, and then sold 3 Callan. The Association asserted that they were liable for dues and assessments for 4 Callan. The Association periodically billed defendants, who insisted they were not liable. The Association filed a lien on defendants' property in 2010, and filed suit in 2012. The record does not reflect the precise date of filing of the complaint, which was dated June 27, 2012. The Association sought $14,122.15 in "unpaid fees," along with late fees, and attorney's fees. The dues and assessments charged included assessments for road improvements, and other costs, in addition to the $60 annual amount set forth in the deed from Blue Ridge to James and Susan Gay Heath, predecessors in title.
The Association's ledger indicates that late fees were already incorporated in the amount due on defendants' account. The amount due began accumulating in 1988.
C.
A key issue at trial was whether defendants were on notice that 4 Callan was subject to dues and assessments pursuant to the 1979 Order, which, as discussed above, authorized the Association to impose fees and assessments in excess of the fixed $60 a year dues set forth in the deeds. It was established at trial that the 1979 Order was not filed in the "chain of title" based on a title search obtained by defendants. We therefore presume that the 1979 Order was not filed in the county deed book, nor would a search of the deed book index have led to discovery of the 1979 Order.
See Manchester Fund, Ltd. v. First Am. Title Ins. Co., 332 N.J. Super. 336, 343-45 (Law Div. 2000) (discussing deed book indices).
Michael testified he first learned of the class action when the Association sent a letter to his attorney on December 10, 1985, before he closed on the purchase of 3 Callan. Michael stated he became aware that 3 Callan was not subject to lake dues, fees, or assessments as a result of the class action settlement. The letter stated, "In 1978, the court found that Mr. Zawadski and subsequent owners of the property do not have to be full members of the Association. This was the result of a class action in the Superior Court of New Jersey, Sussex County, Docket # C-1951-75." Kathryn also testified that she became aware of the class action lawsuit at the closing for 3 Callan. She had no recollection of the closing for 4 Callan, stating she did not attend, and had given her husband power of attorney.
Michael asserted he understood the class action "meant that people on town maintained roads and who did not use the club and did not use club services should not have to pay dues." Michael stated it was important to him to be exempt from the community charges, because he had no interest in taking part in, or paying for, community services.
He did not inquire further into the details of the class action settlement at that time. Michael admitted he did not read the 1979 Order. He asserted that his understanding of the settlement's import was reinforced by anecdotal information from other residents, who paid only selected or no dues or assessments.
He testified that when he purchased 4 Callan, he assumed it was in the "lake community," although he asserted no one ever told him that the property would be subject to dues and fees. He stated he believed he and his wife "were not members nor did we want to become members." Michael conducted no further investigation regarding whether the property was exempt from the class action settlement, until the Association sought payment in the years leading up to the litigation. He subsequently read the terms of the deed.
Notwithstanding Michael's assertions, within a few days of defendants' closing on their purchase of 4 Callan, $525 in club dues and road fees were paid on the property's account, according to the Association's ledger. This consisted of the following charges for 1986 and 1987: $140 for each year's annual dues, $185 for "road dues" in 1987, and $30 each year for late fees. The record does not reflect whether the payment was made by defendants or the sellers.
Sometime after defendants purchased 4 Callan, Michael received a bill from the Association regarding the undeveloped lot. Michael wrote in March 1988 that the bills were sent in error. "We . . . already own and reside on block and lot 42.11-20 [3 Callan], which is free from dues by previous class action. If block & lot 42.12-1 [4 Callan] is subject to dues at all, it is at the much lower Additional Lot rate, not as a Lot Only." (Emphasis added). Michael asked the Association to correct its records, and "provide . . . a detail of what we, as property owners on a Vernon Township maintained road, will receive in return for dues."
The Association's secretary responded that defendants were billed "for a primary lot since your home is not part of the Association and as such [is] not entitled to the second lot fee." The secretary informed defendants they were entitled to lake and beach privileges.
Michael insisted that he had never received a copy of the Association's bylaws or constitution, or a "welcome packet," either when he owned 3 Callan, or 4 Callan. He may have received newsletters, but did not read them. He insisted he never paid the Association any fees or assessments.
The Association introduced into evidence its 1986 Constitution and bylaws, and a 2011 version of its bylaws. The Constitution provided that "ownership of property in the L.C.P.O.A. constitutes membership pursuant to covenants recorded in the owner's chain of title." It recognized that non-members included "former members who presented themselves in court to seek exclusion from the class action seeking the purchase of Barry Lakes Country Club from Blue Ridge Lakes, Inc." The 2011 bylaws authorized the Association to seek "reasonable attorney's fees" if a collection matter is referred to a collection agency or attorney.
The Association's treasurer, Christopher Cooke, testified that membership was automatic upon purchase; there was no requirement to apply for membership. He was unaware if the Association's governing documents were recorded or personally served upon new owners. He insisted he received a "welcome packet" when he purchased in 1986.
Cooke testified that defendants owed $34,020.74 in unpaid assessments, late fees and attorney's fees. The Association introduced into evidence as a business record its record of defendants' account. Although Cooke was unable to explain the basis for some entries, it is apparent that the nomenclature for various charges varied over the years. In addition to regular dues for the maintenance and operation of the community, Cooke explained that when the Association undertook major capital projects, such as paving the private roads of the development, it imposed a special assessment on all community members, calling it "road dues."
By 2006, the Association charged the $60 annual dues referenced in the deeds at the rate of $15 a quarter, calling it "lot dues." Until 2009, defendants were also charged a "lot assessment" of between $95 and $113.75 a quarter. In 2009, the "lot assessment" was replaced by a "home assessment" of $158 a quarter, which rose to $164 a quarter by the filing of the complaint. Late fees of $25 a quarter were also imposed. Some attorney's fees were also included in the accounting.
In summation at trial, defendants argued that they were exempt from fees because nothing in their chain of title indicated that they were members of the Association. They relied on language in the deeds that required "future owners" to qualify as members. They asserted they were not bound by the 1979 Order. Even if the 1979 Order were in the chain of title, their liability was still conditioned upon membership, which they never sought. Defendants asserted the Association's failure to pursue payment reflected the Association's own understanding that they were exempt. Defendants also challenged the specific calculation of amounts due.
The Association argued that membership was automatic upon acquiring ownership. The $60 fee was required according to the terms of the deed. Additional assessments were chargeable based upon the 1979 order. Defendants were not permitted to disclaim their obligation to pay the assessment by declining to use facilities or services.
II.
In an oral decision, the court held that defendants were liable for $60 a year. The court found support for its decision in Pesce, supra. Finding that all witnesses were credible, the judge concluded, "Mr. Zeugin had knowledge and Mrs. Zeugin had knowledge of the issue concerning the Lake Community Property Owners Association by virtue of their purchase of the property at 3 Call[a]n Court earlier, so they had actual knowledge of the fact that there were lake charges and requirements for membership which were imposed." The court limited defendants' liability to $60 a year, for six years preceding the filing of the complaint.
The court rejected the Association's claim for a late fee "as a result of the lack of clarity in the actions of the parties here to spell out the various amounts." The court held that the Association could not impose an assessment for roads because Callan Court, and the roads defendants used to reach Callan Court, were all publicly maintained. The judge further held that defendants were not liable for any other assessments and addressed the issues of notice and compliance with the bylaws referred to in Pesce, supra, although he did not cite the specific bylaw provision he deemed controlling:
There are no other assessments made on the property which would qualify, and considering the fact that there is this requirement that the amount be subject to an assessment, which might be binding pursuant to [the Pesce] decision, I'm satisfied here that there has been insufficient evidence to establish that any binding assessment was made on the property by the lake community in terms of the notice given and the trail of paper which must be enacted pursuant to Bylaws.
The court also addressed defendants' liability for dues and assessments in the future:
And in the future, should the lake club decide to make such an assessment, it must . . . give adequate notice to the homeowners,
and in this case it must be related to issues which this property is [a]ffected by.
With regard to the beach club and the maintenance of the beach club, the $60 . . . is limited by the title documents. To the extent that there might be some future assessment for improvement costs, those have to be reasonably related to this property owned by the defendants, and there has to be a mechanism established by the lake community to give them actual notice.
The court ordered the lien discharged upon payment of $480. The court initially reserved decision on the issue of counsel fees and costs. The Association's counsel submitted a certification of fees of $37,507.79. The court awarded $1500, without a statement of reasons.
This appeal followed. The Association argues defendants are bound by the 1979 Order. Pursuant to its terms, they are liable for dues, assessments and fees imposed, including late fees and attorney's fees. Defendants argue they are not liable for any dues whatsoever, as they never sought membership in the community.
III.
We begin by explaining our standard of review. We defer to the trial court's factual findings as long as they are supported by "adequate, substantial and credible evidence." See Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We owe special deference to the court's credibility determinations, because the trial judge had the opportunity to see and hear the witnesses testify and decide if their testimony was believable. See State v. Locurto, 157 N.J. 463, 470-71 (1999).
However, we do not defer to a trial judge's legal interpretations. Manalapan Realty v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). In particular, interpretation of a deed is a question of law, which we review de novo. Belmont Condo. Ass'n v. Geibel, 432 N.J. Super. 52, 86 (App. Div.), certif. denied, 216 N.J. 366 (2013); Cooper River Plaza E., LLC v. Briad Grp., 359 N.J. Super. 528 (App. Div. 2003).
A.
We first consider defendants' argument that they are not liable for any dues whatsoever. Defendants contend the original deed from Blue Ridge to their predecessor in title conditioned liability on their optional membership in the Club. Since they chose not to join, they are not liable. We disagree.
We apply basic principles of contract interpretation to the terms of the deed. Cooper River Plaza, supra, 359 N.J. Super. at 527. See also Weinstein v. Swartz, 3 N.J. 80, 86 (1949) ("A restrictive covenant is a contract."); Homann v. Torchinsky, 296 N.J. Super. 326, 334 (App. Div.), certif. denied, 149 N.J. 141 (1997). The prime consideration in determining the meaning of a deed is the intent of the parties. Normanoch Ass'n, Inc. v. Baldasanno, 40 N.J. 113, 125 (1963). "However . . . in the context of a deed restriction meant to bind subsequent purchasers that are strangers to the initial transaction, the intent of the restriction must manifest itself in the language of the document itself." Cooper River Plaza, supra, 359 N.J. Super. at 527. "An intention disguised by an ambiguity cannot bind a subsequent purchaser who, as the result of an absence of clarity in the instrument of conveyance, lacks notice of restrictions that the initial parties have attempted to place on the property being conveyed." Ibid.
Applying these principles, we reject defendants' interpretation that a property owner in the community could opt out of membership, and thereby avoid liability for annual dues. Rather, it is apparent that all owners are members, and all owners are liable for dues. In the initial transfer from the developer, the grantee automatically applied for membership. The deed at paragraph 12 states: "Grantee hereby applies for membership therein which includes the members of his immediate family." The paragraph goes on to provide: "All property owners will be liable for the payment of the club dues, irrespective of the use of the club, lakes or beaches."
Defendants place undue weight on the provision that required "future owners" to "qualify for membership": "Future owners of these premises must qualify for membership in the club and must pay membership dues." However, the intention is clear that the qualification process, if any, preceded ownership. Paragraph 17 of the deed provided that no transfer shall be made to a "prospective purchaser" — in other words, a "[f]uture owner[]" — "unless . . . approved in writing by the club." In other words, in the beginning of the development, "future owners" had to qualify before purchasing; but once they acquired ownership, and were no longer "future owners," but actual owners, they were liable, pursuant to the provision that "all property owners will be liable."
See Fineberg, Lawrence J., Handbook of New Jersey Title Practice, 3rd Edition, §3302:
[T]he obligation to join the HOA or pay dues or both will frequently be set forth in the recorded document setting up the scheme, such as a declaration of covenants and restrictions. In the case of some older planned communities, the declaration may speak of the duty to join the association, or may prohibit any owner from selling to anyone except a member of the association; however, the obligation to pay dues may not be expressly set forth.
Defendants assert that our prior decision in Pesce, supra, compels a different result. In particular, they rely on the statement that "strict construction of the covenant does not compel a grantee or his successor to be a member." They argue that Pesce should be given res judicata effect. We disagree.
The panel in Pesce did not disturb the trial court's holding that every property owner was required to pay the $60 a year. The issue was whether owners were required to pay more than that if they did not choose to avail themselves of the club. Moreover, Pesce addressed the responsibilities of members and successors of the Coppolla Group, who were permitted by the 1979 Order to opt out of the community.
Our decision in Pesce does not preclude the Association's claims against defendants with respect to 4 Callan. The issues litigated in Pesce were not identical because they pertained to the liability of Coppolla Group members and successors. See Hennessey v. Winslow Twp., 183 N.J. 593, 599 (2005) (setting forth requirements of collateral estoppel or issue preclusion, including identical issues in prior and current proceeding).
Furthermore, although mutuality of parties is not an essential condition of collateral estoppel, we nonetheless apply a "pragmatic, case-by-case approach," which looks to whether "other circumstances justify affording . . . an opportunity to relitigate the issue." Zirger v. Gen. Accident Ins. Co., 144 N.J. 327, 338 (1996) (internal quotation marks and citation omitted). In this case, it is inappropriate to bind the Association to a determination made in a case involving at most ten property owners, subject to exclusions in the 1979 Order that do not apply to defendants here.
B.
The more difficult issue in this case pertains to defendants' liability for dues and assessments above the $60 a year set forth in the Blue Ridge-to-Heath deed in their chain of title. The plain language of the deed simply does not authorize the imposition of anything more than a $60 in annual dues. The Association's claim necessarily depends upon subjecting defendants to the terms of the 1979 Order.
The Association is a typical homeowners association to the extent that it is the title owner of "[o]pen space, recreation and other common facilities . . . for the benefit of its members," who hold fee simple ownership of individual lots. See Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 110 (2006) (internal quotation marks and citation omitted). Generally, a homeowners association is "created in New Jersey by the filing of a declaration of covenants, conditions and restrictions contained in deeds and association bylaws." Ibid. Homeowners associations may record their governing documents, and thereby provide "notice to subsequent judgment creditors and purchasers." Id. at 111.
The Association is atypical insofar as its acquisition of title to the development's common areas was accomplished through the 1979 Order, which resolved the class action litigation against the original developer. The 1979 Order thus took the place of declarations in deeds or other filed governing documents.
There is no reasonable dispute that the 1979 Order, if it applies, compels the payment of annual dues in excess of the $60. As discussed above, the 1979 Order empowered the Association to incur costs of road maintenance, improvements and services, and "distribute said costs pursuant to a method of calculation which constitutes a reasonable and proportionate distribution of the respective shares of said costs . . . ." The Association's power was binding on all class members who did not opt out. The terms of the order were declared to run with the land. "[S]aid restrictions shall constitute equitable servitudes on all the properties in said neighborhood."
However, defendants contend they were not bound by the 1979 Order because it did not appear in their chain of title. The Association argues that defendants are still bound because they had "actual knowledge of the LCPOA membership requirements . . . prior to purchasing 4 Callan Court."
There are three basic forms of notice: actual notice, constructive notice, and inquiry notice.
Actual notice arises when the purchaser has actual knowledge or information that a claim is outstanding against the property he or she proposes to acquire. It exists even though the purchaser may have to make an inquiry to ascertain the validity of the claim.
Constructive notice is notice inferred from the record and it exists whether or not the purchaser inspects the record. It exists when the record reveals the outstanding claim even if the purchaser must make an inquiry to ascertain the validity of the claim.
Inquiry notice (notice inferred from secondary facts) exists when the purchaser has notice of some fact that, in accordance with human experience, is sufficiently curious or suspicious that the purchaser should be obliged to make a further inquiry into it. If a reasonable inquiry would reveal that there is another outstanding interest, then the purchaser is on inquiry notice of that interest.
[6 Powell on Real Property §82.02 (1)(d)(iv) (Michael Wolf ed. 2015) (emphasis added).]
We conclude that defendants did not have actual or constructive notice to bind them to the 1979 Order. However, we shall remand for consideration of whether defendants were on inquiry notice.
We first consider actual notice. We are not satisfied that defendants had actual notice of the terms of the 1979 Order. Nor did the trial court find such notice, contrary to the Association's contentions. The trial judge found that defendants were aware that some owners were subject to dues or assessments, and some were not. The court stated defendants had "knowledge of the issue concerning the Lake Community Property Owners Association by virtue of their purchase of the property at 3 Callan Court earlier so they had actual knowledge of the fact that there were lake charges and requirements for membership which were imposed."
However, this finding falls short of assigning to defendants actual notice of the particular servitude burdening 4 Callan pursuant to the 1979 Order. Michael and Kathryn admitted they were aware that there was a class action, and, as a result, they did not have to be full members of the Association as owners of 3 Callan. However, they did not have actual notice of the terms of the 1979 Order. Indeed, Michael misapprehended the import of the 1979 Order. He believed, mistakenly, that it provided that anyone who lived on a public road and did not utilize the Association's recreational facilities was not obliged to pay dues at all. The court found Michael — as well as other witnesses — to be credible.
Neither were defendants on constructive notice of the 1979 Order. A purchaser is deemed to be on constructive notice of outstanding claims or encumbrances discoverable in his chain of title. See Sonderman v. Remington Constr. Co., 127 N.J. 96 (1992) ("[A] purchaser should be charged only with such notice from the records as can be ascertained by a reasonable search of those records[.]") (internal quotation marks and citation omitted); Hammett, supra, 46 N.J. Super. at 545 ("A purchaser is not bound to take notice of restrictions when they are absent from his chain of title -- he is only bound to look to his own deed and chain of title . . . .").
In Sonderman, the question presented was whether a party obtaining a property at a foreclosure sale was obliged to search court and county clerk records, which disclosed that the underlying default judgment, which led to the foreclosure, had been vacated. The Court deemed a reasonable search to be one that coincided with "the standard practice among title searchers to search for foreclosure judgments and orders vacating such judgments in the county deed book." Id. at 110. The Court rejected the view "that a purchaser is obliged to search not only the book of deeds for foreclosure judgments, but also all dockets and records for liens on real estate." Ibid.
However, even after finding that the defaulting party should have recorded the order vacating the default judgment in the county deed book, the court held, based on "countervailing equities" in the case, that the foreclosure sale purchaser was bound by the order. Id. at 111-12.
Although the 1979 Order was obviously docketed, it was apparently not filed in the deed book or deed indices. It was therefore not included in defendants' chain of title, and was incapable of putting them on constructive notice of its existence.
See Fineberg, supra, §3308:
[E]fforts to collect association dues have spawned a fair amount of litigation. In the case of certain lake communities, judgments fixing the extent of the homeowners' responsibilities have been recorded in deed books. Unfortunately, these judgments may not appear in the chain of title, because they are not indexed against all of the record owners.
We now turn to the issue of whether defendants should be charged with inquiry notice of the 1979 Order. A prospective purchaser may be charged with inquiry notice if he or she becomes aware of facts or suspicious circumstances that would prompt investigation. A purchaser "will be charged with knowledge of whatever such an inquiry would uncover where facts are brought to his attention 'sufficient to apprise him of the existence of an outstanding title or claim, or the surrounding circumstances are suspicious and the party purposefully or knowingly avoids further inquiry.'" Friendship Manor, Inc. v. Greiman, 244 N.J. Super. 104, 108 (App. Div. 1990) (quoting Scult v. Bergen Valley Builders, Inc., 76 N.J. Super. 124, 135 (Ch. Div. 1962)), certif. denied, 126 N.J. 321 (1991). In Friendship Manor, supra, we charged a grantee with inquiry notice of recorded mortgages outside the chain of title where he was on notice that the grantor had engaged in various related frauds. See also Shoyer v. Mermelstein, 93 N.J. Eq. 57, 59-60 (Ch. 1921) (charging defendant with inquiry notice of neighborhood scheme of single-family homes where, among other things, he was asked by the grantor to camouflage his proposed two-family home as a single-family home).
Inquiry notice can be triggered by statements or references within documents in the chain of title.
It is well recognized that a record which affords record notice of the transfer therein made may contain a statement or recital which does not of itself give either record notice or actual notice but which does place on inquiry one who is affected by the record. . . . A purchaser who is placed on inquiry is chargeable with notice of such facts as might be ascertained by a reasonable inquiry.
[Garden of Memories, Inc. v. Forest Lawn Memorial Park Ass'n., 109 N.J. Super. 523, 534-35 (App. Div.), certif. denied, 56 N.J. 476 (1970).]
Inquiry notice has been described as a form of constructive notice, see Friendship Manor, supra, 244 N.J. Super at 107-08, or imputed constructive notice. Garden of Memories, supra, 109 N.J. Super. at 535. --------
The extent of a person's inquiry is subject to a standard of reasonableness. Assisted Living Assocs. v. Moorestown Twp., 31 F. Supp. 2d 389, 401 (D.N.J. 1998) (applying New Jersey law). Since the doctrine of inquiry notice is an exception to a system of recorded notice, it is reserved for cases of "unusual equity." See Friendship Manor, supra, 244 N.J. Super. at 113 ("We have been cautioned that 'absent any unusual equity' the stability of titles and conveyancing requires the judiciary to follow that course 'that will best support and maintain the integrity of the recording system.'") (quoting Palamarg Realty Co. v. Rehac, 80 N.J. 446, 453 (1979)).
Although we have set forth principles governing inquiry notice, the parties did not address the issue. Understandably, the trial court did not reach it, either. We recognize that the Association might argue that defendants' inquiry should reasonably have been triggered by the reference to the class action litigation in the letter preceding the purchase of 3 Callan. However, the letter did not identify an "order" or "consent judgment." Alternatively, the payment of the $525 in fees for 4 Callan may have reasonably triggered inquiry, if it were proved that defendants made, or were aware of the payment. We note, however, the record does not disclose who paid the $525, or whether defendants were notified of the payment.
On the other hand, defendants may argue that they relied on the assurances to counsel in connection with their first purchase, and nothing triggered further inquiry thereafter. Although defendants were on notice of the existing community scheme, they were also notified by the Association that some properties within the lake community were exempt from certain membership obligations. We therefore remand to the trial court to determine whether an "unusual equity" requires it to charge defendants with inquiry notice of the 1979 Order. We leave it to the court's discretion to determine the scope of any supplemental proofs.
C.
We briefly address the remaining issues. We do so assuming, solely for the purposes of the following discussion, that the court does not charge defendants with inquiry notice on remand.
The Association argues that even if the court correctly denied its full claim for unpaid dues and assessment, the trial court erred in determining that defendants were entitled to full membership — that is, full use of recreational facilities — in return for their capped $60 annual dues.
Simply put, nothing in the deed or the chain of title authorized greater than a $60 charge. As a consequence, the Association was not authorized to maintain a lien against defendants' property for more than the accumulated $60 annual charges. Moreover, we concur with the trial court that the Association could only seek six years of charges, preceding the filing of its complaint. N.J.S.A. 2A:14-1. That limitation also governed the amount of the lien.
On the other hand, the Blue Ridge-to-Heath deed implicitly authorized the Club to adopt rules and regulations, as it provided that failure to abide by them "will prevent the use of the club and beaches." The Club's successor, the Association, was thus authorized to set and impose late fees, and to charge attorney's fees incurred in collection actions. But, according to the terms of the deed, the consequence of non-payment of such late fees and attorney's fees — that is, the violation of the rules and regulations — is loss of privileges. Those late fees and attorney's fees may not be a lien on the property because they are not dues, and only "[d]ues in arrears shall constitute a lien upon the premises."
We are also constrained to remand for recalculation of attorney's fees. The court provided no statement of reasons for its reduction of the Association's fee request. See R. 1:7-4. Pursuant to the rules and regulations, the Association is entitled to charge defendants "reasonable attorney's fees." The court on remand should consider, among other factors, the extent to which the Association prevailed. See N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 571 (1999).
But, as noted, assuming inquiry notice is not imposed, payment of the fees ultimately awarded serve only as a condition of defendants' use of the facilities. It does not serve as a lien on the property. Therefore, we are constrained to reverse the court's entry of judgment against defendants for the attorney's fees.
Affirmed in part; reversed in part; and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION
Here, the deed states unequivocally that property ownership is sufficient for membership, and that members are required to pay annual dues.