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Island Ventures Court Holds Bona Fide Purchaser Not Bound By Unrecorded CAFRA Restriction

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In-Sites

August 29, 2003

align=”justify”>Island Venture Associates (Island Venture) purchased two unimproved lots on Long Beach Island in 1994 for the purpose of building homes on the lots. Island Venture did not know and, based on its diligent title search, had no way of knowing, that a 1989 DEP permit issued to its predecessor-in-title restricted development on the lots to water-dependent uses. That predecessor-in-title, High Bar Development Company (High Bar), had failed to comply with the DEP permit’s requirement that it file the appropriate deed restriction with the county recording office. If the appropriate deed restriction had been recorded, Island Venture’s title search would have revealed the restriction. Who should pay for High Bar’s error — Island Venture Associates, which relied on the public recording system, or the DEP (and the general public), which stood to lose the benefit of the restrictions imposed on High Bar? In Island Venture Associates, the Appellate Division balanced the competing public interests and decided that under the circumstances presented, the dispute should be resolved in favor of the integrity of the public recording system. Thus, the court held that Island Venture is not bound by the CAFRA restriction.

High Bar had applied for a permit under CAFRA to develop a much larger parcel than the lots in question. High Bar’s plans included the construction of a number of single-family homes and a marina. DEP granted the permit in 1989, allowing the construction of 18 condominiums on condition that the marina site be limited in the future to water-dependent uses. DEP also required High Bar to draft and file a deed restriction that reflected the use restriction placed on the marina site. The area covered by the deed restriction included the lots later purchased from High Bar by Island Venture.

The deed restriction that High Bar filed, however, was flawed. Neither the metes and bounds description nor the survey attached to the condominium Master Deed indicated that the restricted property included those lots purchased by Island Venture in 1994. A title search performed before Island Venture took title revealed no restrictions on the two lots. Nevertheless, an Administrative Law Judge (ALJ) ruled that the restriction was binding upon Island Venture. Island Venture sought review of the ALJ decision in the Appellate Division, which reversed.

In reaching its decision regarding the enforceability of the unrecorded CAFRA restriction, the Appellate Division applied the court’s decision in Aldrich v. Schwartz by balancing the significant public policies contained in CAFRA and in the public recording statutes. In the Aldrich case, the Appellate Division held that a variance condition requiring a beach access easement, which was never recorded despite a requirement in the resolution granting the variance that a subdivision plan showing the easement be recorded, was binding on an innocent purchaser of the property. Recognizing that the balancing of competing concerns was “not an easy one to strike,” the Aldrich court stated:

We approach the problem not as one involving title searches and what they can reasonably reveal, but as one implicating the strong public interest in the enforceability of variance conditions, in the neighborhoods they protect, and in the expectations that have reasonably grown up around them. Our holding that plaintiff is bound by the 1969 restriction is dictated by land planning considerations, and by the danger that a decision devitalizing long-standing variance conditions may prejudice existing development and the zoning plan of some towns and neighborhoods.

Aldrich, 258 N.J. Super. at 310.

The Aldrich court was unwilling to adopt a rule that could put at risk countless variance conditions that had been imposed in municipalities throughout the state over many years without any system or requirement for recording them. Thus, the public interest in the enforcement of variance conditions prevailed over the public interest in the integrity and reliability of the public recording system.

As in Aldrich, the Appellate Division in Island Venture Associates did not frame the dispute as one between the public’s interest in the enforceability of valid land use controls and the purely private interests of a developer. Instead, the court noted, “the tension is between two very significant public policies as contained in CAFRA and in our public recording statutes.” Island Venture Associates, 359 N.J. Super. at 398. Significantly, the court accepted the legitimacy of the CAFRA restriction itself, and of DEP’s practice of imposing such conditions via deed restrictions that make them binding upon successive owners, Id. at 395, even noting that “[t]he public interest in the proper development of our coastal area can hardly be disputed.” Id. at 396. But the interest in the integrity of the recording system, the court emphasized, is a strong and important one. “If exceptions continue to be made to our race-notice system of public recordation, it will not be long before it loses its utility.” Id. at 398.

Moreover, unlike the situation in Aldrich, the interests of CAFRA could be upheld without “sacrificing the equally strong public interest in our public recording statutes.” Id. at 396. CAFRA covers only a specified portion of the state, and DEP can control and ensure the proper recordation of CAFRA deed restrictions. It can do a better job, the court suggested, noting that in the case before it, “the DEP either made no independent investigation to assure that the master deed accurately reflected the area of restriction or, at best, it failed in that endeavor.” Id. at 398. If other CAFRA permittees have made recording errors like the one made by High Bar, the court is evidently either confident that DEP can retroactively correct such errors, or less troubled by any disruption that may be caused than it was by the widespread disruption in municipal zoning that it sought to avert in Aldrich.

While the Appellate Division’s conclusion in Island Venture Associates supports a purchaser’s ability to rely on the public recording system, the Aldrich decision’s implications for purchasers of real estate in New Jersey remain. Title searches will only protect a purchaser from unrecorded title restrictions if a public policy balancing weighs in favor of the recording statute. To be fully protected a purchaser of property must conduct, in addition to title searches, thorough due diligence on all aspects of the development approvals for the property. The Island Venture Associates case’s conclusion to uphold the public interest in the recording system is encouraging for real estate developers relying on title searches, but does not overturn the far-reaching impact of Aldrich v. Schwarz.