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RTF ‘Consideration’ Construed

As noted in the preceding article, the word consideration, as used in the context of the realty transfer fee [“RTF”], although defined by both statute and regulation, is sometimes a source of controversy. In an unpublished per curiam opinion issued in August, 2012, the Appellate Division affirmed a decision of the Law Division, Ocean County, dismissing a putative class action suit against a developer. Moskow v. K. Hovnanian, 2012 WL 3140241(App. Div. 2012) (not officially reported), arose from a 785-unit development of single family homes known as Four Seasons, located in Jackson Township, Ocean County.

Moskow signed a contract with the developer to purchase a home in the development for a contract price of $400,950. The developer offered a “sales incentive” of $10,771.25, thereby reducing the purchase price to $390,178.75. In addition, purchaser received a $2,000 “friends and family” credit toward decorator upgrades. Later, the contract was amended to reflect additional upgrades of $39,735, thereby increasing the purchase price to $429,913.75. Nevertheless, certain non-realty items were excluded, so that the final price to be reflected in the deed was $428,453.75. However, in order to be eligible for the decorator credit, buyer agreed to use developer’s affiliated entities to obtain mortgage financing and title insurance.

Closing occurred on October 21, 2006, at which time both parties signed a HUD-1 Settlement Statement which reflected the purchase price as $428,453.75. The same figure was set forth on the deed and RTF-1 (affidavit of consideration). In 2008, Jackson Township performed a property tax reevaluation, which resulted in increased taxes for the purchasers of homes in Four Seasons. In January 2011, Moskow and others filed suit against the developer, alleging that the inclusion of the credits as part of the deed consideration is “illusory and results in an artificial inflated value of the property”, with the result that plaintiffs were “paying excessive property taxes”. Plaintiffs alleged (inter alia) violations of the Consumer Fraud Act [“CFA”], N.J.S.A. 56:8-1 et seq. They also asserted that the consideration stated in the deed violated the Recording Act (as it pertains to the RTF). The Law Division dismissed the complaint, and the Appellate Division subsequently affirmed.

The panel noted that the trial court appropriately decided the case on a summary judgment basis. Turning to the alleged Recording Act violation, the court pointed out that the definition of “consideration” found in N.J.S.A. 46:15-5(c) includes “any other thing of value”, while the text of N.J.A.C. 18:16-1.1 refers to “upgrades on all new construction”.[See preceding article.] Thus, the developer properly calculated the “consideration” for the purpose of the deed and RTF-1.

Next, the court addressed the issue of referrals by the developer to its affiliates. It noted that although the Real Estate Development Procedures Act [“RESPA”] prohibits kickbacks, it permits such referrals provided that the same are not a condition of the sale. 12 U.S.C. §§ 2607, 2608. The panel concluded that the sale was not conditioned upon the use of affiliates, and thus no violation of RESPA occurred.

Finally, the court noted that in order to recover under the CFA, a plaintiff must prove “ascertainable loss of moneys or property” as a result of the actions of defendant. Since the developer had not violated the Recording Act (as discussed above), and since plaintiffs were unable to demonstrate other “ascertainable loss”, dismissal of the CFA claims was appropriate.

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