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Recent Appellate decision emphasizes the consequences of failing to perform due diligence

In December 2020, the NJ Appellate Division published a decision emphasizing the importance for purchasers of property use their “due diligence” period to learn as much as possible about the property they are purchasing.

In Garden State Investment v. Township of Brick, plaintiffs were purchasers of tax sale certificates. After paying the overdue taxes and commencing foreclosure proceedings, plaintiffs filed suit requesting the paid taxes back and to rescind their tax sale certificate purchases. Plaintiffs’ claim was based on the fact that through a title search, plaintiffs learned that the properties contained a conservation easement. The courts ruled against the plaintiffs, reasoning that the existence of the easement was easily discoverable by a basic title search, which the plaintiffs had plenty of time to perform before commencing their foreclosure actions.

This decision is significant because it highlights the importance for a purchaser to maximize their “due diligence” period when purchasing a property, whether through a tax sale or otherwise. The “due diligence” period in a typical real estate transaction is the time period during which the purchaser is permitted to inspect the property. In many cases, the purchaser is entitled to rescind on the contract to purchase if there are issues uncovered during due diligence that were not previously disclosed. Despite the fact that the plaintiffs in Garden State Investments did some due diligence by physically inspecting the property and examining the tax records, the Court still found that they did not do enough to warrant rescission after the foreclosure actions were commenced.

The due diligence period can be used to discover all types of issues with a property from the existence of easements such as in Garden State Investments to environmental contamination in the soil and groundwater. Purchasers of real property should be sure to use their due diligence period wisely to uncover any unknown issues before purchasing the property.

You can read the full text of Garden State Inv. v. Twp. Of Brick here: https://njcourts.gov/attorneys/assets/opinions/appellate/published/a0082-19a0093-19.pdf

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