Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283 (App. Div. 2014). This opinion by Judge Reisner addressed 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.” Applying the de novo standard of review, and even while liberally construing the policy in favor of plaintiff, the insured, as required in insurance cases, the panel answered both questions “no” and therefore affirmed the Law Division’s grant of summary judgment to the defendant title insurance company.
Plaintiff purchased real property at a sheriff’s sale, “subject to … unpaid taxes and assessments.” At the time of the sale, and when defendant issued its title insurance policy, there were no delinquent taxes. But plaintiff asserted that pending tax appeals by the municipality represented defects in title that were covered by the policy.
After carefully analyzing the policy language, Judge Reisner concluded that the policy “did not cover the potential future lien of taxes that might be assessed after the policy was issued.” On the “central issue” of the appeal, she determined that the pending tax appeals did not constitute a defect in title or render the property unmarketable. This was because “taxes are a known, predictable, constantly-recurring phenomenon. Taxes will be assessed on plaintiff’s property this year, next year, and on into the future ad infinitum. If a property’s potential for the future assessment of taxes were considered a cloud on title, it would impossible to pass marketable title to any property.” Marketable title is merely title that “is relatively free from doubt.” A reasonable probability that the buyer would be exposed to “litigation not of a frivolous nature concerning the title” would make title unmarketable. The pendency of tax appeals did not rise to that level.
Judge Reisner cited a number of out-of-state cases that reached this same conclusion. She also distinguished the main case on which plaintiff relied, Bel-Air Motel Corp. v. Title Insurance Corp., 183 N.J. Super. 551 (Law Div. 1981). That case involved a “local assessment that was a certainty,” not “additional taxes that have not been assessed and may never be assessed.” Though not deciding whether Bel-Air was correct on its own facts, Judge Reisner cast doubt on that ruling, for the same reasons that this panel determined that property taxes not yet assessed are generally not a cloud on title. “All future taxes are a potential lien on property; the fact that their imposition is ‘inevitable’ does not make them clouds on title for purposes of title insurance.”