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).
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:
A separate provision required future owners to secure prior approval of their purchase:
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.
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).
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:
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
The Association appealed. The plaintiffs did not, nor did they appear in opposition to the Association's appeal. In
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.
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.
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.
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.
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 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.
In an oral decision, the court held that defendants were liable for $60 a year. The court found support for its decision in
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
The court also addressed defendants' liability for dues and assessments in the future:
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.
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."
However, we do not defer to a trial judge's legal interpretations.
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.
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."
Defendants assert that our prior decision in
The panel in
Our decision in
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.
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.
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.
In
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.
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.'"
Inquiry notice can be triggered by statements or references within documents in the chain of title.
The extent of a person's inquiry is subject to a standard of reasonableness.
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.
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.
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.
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.
Here, the deed states unequivocally that property ownership is sufficient for membership, and that members are required to pay annual dues.
