The New Jersey Appellate Division has again confirmed that the doctrine of caveat emptor (“let the buyer beware”) applies to foreclosure sales. In Federal Nat’l Mortgage Assoc. v. Cleaves, Docket No. A-0664-17T2 (App. Div. Dec. 11, 2018), Fannie Mae foreclosed a residential mortgage and the successful bidder at the sale made its deposit. After making the deposit but before closing the sale, the bidder obtained access to the property and discovered that the structure was unsound and extremely dangerous. The bidder then sought to vacate the sale and have its deposit returned. The Somerset County Chancery Judge denied the bidder’s attempt, and the Appellate Division affirmed.

The Appellate Division concluded that the post-sale discovery of an alleged structural defect provides no grounds for relief. The Court relied on a 2007 Chancery Division decision in Midfirst Bank v. Graves, 399 N.J. Super. 228, 230-32 (Ch. Div. 2007), which found that a purchaser’s discovery of significant vandalism upon inspecting the property two days after the sale was insufficient to grant the purchaser relief from the sale. In support of its decision, the Court invoked the “caveat emptor” doctrine based on the Appellate Division’s 1998 decision in Summit Bank v. Thiel, 325 N.J. Super. 532, 538 (App. Div. 1998), which found that “a foreclosure sale, like any other judicial and execution sale, was subject to the doctrine of caveat emptor.”

The Court reasoned that a mortgagee in foreclosure does not own the property and may have limited or no right to access it. Therefore, both the mortgagee and bidder theoretically should have equal knowledge about the property’s condition. Additionally, allowing bidders to vacate foreclosure sales based on property condition would introduce a great amount of uncertainty to foreclosing lenders, many times delaying the foreclosure process even further and increasing lenders’ angst and expense. Buyer beware – the grounds to vacate a foreclosure sale are very limited.

The Cleaves decision is available at:
https://www.njcourts.gov/attorneys/assets/opinions/appellate/unpublished/a0664-17.pdf?cacheID=4qTw2FS

Jonathan P. Vuotto, Esq.
McAndrew Vuotto, LLC
jpv@mcandrewvuotto.com