When Does the NJ Consumer Fraud Act Apply to a Sale of Real Estate?February 6, 2020 – Articles New Jersey Law Journal
The New Jersey Consumer Fraud Act, N.J.S.A. 56:8–2 (NJCFA), provides that “[t]he act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise …” is an unlawful practice.
Last year, the New Jersey Supreme Court helped to clarify when the NJCFA applies to sales of merchandise by setting forth a new four-factor test. See All the Way Towing v. Bucks County Int’l, 233 N.J. 304 (2018). Briefly stated the factors are: (1) complexity of the transaction; (2) identity and sophistication of the parties; (3) nature of the relationship between the parties; and (4) public availability of the subject merchandise. However, that decision did not address real estate and there remains a great deal of uncertainty regarding whether certain categories of transactions relating to real estate fall within the scope of the NJCFA.
The NJCFA, as passed in 1960, related only to advertisement or sale of merchandise and made no mention of real estate. (L.1960, c.39.) “Merchandise” was defined as “any objects, wares, goods, commodities or services.” (L.1960, c.39, §1(c). In 1967, the Act was amended to add the words “or anything offered directly or indirectly to the public for sale” to the definition of Merchandise. An earlier version of the 1967 bill would have expanded the NJCFA to cover real estate (Assembly Bill 715, introduced March 13, 1967), but those words were deleted before final passage. Neveroski v. Blair, 141 N.J. Super. 365, 379 (App. Div. 1976).
It was not until January 1976, that the legislature amended the NJCFA to cover real estate. (L.1975, c.294, §2.) The legislative history associated with that amendment is sparse and provides conflicting information relating to the intended scope of the amendment. There are some indications that the intention was broadly to cover all transactions involving real estate. The Assembly Sponsor Statement stated that the bill “would correct the present omission of ‘real estate’ from coverage under current statutes which provide effective procedures and penalties against misleading, deceptive or fraudulent advertising.” Sponsor’s Statement to Assembly No. 1034.
In addition, one sponsor of the bill stated that it “will increase the protection of home owners and tenants by extending to real estate the broad and strong provisions of the consumer fraud law.” However, the same sponsor went on to note that the bill would “give jurisdiction over real estate fraud to the Division of Consumer Affairs so that disputes will no longer be decided by a board composed of real estate professionals” (Governor’s Message on Signing, Jan. 19, 1976), which might be read to mean that the new language in the act was targeted at real estate brokers, since disputes with non-brokers would not have been within the jurisdiction of any professional boards. On the other hand, the Governor’s Message on Signing took the position that the amendment merely clarified the law, implying that transactions relating to real estate had already been covered by the NJCFA as part of the meaning of the term “merchandise.” Neveroski, 141 N.J. Super. at 377 n.3.
Courts interpreting the NJCFA as amended have clearly and consistently ruled that not every advertisement or sale of real estate falls within the scope of the NJCFA. As the New Jersey Supreme Court stated in Zaman v. Felton, “[n]otwithstanding these broad definitions, New Jersey appellate courts ‘have adopted a limited constructionof the act’s applicability to real estate transactions.’” 219 N.J. 199, 223 (2014) (citing 539 Absecon Blvd v. Shan Enterprises, 406 N.J. Super. 242, 274 (App. Div. 2009)) (Emphasis added); see also D’Agonisto v. Maldonado, 216 N.J. 168, 188 n.3 (2013).
For example, the Supreme Court has stated that “the policies of New Jersey’s consumer fraud act apply to commercial sellers of real estate and brokers engaged in such transactions” (Strawn v. Canuso, 140 N.J. 43, 60 (1995) (emphasis added)), and that “our courts have declined to impose the CFA remedies upon the non-professional, casual seller of real estate.” Zaman, 219 N.J. at 223 (emphasis added). Unfortunately, the court has never defined “professional seller of real estate” or “non-professional casual seller of real estate.”
One point is clear: Homeowners who sell their residences are not professional sellers of real estate and cannot be liable under the NJCFA. See e.g. DiBernardo v. Mosley, 206 N.J. Super. 371, 376 (App. Div. 1986). Similarly, at least one case has ruled that the NJCFA may not apply when a business sells a single parcel that it owns and upon which it has been conducting business. 48 Horsehill v. Kenro Corp., 2006 WL 349739 (N.J. Super. App. Div. 2006).
It is also clear that real estate brokers who sell properties on behalf of owners are subject to the NJCFA. See e.g. Gennari v. Weichert Co. Realtors, 148 N.J. 582 (1997). This may be true even if the broker is facilitating a sale on behalf of residential owners who would not themselves be liable. See Byrne v. Weichert Realtors, 290 N.J. Super. 126, 134 (App. Div.), cert. den., 147 N.J. 259 (1996). On the other hand, a person who happens to hold a real estate license and has some involvement with the advertisement or sale of real estate, will not necessarily be liable under the NJCFA if they “did not advertise real estate services to the public, initiate contact with [the seller], or demand a fee for real estate services.” Zaman, 219 N.J. at 224.
There is some indication that service providers can be liable under certain circumstances. In one case, the Appellate Division determined that an architect who offered personalized architectural services as part of a package with the sale of numerous residential homes in a subdivision, and who had been associated with the developer in similar projects for about 10 years was subject to the NJCFA. Blatterfein v. Larken Assoc., 323 N.J. Super. 167, 181-83 (App. Div. 1999).
Some authorities state, without qualification, that “when banks engage in the sale of real estate for profit, they are subject to the CFA.” See New Jersey Consumer Fraud Act & Forms 2019 at p. 1537, Paul DePetris’, see also Liability for Consumer Fraud In Real Estate Transactions,N.J.L.J., March 18, 2009. However, there are no relevant appellate level cases. Only two Law Division cases are cited for this proposition, and they may not support such a general rule. In one case the issue had not been briefed and the court explicitly notes that a determination would be “premature.” Jackson v. Manasquan Savings Bank, 271 N.J. Super. 136, 146 (Law Div. 1993). In the other case, a bank took title to two lots in one section of a housing development and all of another section of that development and then allegedly made misrepresentations and omissions at a planning board hearing regarding approval of construction for the section of the development that the bank owned. Matera v. M.G.C.C. Group, 402 N.J. Super. 30, 37-38 (Law Div. 2007). There are no cases that address how the NJCFA applies to periodic foreclosure and resale by a bank of individual parcels.
There is some indication that the NJCFA may not apply if a sale of real estate is in conjunction with the sale of a business that operated on the real estate. In one case the Appellate Division held that NJCFA did not apply to the sale of real estate coupled with a motel located thereon. The court noted “this was not a situation where a buyer purchases a piece of real estate with the intention of raising the business premises situated on the property, or shutting down the business, or converting the building to a different use.” 539 Absecon Blvd. v. Shan Enterprises, 406 N.J. Super. 242, 276 (App. Div. 2009),certif. denied 199 N.J. 540 (2009).
The unresolved conflict between the simple language of the CFA, which appears to relate to all sales and advertising of real estate, and the clear directive of the New Jersey Supreme Court that the CFA is to be given a “limited construction” when applied to real estate, leaves many unanswered questions regarding common real estate transactions. Can service providers who become involved with real estate sales, like architects, inspectors, surveyors, and attorneys, be liable under the NJCFA? Can businesses that own multiple properties on which they do business and periodically sell those properties be held liable? Can banks that take individual parcels of real estate as security and sometimes foreclose on and then sell the parcel be held liable? Can individuals who purchase a series of older properties, reside within them, rehab them over time and eventually sell them be held liable? Until the New Jersey Supreme Court hands down a decision identifying the factors governing whether the CFA applies to real estate, similar to its recent decision with regard to sales of merchandise, all of these issues are open for debate and likely lead to litigation in the future.
Special thanks to Jordan Kaplan and Victoria Salami, attorneys with Fox Rothschild, who assisted with the article.
Reprinted with permission from the February 6 issue of the New Jersey Law Journal. (c) 2020 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.