This matter is before the court on an order to show cause why a judgment of foreclosure should not be vacated. An in rem tax foreclosure action was instituted by plaintiff Town of Phillipsburg against property owned by Robert M. Zengulis and Prudence Zengulis, resulting in a judgment of foreclosure. Mr. and Mrs. Roth, parents of Robert Zengulis seek to vacate the judgment.
In April 1980, Mr. and Mrs. Zengulis executed a mortgage to Mr. and Mrs. Roth in the amount of $18,725.74. This sum
represented the amount of real estate taxes on the property that the Roths had paid to Phillipsburg on behalf of the Zengulises to avoid a tax sale. The mortgage was recorded in mortgage book 548, page 57 of the Warren County Clerk's Office on or about May 9, 1980 and rerecorded in mortgage book 549, page 327 on or about June 9, 1980. The mortgage was to be repaid at the rate of $300 a month. The mortgage remained unpaid as of the date of the hearing on this matter.
In July 1985, the Roths received a letter from the Internal Revenue Service (IRS) indicating that Mr. and Mrs. Zengulis owed back taxes to the federal government. Thereafter Mrs. Roth paid the IRS $15,000 on behalf of Mr. and Mrs. Zengulis.
The Roths contended that despite their recorded mortgage on the subject property, they were never informed by the town that the real estate taxes had again not been paid nor that an in rem foreclosure proceeding had been commenced and brought to judgment. Mrs. Roth stated "[h]ad I been made aware by any of the parties [of the proceedings] I would have paid the taxes on the property to protect my investment as represented in the mortgage for previous moneys loaned on [the] property."
In support of their application to vacate the judgment of foreclosure, the Roths cited the case of Mennonite Board of Missions v. Richard C. Adams, 462 U.S. 791, 103 S. Ct. 2706, 77 L. Ed. 2d 180 (1983) decided by the United States Supreme Court on June 22, 1983. They asserted that the decision has in effect declared that the "law of the land now requires that [those persons conducting] In Rem Foreclosure proceedings notify all lien and judgment creditors."
The Town of Phillipsburg argues that the holding in the Mennonite case is not applicable to this case. It argues that unlike the Indiana statute at issue in Mennonite, New Jersey's comparable statute provides for notice to a mortgagee by the municipality seeking to foreclose. N.J.S.A. 54:5-104.48 directs the municipality to serve notice of the foreclosure on persons
who have previously given notice to the tax collector of the existence of their lien or claim. The town contends that this statute affords ample due process and that it has received "countless notifications" pursuant to this statute from mortgagees seeking to protect their interest in property. However, since the Roths failed to give notice of their lien to the town, the town argues that it was not required by law to notify the Roths of the pending foreclosure proceedings.
The town also argues that "it is apparent that the mortgagees Mr. and Mrs. Roth, were aware of the tax indebtedness of the Zengulis[es] to the town of Phillipsburg prior to as well as after the entry of judgment." The basis for this argument is that since the Roths knew of the IRS indebtedness, as well as, the other indebtedness, they must have known that there were also taxes due to the town.
The town further argues that in the dissenting opinion in the Mennonite case, Justice O'Connor joined by Justice Powell and Justice Rehnquist stated "when a party is unreasonable in failing to protect its interest despite its ability to do so, due process does not require that the state save the party from its own lack of care." 462 U.S. at 809, 103 S. Ct. at 2717. The town contends that since the Roths had failed to take advantage of the ...