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Township of Jefferson v. 447A

Decided: September 28, 1988.


On appeal from the Superior Court of New Jersey, Chancery Division, Morris County

King, Gaulkin and D'Annunzio. The opinion of the court was delivered by D'Annunzio, J.A.D.


In Mennonite Board of Missions v. Adams, 462 U.S. 791, 103 S. Ct. 2706, 77 L. Ed. 2d 180 (1983), the Court held that the due process clause of the 14th Amendment requires that actual notice be given to a mortgagee in an action to quiet title arising out of the enforcement of a municipality's tax lien. In Tp. of Montville v. Block 69, Lot 10, 74 N.J. 1 (1977), the New Jersey Supreme Court held that the due process clauses of the United States and New Jersey Constitutions require that notice of a municipality's action to foreclose an owner's equity of redemption under the In Rem Tax Foreclosure Act (the Act), N.J.S.A. 54:5-104.29 et seq., be mailed to the owner whose name and address appear on the municipality's tax rolls, and that constructive notice to the owner by publication and posting is constitutionally inadequate. The issue in the present case is whether due process requires the mailing of notice to the holder of a prior tax sale certificate before the holder's rights are extinguished by an in rem tax foreclosure proceeding.

In December 1980, 1981 and 1982, Elbe Estates, Inc., (Elbe) purchased tax sale certificates from Jefferson Township for 18 lots in Jefferson Township. In December 1983, the township purchased tax sale certificates for the same 18 lots due to non-payment of taxes for the year 1982. On January 29, 1986, the township commenced an action under the Act to bar rights of redemption in the 18 lots and other properties. Notice of the foreclosure action was mailed to property owners at the addresses contained on the municipal tax rolls. R. 4:64-7(c); Tp. of Montville, supra. Notice to other interested parties was by publication and posting. R. 4:64-7(b), (d). Notice was not mailed to Elbe since neither the Act nor court rules require it.

Final judgment was entered in favor of the township on May 14, 1986.

On March 23, 1987, Elbe filed a motion to vacate the judgment on the ground that it never received notice of the foreclosure action. The affidavit of Elbe's president, J. Carmine Bonano, stated that he learned of the foreclosure judgment in February 1987 "when a title company was providing me with a title report on other property which I own in Jefferson Township." The Chancery Division Judge denied Elbe's motion and it appeals. We reverse.

Due process requires that deprivation of property by state action be preceded by notice and an opportunity to be heard. Mullane v. Central Hanover B. & T. Co., 339 U.S. 306, 313, 70 S. Ct. 652, 656, 94 L. Ed. 865 (1950). Neither the township nor the intervenor, State of New Jersey, contends that the holder of a tax sale certificate does not have a property interest protected by the due process clause. Nevertheless, we have considered the question and conclude that the holder of a certificate does have a protected property interest.

The holder of a tax sale certificate does not have title to the land. The holder's purchase of the certificate at a tax sale does not divest the delinquent owner of his title to the land. Gasorek v. Gruber, 126 N.J. Super. 511, 515 (App.Div.1974). The certificate holder succeeds to the lien interest of the taxing district. Manning v. Kasdin, 97 N.J. Super. 406, 417 (App.Div.1967), certif. den. 51 N.J. 182 (1968). The certificate holder's inchoate interest, Gasorek, supra, consists of three significant rights. The holder has the right to receive the sum he paid for the certificate with interest at the redemption rate for which the property was sold. N.J.S.A. 54:5-58. The holder has the right to redeem from any other holder a subsequently issued tax sale certificate. Realty Sales Corp. v. Payne, 76 N.J. Super. 59, 61-62 (Ch.Div.1962), aff'd. o.b. 78 N.J. Super. 504 (App.Div.1963), certif. den. 41 N.J. 162 (1963). Finally, and most important, the holder has the right to acquire title by

foreclosing the equity of redemption of all outstanding interests including the owner's. N.J.S.A. 54:5-86 et seq. This right of foreclosure may not be exercised until the expiration of two years from the sale date. Ibid.

Foreclosure by a municipality under the Act extinguishes all the prior holder's rights, including the right to receive, upon redemption, the amount originally paid by the holder for the tax certificate. Consequently, the holder of a tax sale certificate has a property interest protected by the requirements of due process. Cf. Mennonite, supra (mortgagee's interest in a property right protected by Due Process Clause); Logan v. Zimmerman Brush Co., 455 U.S. 422, 428, 102 S. Ct. 1148, 1153, 71 L. Ed. 2d 265 (1982) (a cause of action is property protected by due process requirements); Mullane, supra (beneficiaries' right to charge trustee for negligent or illegal impairment of their interests, and right to be heard on the allowance of fees are protected property rights).

Although "[p]ersonal service has not in all circumstances been regarded as indispensable to the process due to residents, and it has more often been held unnecessary as to nonresidents . . .," Mullane, supra 339 U.S. at 314, 70 S. Ct. at 657, we conclude that the decisions in Mennonite and Tp. of Montville, supra, require that notice of Jefferson Township's in rem foreclosure action should ...

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