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Barry L. Kahn Defined Benefit Pension Plan v. Township of Moorestown

Decided: January 30, 1990.


Haines, A.j.s.c.


[243 NJSuper Page 331] Plaintiff Barry L. Kahn Defined Benefit Pension Plan ("Plan") purchased a Tax Sale Certificate covering an industrial property in the Township of Moorestown on October 25, 1984

for $35,242.32. The Plan paid later taxes assessed against the property covered by the certificate in the total amount of $38,753.39. It has sued to rescind the transaction and for other relief. Moorestown's motion for summary judgment dismissing the complaint was granted. Plaintiff appealed and the Appellate Division, while agreeing with a number of the conclusions reached by this court, remanded the matter for a plenary hearing, believing that the significance of the issues presented required a complete record. That hearing has been held. This opinion addresses all issues; it is a modification of the original opinion but reaches the same conclusion.*fn1 The complaint must be dismissed.

Barry L. Kahn, trustee of the Plan, was and is a sophisticated investor in Tax Sale Certificates. He testified that he has invested in several hundred certificates commencing in 1980, spending substantial amounts of money for the purpose. He purchases certificates with the expectation that they will be redeemed but, prior to redemption, will produce an income of as much as 18 percent (depending on the bidding at the tax sale) plus an additional 2 percent if foreclosure is undertaken. N.J.S.A. 54:5-38. These expectations have been met in nearly every instance.

Prior to the date of the tax sale in question Kahn spoke to the Moorestown Tax Collector and inquired as to why taxes had not been paid on the property. The Collector advised him that the land was occupied by a special use building, that the company owning it had moved south because of labor costs. The Collector showed Kahn the Township assessment book which reflected an assessed value for the property of $700,000. He also advised Kahn that the average Moorestown assessment represented approximately 80 percent of true value. It now appears that the property is contaminated with hazardous materials

and is the subject of investigations by the United States Environmental Protection Agency and the New Jersey Department of Environmental Protection although no environmental lien of any kind has been filed. Documents submitted indicate that clean-up costs may amount to as much as $1.9 million. Prior to the Plan's payment of the taxes accruing after the sale the Tax Collector advised Barry Kahn of rumors concerning the contamination. The Plan nevertheless paid the later taxes.

The Appellate Division posed the following question in its opinion supporting the remand:

The difficult question thus presented is whether an affirmative misrepresentation made by a municipal official of the value of property subject to a tax certificate with the intent to conceal information known to him as to the realistic potential that a Spill Fund lien will be placed on the property, relied upon by the acquirer, constitutes a sufficient basis for recision and restitution.

The only representations made by the Collector to Kahn are those set forth in the preceding paragraph of this opinion.

Over the years, commencing as early as 1974, various Township officials received notice of contamination involving the property. The Township Manager, the Deputy Township Manager, the Building Inspector and personnel in the municipal health department were aware of contamination concerns prior to 1984. None of these concerns were communicated to the Tax Collector. It is an uncontradicted fact that he did not know of any supposed contamination of the property prior to the date of the tax sale in question. Kahn claims, however, that the knowledge of the other municipal officials must be imputed to the Township, that its failure to disclose to Kahn its knowledge concerning contamination prior to the tax sale is a basis for the requested relief.

The Plan alleges fraud, equitable fraud, mutual mistake, violation of the Environmental Cleanup Responsibility Act ("ECRA"), N.J.S.A. 13:1K-6 et seq. and violation of the Consumer Fraud Act, N.J.S.A. 56:8-2 et seq. The complaint demands judgment rescinding the sale, returning all taxes and interest to the plaintiff, awarding treble damages under the

Consumer Fraud Act, counsel fees and costs and such additional relief as the court deems "equitable, just and appropriate".

A. The Tax Sale Law.

Unpaid real estate taxes become a lien against assessed properties which must be sold to enforce the lien. N.J.S.A. 54:5-19 et seq. Purchasers at tax sales acquire only a tax lien, not title to the property. They receive Tax Sale Certificates which can be foreclosed. The process is described in Gasorek v. Gruber, 126 N.J. Super. 511, 315 A.2d 706 (App.Div.1974):

A tax sale certificate does not operate to give the purchaser thereof title to the land and does not divest the tax delinquent owners of their title. It merely vests the purchaser of the tax sale certificate with an inchoate right or interest and gives him the right to proceed to foreclose the equity of redemption pursuant to the established statutory scheme. Clark v. Jersey City, 8 N.J. Super. 33, 37 [73 A.2d 197] (App.Div.1950). Municipal liens are statutory in origin and rights arising therefrom are fixed and determined by the statute creating them. [126 N.J. Super. at 515, 315 A.2d 706]

Owners may redeem their properties by paying purchasers of Tax Sale Certificates all monies paid by them including subsequent taxes, with interest. N.J.S.A. 54:5-54 to 76. If the property is not redeemed within the statutorily prescribed period, the owners of the Certificates may foreclose and obtain title. N.J.S.A. 54:5-27 to 114.10. To date, the property covered by the Plan's Certificate has not been redeemed from the tax sale and the Certificate has not been foreclosed. In the course of a 1987 tax sale Moorestown itself acquired a Tax Sale Certificate covering the property. No subsequent sales have been held.

A private owner of a Tax Sale Certificate has no right to possession of the property covered by the Certificate. Only a municipal certificate owner has that right. Brewer v. Porch, 53 N.J. 167, 179, 249 A.2d 388 (1969). The introductory statement to Assembly Bill No. 1815, now N.J.S.A. 54:5-39, underlines the point:

[Prior to foreclosure of the equity of redemption] the purchaser has no right of entry on the property and has no right to ...

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