On certification to the Superior Court, Appellate Division.
For Affirmance -- None. For Reversal and Remandment -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. The opinion of the Court was delivered by Stein, J.
The issue before us is whether the requirements of due process are satisfied when a sheriff's judgment execution sale of real property, conducted without actual notice to other judgment creditors, vacates the statutory liens of such judgment creditors on the property.
Central Jersey Bank and Trust Company ("Central Jersey") executed on a judgment it had obtained against Dr. Peter Markouski. To satisfy the judgment, the Sheriff of Middlesex
County held an execution sale of Markouski's entirety interest in real property. Equity Lender's Corporation ("Equity") purchased the interest at the sale. At the time of sale, there were several other unexecuted judgments outstanding against Markouski, including one held by appellant, Heritage Bank, N.A. ("Heritage").*fn1 None of the judgment lienholders was given actual notice of the sale.
Subsequently, New Brunswick Savings Bank ("New Brunswick") foreclosed its mortgage on the property owned by Markouski and his wife. New Brunswick joined as defendants in the foreclosure action the Markouskis, Equity, and parties holding judgments against Markouski, including Heritage. After the foreclosure sale, Heritage sought to satisfy its judgment from Markouski's share of the surplus proceeds of the foreclosure sale. The trial court held that Equity, as owner of his entirety interest, was entitled to Markouski's one-half interest in the surplus proceeds.
Heritage appealed, challenging the constitutionality of the notice requirements for judicial sales in execution of judgment liens. The Appellate Division granted the State's motion for leave to intervene and affirmed the trial court's judgment in an unpublished opinion.
We granted Heritage's petition for certification, 117 N.J. 154, 564 A.2d 874 (1989), and now reverse.
The essential facts in this matter are not in dispute. On April 2, 1984, Central Jersey obtained a judgment against Dr. Markouski. On June 15, 1984, Central Jersey delivered a writ of execution on that judgment to the Sheriff of Middlesex County. Pursuant to the writ, the Sheriff levied on the real property owned by Markouski and his wife at 120 Ainsworth
Avenue, East Brunswick. To satisfy Central Jersey's judgment, the Sheriff held a sale of Markouski's entirety interest in the property on January 9, 1985. At that sale, Equity purchased Markouski's entirety interest for $7,000.
On August 1, 1984, Heritage Bank obtained a judgment against Markouski in the amount of $45,202. The judgment was docketed on August 6, 1984, but Heritage did not execute on its judgment. Heritage did not receive notice of the January 9, 1985, sheriff's sale. Pursuant to N.J.S.A. 2A:61-1 and Rule 4:65-2, the Sheriff of Middlesex County posted notice of the sale in his office and at 120 Ainsworth Avenue at least three weeks before the sale, and also published notice at least once a week during four consecutive weeks in two Middlesex County newspapers, the Daily Home News and The News Tribune.
On May 29, 1986, New Brunswick Savings Bank commenced an action to foreclose two mortgages it held on the Markouskis' property, totaling $14,945.25. In addition to the Markouskis, New Brunswick named as defendants Equity, as the holder of Markouski's entirety interest in the property, and the parties holding judgment liens against Markouski, including Heritage. After the Chancery Division had granted New Brunswick final judgment, a foreclosure sale of the real property was held on July 1, 1987. At that sale, Audrey Polito and Richard Henderson bought the property for $142,500.
After the mortgage debts were satisfied from the proceeds of the foreclosure sale, there were surplus moneys totaling approximately $127,600, one-half of which was payable to Markouski. Markouski's half of the surplus moneys was not sufficient to satisfy all the claims of his remaining creditors. Thus, in July 1987, Heritage, as one of the parties holding a judgment against Markouski, applied to the Chancery Division, pursuant to Rule 4:64-3, for an order establishing the priority of claims for the distribution of his share of the surplus. Equity cross-moved, seeking payment of all of the surplus attributable to Markouski's entirety interest. Equity asserted that it owned
that interest free and clear of all encumbrances, including Heritage's unexecuted judgment lien, contending that Heritage had not been entitled to actual notice of the January 9, 1985, sheriff's sale.
Heritage conceded that Rule 4:65-2 did not require Central Jersey to notify it, either personally or by mail, of the sheriff's sale. Heritage maintained, however, that lack of actual notice deprived it of its interest in the property without due process of law. It sought, therefore, to have the sheriff's sale set aside as defective, in effect challenging the constitutionality of New Jersey's pre-sale notice procedures as applied to nonlevying judgment creditors.
The Chancery Division found that New Jersey's pre-sale notice procedures did not violate the due-process clause, apparently concluding that an unexecuted judgment lien is not a protectible property interest. The court reasoned that "[a]lthough a judgment creditor possesses a lien on the debtor's real estate, that inchoate property right can be extinguished by another creditor [pursuant to N.J.S.A. 2A:17-39] if the lienholder has not executed on the judgment." It concluded:
[J]ust as mortgagees protect their property interest by recording their mortgage[s] to secure the debt, judgment creditors must protect their liens by executing on the judgments or risk loss of a lien on the debtor's real estate. The execution requirement is a reasonable exercise of state power in that it fosters the legitimate public policy of free alienation of property while giving creditors notice of the conditional nature of their interest.
The Chancery Division ordered that Markouski's one-half interest in the proceeds of the foreclosure sale be distributed to Equity.
On appeal, the Appellate Division granted the State's motion for leave to intervene and affirmed "substantially for the reasons expressed by the trial court."
Before determining whether a particular procedure satisfies the requirements of due process, we first consider whether a
judgment lien is the type of interest that falls within due-process guarantees.
The United States Constitution provides that no state shall deprive any person of "property" without due process of law. U.S. Const. amend XIV, § 1. Similarly, the New Jersey Constitution deems the acquisition, possession, and protection of "property" a "natural and unalienable right," subject to due process requirements. N.J. Const. of 1947 art. I, para. 1.
We look generally to state law to determine whether an interest falls within the definition of "property" protected by the due-process clause. As the United States Supreme Court has noted:
[P]roperty interests "are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law -- rules or understandings that secure certain benefits and that support claims of entitlement to those benefits."
[ Parratt v. Taylor, 451 U.S. 527, 529 n. 1, 101 S. Ct. 1908, 1910 n. 1, 68 L. Ed. 2d 420, 425, n. 1 (1981) (quoting Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548, 561 (1972)).]
Because judgment liens in New Jersey are created by statute, we examine the statutory scheme regarding civil judgments to determine the dimensions and scope of the interest involved.
To establish a lien against a judgment debtor's real property, a creditor need only enter a judgment in the records of the Superior Court; a levy and execution on real property owned by the judgment debtor are not required. See In re Blease, 605 F.2d 97, 98 (3d Cir.1979); In re Tash, 80 Bankr. 304, 305 (Bkrtcy.D.N.J.1987); In re Clifton, 35 Bankr. 785, 786-87 (Bkrtcy.D.N.J.1983); In re Fornabai, 227 F. Supp. 928, 931 (D.N.J.1964). The judgment is a binding judicial determination of the rights and duties of the parties to the action and, when recorded on the docket of the Clerk of the ...