On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, F- 12305-97.
Before Judges Havey, Cuff and Lefelt.
The opinion of the court was delivered by: Cuff, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted: November 27, 2000
This appeal presents an issue of first impression for the appellate courts of this State, namely whether tax liens arise and tax sale certificates are valid when the underlying taxes were unpaid during the time the mortgage on the premises was in default and the Federal Deposit Insurance Corporation (FDIC) held the mortgage. The motion judge held that the tax liens were invalid. We also address whether the motion judge reasonably imposed counsel fees on the holder of the contested tax sale certificate when it refused to consent to reopen the judgment of foreclosure on the tax sale certificate. We reverse both orders.
On August 29, 1989, defendant Capital National Bank (Capital) recorded a collateral mortgage to secure a $175,000 debt for premises described as Block 41, Lot 2 in West New York owned by defendants Enrique Castro and his wife and Ivo Perez and his wife. On July 6, 1990, the FDIC declared Capital insolvent. The FDIC was appointed the receiver and assumed ownership of all of Capital's assets.
Property taxes were assessed for the property for 1989, 1990, and 1991. The taxes were not paid and on June 15, 1992, the Tax Collector of the Town of West New York sold the property to the Town of West New York for $13,572.04, which represents the sum of the delinquent taxes, water and sewer charges. The sale was subject to redemption with interest at the rate of 18% per year for a total of $16,850.47. A tax sale certificate was recorded on April 23, 1993. This certificate was assigned to plaintiff S & R Associates on September 26, 1994.
More than two years later, on July 24, 1997, plaintiff filed a complaint to foreclose the tax sale certificate. Defendant Capital was named as one of the subordinate lienholders. The FDIC was not named as a defendant or served with the complaint. It is undisputed that the FDIC never gave its consent to the foreclosure. It is also undisputed that the FDIC never held title to the property. A final judgment of foreclosure was entered in plaintiff's favor on October 21, 1998. On March 12, 1999, the Capital note and mortgage was sold by the FDIC to defendant Alma Group, L.L.C. (Alma).
In May 1999, Alma discovered the final judgment of foreclosure in the course of a title search in preparation of foreclosure proceedings on its recently acquired mortgage. Alma requested plaintiff to consent to vacate its judgment of foreclosure. When plaintiff refused, Alma filed a motion to vacate the judgment. Plaintiff resisted the relief arguing that it had no actual notice of the FDIC's mortgage interest, constructive notice through publication in the Federal Register was not effective, and Alma did not have a meritorious defense to the foreclosure proceeding. Alternatively, plaintiff argued that any order vacating the foreclosure judgment should be limited solely to the Block 41, Lot 2 parcel.
The motion judge found that the foreclosure proceeding was flawed as to Alma's mortgage interest because the FDIC never received the complaint. He held that Alma, as the assignee of the FDIC, was entitled to either raise a defense to the foreclosure or to redeem the tax sale certificate in the amount required. The foreclosure judgment was vacated as to this parcel and plaintiff was instructed to move to foreclose Alma's mortgage interest. The motion judge reserved on Alma's request for counsel fees.
Plaintiff reinstituted foreclosure proceedings naming Alma as a subordinate lienholder. Alma denied that its interest was subordinate to plaintiff's interest arguing that the tax sale certificate was null and void and that the tax lien was invalid from July 1990 to March 1999, the period the FDIC held the mortgage. Relying on Old Bridge Owners Co-op. Corp. v. Township of Old Bridge, 914 F. Supp. 1059 (D.N.J. 1996), the motion judge adopted Alma's position and invalidated plaintiff's tax sale certificate and the tax lien.
Our analysis begins with an examination of 12 U.S.C.A. § 1825. The statute provides in relevant part:
All notes, debentures, bonds, or other such obligations issued by the Corporation shall be exempt, both as to principal and interest, from all taxation (except estate and inheritance taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority.... The Corporation, including its franchise, its capital, reserves, and surplus, and its income, shall be exempt from all taxation now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority, except that any real property of the Corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.
When acting as a receiver, the following provisions shall apply with ...