On appeal from Superior Court of New Jersey, Chancery Division, Monmouth County, F-8132-97.
Before Judges Wefing, Wecker and Fuentes.
The opinion of the court was delivered by: Fuentes, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 19, 2002
Plaintiff, Realty Asset Properties, Ltd., appeals the dismissal of its foreclosure action initiated pursuant to a tax sale certificate. The Chancery Division/General Equity Part ruled that plaintiff had failed to finalize the foreclosure proceedings within two years of the date the sale was confirmed by the municipal governing body. This failure to act caused the certificate to revert to the municipality by operation of law. N.J.S.A. 54:5-114.5. Plaintiff argues that the trial court erred by not applying the doctrine of merger. Plaintiff's contention is that because the United States appeared as a lien holder, plaintiff was statutorily required to proceed in the same manner as a mortgage foreclosure, N.J.S.A. 54:5-87, and because a proceeding instituted under N.J.S.A. 54:5-87 results in the merger of the tax sale certificate with the final judgment of foreclosure, the reversion provisions in N.J.S.A. 54:5-114.5 do not apply. We disagree and affirm the ruling of the Chancery Division/General Equity Part.
The facts are not in dispute. On November 9, 1995, Millstone Township (Millstone) acquired a tax sale certificate for the real property described on the municipal tax map as Block 23, Lot 24. N.J.S.A. 54:5-34. The certificate was issued for unpaid real estate taxes for part of 1992 and the years 1993 and 1994. On November 16, 1996, Millstone assigned the certificate to FUNB as Custodian for FUNDCO, Inc. The Millstone governing body formally confirmed the sale of the certificate to FUNDCO in a written resolution adopted on December 4, 1996. Paragraph two of this resolution specifically states:
Pursuant to N.J.S.A. 54:5-114.4 and 114.7 the Assignee's title to the said Tax Sale Certificate shall be forfeited and shall automatically revert back [sic] to the Assignor unless the Assignee forecloses the equity of redemption and records the Final Judgment with the Monmouth County Clerk's Office within two years of the confirmation of the sale by the governing body.
On May 13, 1997, FUNDCO filed a complaint for foreclosure of the tax sale certificate in the Chancery Division/General Equity Part of Monmouth County. The complaint listed the United States as a party since a title search revealed the existence of a federal tax lien. *fn1 On January 12, 1998, the Court issued a three-part order: (1) substituting Realty Asset Properties, FUNDCO's successor in interest, as the named plaintiff; (2) entering a final judgment of foreclosure; and (3) issuing a Writ of Execution directing the Sheriff of Monmouth County to sell the property at a public auction. The judicial sale was scheduled and adjourned by plaintiff three times, on March 23, April 6, and April 20, 1998.
National Community Bank held a mortgage on the property and obtained a final judgment foreclosing that mortgage. Pursuant to that final judgment a sheriff's sale was held on August 12, 1998, where Better Enterprises, Inc. was the successful bidder.
From May 1998 to November 2001, plaintiff did not take any further action to finalize the tax sale certificate foreclosure proceedings. *fn2 On February 13, 2001, Millstone filed an in rem foreclosure complaint seeking to obtain title to the property. On November 14, 2001, plaintiff rescheduled its sheriff's sale for December 10, 2001, almost five years after the entry of the final judgment of foreclosure. Millstone and Hill House Farms filed a formal objection to the sheriff's sale with the Chancery Division/General Equity Part. The General Equity Judge found plaintiff's failure to complete the tax foreclosure proceeding by December 4, 1998, caused a reversion of the certificate to the municipality as a matter of law.
Plaintiff's argument is in three parts. The first pertains to the manner of perfecting title. A certified copy of a final judgment in a tax foreclosure proceeding where the United States is not a lien holder can be recorded immediately. N.J.S.A. 54:5- 104.65. This has the legal effect of vesting a certificate holder with "an estate in fee simple, in the lands described therein, absolute and free and clear of all liens and encumbrances in accordance with the terms of said judgment." Ibid. By contrast, a final judgment in an action where the United States is a lien holder only triggers the issuance of a writ of execution, commanding the sheriff to schedule a public sale. R. 4:65-2; N.J.S.A. 2A:50-36. Thus, in order to obtain title to the property, the certificate holder must be the highest bidder at the judicial sale. Investors & Lenders, Ltd. v. Finnegan, 249 N.J. Super. 586, 592 (Ch. 1991); N.J.S.A. 2A:50-37.
The second part of the argument rests upon the applicability of the doctrine of merger. Under the doctrine of merger, the mortgage contract is merged into the final judgment of foreclosure and the mortgage contract is extinguished. In re Roach, 824 F.2d 1370, 1377 (3d Cir. 1987); Virginia Beach Fed. v. Bank of New York/Nat'l Comm. Div., 299 N.J. Super. 181, 188 (App. Div. 1997); Colonial Bldg.-Loan Ass'n v. Mongiello Bros., 120 N.J. Eq. 270 (Ch. 1936). Thereafter, the mortgage contract interest rate is replaced by the post-judgment rate permitted under the rules of the court. Plaintiff argues that this also occurs in a tax foreclosure action instituted under the provisions of N.J.S.A. 54:5-87. Upon the entering of a final judgment of foreclosure the 18% interest rate authorized by the Tax Sale Law, N.J.S.A. 54:5-32, drops to the post-judgment rate set by R. 4:42-11. According to plaintiff, this drop in interest rate reflects the merger of the certificate with the final judgment. Resolution Trust Corp. v. Griffin, 290 N.J. Super. 88, 91-92 (Ch. 1994).
The third and final part of plaintiff's argument is based on the additional procedural steps involved in the administration of a judicial sale. N.J.S.A. 2A:50-64(a)(3) gives the sheriff 120 days after receipt of any writ of execution issued by the court to schedule a judicial sale. N.J.S.A. 2A:17-36 permits two adjournments of the sale "not exceeding 14 calendar days for each adjournment." The statute also authorizes the court to grant additional adjournments upon a showing of good cause. 28 U.S.C.A. 2410(c) gives the United States one year from the date of the sale to redeem the property. In cases such as this one, where the lien arises under the Internal Revenue Code, the time period for redemption is reduced to 120 days from the date of sale. Finally, R. 4:65-5 permits objections to the delivery of a sheriff's deed to be made by motion filed within ten days of the sale and made returnable within twenty days. Thus, plaintiff argues, these procedural events and the time necessary to accommodate them render compliance with the two-year deadline imposed by N.J.S.A. 54:5-114.4 "impossible."
Plaintiff's arguments are undermined by both the law of this State and the facts of this case. We begin our analysis by reaffirming that the rights of a purchaser of a tax sale certificate are solely statutory in origin and are fixed and determined by the Tax Sale Law. Brewer v. Porch, 53 N.J. 167, 178 (1969); See also Simon v. Deptford Township, 272 N.J. Super. 21, 29 (App. Div.), certif. denied, 137 N.J. 310 (1994); Northfield City v. Zell, 12 N.J. Tax 180, 185 (Tax 1991). The nature of the rights acquired by the purchaser of a tax ...