On certification to the Superior Court, Appellate Division, whose opinion is reported at 360 N.J. Super. 292 (2003).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In this appeal, the Court is asked to determine the validity of Jersey City's authorization to institutional investors who purchased tax sales certificates in bulk to enter into installment purchase plan agreements with the property owners. The appeal involves class action lawsuits stemming from bulk sales of tax liens by Jersey City.
In the early 1990s, Jersey City was experiencing fiscal difficulties because of a low property tax collection rate. In order to obtain cash, it sold tax sale certificates to a trust for a $19 million ten-year promissory note with a yearly interest rate of 28 per cent. The trust transferred the certificates to a second trust which, in turn, issued a $31 million bond to First Boston Corporation. The bonds issued by the second trust were sold to institutional investors, who then sold the bonds to the public. The securitizations occurred twice: the first in 1993 and the second in 1994. Jersey City executed an agreement in connection with these transactions in which it granted Bankers Trust Company the authority to enter into installment payment plans with property owners. The 1993 securitization consisted of 2500 tax sale certificates, of which 434 property owners entered into payment plans. The 1994 transaction was smaller in scale, consisting of 1220 tax sale certificates, of which 145 property owners entered into payment plans. In short, the tax sale certificates served as collateral for the bonds sold to investors and for the promissory note, which generated immediate funds for Jersey City.
Bankers Trust Company was responsible to the trust and to Jersey City for the collection of the funds. As part of the bond-issuance agreements, Breen Capital Services Corporation was to handle day-to-day collection and servicing of the tax sale certificates. Thus, Breen Capital was the entity that would enter into plans with the property owners. Property owners whose property was subject to a tax sale certificate had three options: (1) accept the plan with eighteen percent interest; (2) redeem the tax sale certificates in a lump sum; or (3) submit to foreclosure. Property owners who elected to enter into a plan retained the right to redeem the certificates at any time by complying with the redemption procedures contained in the Tax Sale Law.
In 1998, a class action suit on behalf of property owners who had entered into the plan was filed against Bankers Trust, Breen Capital and a Delaware partnership that owned a portfolio of tax sale certificates serviced by Breen Capital. The suit claimed that the payment plans executed by or on behalf of Bankers Trust, Breen Capital, and the Delaware partnership were inconsistent with the Tax Sale Law, beyond their authority, and violated the Consumer Fraud Act.
The trial court granted summary judgment for the property owners. The court determined that the Tax Sale Law does not permit private parties to enter into such plans with property owners and held that defendants' solicitation of the plans constituted a per se violation of the Consumer Fraud Act. The Court held Bankers Trust and
Breen Capital liable to the property owners in the amount of almost $27 million. In May of 2000, a second class action on behalf of property owners was filed against CSFBTLC Trust II, Bankers Trust, and Breen Capital. The property owners claimed that the payment plans violated the Tax Sale Law and Consumer Fraud Act. The trial court ultimately issued a judgment against these defendants in the amount of over $5 million. The court also ordered defendants to forfeit the tax sales certificates that had been the subject of the payment plan.
The Appellate Division consolidated the appeals and reversed the judgment of the trial court, essentially on the principle that private contracts not specifically prohibited by statute are generally permitted.
HELD: The municipality's statutory authority to enter into installment payment plans can be transferred with the bulk sale of its tax sale certificates. However, the purchaser or its agent, acting in furtherance of the securitization contemplated by the authority provided for such bulk sales, must adhere to the Tax Sale Law's framework of responsibilities and restrictions as imposed on municipalities.
1. In 1993, the Legislature enacted N.J.S.A. 54:5-113.1 to enable municipalities to engage in the bulk sale of tax sale certificates by allowing the acceptance of a bond, note or other obligation in partial consideration thereof. We infer from the statute a legislative intention to further facilitate the collection of property taxes by permitting institutional investors to purchase tax sale certificates in bulk and, in turn, to reduce the administrative costs and expedite case flow for the municipality. We see nothing in the statutory scheme that indicates a legislative intent to preclude a municipality from authorizing a bulk purchaser and holder of such certificates to enter into installment payment plans with delinquent property owners so long as the terms of such plans are not inconsistent with the statutory terms that would have protected the taxpayer had it been the municipality itself that executed the plans. Indeed, we regard it as a natural and fair implication from the Tax Sale Law that a municipality can transfer its authority to enter into installment payment plans in respect of redemption of the tax lien to private bulk purchasers and holders of tax sales certificates, thereby making the investment more attractive because the holder is not limited to the time-consuming and expense-laden remedy of foreclosure. Despite the Legislature's silence in respect of installment payment plans when it enacted N.J.S.A. 54:5-113.1, it comports with the legislative purpose to allow a municipality to authorize a bulk purchaser of tax sale certificates to enter into such plans in the same manner as could the municipality itself. (pp. 21-23)
2. Our duty is to construe the Tax Sale Law, and specifically its grant of authority to municipalities in respect of the bulk sale of tax sale certificates. As a general matter, we construe broadly municipal powers delegated by the Legislature, consistent with the constitutional directive to do so. Express powers as well as those that arise by fair implication are given broad latitude, so long as they are not wielded in contravention of the overarching statutory grant of authority or otherwise conflict with an express statutory limitation or prohibition. (pp. 26-27)
3. We turn now to examine the specifics of the form of installment payment plan used:
a. Bankers Trust's assumption of a 360-day year to compute a per diem interest charge, and the application of that daily interest rate for 365 days, effectively resulted in an actual annual interest rate of 18.25%. N.J.S.A. 54:5-32 provides that the interest rate applied to a tax sale certificate may not exceed 18% per annum. The Tax Sale Law does not contain any indication as to what financial assumptions a municipality may use in order to maintain consistency. In our view, the financial assumption adopted by Bankers Trust reasonably ensures consistency in the collection of taxes: every month has 30 days and there are twelve months a year. Furthermore, we note that the methodology of using a 360-day year to calculate a per diem interest rate that is spread over 365 days is consistent with that employed by Jersey City in its own accounting, and disclosed as per the requirements of the Generally Accepted Accounting Principles (GAAP), which municipalities are bound to follow. (pp. 28-30)
b. We have concluded that Jersey City has the authority to permit the bulk purchaser and holder of its taX sale certificate to enter into installment payment plans with related taxpayers in the same manner as would the municipality. We do not conclude that the statutory procedures for recording payments and establishing permitted expenses may be disregarded. Those issues must be remanded to the trial court for review and, if necessary, reformation of the installment payment plans. (pp. 31-32)
c. The property owners' remaining arguments about the installment payment plans' resulting in partial redemption appear to be unnecessary to our disposition. Because of our determination that the plans must be reconciled with the statutory scheme, the filing and recording requirements that will apply as between Bankers Trust or its agent and the municipal tax collector will eliminate any questions concerning the collector's obligation to recognize and credit installment payments made by the property owner to Bankers Trust or its agent. (p. 33)
d. The final issue is whether private investors, through the installment payment plan contract, can convert an in rem debt into a personal debt. N.J.S.A. 54:5-104.33 specifically proscribes any party acting pursuant to the Tax Sale Law to seek a personal judgment. Based on our decision today, the powers delegated to private investors may not be inconsistent with the limits imposed on a municipality issuing an installment payment plan. (p. 34)
The judgment of the Appellate Division is AFFIRMED, AS MODIFIED and the matter is REMANDED to the trial court.
CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, ALBIN, and WALLACE join in JUSTICE LaVECCHIA's opinion. JUSTICES LONG and ZAZZALI did not participate.
The opinion of the court was delivered by: Justice LaVECCHIA
These consolidated appeals involve two class action lawsuits stemming from bulk sales of tax liens by the City of Jersey City (Jersey City). In 1993 and again in 1994, Jersey City securitized its large inventory of tax liens, selling them to a trust, which in turn sold bonds in anticipation of revenue from the purchased liens. In these actions, plaintiffs specifically challenge the private installment payment plan agreements (IPPs) that allowed a property owner whose property was subject to a transferred tax sale certificate (TSC), to make payments toward redemption in equal monthly payments of principal and interest directly to the purchaser and holder of the TSCs, or to a representative of the holder. Plaintiffs claim that the IPPs were unauthorized by, and inconsistent with, the Tax Sale Law, N.J.S.A. 54:5-1 to -137 (TSL), and that they also were violative of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -135 (CFA). The trial court granted summary judgment to plaintiffs and awarded plaintiffs in excess of $30 million in treble damages under the CFA. On appeal, the Appellate Division reversed and remanded for entry of an order dismissing plaintiffs' complaints. Varsolona v. Breen Capital Serv. Corp., 360 N.J. Super. 292 (2003). We granted certification, 177 N.J. 571 (2003).
The sale of tax liens is a municipal financing option that provides a mechanism to transform a non-performing asset into cash without raising taxes. Georgette C. Poindexter, Lizabethann Rogovoy & Susan Wachter, Selling Municipal TaX Receivables: Economics, Privatization, and Public Policy in an Era of Urban Distress, 30 Conn. L. Rev. 157, 158 (1997). The concept of "securitization" of tax liens has been described succinctly as follows:
Securitizations bundle individual liens and sell income stream from the bundle to investors.... In the general method of securitization, the municipality sets up a trust to take title to the tax liens and then the trust issues bonds backed by the revenue stream from those lien[s] and secured by the eventual right of foreclosure on the underlying property. The success of tax lien securitization deals rests on the ability of the servicer... to find delinquent taxpayers and collect back taxes owed.
In addition to the up-front payment, the municipality often takes a subordinate position (after payment to bondholders) with respect to a portion of the outstanding liens, usually around thirty percent. The effect of the subordinate position is to give the municipality a percentage interest in the amount collected over the amount necessary to satisfy the principal and interest payments to bondholders. Although a municipality may not receive as much money at the outset of a securitization deal, it has the potential to recover the full amount of the taxes and the interest due, which makes it an attractive option for some municipalities.
[Id. at 173-74 (footnotes omitted).]
The basic structure of a tax lien securitization involves the establishment of a trust that has as its sole purpose the purchase of eligible tax lien receivables from one or more jurisdictions.... After the trust purchases the tax liens, it then issues bonds that are backed by the tax lien receivables. These bonds are purchased by investors, usually in the institutional market. A portion of the proceeds from the sale of the bonds is used to pay the municipality for the sale of the tax liens. In a typical securitized tax lien transaction, the amount of the bonds issued is less than the face amount of the taX liens purchased by the trust from the municipalities. Usually, the trust will issue bonds ...