On appeal from the Superior Court of New Jersey, Chancery Division, Union County, C-164-94, F-15886-94, F-17783-99, F-18075-99 and F-18078-99.
The opinion of the court was delivered by: RODRÍGUEZ, A. A., P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: December 19, 2005
Before Judges A. A. Rodríguez, C. S. Fisher and Yannotti.
In this appeal we are required to consider the standard for determining what constitutes "nominal consideration" within the meaning of N.J.S.A. 54:5-89.1, the "title raiding," "heir hunting" or "intermeddler" provision of N.J.S.A. 54:5-1 to -137, the "tax sale law." Determining what constitutes nominal consideration in this context has proven troublesome for trial courts. We hold, consistently with the tax sale law, Bron v. Weintraub, 42 N.J. 87 (1964), Wattles v. Plotts, 120 N.J. 444 (1990) and O & Y Old Bridge Dev. Corp. v. Cont'l Searchers, Inc., 120 N.J. 454 (1990), that in order to decide the issue, the trial court must compare the consideration paid for the interest against the current value and marketability of the property interest acquired, less legitimate expenses of redemption and other pertinent adjustments. Then, the judge must decide if the resulting figure is a "windfall" or merely a reasonable return on investment.
In 1985, Schaefer Properties, Inc. (SPI), the owner of commercial real estate in Union County, mortgaged the property as security for a loan from the New Jersey Economic Development Authority. Through successive mergers or assignments, Corestates/New Jersey National Bank (Corestates) became the holder of that mortgage.*fn1 In 1995, SPI defaulted on the mortgage. At the time, the amount due on the mortgage was $5,672,803.34. Corestates filed a mortgage foreclosure action (docket F-15886-94). The action was unopposed. On September 11, 1995, Judge John M. Boyle ordered a sale pendente lite of the property. However, this remedy was not pursued. Apparently, the property has environmental problems that require remediation.
Prior to the foreclosure action, Corestates filed an action against SPI seeking a receivership and other relief (docket C-164-94). A default judgment in the amount of $5,708,965.81 was entered in this action. In 1999, Corestates assigned the mortgage and money judgment to Huskie Portfolio, Inc. (Huskie).
In addition to the default on the mortgage, SPI was not paying taxes when due. Carol Segal and her successor in interest, Sherwood Group Associates, (collectively "Segal") purchased a tax sale certificate on the property. Subsequently, Segal acquired additional tax sale certificates for the same property. All of these certificates were duly recorded. No redemption occurred during the two-year period set by N.J.S.A. 54:5-52. Therefore, Segal filed a notice of intent to foreclose and served a copy of this notice on all parties, including Corestates. Thereafter, Segal filed three separate tax foreclosure actions (dockets F-18075-33, F-17783-99, and F-18078-99). Default was entered in these actions. The judge set May 3, 2004 as the date for redemption on the foreclosure for docket F-18075-33. No redemption occurred by that date.
On May 5, 2004, two days after the date of redemption had passed, Schaefer Salt Recovery, Inc. (Recovery) purchased from Huskie the Corestates mortgage and the money judgment for $220,000.*fn2 At the time of that purchase, $8 million was due on the mortgage. On July 6, 2004, Recovery filed an answer to Segal's tax foreclosure complaints without moving to vacate the defaults. Recovery also asserted its right to redeem the tax certificates because final judgment had not been entered. The amount of redemption had grown to $1.9 million. However, Recovery did not allege that it had the funds available.
Segal moved to strike Recovery's untimely answer. On August 13, 2004, the trial judge entered an order striking the answer. Recovery moved to intervene in the tax foreclosure matters, alleging that the Union Township Tax Collector had improperly assessed the subject property and issued incorrect tax bills. Recovery also moved: (1) to vacate the defaults;
(2) to consolidate the tax foreclosure suits with the mortgage foreclosure and the money judgment suits; and (3) for authorization to conduct a pendente lite sale pursuant to Judge Boyle's order. Recovery presented to the judge an affidavit by Joanne Faber, a developer, who indicated that she had contracted to purchase the property for $3 million.
The judge denied the application and stayed a Sheriff's sale that was scheduled for August 16, 2004 in execution of the Corestates mortgage foreclosure pursuant to Judge Boyle's order. In a written opinion, the judge ruled that Recovery would not be allowed to enforce the prior mortgage foreclosure order because Segal's judgment had priority. The judge found that, although Corestates had obtained the 1995 order by Judge Boyle allowing it to sell the property, neither it nor its successors ever pursued this remedy. Therefore, this right was abandoned. Moreover, Recovery was aware of Segal's foreclosure actions and the expiration of the redemption period when it acquired the mortgage. The judge imposed a constructive trust on the property in the amount of $220,000 in favor of Recovery, pursuant to Savage v. Weissman, 355 N.J. Super. 429, 442 (App. Div. 2002), upon proof that Recovery had paid that amount for the assignment of Corestates' mortgage.
The judge ruled that Recovery's attempt to raise the defense that the amount of outstanding taxes was incorrect was time-barred by N.J.S.A. 54:5-52, which requires that such a defense to a tax certificate foreclosure be raised within two years of recordation of the certificate. The judge also concluded that Recovery was barred from its right of redemption by virtue of N.J.S.A. 54:5-89.1. The judge found that the consideration paid by Recovery after the filing of the complaint was nominal in relation to the value of the property. In reaching this decision, the judge noted that the parties "agree that . . . the property is worth at least $3.5 million (even with environmental ...