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Fabrikant v. Mitchell

February 28, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County, F-17561-03.

Per curiam.


Argued: January 9, 2008

Before Judges Axelrad, Sapp-Peterson and Messano.

On March 20, 2006, the Chancery judge found defendant Geraldine Mitchell properly redeemed tax sale certificates covering unpaid municipal taxes and sewer charges on her property that had been foreclosed upon by the certificate holder, plaintiff Michael Fabrikant, albeit through a third-party investor/contract purchaser who had not intervened pursuant to N.J.S.A. 54:5-89.1. Following a trial after which he determined the purchase price was more than nominal consideration, the judge concluded the "most equitable way to resolve the dispute for all parties" was to direct a private auction between the certificate holder and contract purchaser for the right to purchase defendant's interest in the property. By order of May 3, 2006, the judge confirmed the auction by which plaintiff was the highest bidder and directed the closing, with the purchase monies paid at closing to be held in escrow pending request for a stay on appeal.*fn1 The third-party investor, Cherrystone Bay, LLC, appealed the portion of the order creating the remedy of the private auction. Plaintiff cross-appealed, argued intervention by Cherrystone was untimely and improper, challenged the court's findings that defendant redeemed the certificates and that more than nominal consideration was paid for the purchase of the property, and contended the remedy of auction was contrary to law and the court erred in not imposing a constructive trust whereby plaintiff could meet the terms of the Cherrystone contract.

During the pendency of this appeal, the Supreme Court rendered its decisions in Simon v. Cronecker, 189 N.J. 304 (2007), Simon v. Rando, 189 N.J. 339 (2007), and Malinowski v. Jacobs, 189 N.J. 345 (2007), which address the rights of third-party investors in the context of redeeming tax sale certificates after a foreclosure action has been initiated. The holdings in these cases control the outcome of this appeal and impel us to reverse the order under review and remand for imposition of a constructive trust.

Defendant is the owner of a residence located at 246 Myrtle Avenue in Neptune that she inherited from her mother around l997. In l999 and 2001, National Tax Assistance Corporation (NTAC) purchased tax sale certificates covering unpaid taxes and sewer charges on the property, which as of June 20, 2003 totaled $23,828.92. On October 1, 2003, NTAC filed a tax foreclosure action. Defendant was personally served with the complaint on January 22, 2004. On April 12, 2004, NTAC assigned the certificates to plaintiff and plaintiff continued with the foreclosure proceedings. On January 3, 2005, an order setting the amount, time and place for redemption was entered. The redemption amount was set at $26,617.85, together with taxed costs of $478.97. The redemption date was February 18, 2005.

Defendant was contacted by Michael Bonner, a principal of Cherrystone, prior to February 25, 2005 regarding the purchase of her property. In accordance with their conversation, she went to the Tax Collector's office on February 24, to inform them he was representing her in redeeming her property and request a payoff figure. She was told the figure was not readily available but it would be sent to Bonner, who had already contacted the office. The figures were faxed to Bonner. On February 25, 2005, defendant signed a contract of sale with Cherrystone for a purchase price of $85,000. Pursuant to its terms, defendant was given a $1,000 deposit and Cherrystone's agent delivered its checks to the Neptune Tax Collector totaling $39,977.41*fn2 for redemption of the outstanding tax sale certificates. The approximate $45,000 balance of the purchase price*fn3 was to be paid at closing, tentatively scheduled for March 7, 2005.

On March 3, 2005, plaintiff filed an affidavit of non-redemption and a final judgment of foreclosure was entered. On May 13, 2005, defendant filed a motion to vacate the final judgment, contending that pursuant to her authorization, Cherrystone, the contract purchaser, paid the deposit funds to the collector on February 25 for redemption of the tax sale certificates on her property, the funds were accepted, and her tax obligation to plaintiff was paid before he foreclosed. A bookkeeper in the collector's office certified the funds were received for redemption and were not rejected or returned. On May 24, 2005, the collector issued three checks to plaintiff totaling $28,548.73.*fn4 Cherrystone thereafter moved to intervene as an interested party, R. 4:33. On May 27, 2005, the court denied plaintiff's motion without prejudice pending discovery and trial and granted Cherrystone's intervention motion.

At trial the Chancery judge heard testimony from plaintiff, defendant, Bonner, the bookkeeper in the Tax Collector's office, and Henry Araujo, a real estate appraiser produced by plaintiff. There was extensive testimony regarding the circumstances surrounding the contract and the redemption of the tax sale certificates, defendant's financial situation and the contract proceeds, the fair market value of the property, and both plaintiff's and Cherrystone's investment practices vis-à-vis tax sale certificates and foreclosures. Defendant testified that because she lived elsewhere, she had permitted her two brothers to reside in the house, provided they pay the taxes and utilities and maintain the property. However, they failed to do so and in l997 she temporarily lost her job due to downsizing. In l998 she and her older brother borrowed $40,000 to pay off several outstanding bills and her brother's substantial income tax debt, which she secured by a mortgage on the property. They defaulted, and in 2000 judgment was entered for about $40,000 and her wages were garnished in the approximate amount of $2,100 per year through the date of trial. Defendant further testified about her unsuccessful attempts to obtain funds to redeem the certificates during the tax foreclosure, that she would prefer to keep the house but she could not afford two houses and her brothers did not want to assist in the expenses. Moreover, receipt of the $45,000 proceeds from the $85,000 sales price would allow defendant to pay off the judgment and terminate the garnishment, and leave her with about $l0,000 in cash. The appraiser testified to an estimated $239,000 fair market value of the property.

In his written opinion on March 20, 2006, after noting that N.J.S.A. 54:5-54 permits redemption at any time by the property owner prior to the entry of the final judgment of foreclosure, the judge rejected plaintiff's claim that defendant was not, in reality, the redeeming party as Cherrystone used its funds prior to the closing to redeem. The court found defendant's redemption no less valid because she received the funds from a contract purchaser, holding "Mrs. Mitchell was the redeeming party and could tender redemption monies from whatever source was available in order to protect her interest in the property [which] includes use of a buyer's deposit or the use of other advance payment of the purchase price, if permitted by contract, monies obtained from a bank, or monies from any other legal source."

The court further found the contract between Cherrystone and defendant for the purchase of her property for $85,000 consideration, "viewed in light of all the facts and circumstances, is for more than nominal consideration and reasonable when compared to the interest purchased," distinguishing the facts of Wattles v. Plotts, 120 N.J. 444 (1990) and Bron v. Weintraub, 42 N.J. 87 (1964). The court stated:

The sale price of $85,000.00 is more than a courtesy payment; it is much different than the $50.00 and $400.00 offered in Bron and Wattles.

Unlike the heir hunters in Wattles and Bron, Cherrystone is not only acting to further its own economic interest but is conferring a ...

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