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Delvecchio v. Banks


March 10, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. F-181-05.

Per curiam.


Argued February 11, 2008

Before Judges Parrillo, Gilroy and Baxter.

In this tax foreclosure action, plaintiff, Robert DelVecchio, Trustee of the Robert DelVecchio Pension Trust, appeals from an April 25, 2006 order of the General Equity Part vacating final judgment. Respondent, Cherrystone Bay, L.L.C. (Cherrystone), cross-appeals from the court's September 12, 2006 final order denying its motion to intervene and to compel redemption, nullifying its contract with defendant Cynthia Ruckel, and imposing a constructive trust, in plaintiff's favor, with respect to the purchase contract. For reasons that follow, we affirm on the appeal, and reverse on the cross-appeal.

On November 21, 2000, Gertrude Ruckel died owning residential property in Nutley where her fifty-year-old daughter Cynthia has lived her entire life. By virtue of Gertrude's last will and testament, the property passed to her estate, which was held in trust for the benefit of Cynthia, who is apparently mentally incapacitated and unable to handle her own affairs. Gertrude's grandson, defendant Jerome Banks, was appointed executor of her estate and trustee for the benefit of Cynthia.

As trustee, Banks, who lives in California, never paid municipal real estate taxes and, on August 22, 2002, plaintiff purchased the tax sale certificate from the township for $6,747.86. Plaintiff also paid all subsequent accruing taxes on the property. Almost two-and-one-half years after his purchase of the tax sale certificate, plaintiff filed a complaint to foreclose the tax sale certificate and the property, naming as defendants Banks, in his capacities both as executor of the estate and trustee for the benefit of Cynthia, and the State of New Jersey. Plaintiff attempted service on Banks by mailing the summons and complaint, certified and regular, to his residence in San Francisco. The certified mail sent to Banks' residence was not claimed and was returned to plaintiff's counsel.

On February 22, 2005, plaintiff moved to enter default judgment in the foreclosure action on the basis that plaintiff attempted service on Banks by certified mail, but that the mail went unclaimed. Following default, the court entered an order setting April 8, 2005, as the date when Banks was required to redeem the tax sale certificate. The order was served on Banks who did not tender the redemption price. Thereafter, final judgment was entered on April 18, 2005, vesting title to the property in plaintiff and foreclosing the equity of the redemption. A copy of the final judgment was served on Banks on April 27, 2005. Cynthia, however, was never served with a summons and complaint.

On July 18, 2005, an attorney who represented Banks and Cynthia filed a notice of motion to vacate the April 18, 2005 judgment and permit Banks to tender redemption funds on the basis that Banks had received no notice of the action, only learned of the foreclosure in June 2005, and that the estate had sufficient funds to satisfy the unpaid taxes on the property. On October 21, 2005, that attorney notified the court that his client Banks wished to withdraw the motion, and that he was withdrawing his representation "due to a potential conflict of interest."

In January 2006, Cynthia signed a contract to sell the property to Cherrystone for $250,000. On January 26, 2006, on application by Cynthia's counsel, the Equity Part judge signed an order to show cause that stayed the eviction action and directed plaintiff to show why final judgment should not be vacated and a guardian ad litem appointed for Cynthia, and why Cynthia should not be permitted a reasonable time to redeem the certificate and prevent foreclosure. In support of her application, Cynthia claimed that Banks had breached his fiduciary duty by failing to protect her interests, and requested that she be permitted to complete a sale of the property to Cherrystone based on the signed contract between the two.

Seeking to protect its interest in the contract, Cherrystone filed a motion to intervene on February 22, 2006, requesting permission to purchase the property from Banks and opposing any claim by plaintiff for a constructive trust. Plaintiff filed opposition and requested discovery. At the March 24, 2006 hearing, the judge initially determined that service was defective because plaintiff had failed to file an Affidavit of Inquiry prior to the time when service by mail was attempted as required by Rule 4:4-5. In addition, the judge held due process required "something more" than service by certified and regular mail in this particular situation. Consequently, on April 25, 2006, the court denied Cherrystone's motion to intervene, but vacated the foreclosure judgment and permitted Cynthia or Cherrystone until April 26, 2006, to redeem the tax sale certificate, which the judge later extended to May 25, 2006.

On May 26, 2006, following tender of the redemption, plaintiff moved to bar the redemption or, alternatively, for the imposition of a constructive trust, and sought reconsideration of the motion to vacate the judgment. Cherrystone filed a cross-motion to intervene and to affirm the sale and compel redemption.

At the June 16, 2006 hearing on plaintiff's motion for reconsideration, the judge clarified her earlier March 14, 2006 decision, reiterating her conclusion that under the totality of the circumstances presented, including the fact that Cynthia was considered incapable of managing her affairs, there was a violation of due process because plaintiff failed to give her notice.

Relying on then existing case law in Wattles v. Platts, 120 N.J. 444, 453-54 (1990), overruled in part by Simon v. Cronecker, 189 N.J. 304 (2007), in which the Supreme Court disapproved of "heir hunters" and imposed a constructive trust whereby the lienholder replaced the heir hunter in the sale contract between the homeowner and the heir hunter, the judge granted plaintiff's alternative motion to void the conveyance to Cherrystone and to impose a constructive trust in favor of plaintiff. The judge recognized that in this case, Cherrystone had paid more than a nominal fee for the property and performed "to some degree, some valuable service" with respect to the homeowner. Moreover, "redemption should be permitted unless there is some countervailing, and overpowering, overarching public policy." However, because two cases on the subject were currently pending before the Supreme Court, the judge did not "want to usurp anything that is before the Supreme Court."

On August 11, 2006, the judge heard argument on the parties' residual issues. Reflecting the reasons stated at that hearing, the judge issued a final order on September 12, 2006 that: denied Cherrystone's motion to compel redemption; voided the sale transaction between Banks, Cynthia and Cherrystone and ordered Cynthia to return any monies paid to her by Cherrystone; ordered redemption monies posted with the tax collector to be returned to Cherrystone; and granted plaintiff's motion to impose a constructive trust "relating to the contract to purchase property between Cherrystone . . . [and] Cynthia Ruckel dated May 5, 2006." The judge also ordered the parties to "maintain the status quo" and allow Cynthia to remain in the home pending the outcome of an appeal. Plaintiff was required to pay the taxes and maintain the property.

Plaintiff appeals, challenging the court's decision to vacate the final judgment and to allow Cynthia, as the beneficiary of the trust, standing to redeem the property and seek to vacate the judgment. Cherrystone cross-appeals, challenging the court's denial of its motion to intervene, and the court's decisions to nullify the sale and redemption and impose a constructive trust.


In arguing that the Equity Part judge erred when she vacated the foreclosure judgment, plaintiff contends Cynthia lacked standing to redeem, and that, in any event, her application to vacate was untimely under Rule 4:50 and unsupported because service of process complied with court rules and due process. We disagree.

N.J.S.A. 54:5-54 (emphasis added) provides:

Except as hereinafter provided, the owner, his heirs, holder of any prior outstanding lien certificate, mortgagee, or occupant of land sold for municipal taxes . . . may redeem it at any time until the right to redeem has been cut off in the manner in this chapter set forth . . . .

Contrary to plaintiff's contention, Cynthia is both an heir of the premises owner and an occupant of the premises, entitling her to redeem. Undisputably, Cynthia, fifty-years old at the relevant time, resided on the property her entire life, is the daughter of the owner, and the beneficiary of her late mother's residuary estate held in trust for her, by a trustee with a stated conflict of interest. In our view, Cynthia is more than simply a party in possession, Cannici v. Scott, 20 N.J. Super. 97, 99-100 (Ch. Div. 1952), and by virtue of the aforecited circumstances, has a "'lawful right or interest in the land,'" Malone v. Midlantic Bank, N.A., 334 N.J. Super. 238, 247 (Ch. Div. 1999) (quoting Cannici, supra, 20 N.J. Super. at 99), aff'd, 334 N.J. Super. 236 (App. Div. 2000); Jefferson v. Davis, 25 N.J. Super. 135, 148 (Ch. Div. 1953) (citations omitted), sufficient to confer standing upon her not only to move to vacate, but as well to redeem.

This same degree of interest in the land also factored into the judge's equitable sense of whether service of process in this case comported with due process and fundamental fairness. Indeed, she addressed this issue twice. The first reason she cited for finding service deficient was plaintiff's failure to conform to court rules in not providing a timely and appropriate affidavit of diligent inquiry specifying exactly the actions taken to provide actual notice. See R. 4:4-5(c)(2). Finding that the deficiency implicated the court's jurisdiction, the judge also held plaintiff's subsequent motion to vacate timely under Rule 4:50-1.

The other reason offered by the judge in finding service of process inadequate was its failure to provide notice reasonably calculated under all the circumstances to apprise interested parties of the pendency of the action and afford them an opportunity to present their objection. The judge thus reasoned:

[I]t was certainly not my intent last time, and not my intent today, to base the vacating of this judgment on a technicality or solely on the language of the service rules. I would not do that in a vacuum. It figured into the mix. There's no question about that. And anybody who views the record will know that, but I based it on what I believed to be the totality of the circumstances presented before me and that reinforced my feelings about the lack of due process here. And I have to say that looking at it again today, even with the latest case, Jones v. Flowers, [547 U.S. 220, 126 S.Ct. 1708, 164 L.Ed. 2d 415 (2006)], I'm really not persuaded, revisiting these issues, to change my view. I say that because without focusing just on that one factor of Mr. Del Vecchio's filings, the real issue is here was due process satisfied, was proper notice given to the parties in interest who should have had notice. And that is a very fact sensitive determination. Jones v. Flowers demonstrates that, 126 S.Ct. 1708. . . .

I'm not persuaded that this is some kind of earthquake that's happening here. I'm basing this on the very unique facts of this particular case. A mentally deficient party left property by her late mother, with a delinquent fiduciary who is all the way on the other side of the United States, and she is here in the subject house, and she wasn't notified.

We affirm the order vacating the judgment of foreclosure essentially for the reasons set forth by the Equity Part judge. Suffice it to say, the confluence of several unique factors, including the absence of a timely and sufficient affidavit of inquiry, R. 4:4-5(c)(2), to permit close judicial scrutiny, the return of the certified mail sent to an ostensibly delinquent and geographically distant fiduciary who admits of a conflict of interest, and the beneficiary's substantial putative stake in the property, persuade us to conclude, as did the judge, that the notice here was not "reasonably calculated" to apprise interested parties of the proceedings against them, Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 795, 103 S.Ct. 2706, 2710, 77 L.Ed. 2d 180, 185 (1983); see also M & D Assocs. v. Mandara, 366 N.J. Super. 341, 353 (App. Div.), certif. denied, 180 N.J. 151 (2004), and thus did not comport with equitable notions of fundamental fairness. As such, the Equity Part judge did not err in considering the motion to vacate the foreclosure judgment, Borough of New Shrewsbury v. Block 115, Lot 4, 74 N.J. Super. 1, 8 (App. Div. 1962), or in granting the penultimate relief of vacatur.


We do find error, however, in the court's ultimate voiding of the conveyance to Cherrystone and imposition of a constructive trust in favor of plaintiff, and therefore, vacate those portions of the court's September 12, 2006 order.

In this regard, Cherrystone argues that the judge's decision to nullify its contract of sale and impose a constructive trust should be reversed based on the Supreme Court's recent decision in Simon, supra, 189 N.J. at 328, which abrogated Wattles, supra, 120 N.J. at 453-54, on which the Equity Part judge relied. Cherrystone argues that Simon rejected the public policy position of Wattles, which formed the basis for the judge's decisions, and that Cherrystone's actions met the necessary standards set forth in Simon to allow it to intervene and proceed with the sale and redemption. We agree.

In Simon, supra, the Court held that the Tax Sale Law, N.J.S.A. 54:5-1 to -137, "does not prohibit a third-party investor from redeeming a tax sale certificate after the filing of a foreclosure action, provided that the investor timely intervenes in the action and pays the property owner more than nominal consideration for the property." 189 N.J. at 311. The Court further explained:

To the extent that Wattles suggests a violation of public policy when a third-party investor offers more than nominal consideration for the property interest of an owner facing foreclosure, we now reject that view. In enacting N.J.S.A. 54:5-89.1, the Legislature intended to extend judicial scrutiny to financial arrangements between third-party investors and property owners during the post-foreclosure complaint period. The purpose of N.J.S.A. 54:5-89.1 is not to bar third-party investors from helping property owners in desperate need of financial assistance, but rather to ensure that the third-party investors do not exploit vulnerable owners by offering only nominal consideration for their property interests.

[Id. at 328.]

However, unlike here where Cherrystone moved to intervene, in Simon, the third-party investor, who also was Cherrystone, id. at 312, had never sought to intervene in the foreclosure actions before attempting to redeem the tax sale certificate at the tax collector's office. Ibid. For that reason, the Court refused to allow Cherrystone to profit from the transactions and, instead, imposed constructive trusts that allowed the plaintiffs to succeed to Cherrystone's interests. Id. at 311.

On this score, N.J.S.A. 54:5-89.1 bars a person from intervening as a party in a foreclosure action or "redeem[ing] the lands from the tax sale whenever it shall appear that he [or she] has acquired such interest in the lands for a nominal consideration after the filing of the [foreclosure] complaint." The Court in Simon, supra, in determining the meaning of "nominal," adopted "a more flexible, under-all-the-circumstances approach that will keep the focus on the benefit to the property owner facing forfeiture of his land." 189 N.J. at 334-35. The Court stated that "[i]n the end, more than nominal consideration . . . means consideration that is not insubstantial under all the circumstances; it is an amount, given the nature of the transaction, that is not unconscionable." Id. at 335.

Here, we find that Cherrystone's actions in moving to intervene in the foreclosure proceeding below satisfied Simon's dual concerns of permitting "judicial oversight of the adequacy of consideration offered for the property interest," id. at 336, and affording the lienholder an opportunity to object. Id. at 311. To be sure, at the time of sale and redemption, Cherrystone had not yet been added to the "cause," but that was by virtue of the court's April 25, 2006 order, which stated that "Cherrystone['s] . . . [motion] to intervene is hereby denied without prejudice subject to the anticipated motion by the plaintiff to bar redemption." The judge directed that the sale occur, and that the deed be placed in escrow "pending further [o]rder of [the] court." The judge then directed that all closing documents be provided to plaintiff and to the court within ten days of closing, and further that plaintiff file a motion to bar redemption within three weeks of the closing. At the June 16, 2006 hearing, the judge expressly found that "[t]he consideration that [we are] talking about in this case, $250,000, does not appear to be nominal, based on any reasonable interpretation of the term[,]" especially in light of the fact that Cynthia would net about $198,000.*fn1

Under the circumstances, we conclude that by virtue of its substantial compliance with the procedural requirements of the Tax Sale Law and its offer of more than nominal consideration, Cherrystone has a title interest in the disputed property, entitling it to redeem plaintiff's tax sale certificate. We, therefore, vacate those portions of the Chancery Division's September 12, 2006 order voiding Cynthia's conveyance to Cherrystone and imposing a constructive trust in favor of plaintiff.

Affirmed in part; reversed in part.

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