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208 Community, LLC v. Dimaio

March 14, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, F-15573-05.

Per curiam.


Argued January 7, 2008

Before Judges Parrillo, Graves and Alvarez.

This is an appeal by defendants, F.H. Paul DiMaio, also known as Francis DiMaio, and his wife, Selma, from a December 8, 2006 final judgment in a tax foreclosure proceeding entered in favor of plaintiff, 208 Community, LLC. Edward Eid joined in the appeal to obtain review of the trial court's decision to deny him the right to intervene in the proceedings prior to entry of judgment. The appeals were consolidated. Although the order is affirmed, the matters are remanded for further consideration of the appropriate remedy pursuant to the principles enunciated in Simon v. Cronecker, 189 N.J. 304 (2007).

Plaintiff is the assignee of a tax sale certificate sold by the Borough of Rutherford on October 9, 2003, for unpaid municipal taxes at the DiMaios' home on 228 Carmita Avenue.

Defendants Luba Siderman, Federal Wine & Liquor Company, New Century Financial Services, Inc., and the State of New Jersey all hold recorded judgment liens against the property. On October 12, 2005, plaintiff filed a tax foreclosure action. An order was entered February 7, 2006, fixing the amount of redemption, $32,397.93 plus $1,206.22 in costs and setting the redemption date, March 24, 2006. The court below made very limited findings of fact. Indeed, the record before us does not include a transcript of proceedings. Rather, each side has supplied those documents, including depositions, transcripts, certifications and affidavits, which it considers necessary to a fair resolution of the issues.

The DiMaios and Edward Eid, the proposed intervenor, on March 6, 2006, entered into a real estate agreement. Plaintiff asserts it was a sham transaction; the DiMaios, that it was genuine. The DiMaios claim their property has an estimated value of approximately $500,000, the purchase price recited in the agreement. An unsigned copy of the contract is included in the DiMaios' appendix, as are copies of related documents. Notably, a separate "use and occupancy" agreement between the parties allows the DiMaios to remain in their home for a period of eight years, from March 1, 2006 forward. The value of this use and occupancy agreement was fixed at $231,000, during which time Eid would be solely responsible for all real estate taxes.

On March 15, 2006, the DiMaios and Eid allegedly went to closing. On that date, the DiMaios paid the tax collector the amount necessary for the redemption of the tax sale certificate. Plaintiff alleges these funds actually came from the account of a Nancy Dennis, the long-time partner of James Shama, whom plaintiff asserts is a title raider and the true third-party investor. It bears mention that on the relevant dates Francis DiMaio was seventy-eight years of age, and suffered from a host of serious physical ailments, including dementia. His wife, Selma DiMaio was seventy-three and had power of attorney to act in her husband's stead. The couple has lived at 228 Carmita Avenue for years.

In response to the attempted redemption of the certificate, which plaintiff perceives as a fraud orchestrated by Shama, on April 26, 2006, plaintiff filed a motion to bar redemption. On May 17, 2006, the DiMaios filed a cross-motion to compel the tax collector to discharge the tax lien. On May 26, 2006, the court entered a preliminary order of discovery and all motions were denied without prejudice until completion of that process. On June 19, 2006, the court entered a consent order allowing Eid to become a "proposed intervenor" and directing that he participate in discovery, including depositions. The order indicated that the court, in its final determination, would decide whether to allow Eid's intervention and whether the redemption was lawful. In a management order dated August 23, 2006, Dennis and Shama are mentioned as represented subpoenaed witnesses. Thereafter, in a letter opinion dated November 20, 2006, after conducting oral arguments a few days prior, the court found the attempted redemption invalid, deemed the action to be an uncontested foreclosure, and directed the foreclosure unit to enter final judgment. The DiMaios' application to compel the tax collector to accept redemption money was denied. No mention is made of Eid's application to intervene in the body of the companion order issued by the court in conjunction with the brief letter opinion. The opinion indicates, however, that the redemption funds came from Dennis, that she did not seek to intervene in the proceeding, and that therefore, the attempted redemption was invalid. Presumably, this means that Eid's application to intervene was denied. A stay was subsequently granted by consent to the DiMaios, in light of their circumstances.

During the pendency of this appeal, days after the stay issued on January 19, 2007, the Supreme Court rendered its decision in Simon v. Cronecker. The holding in that case controls the outcome of this appeal and compels us to remand the matter for further consideration of the appropriate remedy. As in Cronecker, the tax collector here accepted redemption funds that originated from a third-party investor who had not sought to become a party to the proceedings. Id. at 312. The holder of the tax certificate has refused to surrender it, claiming that the redemption is illegal, and now holds a judgment barring redemption. Ibid. A belated motion to intervene was made by the third-party investor. Ibid. In all important respects, the factual scenario is the same. Furthermore, because the principles enunciated in Cronecker are "a straightforward reading and interpretation of the governing statutes," they are to be given retroactive application. Malinowski v. Jacobs, 189 N.J. 345, 351 (2007).

As in Cronecker, supra, 189 N.J. at 337, the third-party investors in this case did not comply with the statutory requirements for the redemption of a tax sale certificate pursuant to N.J.S.A. 54:5-98. For that reason, the trial judge's order must be affirmed. The right of redemption is available only to those parties who are in the cause - in other words, only to those who have intervened. Cronecker, supra, 189 N.J. at 336. The purpose of requiring intervention is to ensure that there is judicial oversight of the terms and conditions entered into with distressed property owners by third-party investors. Id. at 334. "[T]he primary purpose of the Tax Sale Law is to encourage the purchase of tax certificates . . . ." Id. at 319. Nonetheless, the statutory scheme is also intended to protect landowners "from exploitation by third-party investors." Id. at 320. It is for that reason that a judicial inquiry must be made to determine whether the landowner is receiving more than nominal consideration in exchange for the real property interest. Id. at 324.

A landowner always retains the right to "finance . . . redemption from any source and sell his interest for any amount to any person." Id. at 320. By engaging in an inquiry as to whether the consideration is more than nominal, the landowner is protected at a time of self-evident vulnerability. Id. at 337. Therefore, although the order is affirmed, the matter will be remanded to determine whether the purported contract was indeed for more than nominal consideration. This factual determination is of particular consequence in this circumstance, in which elderly and ailing landowners have entered into an agreement which allows them to remain in their home for a term of eight years, but where even a first look at the documents raises questions as to the bona fides of the transaction, and the actual consideration paid.

If a sale contract for more than nominal consideration is proven, a constructive trust will be imposed on Eid's rights under the contract. Plaintiff will thus have the option to succeed to Eid's rights to purchase the property from the DiMaios pursuant to the contract and all side agreements. Should plaintiff exercise that right, it will pay the actual consideration in exchange for a deed from the DiMaios. If it declines to do so, the constructive trust will be vacated and the contractual rights will revert back to Eid, who will then be required to make all payments ...

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