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Strategic Municipal Investments, L.L.C. v. Dziedzic


April 4, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-18182-05.

Per curiam.


Argued: March 5, 2008

Before Judges Axelrad and Sapp-Peterson.

This is an appeal by a third-party investor, Cherrystone Bay, LLC,*fn2 from an order denying its motion to intervene in the tax sale certificate foreclosure action initiated by plaintiff, Strategic Municipal Investments, LLC, in which it had sought to stay entry of judgment and permit redemption in conjunction with its purchase of the property. The court denied the motion because it was post-judgment and given that status, there was insufficient proof presented of value under the Corestates analysis.*fn3 During the pendency of this appeal period 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 addressed the rights of third-party investors in the context of redeeming tax sale certificates after a foreclosure action has been initiated. As the Corestates "windfall profits test" for nominal consideration was expressly overruled in Cronecker, supra, 189 N.J. at 334, we reverse the order under review and remand for further proceedings.

Plaintiff is the assignee of a tax sale certificate sold to First Union National Bank for unpaid municipal taxes against the property located at 14 Lee Avenue, Lake Hopatcong, owned by Walter G. Dziedzic, a/k/a Walter G. Dziedzic, Jr. On November 23, 2005, plaintiff filed a tax foreclosure action. In addition to Dziedzic, plaintiff named as additional defendants the judgment creditors, the State of New Jersey and Cheryl Dziedzic, as well as persons with potential possessory interests in the property. Dziedzic was served and defaulted. On October 3, 2006, an order setting the amount, time and place for redemption was entered. The redemption amount was set at $20,958.78, together with tax costs of $1,089.75. The redemption date was November 17, 2006.

On November 22, 2006, Michael Bonner contracted with Dziedzic to purchase the property for $50,000. Closing was scheduled within fifteen days after entry of a court order granting buyer's intervention and permitting the redemption. That same day Cherrystone sent for filing a notice of motion to stay entry of final judgment, intervene, and affirm the validity of the sale and redemption of the tax sale certificate, returnable on January 5, 2007. Due to the Thanksgiving holiday that week, the motion was filed with the court and entered on the Superior Court's Automated Case Management System (ACMS) on Monday, November 27, 2006. Plaintiff applied for final judgment on November 24, 2006, which was entered by the Office of Foreclosure as an uncontested matter on December 4, 2006, presumably because the Foreclosure Unit was unaware of the pending motion.*fn4 See R. 1:34-6; R. 4:64-1.

At oral argument, Cherrystone contended its intervention motion should be considered as of right under Rule 4:33-1, as it was filed prior to entry of the final judgment, and explained its reliance upon the informal procedure consistently followed by the Foreclosure Unit to automatically stay entry of final judgment upon the filing of a motion to intervene. Cherrystone argued its motion was timely under the existing case law, prior to consummation of its sale and redemption of the tax sale certificate. Cherrystone further argued against the Corestates test for determining nominal consideration and contended it had presented sufficient evidence of benefit to the property owner based on the $29,000 net proceeds he would realize to constitute adequate consideration under N.J.S.A. 54:5-89.1. Plaintiff responded that the motion should be considered post-judgment and subject to the permissive intervention criteria of Rule 4:33-2, the proposed intervenor's motion was not timely under the case law, as a contract purchaser it did not have a sufficient legal interest to intervene, and it did not meet the threshold Corestates criteria of proving the value of the property.

At the outset of argument, the court raised the question of whether Cherrystone satisfied Rule 4:33-3, which requires service of a motion to intervene on "all parties," as there was no indication in the record whether Dziedzic and the judgment creditors were served. The court commented that the property owner probably had a "commonality of interest" with Cherrystone and did not further pursue the issue. Because the foreclosure judgment had already been entered, the court viewed the motion in a post-judgment context, denying the relief based on Cherrystone's failure to provide the essential information for intervention status as required under Corestates, and entering the January 5, 2007 order that is the subject of this appeal.

On appeal, Cherrystone argues that the trial court's rationale for denying intervention relief has been wholly rejected by the Supreme Court in its summary reversal of the Corestates windfall profits test and procedure, and its adoption of the "more flexible, under-all-the-circumstances approach" to ascertain nominal consideration discussed in Cronecker, supra, 189 N.J. at 334-35. Cherrystone further contends its motion is timely under Cronecker as it was filed prior to the entry of the final judgment of foreclosure. See Town of Phillipsburg v. Block, 380 N.J. Super. 159, 171 (App. Div. 2005) ("Prior to judgment, the holder of a tax sale certificate who has an unconditional right to redeem must be permitted to intervene in a tax sale foreclosure action."); see also Cronecker, supra, 189 N.J. at 311 (permitting redemption where the third-party investor "timely" intervenes in the action).

Cherrystone seeks reversal of the trial court's ruling denying it standing to intervene and seeks an order vacating final judgment. It alternatively requests: (1) we remand for findings as to nominal consideration in accordance with the Cronecker test; or, (2) we exercise original jurisdiction, Rule 2:10-5, and determine the net gain of $29,000 to the property owner exceeds "nominal consideration" and grant its motion to consummate the sale and redeem at the closing.

In response, plaintiff argues the trial court's decision can be affirmed on grounds unrelated to Corestates because it was untimely, procedurally improper, and deficient for presenting absolutely nothing concerning the property's value or whether Dziedzic could net any recovery from the contract. According to plaintiff, the filing of a motion is not the equivalent of a stay and the final judgment was not entered in error; therefore, Cherrystone's motion was post-judgment and the court did not abuse its discretion in denying permissive intervention under Rule 4:33-2. Additionally, plaintiff points out that the motion was only served on plaintiff and no explanation was forthcoming as to why Cherrystone failed to abide by Rule 4:33-3, requiring service on all parties to the action. Plaintiff also argues that Cherrystone was obligated to provide more than Bonner's hypothesis about Dziedzic and his financial condition as a condition precedent to intervention under N.J.S.A. 54:5-89.1.

Plaintiff further asserts that Cherrystone had an insufficient interest in the property to intervene and redeem under the Court Rules, statute and case law because it merely had an equitable interest as a contract purchaser that did not close on its purchase of the property. According to plaintiff, the language in Cronecker requiring intervention by contract purchasers with equitable interests in the property is dicta because the third-party investor in Cronecker closed on both properties prior to moving to intervene and thus had legal rights in the properties. 189 N.J. at 312 ("Cherrystone and Ross closed on the property"); 189 N.J. at 314 ("the Smyths and Cherrystone closed on the property"). Plaintiff contends that the Cronecker Court did not, nor could it constitutionally, decide whether a party could intervene before it had closed on a transaction, and that its holding was limited to the fact pattern of the third-party investor who had already acquired a legal interest and thus was permitted to apply for intervention in the foreclosure action. Plaintiff contends the concluding language of the Cronecker opinion supports his position:

In conclusion, we hold that after the filing of a tax sale foreclosure action, a third-party investor who acquires a property interest subject to the action must intervene to establish that he has offered more than nominal consideration for the interest. [Id. at 338 (emphasis added).]

Plaintiff urges that applying Cronecker's holding to a contract purchaser such as Cherrystone who has not consummated the sale at the time of the intervention motion, and thus does not hold a legal interest in the property, conflicts with the language and strict construction of the redemption statute. N.J.S.A. 54:5-54 ("Except as hereinafter provided, the owner, his heirs, holder of any prior outstanding tax 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 . . . ."); see also Caput Mortuum, L.L.C. v. S & S Crown Servs., Ltd., 366 N.J. Super. 323 (App. Div. 2004) (holding a judgment creditor was not entitled to redeem tax sale certificate as equitable owner; the redemption statute provided exclusive statutory right to redeem a tax sale certificate to an enumerated group). According to plaintiff, since Cherrystone presently lacks the right to redeem, it has not "acquired" a property interest and thus cannot move for intervention under N.J.S.A. 54:5-89.1.

We are not persuaded by plaintiff's arguments. Cherrystone's motion to intervene and stay entry of the final judgment was filed prior to the entry of the foreclosure judgment, and under the recognized procedure of the Foreclosure Unit it should have automatically stayed entry of the judgment. Cherrystone had a reasonable basis to rely on that procedure, and we would be imposing form over substance, and wasting judicial resources, to require an intervenor in these circumstances to proceed on an Order to Show Cause and seek a stay of the judgment pending the return date of the motion. The trial court thus should have viewed Cherrystone's motion in the context of a prejudgment motion for mandatory rather than permissive intervention. R. 4:33-1. We are satisfied that as a contract purchaser Cherrystone has a sufficient interest in the property and intervention should have been granted by the trial court. See Cronecker, supra, 189 N.J. at 311 (holding that "the Tax Sale Law 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"); see also Simon v. Rando, supra, 189 N.J. at 343 (applying Cronecker to a third-party investor who purchased prior tax sale certificates rather than the subject properties and requiring it to intervene in the foreclosure action before attempting to redeem the certificates at the tax collector's office); Malinowski v. Jacobs, supra, 189 N.J. at 351 (determining the principals set forth in Cronecker would be given retroactive effect).

In fact, we are satisfied Cronecker mandates a contract purchaser such as Cherrystone to intervene and seek judicial review before it can consummate a sale where redemption of a tax lien is paid. Id. at 336. The Court clearly set forth the procedure that "[a]ny person not named in the complaint must move to intervene in the action [and] [w]ithout the court's approval, that person is not entitled to redeem the tax certificate." Ibid. It elaborated:

[I]f the third-party investor properly intervenes and satisfies the court that more than nominal consideration has been offered for the property interest, then the court can issue an order making the investor a party to the foreclosure action. With that order and appropriate notice to the tax collector, the intervenor can then redeem the tax certificate. [Id. at 337 (emphasis added).]

We reject plaintiff's argument that Cronecker's holding regarding standing applies only to contract purchasers who have consummated sales and that the entire discussion regarding contract purchasers with equitable interest is merely dicta. The decision's entire focus is on protecting property owners facing foreclosure of tax sale certificates from exploitation by third-party investors, which is accomplished by court supervision of "both the property's sale and the redemption procedure." Id. at 320. The Court was concerned with the contractual arrangement, which gave the investor an equitable interest in the property, triggering the need for judicial review of whether "more than nominal consideration has been offered for the property interest[.]" See id. at 336-37 (emphasis added); see also id. at 320 ("the Act requires that third-party investors who seek either directly or indirectly to acquire the property and redeem the tax sale certificate [must] intervene in the foreclosure action") (emphasis added). That the third-party investor closed on the properties prior to filing the intervention motion was of no consequence to the Court's decision. This is apparent from the Court's summation of its holding, which does not reference the consummated sale or Cherrystone's legal interest in the property:

In conclusion, we hold that after the filing of a tax sale foreclosure action, a third-party investor who acquires a property interest subject to the action must intervene to establish that he has offered more than nominal consideration for the interest. With the court's approval, the investor then may redeem or assist in the redemption of the tax certificate. Without leave of court, the investor has no right to participate, directly or indirectly, in the redemption process. [Id. at 338 (emphasis added).]

In view of the Court's broad statement of law, it would be illogical to conclude that the Cronecker holding is limited to that specific fact pattern.

We are also satisfied the Cronecker holding as applied to a third-party investor with only an equitable interest is not inconsistent with N.J.S.A. 54:5-54, which enumerates those entitled to redeem tax sale certificates. As we noted in Simon v. Rando, 374 N.J. Super. 147, 153-54 (App. Div. 2005), N.J.S.A. 54:5-54 controls prior to the filing of a foreclosure complaint, ("Except as hereinafter provided . . ."), but the statutes governing actions to foreclose tax certificates, such as N.J.S.A. 54:5-98 and N.J.S.A. 5:5-89.1, provide separate rules for redemption during the pendency of a foreclosure action, aff'd, l89 N.J. 339 (2007).

Cherrystone's apparent failure to serve the judgment creditors with its intervention motion and to present evidence of service on the property owner was not fatal to its motion.*fn5 As Cherrystone points out, the judgment creditors were not negatively impacted by their lack of notice of these proceedings as their interests are preserved if the sale is approved, while their liens are wiped out by the tax sale foreclosure. On remand, the court should require service on the property owner. We leave to the discretion of the trial court as to whether to require service on the additional defendants in the foreclosure action.

As the Corestates analysis pervaded the court's review of Cherrystone's intervention motion and consideration of the proofs required, we reverse and remand this matter to the trial court for further proceedings to determine whether the $50,000 purchase price offered by Cherrystone constitutes more than nominal consideration within the Cronecker parameters. The court shall receive such additional evidence as it deems appropriate to determine the issue. In the interim, the court shall enter an order vacating the foreclosure judgment that was improvidently entered after the filing of Cherrystone's motion to intervene and stay.

Reversed and remanded.

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