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

April 4, 2008

STRATEGIC MUNICIPAL INVESTMENTS, L.L.C., C/O CRUSADER SERVICING INC., AS CUSTODIAN, PLAINTIFF-RESPONDENT,
v.
WALTER G. DZIEDZIC, A/K/A WALTER G. DZIEDZIC, JR., INDIVIDUALLY AND AS EXECUTOR OF THE LAST WILL AND TESTAMENT OF FLORENCE DZIEDZIC, DECEASED; MRS. WALTER G. DZIEDZIC, A/K/A MRS. WALTER G. DZIEDZIC, JR.; STATE OF NEW JERSEY; CHERYL A. DZIEDZIC; JOSEPH KIELTY AND MRS. JOSEPH KIELTY, HIS WIFE, DEFENDANTS. CHERRYSTONE BAY, LLC, INTERVENOR-APPELLANT.*FN1



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

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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 ...


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