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Kanter v. Szczepanik

April 4, 2008


On appeal from the Superior Court of New Jersey, Bergen County, Chancery Division, Docket No. F-20107-05.

Per curiam.


Argued: March 5, 2008

Before Judges Axelrad and Sapp-Peterson.

This is an appeal by a third-party investor, Cherrystone Bay, LLC, from an order denying its motion to stay entry of the final judgment in the tax sale certificate foreclosure initiated by plaintiff, Kenneth Kanter, and to intervene and redeem; and denial of its motion for reconsideration. 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 further proceedings.

Plaintiff is the assignee of a tax sale certificate sold by the City of Garfield in November 2003 for unpaid municipal taxes against the property located at l3 Franklin Avenue, whose record owners were Karol and Maria Szcepanik. Maria died around l992-l993 and Karol died intestate in l997. The property apparently has been vacant since 1997.

On December 3, 2005, plaintiff filed a tax foreclosure action. In an amended complaint, plaintiff named the Szcepanik's five children: Dorota, Jolanta, Edward, and Marian, who were served in New Jersey, and Zofia, who was served in Poland. On August 1, 2006, an order setting the amount, time and place for redemption was entered. The redemption amount was set at $21,374.35, together with taxed costs of $420.12. The redemption date was September l8, 2006.

On September 11, 2006, Cherrystone contracted with "Jolanta Szcz[e]panik, individually and as proposed administratrix of the estate of Karol and Maria Szczepanik" to purchase the property for $80,000, of which $30,000 was earmarked as redemption funds. Jolanta's sister Dorota witnessed the contract. Closing was scheduled within fifteen days after entry of a court order granting buyer's intervention and permitting the redemption. On September l4, Cherrystone recorded the contract and filed a motion to stay entry of final judgment of foreclosure, to obtain the court's approval to intervene, and consummate the sale and redeem at the closing. Jolanta filed a cross-motion seeking the same relief.

Plaintiff filed a cross-motion to enter final judgment. Plaintiff argued Cherrystone's motion was untimely; the public policy against heir-hunting prevented the court from allowing intervention and redemption; Cherrystone had no standing to move to intervene as it did not have a recorded interest as required by N.J.S.A. 54:5-89.1; a contract purchaser had no right to redeem under N.J.S.A. 54:5-54; the contract was not with a person in authority; and Cherrystone stood to make a windfall under the Corestates v. Schaefer*fn1 analysis. Cherrystone argued it had a right to intervene because it possessed a contract interest in the property; it timely filed the motion prior to final judgment; and it offered a fair price for the distressed property, which the heirs had been attempting to sell unsuccessfully, and would produce significant proceeds after paying off the approximately $25,000 tax sale certificate. Cherrystone additionally contended Jolanta was a proper party to contract with as she had "put the wheels in motion to be appointed" as Administratrix and, in her individual capacity, owned at least twenty percent of the property.

By written decision and order of November 20, 2006, the court denied Cherrystone's and Jolanta's motions, finding that as a contract purchaser without a recorded interest, Cherrystone only had an equitable interest and no legal interest in the property, and thus it did not have a right of redemption under the statute or case law. The court granted plaintiff's cross-motion to enter final judgment as an uncontested foreclosure. When Cherrystone pointed out on its motion for reconsideration, joined by Jolanta, that it had a recorded contract of sale, the court found that fact did not "tip the balance" and denied the motion by order by January 19, 2007. This appeal ensued.

In Cronecker, supra, the Court rejected the heir-hunting public policy argument advanced by plaintiff to the trial court. The Court held "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." 189 N.J. at 311. See also 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 that investor to intervene in the foreclosure action before attempting to redeem the certificate at the tax collector's office); Malinowski, supra, 189 N.J. at 351 (determining the principles set forth in Cronecker would apply retroactively).

The Court explained the reason for a third-party investor's obligation to intervene after the filing of the foreclosure complaint as follows:

[T]he Tax Sale Law places no restrictions on how a third-party investor arranges for the purchase of property and the redemption of a tax certificate in the pre-foreclosure complaint stage. N.J.S.A. 54:5-54; see Cherokee Equities v. Garaventa, 382 N.J. Super. 201, 209, 887 A.2d 1203 (Ch. Div. 2005), appeal dismissed per stipulation, 186 N.J. 598, 897 A.2d 1055 (2006). A property owner may finance the redemption from any source and sell his interest for any amount to any person.

After the filing of the foreclosure complaint, however, both the property's sale and the redemption procedure are subject to court supervision, primarily to protect property owners from exploitation by third-party investors. N.J.S.A. 54:5-89.1, -98; see Cherokee Equities, supra, 382 N.J. Super. at 209, 887 A.2d 1203. The Act recognizes that a property owner who has not redeemed a tax certificate by the time a foreclosure action has commenced is likely in desperate financial circumstances and therefore vulnerable to the manipulation of overbearing speculators. To facilitate judicial review of the adequacy of the consideration offered to the owner, the Act requires that third-party investors who seek either directly or indirectly to acquire the property and redeem the tax sale certificate ...

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