April 4, 2008
KENNETH KANTER, PLAINTIFF-RESPONDENT,
KAROL SZCZEPANIK, HIS HEIRS, DEVISEES, PERSONAL REPRESENTATIVES AND THEIR OR ANY OF THEIR SUCCESSORS IN RIGHT, TITLE AND INTEREST; DORATA SZCZEPANIK; AND THE STATE OF NEW JERSEY, DEFENDANTS. CHERRYSTONE BAY, LLC, INTERVENOR-APPELLANT.
On appeal from the Superior Court of New Jersey, Bergen County, Chancery Division, Docket No. F-20107-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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, 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 intervene in the foreclosure action. See Simon v. Rando, 374 N.J. Super. 147, 154, 863 A.2d 1078 (App. Div. 2005), aff'd, 189 N.J. 339, 915 A.2d 509, 2007 WL 208515 (2007). [Cronecker, supra, 189 N.J. at 320.]
The Court held contract purchasers not only have standing to intervene, but are mandated to intervene and seek judicial review before they can consummate a sale where redemption of a tax lien is paid, stating:
Both the applicable statutes and court rule clearly require that after the filing of a foreclosure action, a person seeking to redeem a tax certificate must be a party to that action.
N.J.S.A. 54:5-98 provides that "[a]fter the complaint has been filed redemption shall be made in that cause only, provided notice of the suit has been filed in the office of the tax collector." (emphasis added); see also R. 4:64-6(b) ("In [tax sale certificate foreclosure] actions redemption shall be made in the action only, provided notice of the action has been filed in the tax collector's office."). In the post-foreclosure complaint stage, the requirement that a person, directly or indirectly, seeking to redeem a tax certificate "be admitted as a party to such action" permits judicial oversight of the adequacy of consideration offered for the property interest. N.J.S.A. 54:5-89.1; see Rando, supra, 374 N.J. Super. at 155, 863 A.2d 1078.
By forbidding an interested investor, who is not a party to the foreclosure action from "indirectly" seeking redemption, we intend to interdict the myriad machinations that a creative mind might devise to elude the Tax Sale Law. For example, a third-party investor who does not intervene in the action, but who enters into a contract to purchase the subject property, fronts the funds necessary to redeem a tax certificate, and schedules the closing for after the redemption date violates N.J.S.A. 54:5-89.1. Because the investor upon entering into a contractual arrangement has an equitable interest in the property, he must intervene in the foreclosure action to allow a judicial determination that more than nominal consideration was paid for the property. See Feighner v. Sauter, 259 N.J. Super. 583, 592, 614 A.2d 1071 (App. Div. 1992) (noting that "upon execution of contract of sale, an equitable transfer occurs").
[Id. at 335-36.]
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." Id. at 336. 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.]
Thus the law now requires a contract purchaser who seeks to buy a property in tax foreclosure to file an intervention motion before the sale and redemption since they are deemed the "indirect" redeeming party who must be admitted "to the cause":
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.]
Cherrystone argues on appeal that Cronecker rejected all of the arguments plaintiff made to the motion judge. Specifically, it contends: (1) its motion to intervene was filed prior to final judgment and was therefore timely; (2) as a contract purchaser it has standing to intervene and, in fact, is required to do so; (3) the law permits buyers to solicit owners and purchase their properties for more than "nominal consideration"; and (4) the Corestates windfall profits test has been expressly rejected in favor of the flexible Cronecker nominal consideration analysis. Appellant seeks reversal of the trial court's ruling denying it standing to intervene. It further argues its $80,000 purchase price exceeds nominal consideration as it will yield a net gain of approximately $59,000 to the owner after satisfaction of plaintiff's tax lien, and urges us to exercise original jurisdiction, R. 2:10-5, and grant its motion to consummate the sale and redeem at the closing. Alternatively, appellant seeks a reversal and remand. The property owner urges us to exercise original jurisdiction as to the nominal consideration issue.
Plaintiff responded in its brief that Cherrystone's application to redeem was untimely because it was filed "at the last minute," i.e., four days before the last day to redeem and not returnable until thirty days after the last day to redeem, although this ground was not advanced at oral argument. At oral argument plaintiff's counsel asserted two grounds for affirming the trial court's denial of standing to Cherrystone, which he contends withstands the Cronecker decision. Plaintiff challenges the enforceability of the contract, contending Jolanta did not have the legal authority as she had not been appointed Administratrix prior to entering into the contract with Cherrystone. Alternatively, Plaintiff argues 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. He contends 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). Plaintiff urges that if we reject either of his standing arguments, we remand for further proceedings for the trial court to perform a nominal consideration analysis under Cronecker.
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 interests 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 proceeding." See Cronecker, supra, 189 N.J. 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. "[W]e 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). In view of the Court's broad statement of law, it would be illogical to conclude that the Croneker holding is limited to that specific fact pattern.
We are satisfied Cronecker mandates a contract purchaser to intervene in a foreclosure action and seek judicial review before it consummates a sale where redemption of a tax lien is paid. Such third-party investor with an equitable interest in the property clearly has an interest in the property as required for intervention under the court rules, R. 4:33-1 and R. 4:33-2, and the intervention provision of the Tax Sale Law, N.J.S.A. 54:5-89.1. This holding 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 sale certificates, such as N.J.S.A. 54:5-98 and N.J.S.A. 54:5-89.1, provide separate rules for redemption during the pendency of a foreclosure action, aff'd, 189 N.J. 339 (2007).
We are satisfied Cronecker conferred standing on Cherrystone and, in fact, mandated the action it took in this case. As a contract purchaser, Cherrystone was required to move to intervene in plaintiff's foreclosure action so the court could review whether the proposed purchase was for more than nominal consideration. Moreover, Cherrystone timely filed its application prior to the entry of the final judgment. 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).
We need not address the issues raised by plaintiff as to whether Jolanta had the authority to bind the other heirs as the "proposed administratix." Suffice it to say that as an heir with at least a twenty-percent interest in the property, she has the right to redeem and to enter into a contract to sell her interest. We further note Jolanta sought to have the contract upheld and enforced at all stages of the proceeding.
We thus reverse the trial court's ruling that Cherrystone had no standing to intervene. We decline to exercise original jurisdiction and remand to the trial court for further proceedings to determine whether the $80,000 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 this issue.
Reversed and remanded.