August 29, 2008
AMERICAN TAX FUNDING, LLC, PLAINTIFF-APPELLANT,
JOHN M. GOLASZEWSKI, MRS. JOHN M. GOLASZEWSKI, WIFE OF JOHN M. GOLASZEWSKI, HELEN PRZYBYLOWSKI, DAVID DORFFMAN, ANITA DORFFMAN, GLADIATOR INVESTMENT PARTNERSHIPS-2, LLC, FIRST NATIONAL ACCEPTANCE CO., LLC, JOHN P. BRUNING, BAXTER GROUP, INC., RARITAN BAY MEDICAL CENTER, DENISE GRABOWSKI, AND THE STATE OF NEW JERSEY, DEFENDANTS, AND CHERRYSTONE BAY, LLC, DEFENDANT/INTERVENOR-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. F-13291-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 21, 2008
Before Judges Graves and Sabatino.
Plaintiff American Tax Funding, LLC (plaintiff or ATF), appeals from an order entered on September 12, 2007, granting defendant Cherrystone Bay, LLC (defendant or Cherrystone) intervenor status and permitting it to redeem plaintiff's tax lien on property previously owned by John M. Golaszewski located at 26 Embroidery Street in Sayreville (the property or subject property). We affirm.
The property involved in this case was the subject of two separate tax liens acquired by third parties through the sale of tax certificates. The first tax sale certificate was purchased on July 2, 1996, and ultimately assigned to Gladiator Investment Partnership-2, LLC (Gladiator) on May 10, 2003. The second tax sale certificate was purchased by ATF at a public tax sale on November 27, 2001. In addition, the property was also subject to a mortgage held by David and Anita Dorffman (the Dorffman Mortgage).
At a date undisclosed in the record, Gladiator filed a tax sale certificate foreclosure action (F-4849-01) based upon outstanding taxes due on the property.*fn1 Similarly, on August 30, 2005, ATF filed a complaint to foreclose on its tax sale certificate (F-13291-05). Prior to the close of litigation in Gladiator's tax foreclosure action, Cherrystone negotiated with David Dorffman--a certified public accountant--to purchase the Dorffman Mortgage for $40,000. The Dorffman Mortgage was assigned to Cherrystone on August 21, 2006, apparently prior to final judgment in Gladiator's tax foreclosure proceeding. After acquiring the Dorffman Mortgage, Cherrystone moved to intervene in Gladiator's tax foreclosure action and to redeem Gladiator's tax lien. The trial court concluded the $40,000 Cherrystone paid to acquire the Dorffman Mortgage exceeded nominal consideration and, on October 10, 2006, it granted Cherrystone's motion to intervene and "to redeem the tax sale certificate of [Gladiator] . . . by paying to the tax collector of the Borough of Sayreville the sum of $59,798.15, which includes previously awarded counsel fees in the amount of $1,227.40."
Rather then redeem the tax lien from Gladiator, Cherrystone purchased an assignment of the tax sale certificate from Gladiator for a total of $79,798.15--the redemption value of the tax sale certificate ($59,798.15), plus a $20,000 premium. The assignment was recorded on October 23, 2006, giving Cherrystone two interests in the subject property--a mortgage and a tax lien. Thereafter, Cherrystone substituted its name for Gladiator as plaintiff in the F-4849-01 tax sale foreclosure action, and it moved for final judgment.
On November 14, 2006, an order was entered in ATF's foreclosure action declaring "the amount required to redeem the premises from [ATF's] Tax Sale Certificate is $54,724.95, which amount includes subsequent taxes, interest, together with lawful interest on said sum from March 30, 2006, together with costs of suit to be taxed in the sum of $335.00." The order also designated December 29, 2006, as the last day for redemption of the property.
At the time ATF filed its foreclosure complaint on August 30, 2005, Cherrystone held neither a mortgage interest (which it acquired from Dorffman on August 21, 2006) nor a tax lien interest (which was acquired from Gladiator and recorded October 23, 2006). Accordingly, Cherrystone was not a named defendant in ATF's foreclosure action. On December 27, 2006, therefore, Cherrystone filed a "Notice of Motion to Stay the Entry of Final Judgment, to be Granted Intervenor Status and to be Permitted to Redeem" in ATF's foreclosure action. Subsequently, on January 5, 2007, final judgment was entered in favor of Cherrystone in the F-4849-01 foreclosure case (the action initially instituted by Gladiator), and Cherrystone was "vested with an absolute and indefeasible estate of inheritance in fee simple to the [subject property]."
Oral argument on Cherrystone's motion to intervene and redeem in ATF's foreclosure action was held on February 2, 2007, and the trial court reserved its decision to afford the parties an opportunity to submit briefs in light of Simon v. Cronecker, 189 N.J. 304 (2007) and Simon v. Rando, 189 N.J. 339 (2007), which were decided on January 29, 2007. In a written decision dated August 14, 2007, the trial court granted Cherrystone's motion to intervene and redeem ATF's tax lien. The court's findings and conclusions included the following:
[C]herrystone undeniably holds and owns two redeemable interests under N.J.S.A. 54:5-54 and so they should be allowed to intervene in this foreclosure matter. N.J.S.A. 54:5-54 provides:
Right of redemption by owner or person having interest
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, assessment for benefits pursuant to [N.J.S.A.] 54:5-7 or other municipal charges, may redeem it at any time until the right to redeem has been cut off . . . by paying to the collector . . . of delinquent taxes on lands of the municipality where the land is situate . . . the amount required for redemption . . . .
First, Cherrystone has a redeemable mortgage interest purchased for value which this [c]court has found to have been above "nominal consideration" in the F-4849-01 litigation. . . .
Cherrystone also holds and owns a redeemable tax lien which was purchased for $20,000 in excess of 100% of its value. This is a redeemable interest which was above "nominal value" under the recent N.J. Supreme Court decisions interpreting N.J.S.A. 54:5-89.1, which states:
Effect of judgment on unrecorded interests; application by person recording interest to be made party
In any action to foreclose the right of redemption in any property sold for unpaid taxes or other municipal liens, all persons claiming an interest in or an encumbrance or lien upon such property . . . may apply to be made a party to such action. No person, however, shall be admitted as a party to such action, nor shall he have the right to redeem the lands from the tax sale whenever it shall appear that he has acquired such interest in the lands for a nominal consideration after the filing of the complaint . . . .
In the interest of keeping with the statute's plain meaning, the [C]court in Cronecker adopted an "under-all-the-circumstances approach that will keep the focus on the benefit to the property owner facing forfeiture of his land," in determining whether an interest in land was obtained for nominal consideration. 189 N.J. at 334-35. . . .
Here, Cherrystone [paid] the total value of the tax lien interest PLUS $20,000. This is consideration which is not insubstantial considering all the circumstances. Indeed, this is meaningful monetary relief to a property owner--that owner being Gladiator, the owner of the tax sale certificate assigned to Cherrystone. Rando made clear that the property owners taken into consideration included the owners of liens on property; as such liens are "interests in land pursuant to N.J.S.A. 54:5-89.1.["]
However, neither Cronecker no[r] Rando made clear whether or not additional landowners should be taken into consideration in the "under-all-the-circumstances" test. Had this property gone to sheriff's sale by foreclosure of the mortgage, it has been estimated by [p]laintiff and uncontested by Cherrystone that Golaszewski stood to receive $200,000 equity in the subject property after payment of all know liens. However, a loss of substantial equity for property owners is a common result of tax foreclosures.
In consideration of all the circumstances, including that a [c]court should rightly be reluctant to strike-down a third-party financing arrangement that will provide some meaningful monetary relief to a property owner, under Cronecker and Rando, Cherrystone has acquired a redeemable interest in their tax lien for more than nominal consideration. For the reasons aforementioned, the mortgage purchased by Cherrystone is also a redeemable interest.
Cherrystone's motion to stay the entry of final judgment in this litigation, [to] be permitted to intervene and allowed to redeem the [p]laintiff's tax lien is hereby GRANTED and the cross-motion to enter final judgment is DENIED.
An order memorializing the court's decision was entered on September 12, 2007. On appeal, plaintiff presents the following arguments:
THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE CHERRYSTONE'S ACTIONS VIOLATE PUBLIC POLICY.
THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE CHERRYSTONE'S ACTIONS WERE VIOLATIVE OF THE COURT'S HOLDING IN SIMON V. CRONECKER AND WATTLES V. PLOTTS.
THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE ONE CANNOT OWN BOTH A MORTGAGE AND PURCHASE AN ASSIGNMENT OF A MUNICIPAL TAX LIEN ON THE SAME PROPERTY.
After reviewing these arguments in light of the record and the applicable law, we conclude they do not warrant extended discussion. R. 2:11-3(e)(1)(E). We therefore affirm substantially for the reasons stated by Judge Francis in his well-reasoned fifteen-page written decision, with only the following comments.
In Cronecker, supra, 189 N.J. at 311, the Court held "the Tax Sale Law [N.J.S.A. 54:5-1 to -137] 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." Furthermore, in determining whether consideration is "more than nominal," the Court adopted an "under-all-the-circumstances approach," which permits the trial court to consider a number of factors, including the amount paid to the property owner compared to the property's fair market value, any windfall profit realized by a third-party, and the existence of financing arrangements, which should be struck down reluctantly. Id. at 334-35. Ultimately, "more than nominal consideration under N.J.S.A. 54:5-89.1 means consideration that is not insubstantial under all the circumstances; it is an amount, given the nature of the transaction, that is not unconscionable." Id. at 335.
Moreover, the Court in Cronecker concluded redemption of a tax sale certificate by a third-party investor did not offend the Tax Sale Act or our State's public policy. Id. at 328. The Court determined "[t]he purpose of N.J.S.A. 54:5-89.1 is not to bar third-party investors from helping property owners . . . but rather to ensure that the third-party investors do not exploit vulnerable owners by offering only nominal consideration for their property interests." Ibid. The Court recognized that tax sale certificate purchasers "should have . . . no false expectation that their purchases of tax certificates [are] guaranteed to end in foreclosure of the properties." Id. at 316. It also noted that even when a tax certificate is redeemed, the "holder is entitled to reimbursement for all taxes and assessments paid on the property, as well as accrued interest and related costs." Id. at 319.
In Rando, supra, 189 N.J. at 344, the Court extended the principles announced in Cronecker to third-party investors purchasing prior tax sale certificates after the holders of subsequently purchased tax certificates institute foreclosure proceedings. The Court noted: "Tax certificate holders . . . who want to foreclose on their certificates and acquire title to the property without fear of intermeddling . . . can simply offer to purchase the interests of the prior tax certificate holders first." Ibid.
Applying Cronecker and Rando to the present matter, we conclude Cherrystone intervened timely in ATF's foreclosure proceeding and possessed a redeemable interest in the subject property, which it obtained by paying more than nominal consideration. First, ATF does not dispute that Cherrystone filed its motion to intervene on December 27, 2006--two days prior to the expiration of the redemption period as established by the court's order dated November 14, 2006. Moreover, as determined by the trial court in the F-4849-01 foreclosure action and demonstrated by the certification and supporting documentation of David Dorffman, the $40,000 Cherrystone paid to purchase the Dorffman Mortgage was more than nominal consideration. Similarly, the $20,000 premium Cherrystone paid Gladiator above the $59,798.15 face value of its tax sale certificate was also more than nominal consideration. Thus, as a "holder of [a] prior outstanding tax lien certificate, [or] mortgage," N.J.S.A. 54:5-54, who "acquired such interest in the lands for [more than] a nominal consideration," N.J.S.A. 54:5-89.1, Cherrystone was properly allowed to intervene and redeem ATF's tax sale certificate.
Finally, we briefly address ATF's contention that Cherrystone "cannot own both a mortgage and purchase an assignment of a municipal tax lien on the same property." First, we note the relevance of ATF's argument to its position on appeal is minimal at best. Even if Cherrystone's tax lien was merged with its mortgage, Cherrystone would still have a viable mortgage interest under N.J.S.A. 54:5-54 permitting it to redeem ATF's tax sale certificate. Additionally, to the extent Cherrystone's decision to foreclose on the tax lien rather than foreclose the mortgage affected Golaszewski's equity in the property, it is he, not ATF, who had standing to seek relief from the court.