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Wachovia Bank v. Mondul

January 5, 2009

WACHOVIA BANK, AS CUSTODIAN FOR PHOENIX FUNDING, INC., PLAINTIFF-RESPONDENT,
v.
ALBERT MONDUL, JR.; MRS. ALBERT MONDUL, JR., WIFE OF ALBERT MONDUL, JR.; FRED BENNETT, JR., HIS HEIRS, DEVISEES AND PERSONAL REPRESENTATIVES AND HIS, HERS, THEIR OR ANY OF THEIR SUCCESSORS IN RIGHT, TITLE AND INTEREST; HOSPITAL & DOCTORS SERVICE BUREAU; DIV-TRIV, L.L.C.; OVERLOOK HOSPITAL; AND THE STATE OF NEW JERSEY, DEFENDANTS.
CHERRYSTONE BAY, L.L.C., APPELLANT.



On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, F-8467-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 15, 2008

Before Judges Lisa and Reisner.

In this tax foreclosure case, Cherrystone Bay, L.L.C. appeals from a trial court order dated July 16, 2007, denying its motion to intervene and granting Phoenix Funding, Inc.'s motion to bar redemption as well as imposing a constructive trust on the property at issue. Relying on Malinowski v. Jacobs, 189 N.J. 345 (2007), Judge Klein issued an oral opinion on June 29, 2007, concluding that without having first filed a motion to intervene in the foreclosure action, Cherrystone could not lawfully purchase the property and redeem it from foreclosure. We agree and affirm.

These are the most pertinent facts. Phoenix Funding, a company that invests in tax sale certificates "primarily for the opportunity to acquire fee title" to the underlying real estate, purchased a tax sale certificate on 79-81 Chelsea Avenue, Newark. The property was owned by Albert Mondul, Jr. When the certificate was not redeemed, Phoenix filed a tax sale foreclosure complaint on May 12, 2006.

On May 15, 2006, Cherrystone, a company in the business of "buying distressed properties . . . and then selling them for profit," bought the property from Mondul for $85,000. The sale required Mondul to pay off all outstanding liens on the property, leaving him with a net profit of approximately $36,000. According to a certification from Cherrystone's president Michael Bonner: "Cherrystone became aware of plaintiff's [Phoenix's] foreclosure against the property through searching the public records and documents. Plaintiff was represented in the foreclosure by Robert A. DelVecchio, Esq."

Therefore, Cherrystone was well aware that Phoenix had an interest in the property and was pursuing foreclosure.*fn1 Instead of moving to intervene in the foreclosure action, Cherrystone closed on the property and sought to redeem the tax lien in the name of "Fred Bennett, Jr." However, payment was made via a check drawn on the trust account of Cherrystone's attorney, Darren D. Pinto.

Phoenix learned of the attempted redemption and, recognizing Pinto as an attorney who regularly represented Cherrystone, investigated the transaction and then filed a motion to bar Cherrystone from redeeming the property.

Cherrystone filed a cross-motion to intervene in the taX foreclosure action, affirm the redemption and discharge the tax lien. The trial judge initially entered an order providing for discovery on the issue of the property's value, aimed at determining whether Cherrystone had purchased the property for nominal value. See N.J.S.A. 54:5-89.1. However, at the parties' request, the trial judge stayed her decision of the motions until the Supreme Court decided three pertinent taX foreclosure cases, all involving Cherrystone: 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). She also stayed her decision until the Court denied Cherrystone's motion for reconsideration.

In Simon v. Cronecker, the Court addressed the long- simmering feud between tax certificate purchasers such as Phoenix and third parties such as Cherrystone, and held that for the benefit of the distressed property owners, a third party may redeem a tax sale certificate in foreclosure. However, the Court held that a third-party investor seeking to redeem must intervene in the tax foreclosure action before buying the foreclosed property.

These cases illustrate that competition in the marketplace can yield considerable social good. Here, in pursuing their self-interests to maximize profits, the tax sale certificate holders and third-party investor also produce important societal benefits--the certificate holder puts property back on the tax rolls and the third-party investor helps a property owner salvage a piece of his equity. We do not read the Tax Sale Law, N.J.S.A. 54:5-1 to -137, to discourage commercial competition that is likely to benefit a financially-strapped property owner, and we will not interfere with salutary market forces for the purpose of impoverishing him.

In balancing the conflicting interests in these cases, we now hold 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. However, because the third-party investor here did not intervene in the foreclosure actions before arranging for redemption of the tax certificates, the investor will not be permitted to profit from the transactions. To protect defendants' interests, we ...


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